An Outsell Insights report from Outsell Affiliate, Frank Gilbane…

GE has announced a $1 billion investment in software development to provide big data services to industrial clients. Will they go beyond their client base?

Important Details: General Electric has announced that it is investing $1 billion in a new global software headquarters outside San Francisco which will house around 400 newly-hired software developers.

GE already has a $2.5 billion software business and approximately 5,000 software engineers, and its software business has grown as software has continued to play an ever-larger role in automating and connecting industrial machines, especially big and complex items like jet engines, trains, and medical devices. The more complex the product, the more software required. And this is mostly specialized software so it is expensive and requires years, sometimes decades of, no-doubt, high-margin service contracts.

GE, like other manufacturers of large industrial systems, has also always created and managed huge data sets. A jet engine isn’t complete without vast amounts of engineering, technical support and logistics data in multiple types of documents and databases. Sometimes this information is sold as is with the product, but it is often maintained by GE as a service for clients. Increasingly, embedded chips and software spew out streams of additional real-time information. This puts GE in the position of being able to collect and analyze data about how its products are being used, sometimes including what data is being gathered, how users are behaving, and how successful engineering change orders are in different circumstances. GE may also be able to collect peripheral data which could be valuable for informing future designs, or recipes for alloys.

GE talks about “smart grids” and the “industrial internet”, which is simply an industrial-strength “internet of things”. It has expertise in both software and data, and sees opportunity in leveraging this combination to compete in both existing and new markets as the need for big data analytics spreads. GE will need to compete with traditional competitors like Siemens, but also with software companies like IBM. While IBM may know more about software, it won’t know as much about jet engines, so there is a competitive advantage for GE.

Implications: It is interesting that the Financial Times reported the announcement as a big data play, while the Wall Street Journal described it as a software announcement. Both are true, but the different focus illustrates one area of market confusion on just what big data is. As we mentioned in our August 2011 report Big Data: Big Deal or Just Big Buzz?, there is no official definition for big data, but the characteristic that has the most consensus is data that is too big to be managed by traditional database technology. Big data then is typically defined by the technology used to manage, process and analyze it. Outsell adds the requirement that the result allows for “emergent information”, information that wasn’t available or accessible previously. GE is as capable of gleaning new information from large complex data sets as anyone, and since it controls much of it, has an advantage. GE doesn’t talk about the database technology it is using, and why should it? While the most well known big data commercial offerings are based on Hadoop, there is no requirement to either use it or talk about it.

GE is in the position of already either owning or managing huge data sets for industry and government customers, and owning software to manage and analyze the data. This provides a clear opportunity to provide additional highly-profitable data services to its client base, and the possibility to sell information products beyond the customer base. GE Energy already provides data, and an obvious question is whether/how much GE will go beyond selling data and services to customers of its industrial systems. Will it start selling data that is not core to its competitiveness? Why not?

Outsell believes that big data services are an opportunity for information providers, and for some should even be a core competence. The GE announcement is instructive as a reminder that other industries will be adding the capability to deliver information products and services, and that the information industry is continuing to change.