The GE Pivotal Announcement: Rewriting the Rules of Big Data and Internet of Things

GE, the world’s leader in industrial technology and solutions, today plowed $105M into Pivotal, the EMC/VMware spinout. You can read John Furrier’s post for the details of the deal but this in my view represents the next wave in Big Data applications and a huge boon (and possible disruption) to Big Data valuations. This deal has the Tucci, Maritz, Gelsinger, Goulden playbook all over it and is one of the reasons I love EMC – they make big, bold moves and tend to execute on them, creating massive shareholder value in the process.

Last month I attended the EMC/VMware financial analysts meeting in NYC and heard the first details of the Pivotal spin out. The companies told us at that time they were carving out certain assets from EMC and VMware and creating a new entity that Paul Maritz said had the goal of becoming the Big Data platform. At the time I loved the move because it took some “misfit toy” assets like Spring, Cloud Foundry, Greenplum, Pivotal Labs and Cetas – which weren’t generating clear value – and consolidated them under Maritz’ leadership at Pivotal with the intent of building a company for IPO.

We were told Pivotal would do roughly $300M in revenue this year with roughly 1,200 employees. Arguably, that makes them one of the leading Big Data companies and an instant contender to be the “Red Hat of Hadoop.” I say that tongue-in-cheek because I don’t think there will be a Red Hat of Hadoop. Red Hat ran away with the prize because the big whales let them. That’s not going to happen in Big Data and VMware CEO Pat Gelsinger told me as much at EMC World two years ago when EMC announced its first Hadoop Distro. And while Pivotal isn’t a lock to become king of the Big Data hill, the Pivotal move put them in the category of leaders.

However, at the time, what I didn’t like was that EMC had been struggling in my view to figure out the whole Big Data space. They bought in assets like Greenplum which got them on the Big Data curve but the overall strategy seemed disjointed and in flux. Pivotal was an opportunity to fix that (goodness) but they were way late to the game (badness). They’d tried and stumbled a couple of times and there were others out there trying to build the Big Data platform. Yet another platform with a few other interesting assets wasn’t enough to really excite people. The differentiation wasn’t clear to me.

Enter GE: The Total Game-Changer

Everyone talks about the “Internet of Things” or the “Industrial Internet” but it’s often hard to get your arms around it. Sure cars have dozens of microprocessors and blenders and refrigerators are “smart” and airplanes throw off tons of data and factory floors are becoming instrumented and all that. But from the technology companies, it was always hard to see how they were putting all this potential into action. To underscore this dissonance, HP recently talked about instrumenting toilets in prisons because inmates were purposely clogging them. Ok – that’s cool but how do we pull all this data together and create value from it. How do we connect the world and improve it holistically?

That’s what GE does. Not only is GE allowing a zillion smart-machine flowers to bloom, but it’s vision is to use the data from these machines, not in isolation, but in aggregate to create value for its customers and improve the lives of individuals, corporations, governments and humankind in general. That’s big. Supply chains. Health. Instrumenting infrastructure. Supporting the build out of massive cities in growth regions. It’s mind boggling big.

By leveraging the Pivotal platform, GE gives the company instant differentiation from all the other platforms out there. Sure Cloudera and Hortonworks and IBM and Intel and Fujitsu and all the other platform companies have plays with the industrial internet – but if you had to pick one single partner in this space it would be General Electric – a $140+B monster that powers industries like energy, health care, consumer, transportation and finance.

One could argue that the GE/Pivotal relationship will make it difficult for Pivotal to gain footholds in companies that compete with GE but I think the game is changing and GE will in many ways become a supplier to its competition (think Amazon and Netflix times 100). Internet of things is an enormous market that touches every part of the planet and there’s so much room for growth that in my view those with solutions and clear business models will win. GE has the potential to create such conditions.

GE’s Triple Play

A premise that Wikibon’s lead Big Data analyst Jeff Kelly puts out there frequently is that Big Data practitioners will create much more value than the technology companies who supply them. Think about Google and Facebook – they’re consumers of information technology and have created more value than those companies who supply them. These two companies are the first wave of Big Data practitioners (along with the government) and the next wave may very well come from industrial giants, like GE.

GE is “triple-dipping” in this deal and I love it. There are three investment angles here for GE:

  1. GE as relatively early stage investor in Pivotal
  2. GE as a Big Data practitioner
  3. GE as an analytics software company

GE is putting $105M into Pivotal and getting 10% at an implied valuation of just over $1B. For a company that will do $300M in revenue this year that’s a bargain for GE. The quid-pro-quo here is that in exchange for the “low” valuation (yes folks we’re in a Big Data bubble and that’s low) Pivotal gets the premier partner in the Industrial Internet to standardize on its platform and help it achieve a big step up in value. Well we’ll see how much GE standardizes on Pivotal but it sure has a strong financial incentive to do so. By year’s end Pivotal could easily be worth $2-$3B (6-10x revenue) which means GE will have roughly doubled its money on paper by January. If its long term plans play out and Pivotal goes IPO, GE will make a killing.

GE as a consumer and practitioner of Big Data technologies plans to transform its customers’ operations and profit from the sale of intelligent machines. A global leader in virtually every major industry, GE innovations will package Big Data technologies, set the standard for the industrial Internet and create massive value for its shareholders. GE has the vision, the customer base, the technological know-how and the acquisition prowess to pull this off. GE has nearly as much cash on the balance sheet as Microsoft and Intel, combined.

In late 2011, GE opened a software center with hundreds of developers focused on the Industrial Internet and Big Data; and has pledged to spend $1B in developing software for the space.  GE already had major software assets running power plants, jet engines, electric vehicle charging stations, medical systems, trains and other industrial infrastructure worldwide. Its new center is developing analytic applications and while it will certainly supply GE’s internal needs I would expect increasingly GE will sell outside of its own organization as well, further driving value for its shareholders.

The bottom line here is that while success is not assured, GE and EMC are both execution engines and every Pivotal competitor better have an answer for “what’s your play in the Industrial Internet and how will you compete?” This is a market that could surpass $100B over time and Pivotal just expanded its TAM by a huge number.