The "industrial Internet" involves collecting data from machines in order to run analytics to use those machines better. It's an easy enough concept to grasp, but let's talk about the metric you really want to know -- can it drive revenue?
GE CEO Jeff Immelt on Thursday predicted that GE can grow its "dollars per installed base" by 4% to 5% annually by selling products and services that support this effort to use online data for better operations. GE did $36.3 billion in revenue last quarter. Immelt says GE has a "services backlog" of $150 billion that it will "leverage" to develop these industrial Internet products. What does that mean? It means GE has contracts that are performance based -- it gets paid based in part on whether the jet engine, power plant turbine, etc., is operating as promised. If data-driven analytics keeps that equipment running, or cuts the costs of keeping it running, it means more profit for GE.
We're talking about these numbers in part because GE is doing a lot of promotion this week about its concept of the "industrial Internet," with a big report on its potential economic impact and a live event in San Francisco. I'm discussing it with you, though, because it's one of the most essential strategic issues a CIO can address. Do connected devices -- whether they're customer smartphones or an MRI machine linked via Wi-Fi -- provide a new, critical connection to my customer or my operations, and a way to bring technology into the product my customer uses? If I don't create this connection, will someone else use it to take my customer?
GE thinks so. It just announced new product and services business to sell software and data management and analysis services into the key industries where it sells equipment -- starting with aviation, healthcare, energy and transportation. In aviation, it just started a joint venture with Accenture called Taleris to improve airplane operating efficiency by analyzing data to minimize downtime and waste. GE estimates a 1% cut in fuel use would save the airline industry more than $30 billion the next 15 years.
For more on what the industrial Internet needs to take off, check this article from earlier in the week.
Two additional things to consider about the business opportunity from this industrial Internet -- or more broadly, the Internet of things that goes well beyond industrial uses.
One is that GE's steps to spur an ecosystem of development around this industrial Internet take a GE-centric view, focusing on the industries where it sells products. That means it's way too narrow. Think about agriculture, using moisture sensors to direct irrigation and thus use dramatically less water. It's happening on a small scale but could become essential and even required by law as water shortages grow. How about cars that talk with traffic lights, roads and other vehicles, so that traffic can move more efficiently and relieve the gridlock that plagues megacities from Mumbai to Sao Paulo. Whatever your industry, you're likely to see ways the competitive and regulatory landscape will change.
Lastly, GE is playing defense as well as offense. Some $15 trillion of economic growth and 4% more dollars per installed base sound lovely, but the Internet of things will destroy businesses, companies and jobs as surely as it creates them. Would better usage data reveal that your customers under-utilize their machines, so they actually could buy 25% less if they used them efficiently? Do you rely on break-fix services revenue that could be wiped out by data-driven preventative maintenance? Do you sell extended warranties that could be made obsolete? And I'm certain your doomsday scenarios would be much scarier than mine.
These problems and opportunities point to the need for CIO leadership in helping companies take part in this emerging innovation ecosystem around the Internet of things.