GE calls it the "industrial Internet." It's about giving machines such as power plant turbines, jet engines, and manufacturing equipment an online connection so they can constantly send back performance information, which is analyzed to automatically alert technicians when there's a problem. GE predicts a multibillion-dollar-a-year business selling software to support this industrial Internet, a business it projects can grow at double-digit rates through 2015.

GE is staking $1 billion on this idea with a new global software center in Silicon Valley, where up to 400 people will build and market software to serve the industrial Internet.

Bill Ruh, a Cisco veteran, joined GE to run the center. Ruh says it took about 10 years for the consumer Internet to evolve, and we're just at the start of another 10-year expansion on the industrial side. "I think this is the next generation of the Internet," he says.

What can you learn from GE's software ambition and its vision for the industrial Internet? As I talked with Ruh, three things stuck out:

1. Silicon Valley's role in software innovation

Why would GE, which could put its software center anywhere in the world, pick one of the most expensive and competitive places to find tech talent? Our 2011 IT Salary Survey ranks the Bay Area as clearly the priciest: $110,000 median pay for an IT staffer, compared with $95,000 in the New York metro region and $84,000 in Detroit. "While it's not the only place, it's the largest concentration of [software development] talent in the world," Ruh says.

GE has a lot of software talent already in its product development and research centers around the world. Many are software specialists focused on an industry such as aerospace or energy. "The thing they don't live and breathe is the innovation and project management in the software industry," says Ruh.

How will GE apply the social media innovation of Twitter and Facebook to an industrial setting? How will it tap the latest thinking at Oracle about big data? Being in Silicon Valley can spur such innovation. "Software isn't a game where you're just trying to reduce costs," Ruh says. "I've seen instances where a team of five produce the same thing as a team of 50 and did it in a better way. You're trying to find the right people, not just people."

[ Want more on IT hiring? Read 8 IT Hiring Strategies of Top CIOs. ]

Most companies won't need to set up their own tech outpost in Silicon Valley, but they do need to stay plugged into the Valley's innovation.

2. The "Internet of things" is getting real

We've talked about this idea for years, but too often it has been cast in space-age consumer terms that weren't wildly compelling. But if software for automated monitoring can keep a power plant running by anticipating breakdowns, that's a powerful business case. This is the kind of software companies will pay for. And they are: GE already has a software business of about $2.5 billion a year.