GE reinvents itself as a software start-up6 min read . Updated: 01 Oct 2013, 03:19 PM IST
If IBM and its Indian rivals are only looking at each other as competition, they may have to look again
Bangalore: If the world’s biggest software services firms, including International Business Machines Corp. (IBM) and its Indian rivals, are only looking at each other as competition, they may have to look again—and not because of a new start-up in Silicon Valley with a disruptive algorithm, but a customer they have worked with for decades.
General Electric Co. (GE), one of the oldest and among the largest customers for India’s $108 billion information technology (IT) industry, is now selling next-generation software platforms for airlines and power firms in a shift that underscores how consumers of software are increasingly evolving into the IT world’s biggest innovators.
And so, the next-generation software services firm is not taking shape inside labs of one of the IT world’s biggest names, or in a garage in Silicon Valley, but inside a 121-year-old company that makes everything from aircraft engines to diesel locomotives.
By GE’s logic, back office projects, software development and software maintenance work will still be carried out by Tata Consultancy Services Ltd (TCS), IBM, Wipro Ltd and other such companies.
Its focus is on software built around its products that helps its customers create new revenue streams and also become more efficient. And key to this is Big Data and analytics, two of today’s buzz words in the technology business. GE has around 250,000 turbines, locomotives, medical equipment and other machines installed globally, and generating terabytes of data that can be analyzed to offer niche services for improving efficiency and identifying the next big opportunities for customers.
Ruh is a relative newbie at GE; he moved from Cisco Systems Inc. in 2011. He wasn’t convinced GE was the place for him till he met chairman and chief executive officer Jeff Immelt and learnt about the company’s plans to combine its big industrial machines with data and connectivity.
“I remember sitting there and Jeff asking me at the end of the interview—are you going to take this up, I plan to invest $1 billion in four years? And that’s what changed my mind," said Ruh.
Already, by combining the latest tech solutions such as big data with almost everything it sells, GE is offering dozens of software platforms to its customers across sectors. According to an article in Barron’s magazine on 21 September, GE already earns $4 billion from selling software.
At the core of GE’s initiative is a trend that has been manifesting itself across products from tablet computers to cameras to cars, even to turbines—using software to increase efficiency.
For instance, GE has around 12,000 gas turbines installed in the world and, just 1% fuel savings in these installations over 15 years can be a $66 billion opportunity, Ruh explained.
By December, GE would have launched some 30 such software platforms that offer services to customers across industries. Airlines can tap into the insights captured by hundreds of GE sensors and reduce fuel costs, plan their maintenance more efficiently, even manage the speed of their aircraft during trips depending upon topography and wind conditions.
Technology research firm Gartner Inc. describes GE’s effort as a growing trend among so-called operational technology (OT) firms, a new breed of vendors from outside the software industry with deep expertise in how different sectors work.
“Large IT service vendors (for example, Accenture, Capgemini, IBM and TCS) mostly work on IT projects and support IT departments. Most OT service vendors are very specialized, and there are no large ones. They usually focus on specific industries and even specific process expertise, and they don’t have deep or extensive IT strength. However, recently, we have seen some OT service vendors break the mold," said Randy Rhodes, an analyst with Gartner.
“IT providers such as TCS and Wipro have been hiring capabilities and are starting to do hybrid projects, but they lack OT experience. We expect to see more vendors emerging with OT and IT capabilities as the opportunities become larger and better defined," Rhodes added.
And for such firms, the benefits might not be restricted to revenue from software, as GE’s experience shows.
“We recently became number one seller of wind turbines from being about No. 7 or 8 few years ago because, thanks to software, our wind turbines are intelligent system," Ruh said.
The plan, he added, is to do such things on the fly—literally.
On 9 October, Ruh and his team will launch a central Big Data platform for GE that will help its different business units develop intelligent software platforms in a matter of days. The inspiration came from studying how Google Inc. and Facebook use internal systems to generate new ideas and products.
“They (Google and Facebook) are our role models. They can create a new retail platform, other innovations on the fly," said Ruh. “So how can we do that in the industrial world?"
While GE will partner with specialized software vendors, even IT firms such as Accenture Plc. in some cases, it’s a delicate balance to maintain.
“We have deep domain knowledge, and that is the most critical factor to be able to solve these problems, and that’s why these IT vendors will not be able to solve them. They can give you technology, but actual service offerings, they cannot figure out," said Ruh.
Yet, that’s what most want to, Indeed, all IT services firms claim their objective is to build deep industry expertise and shift to a revenue model where payments are linked to business outcomes.
“We make our money selling outcomes; they make money by selling technology. We are not an IT company, we are an OT company," said Ruh.
GE’s partners include Amazon for cloud infrastructure, Pivotal (a spin-off from EMC Corp. and VMware Inc. in which GE recently invested $105 million) for Hadoop-based cloud abstraction and brokering, and Accenture for industry-specific analytic solution delivery, according to Gartner.
For software outsourcing vendors working with GE for years, this shift also means a lost opportunity.
“It’s a lost opportunity for services firms, not so much for enterprise software makers like Oracle or SAP. We should have taken a lead in partnering with GE in some of these innovations," said an executive at a large Indian company that counts GE among its top customers.
For GE, this shift to the industrial Internet, where billions of machines are connected, and are sharing inputs to enable an intelligent global exchange, is a result of the pressure coming from some software vendors.
“Responding to competitive pressure from other global automation software vendors, GE plans to digitalize real-time data streams from GE machines into new offerings by enabling cloud-based predictive analytics and linking its ecosystem of service partners," Gartner analysts Rita L. Sallam, Lisa Kart and Randy Rhodes said in a June report.
“As machine-generated data increases, GE intends to advance its manufacturing and services leadership into software leadership by creating a platform that bridges operational technology sensor data with equipment service history, inspection details and other unstructured data for actionable insights," the analysts said.
What has positioned GE to leverage the software opportunity is the amount of data captured through its machines and sensors.
“If we collect full flight data on GE engines whole day for one plane, it will be a terabyte of data. If we really collect all engine data it will be petabytes of data. That data is the capability to allow newer innovations in efficiency, forecasting. For us, this is the cornerstone," said Ruh. “The value is not in data but in analytics."