The “internet is just the facilitation part,” said Jeff Immelt, the charming and affable chief executive of the company whose engines power the planes above and generate the power that helps us remain glued to our Twitter feeds. Immelt, in a one-on-one conversation earlier this week, said that his company has been building sensors into its products and collecting data for some time, but now what they want to do is take the emerging data streams and turn them into data-driven productivity tools. “It is about turning it into crucial and useful information,” he said.

The GE event this week (which we covered here), along with Immelt’s comments, depict a general 20,000-foot view of the problem a company as large as GE faces. It is awfully hard for a company that has spent the past decade or so in denial of the internet to suddenly develop internet DNA. Just look at Walmart, which despite spending hundreds of millions of dollars and a full decade trying to embrace the Internet, has failed to stop the Amazon juggernaut.

Immelt acknowledged that it is a challenge and perhaps that is one of the reasons why the company is coming to Silicon Valley. In our chat, Immelt said that the company has been working on its idea of the Industrial Internet for sometime, but they have come to California for what he describes as “a little sanity check.” When it comes to jet engines, “we can build and engineer those in Cincinnati or in New York,” but when it comes to data, “we wanted to be part of Silicon Valley” and learn a lot about being open, new protocols and being part of the data-centric movement.

“You give up on software analytics as a company at your own peril and we have to invest in it,” said Immelt. Data is the key to GE’s future, for as more of its products use sensors and create data feeds, the company will create infrastructure to make the machines more intelligent. In order to do so, they have created the GE cloud, a combination of private and public clouds.

“That cloud can and will expand in time,” he said. “The value of the company shifts from assets to the network and it is one reality of the future.”

Speaking of reality: When I asked him if he was worried about the near monopolistic control of the networks between a handful of entities, and lack of competitive mechanism in the market place, especially in the US, he was quick to add that if the network itself becomes a bottleneck, then GE wouldn’t shy away from “playing a role.” I (for one) wouldn’t have any problem with one mega-billion dollar company making phone companies and other bandwidth providers a little nervous.

What about the legislative and regulatory challenges that emerge from data rich and always connected devices? Immelt acknowledged that this too is is a challenge and perhaps the customers are best to deal with those decisions, he argued.

Valley Talk

When I asked him, why GE is here in Silicon Valley, Immelt said that it is the recognition that “neither we can nor we want to do everything ourselves” and instead want to work with rest of the technology ecosystem. Will GE start buying software companies in Silicon Valley? After all, Immelt had venture capitalist Marc Andreessen on stage, and Andreessen would love to sell him some big data companies and pocket those GE dollars.

“We are better off acquiring people than companies,” Immelt said. He believes that because his company makes healthcare and energy products, they should be attractive to folks who want to work on those problems. The company is going to be doing what he calls “some corporate venturing” and will be involved in “incubation” efforts in the near future. “We will be looking to take equity stakes,” he added. GE has a similar model for its healthcare investments as well.

Immelt said that GE is paying attention to new technological movements such as 3D printers and new kinds of modeling software, and how those technologies are impacting the production and creation of products. He doesn’t think it is too crazy of an idea for GE to work with small teams to develop innovative products — especially consumer appliances — and plug them into their supply chain.

Immelt said that the emergence of so much data basically means that the product supply chains as we think of them today need to be rethought. “It is my belief that in the future most consumer products will have a distributed supply chain,” he said. Data is what is going to define the product experience, and as a result, a small team in Dallas can design a refrigerator that is optimized for local environments and then have it manufactured in a manner that is optimal for a smaller subsection of the overall market. (This is part of the hyper-personalization movement we have often talked about.)  It is already happening at a smaller scale, and since it has an impact on GE’s consumer appliances business, GE is paying attention to it.

The biggest challenge, Immelt said is finding those data experts who can find insights into massive amounts of data.  ”We have a lot of people in software — for instance a thousand people work on software for MR Scanners — but what we don’t have is the system architects who sit at a higher level and use data to craft experiences,” Immelt said.  What do they say – recognizing a problem is the first step!

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As we know it today, the internet has been largely about connecting people to information, people to people, and people to business. Monetization strategies range as widely as the options available, and for all the success, there are more failures. While many of the advancements have been extraordinary – even unthinkable a short time ago – too often we’re still left asking, “to what end?”

The internet can give consumers nearly anything with just a click, but global economies remain challenged.  The internet has become the biggest library in the world, but education is just now beginning to take advantage and change.  The internet can provide businesses with unprecedented data, but true insight remains contentious and change is slow.

