The announcement last week that GE (yes that GE) made a $105 million investment in the Pivotal Initiative caught many by surprise. Not only was it strange to see GE make a large direct investment in a technology vendor, it was also odd to see it in a relatively immature market like PaaS. So the immediate question is of course, why?
First off, some background on Pivotal. The Pivotal Initiative is a spin-off of selected cloud and data analytics assets of VMware and EMC. Led by former VMware CEO Paul Maritz, Pivotal has approximately 1,400 employees and brings together two major sets of technologies:
- Big data and analytics – EMC’s Greenplum big data platform and VMware’s Cetas predictive analytics solutions
- Platform-as-a-Service (PaaS) – VMware’s Cloud Foundry PaaS platform and vFabric custom Java application development framework
Basically Pivotal provides the platforms needed for enterprises to leverage big data analytics and custom cloud applications. Think of it as spin-out of the EMC and VMware assets focused on the cloud application layer.
The stated motivations about why GE decided to invest had a lot to do with their vision of the industrial internet. The basic idea is that big data and cloud platforms can be used to mine and analyze the immense amount of data being generated by internet connected devices and users. GE believes that cloud applications analyzing data from everything from jet engines to power grids can be used to drive dramatic improvements in operational efficiencies and service levels.
While the GE vision is interesting, we’ve certainly heard similar stories before around the powerful impact of big data and cloud (see IBM Smarter Planet). What actually is even more compelling about the announcement is what it reveals about GE’s beliefs about the enterprise cloud market. While they didn’t explicitly say so, if you’re GE here’s what you would have to believe about the cloud market for the investment to make sense:
- PaaS will not commoditize anytime soon – it would make no sense for a diversified manufacturing and services company to directly invest in technology it believes is going to commoditize. Why not just buy it from vendors or service providers on the open market? GE must believe that the combination of PaaS and analytics will require a unique set of differentiated technologies that won’t be commoditized any time soon. It almost must believe that Pivotal and the associated EMC and VMware platforms are uniquely positioned in the enterprise PaaS market, either due to the combination of assets or technological advantage.
- PaaS will create competitive business advantage – according to the formal announcement, the agreement is “aimed at accelerating GE’s ability to create new analytic services and solutions for its customers.” GE believes that agility and time-to-market advantages provided by PaaS platforms are significant enough to create competitive advantage in the market. GE also must believe that this differentiation is sustainable from a technology platform standpoint. A key part of the announcement is the joint R&D efforts, which certainly implies that GE will have significant influence over Pivotal’s roadmap to ensure that advantage is maintained.
- IT is becoming “part of the product” – as we discussed in an earlier post about Toyota’s IT transformation, IT and data are increasingly becoming key components of the products we buy. GE certainly could have influenced the Pivotal product roadmap by being a major flagship customer without making a 10% investment. The investment likely indicates that GE wants an option to potentially acquire Pivotal. GE is not just saying that cloud and big data are strategically important. It’s saying that they’re so important that they need to potentially own the platform. A 10% minority stake could easily just be a prelude or option on the purchase of the whole company, though obviously EMC and VMware would have something to say about that.
So a final question for those who are still wondering if cloud is truly disruptive in the enterprise: can you name the last time GE directly invested nine figures in a technology company? The assumptions and merits of the bet that GE has made certainly could be debated. The reasons for why they made the bet cannot.
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