GE And The Internet Of Systems

  • Beyond an Internet of Things lies an Internet of Systems, tying the things together
  • General Electric is focused on this market but may not be big enough to manage it
  • Big tech is scaling for a reason and this is it

A speculative piece I wrote recently on General Electric (NYSE:GE) buying IBM (NYSE:IBM) drew many comments, over 17,000 page views, and introduced an important investment thesis for the next decade.

While a lot of people, including GE and IBM people, are talking about a nascent Internet of Things, the big prize will be putting these things together and creating an Internet of Systems.

GE makes jet engines, and a jet engine is a very big, expensive thing. Boeing BA makes airplanes, and airplanes are also very, very big things. But managing air traffic requires a system, and that is what all these companies, and others, are moving inexorably toward, system management that has computer control over all the things within its scope.

Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL)  are both targeting the self-driving car market, but what makes that market compelling is the hope that it will improve the efficiency of the transportation system. That’s why Uber is so valuable, not because it can get you a cab, but because it turns all the cars under its control into a system.

I happen to think that GE is in a good position to move into this market. It has two main industrial sectors – energy and health care. It makes big, important components in both those markets, like turbines and CT scanners. Building computerized systems that run a utility or a hospital is a big, big job, and that’s why GE recently created a GE Digital unit to pursue that opportunity. A few years ago it funded VMware’s (NYSE:VMW) Pivotal Software, and took a 5% stake, in order to pursue that opportunity.

A system for health care or air travel or utility management or traffic control must have software and hardware in many things, it must have standards to manage the interaction of that software, and it must have security, as well as audit trails, built into it. It’s a huge contract that must be negotiated with governments, not just with other enterprises.

One of the key trends of the last half-decade has been the scaling of the biggest technology firms. Google is now worth $450 billion. Microsoft (NASDAQ:MSFT) is worth over $350 billion. Apple over $660 billion. Next to these, even the combined financial might of GE and IBM – about $400 billion – is barely competitive.

The financial requirements of the Internet of Systems can only be met by businesses that can look governments in the eye as equals, and that’s what big tech companies are becoming, the equals of governments around the world. It’s probably the biggest business game of the next decade, and GE may not yet be big enough to win it.

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Comments on this article and GE stock

user profile picture
Hi Dana, very interesting ideas - I have seen the comments to your SA article, and also the critical review article "GE Could Buy IBM And The Onion Could Buy Seeking Alpha."
Of course anything can happen in a fast moving sector, but how about the other way around (IBM buys GE). IBM has about as much cash and more credibility in Industrial Internet and IoT at this moment.
user profile picture
As a human being we love speculation and conspiracy theories and online web-media thrives on that. No wonder GE IBM stuff attracted so much audience, mostly out of any real work or brains of their own. None the less, in the tech sector you cant count anything out. The point regarding Google, Msoft, and Apple being worth more, if you consider stock market valuation as worth, more than IBM and GE is very interesting. Moreover, if tomorrow any tech companies go bust, how will the investors recover money? In the good old days, they could sell the company's plants or sites. But now nothing of that sort. All so called value is in the code which is useless anyways.
Do share this awesome post