The real opportunity for change is still ahead of us, surpassing the magnitude of the development and adoption of the consumer internet. It is what we call the “Industrial Internet,” an open, global network that connects people, data and machines. The Industrial Internet is aimed at advancing the critical industries that power, move and treat the world.

There are now many millions of machines across the world, ranging from simple electric motors to highly advanced MRI machines. There are tens of thousands of fleets of sophisticated machinery, ranging from power plants that produce electricity to aircraft that move people and cargo around the world. There are thousands of complex networks ranging from power grids to railroad systems, which tie machines and fleets together.

This vast physical world of machines, facilities, fleets and networks can more deeply merge with the connectivity, big data and analytics of the digital world. This is what the Industrial Internet Revolution is all about.

Productivity Revolution

The Industrial Internet leverages the power of the cloud to connect machines embedded with sensors and sophisticated software to other machines (and to us) so we can extract data, make sense of it and find meaning where it did not exist before. Machines – from jet engines to gas turbines to CT scanners – will have the analytical intelligence to self-diagnose and self-correct. They will be able to deliver the right information to the right people, all in real time. When machines can sense conditions and communicate, they become instruments of understanding. They create knowledge from which we can act quickly, saving money and producing better outcomes.

As an example, we have pushed the boundaries of physical and material sciences in our aircraft engines to the point where these engines are more powerful and efficient than ever. We will continue to improve them physically, but at the same time we can use software, monitoring and big data analytics to attack the $284 billion in annual waste in the airline industry that is caused by fuel inefficiency, unscheduled aircraft maintenance, and delayed flights.

Consider that just a one percent improvement in aircraft engine maintenance efficiency can reduce related costs by $250 million annually. A similar one percent fuel savings in power generation could add more than $4 billion annually to the global economy.

Whether in terms of operations, performance or maintenance excellence, all industries are looking for their next major productivity gains. Health care is burdened by a system where doctors and caregivers have to go searching for vital information; it is inefficient at best and life threatening at worst. We need to make the data more intelligent and integrated, more predictive and proactive, so information finds the doctor instead of the other way around.

Intelligent data flows speed up care delivery and can prevent chronic conditions by getting the treatment right the very first time. Similarly, in terms of health management costs, “intelligent” hospitals are deploying systems that behave like air traffic control for medical staff and devices, and provide a full detailed view of hospital resources. Better utilization cuts capital expenses. Better asset location leaves nurses more time to focus on patients. Better management improves patient flow, cuts operating costs, and saves hospitals millions.

There are similar scenarios in every other major industry, and the economic benefit can be huge.  Assuming growth similar to what prevailed during the internet boom, the Industrial Internet revolution will add about $15 trillion to global GDP by 2030. That’s the equivalent of adding another U.S. economy to the world.

The amazing aspect of this growth is that it stems from what appears to be minor productivity improvements. At GE, we have 5,000 software engineers and another 9,000 IT engineers. We’re focused on mining for just one percent gains in productivity. The potential is irresistible.

Roadmap to the Revolution

In the near future, I expect nothing short of an open, global fabric of highly intelligent machines that connect, communicate and cooperate with us. This Industrial Internet is not about a world run by robots, it is about combining the world’s best technologies to solve our biggest challenges. It’s about economically and environmentally sustainable energy, curing the incurable diseases, and preparing our infrastructure and cities for the next 100 years.

To do this industry and government need to work together on two critical areas: standardization and security.  We need to establish common standards so that innovative minds can develop the best solutions for the machines and systems that move our world. Just as the advancement of mobile devices and operating systems have brought forth a prosperous  “app” economy, a standard language for machines will unleash waves of innovation that will truly change how the world works. This is a critical step and needs government policies that favor advancement.

Attaining the vision set forth for the Industrial Internet will also require an effective internet security regime. Cyber security should be considered in terms of both network security (a defense strategy specific to the Cloud) and the security of devices that are connected to the network. We need industry to effectively secure facilities and networks and governments to enforce a regulatory regime that promotes innovative solutions and international standards.

The Industrial Internet era has already begun. And during a time when the global economy is recovering but remains volatile and where resources are constrained for people, governments, and companies, what we need most is to not lose sight of a real opportunity to create meaningful change around the world.

After all, this is what revolutions are all about.

Jeff Immelt is the chairman and CEO of GE. 

