With GE establishing a new standalone software business, we examine what it means for existing and potential customers of GE Digital and for GE.
What we know:
- On December 13, 2018, GE announced the formation of a new industrial IoT (or IIoT) software business, with $1.2 billion in revenue (based on GE Digital sales combined with sales of other digital assets brought together to form the new business).
- The new IIoT company (unofficially referred to here as GE Digital 2.0 or GED2) will be given a new brand.
- GED2 will combine digital assets from GE Digital and other GE Divisions: Predix, Asset Performance Management, Historian, GE Automation (HMI/SCADA), Manufacturing Execution Systems, Operations Performance Management, and the GE Power Digital Power Services and Grid Software Solutions businesses.
- GED2 will be a separate legal entity, with GE the only shareholder at this time.
- A new board will be put in place with a new CEO (GE Digital’s CEO, Bill Ruh, will depart at the end of December 2018). The new company is likely to be officially established effective Q1 2019.
- GE will sell 90% of ServiceMax to Silver Lake for an undisclosed sum.
- GED2 will continue to act as a reseller of ServiceMax to GED2 clients.
- GE’s industrial segments will now sell GED2 products (the Predix portfolio) to its customers under formal reseller agreements.
- GE’s additive manufacturing business will not be part of GED2.
- Steven Martin, GE Digital’s chief commercial officer, will act as interim CEO of GED2 from January 1.
What It Means
In establishing GED2 as a new, wholly owned subsidiary, GE CEO Larry Culp is giving GE Digital perhaps its best chance of survival. He’s also creating an opportunity for GE shareholders to leverage any success down the road. But can GED2 be successful as a standalone company?
The opportunity before a new GE Digital is to capitalize on the reputation of Predix as a solid platform for industrial IoT. Unencumbered by having to supply IT services to the various GE industrial divisions, the new GE Digital should be more nimble and responsive to market opportunities.
But GED2’s new CEO will face challenges in updating the portfolio of applications to a modern cloud architecture while also persuading skeptical customers that it’s in the business for the long haul. Establishing GED2 as a real software business will go some way to helping customers see a more viable future.
In making this move, GE has given the clearest signal yet that running a successful software business is very different from running an industrial conglomerate. Who Culp hires as CEO of the new venture will be critical to its future success.
While it’s too soon to tell if this is too little, too late or the beginning of a period of rapid expansion for GE Digital, we believe GE Digital’s clients should see this move as a positive sign that GE is serious about making GED2 a long-term success.
- As a separate company, GE Digital can focus on developing as a software business and not an internal IT shop for GE industrial units.
- Recurring revenue flowing from sales of GE products such as turbines leveraging Predix-powered digital twins will flow into GED2 under formal reseller agreements. We see this as a positive move to show the value of the software business to GE, and it was one of our recommendations in our analysis early in 2018. (Previously, the revenue showed under each industrial segment.)
- It allows GE to leverage a key digital asset — Predix, an industrial IoT software platform — as a real business. GE Digital is a strong performer in our “The Forrester Wave™: Industrial IoT Software Platforms, Q3 2018” evaluation.
- GED2 can now focus on developing and selling solutions driven by market demand and building out a robust product road map based on customer expectations.
- The GE brand is already damaged as a result of GE’s 2018 results. It makes it more difficult for GED2 to point to GE as an example of digital transformation prowess. GED2 will need a major rebranding exercise in 2019.
- Bill Ruh’s departure leaves more uncertainty on GED2 leadership. Culp needs to hire a new CEO quickly to ensure positive momentum and continued focus while establishing clear messaging to enterprise customers and partners.
- GE Digital has technical debt that needs to be cleared. GE Digital bet on Cloud Foundry for its cloud foundation, but it has now partnered with Microsoft Azure, which has its own, so GE Digital will have to offer a path for developers to take advantage of the growing shift toward containers and function-based applications.
- GED2 faces a shift market perception around GE. Customer and prospect conversations often cited uneasiness around structural challenges facing the broader corporation. GE must persuade the market that it’s in this for the long haul, with continued, repeated, and public commitment from the very top. In our recent Wave, GE Digital’s support and training, as well as its monitoring and alerting functions, weren’t as strong as some others in the Wave evaluation.
- Selling ServiceMax frees GE Digital to focus on delivering a suite of integrated solutions around a core architecture. ServiceMax was not well integrated into GE Digital, so with GED2 acting as a reseller, it gives the new GED2 leadership greater product and operational focus.
- Completely separating out the IIoT software business frees it from the role of internal IT provider and software developer to GE industrial segments. It should now focus on delivering solutions that will sell in the market.
- GED2’s sales team can expand and focus on selling software, not industrial products.
- GED2 needs to create more “prepackaged” applications for the Predix Platform that are aligned with the industries it chooses to focus upon. (Predictive maintenance is a good starting point, but more apps are needed to quickly show the value of the Predix Platform).
- This structure could set up the future sale of all or part of GED2 to outside investors. As a separate company, it is also easier for GE to seek a partner investor to help accelerate growth of GE Digital.
- Enterprise software companies see industrial IoT as a big opportunity; IBM, Microsoft, and SAP are among the Leaders in our IIoT Software Platforms Wave, with industrials (GE, Siemens, Bosch, etc.) following behind. The competition will only get hotter.
- While we cite the freedom to sell to a broad market (rather than GE industrial units) as a strength, lots of this digital stuff is actually being bought as part of a bigger contract: You buy a machine, and it comes bundled with software. GED2 may be able to sell more freely . . . but is anyone in a position to buy?
Overall, we see this as a positive move for GE and GE Digital customers.
(This blog was written in collaboration with Frank Gillett, Michele Pelino, Jeffrey Hammond, and Paul Miller.)
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