Why GE is betting on softwareApril 25, 2013: 6:46 AM ET
GE is putting $105 million into Pivotal, a software firm, to boost its services margins.
FORTUNE -- Earlier this week, General Electric (GE) announced it is investing $105 million in a new platform-as-a-service provider called Pivotal, a spinoff of EMC (EMC) and VMware (VMW). Why? GE's future at least partly relies on its ability to keep churning out software and services to support the increasingly smart machines it sells. With Pivotal, GE hopes it will have a better way to quickly build and deploy big data business applications for its customers.
"It's well known that a lot of our profits come out of the services that support our machines," says Bill Ruh, VP and corporate officer of GE's Global Software Center. "Machines are getting smarter, and our customers are demanding greater productivity for their machines and their people."
Indeed, GE's services group already brings in roughly $45 billion in revenue. According to Ruh, the company will use Pivotal's technologies as a standard source for delivering data analytics and cloud architecture in the future. From aviation to health care, the company's customers are now collecting unprecedented amounts of data, due to a growing number of intelligent, sensor-equipped machines -- what GE calls the "industrial Internet." These terabytes of data could enable customers to better manage their machines, utilizing less fuel and optimizing maintenance and operations -- that is, of course, if they have the right apps to quickly crunch the numbers and spew out actionable insights. That's where GE comes in.
"We're taking a lesson from the consumer side of the internet -- the Googles, Facebooks and the Amazons," says Ruh. "These businesses figured out how to manage large volumes of information and utilize it to provide new kinds of services."
It's no secret that GE is making a big push in software. Last year the company opened a facility dedicated to software development in San Ramon, Calif. -- not far from the heart of Silicon Valley. Ruh says the Bay Area office now employs about 425 people, all working on "next-generation service offerings." And GE chief executive officer Jeff Immelt recently announced he will invest $1 billion in developing applications that combine machine diagnostics and analytics. The company says these new software tools have the potential to cut $150 billion in waste across major industries like energy and transportation (equipping an airplane with sensors and smart software, for example, could cut down on unnecessary maintenance). GE plans to launch 20 new industrial Internet service technologies in 2013.
The company's $105 million investment gives it a 10% stake in Pivotal, which is headed by the former CEO of VMware, Paul Maritz. Maritz says Pivotal will be cloud-independent, meaning the new development platform can sit on top of cloud offerings from Amazon (AMZN), Microsoft (MSFT), and, of course, VMware. It can also let companies run business apps on their own servers.
It's an ambitious goal, becoming a "new platform for a new era," as Maritz referred to the company's mission. It's also, in all likelihood, still years away from proving itself -- Pivotal won't release its first product until late 2013. But the company certainly has some impressive backers. "We think Pivotal will be an important partner," Ruh said at Pivotal's coming-out event in San Francisco earlier this week. "This is the platform for us to do these next-generation, data driven applications." Will GE be able to churn out applications as fast as Google (GOOG) and Facebook (FB), with a little help from Pivotal? Who knows. At least they're putting their money -- $105 million, to be exact -- where their mouth is.