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Most of the sectors that GE’s newly coined effort covers — transportation, aviation, locomotives, power generation, power distribution, oil and gas development, and industrial processes — are highly energy-reliant (if not all about energy) and the use of digital technologies in these sectors is meant to enable the use of energy (electricity and fuel) as efficiently as possible. That’s where a lot of the cost savings lie. The one exception in the mix is GE’s attention on digital health care.

GE says that with digital and sensor technologies, the commercial aviation industry could reduce fuel use by one percent, which is a savings of $30 billion over 15 years. A one percent efficiency gain for gas-fired power plants globally could deliver $66 billion in fuel savings. A one percent gain in efficiency for the world’s rail networks could lead to $27 billion in fuel savings. The list goes on — and it’s filled with energy efficiency measures, which equals cost savings.

GE has been classifying a lot of this technology under its Ecomagination brand, and it’ll probably continue to do so well into the future. Saving energy — electricity use and fuel — is clearly in the best interest of the planet. Burning fossil fuels for transportation and electricity is a major cause of climate change.

But GE’s CEO Jeff Immelt has said before that he regrets spending so much time over the past four years focused on how green GE’s technologies are. In the Spring of 2011, Immelt said at an event at MIT (reported by Reuters):

“If I had one thing to do over again I would not have talked so much about green. . . Even though I believe in global warming and I believe in the science … it just took on a connotation that was too elitist; it was too precious and it let opponents think that if you had a green initiative, you didn’t care about jobs. I’m a businessman. That’s all I care about, is jobs.”

The re-branding of green technologies — and the clean tech sector — is happening across the board. The term cleantech (and green for that matter) have been deeply politicized in the U.S., and have become a dirty word in some post-Solyndra circles. From a startup perspective, venture capitalists and entrepreneurs have had a harder time making money in “cleantech” than in mobile and web ventures.

As a result some investors — and some innovators — have moved away from so-called cleantech. The term “smart grid,” too, has been a bit tainted as consumers have pushed back on smart meters in certain regions. Smart grid returns for investors and startups have also been scarce. Investor groups looking to rebrand cleantech have been emphasizing terms like Clean Web, digital green and the intersection of cleantech and IT.

But as I reported recently, the trends behind the cleantech movement (and the smart grid) are still in place: there will be 9 billion people by 2050, which will lead to resource constraints, and a need for the better management of resources (energy being a major one). GE seems to be at the forefront of trying to rebrand this trend with this Industrial Internet moniker — and I applaud that.

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That’s a very big number — roughly the size of the US economy. The industrial internet is the manufacturing giant’s take on the “internet of things” in which myriad devices — from smartphones to sensors in everything from wrist bands to traffic cameras — communicate via machine language with each other without requiring human intervention.

The report, authored by GE Chief Economist Marco Annunziata and GE Director of Global Strategy and Analytics Peter C. Evans, of course plays to GE’s strengths. How better to boost productivity than by automating the communication and control of all those already-productive tools?

A couple key takeaways from the report:

• Connected machines could eliminate up to $150 billion in waste across industries
• a 1 percent increase in efficiency could save up to $30 billion in aviation, $6 billion in power generation and $63 billion in healthcare costs.

More data = better analytics

Knitting together all these machines and devices, the authors wrote, provides a bigger, better pool of aggregated information that will enable the harnessing of  ”physics-based analytics, predictive algorithms, automation and deep domain expertise in material science, electrical engineering and other key disciplines.”

And, connecting machines also connects the people who run them “whether they be at work in industrial facilities, offices, hospitals or on the move, at any time to support more intelligent design, operations, maintenance a well as higher quality service an safety.”

Do more connected, productive machines mean fewer workers?

Clearly, GE is betting big on the industrial internet notion, as The New York Times reported recently. Of course, since GE has dogs in all those fights — aviation, power generation, heathcare equipment — it’s well positioned to talk on the topic but is hardly neutral on it. Whenever a company chats up automation-fueled productivity gains, the dark side tends to be job loss.  On this touchy topic, Annunziata and Evans wrote:

“But what about labor? Will a further wave of productivity-enhancing innovation destroy jobs? In the current situation of already excessively high unemployment in the US and other advanced economies, this is a crucial issue. There is no doubt that further innovation will make some jobs unnecessary—for example to the extent that some processes can be automated. But as some of the old jobs are no longer necessary, new, better jobs will be created.”

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