Internet of Things Starts With Hot Dogs for Deutsche Telekom

(Bloomberg) -- Forget about self-driving cars: In Germany, the Internet of Things starts with hot dogs.

Certuss Dampfautomaten GmbH, a Krefeld-based maker of steam generators used for anything from cooking sausages to sterilizing medical instruments, used to fly repairmen out to far-flung locations to restart broken-down machinery. Now sensors in the machines send data on 60 items including temperature, steam pressure and flame signal via a SIM card into a cloud operated by Deutsche Telekom AG, flagging potential problems even before they occur.

“The new system helps us reduce downtime for our customers and can cut servicing costs because we can see the problem before having to send someone there,” Certuss Chief Technology Officer Thomas Hamacher said. That improves planning -- service appointments can be scheduled during regular production breaks, for example. “In the long-term, we expect to have to run fewer service missions.”

While gee-whiz gadgets like drones and self-driving cars steal the headlines, Deutsche Telekom is trying to seize the Internet of Things opportunity in industries like construction and health care, hooking machines to the web so they can work more efficiently. The Bonn-based carrier is vying for customers with the likes of Vodafone Group Plc and AT&T Inc., who all bank on an industrial IoT market set to be worth $330 billion by 2020, according to Research and Markets projections.

“It’s a growing market everyone wants to enter, and we want to put our foot down,” said Deutsche Telekom’s Dido Blankenburg, who is responsible for the business that tends to corporate customers like Certuss.

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The Internet of Things, an idea long in gestation, refers to a world of connected devices that goes beyond mobile phones and smartwatches, linking everyday objects to send and receive data.

Companies, benefiting from falling prices of sensors, wireless transmitters and cloud storage, are trying IoT solutions to improve relations with customers, reduce servicing costs, and develop new products and revenue sources. McKinsey & Co. estimates IoT’s potential economic impact on factories will rise to as much as $3.7 trillion a year in 2025, mainly on productivity improvements including as much as 20 percent in energy savings and as much as 25 percent in potential labor efficiency improvement.

“With the ability to monitor machines that are in use at customer sites, makers of industrial equipment can shift from selling capital goods to selling their products as services,” McKinsey wrote in the study released last year.

Deutsche Telekom, which cooperates with Huawei Technologies Co. for its IoT offerings, has won clients including shipping company Deutsche Afrika-Linien, which tracks its containers to ensure they arrive undamaged, as well as makers of forklifts and industrial sewing machines to reduce downtime. It’s also selling an IoT "starter kit" that contains all a company needs to outfit a machine -- including sensors, a SIM card with a data plan and access to the carrier’s cloud.

Early Days

Deutsche Telekom says it can beat rivals to such contracts because it can offer hardware, operation and related telecoms services in one package. Meanwhile, Germany’s so-called Mittelstand -- the small and midsize enterprises that form the backbone of Europe’s biggest economy -- remain wary of handing corporate data to foreign companies.

“We operate under the stringent German data privacy law and if our customer wants his data to remain in Germany, we can guarantee him that,” Blankenburg said. The carrier is expanding its German data center in Biere near Magdeburg to boost cloud capacity there by 150 percent, it said Monday in a statement.

While Deutsche Telekom is strong in Germany, globally there is no one clear IoT leader in connecting machinery and sending data back to customers in real-time. Major wireless providers such as AT&T and Vodafone are also chasing contracts in a market that’s in its early days. Deutsche Telekom also sells access to its cloud services to customers, where it competes with large providers including Amazon.com Inc. and Salesforce.com Inc.

Vying in that market with established cloud providers will be  tough given a fragmented European regulatory framework that lends natural advantage to U.S. players, according to Bloomberg Intelligence analysts Erhan Gurses and Alex Wisch.

For now, the business is still small for Deutsche Telekom. While the carrier doesn’t break out IoT sales, its overall cloud business generated 1.4 billion euros in revenue last year -- about 2 percent of the total. Moreover, it’s still unclear how steep the growth curve will be. Gartner Inc. in November cut its forecast for IoT devices to 20.8 billion by 2020, down from 25 billion a year earlier, with most of them being consumer devices such as smartwatches.

None of that is a concern to Certuss. The 59-year-old company, which generates about 20 million euros in sales and invested about 100,000 euros in the new IoT technology, will in the coming weeks deliver its first steam generator to the U.S., to be used in a brewery. Certuss banks on the new IoT system to alleviate any of far-away clients’ concerns, Hamacher said.

“The Americans are very happy that we will be able to monitor the unit in real time from Germany,” Hamacher said. “This can help us generate more business abroad.”