Q1.

GE’s Industrial Internet Initiative was necessary and valuable given GE was able to
generate higher margins (~65%) vs. conventional margins (~35%) but not necessarily
proactive since it was in response to the threats by non-traditional competitors. In spite the
uncertainties and risks related to Industrial Internet such as requiring high levels of reliability,
flexibility, security, and analytical complexity, it had the potential to disrupt multiple
industries and to be a part of this growth, GE necessarily had to invest in the same due to:

1. Large Market to be Capitalized

With continuous growth and ability to disrupt the way corporates across multiple sectors
looked at capital goods and procurements, Industrial Internet was estimated to create $14.4
trillion in economic value between 2013 and 2022. Technology spending would exceed $514
billion. It was estimated that ~50 billion people will be connected to the internet by 2020.
Therefore, from the perspective of the business and economic growth, it made sense for GE to
enter this market.

2. Threat from traditional and non-traditional competitors

Traditional competitors included Siemens, Honeywell, Philips and IBM of which Siemens
had a head start in China where GE was expecting future growth to come from. Siemens also
had internal knowledge of GE’s workings. Non-traditional companies such as Google, IBM,
SAP, etc had far deeper analytics expertise and big data capabilities. The competitors were
pitching analytics solutions on GE products, potentially making hardware a commodity.

3. Stagnant stock prices

In the last ten years (2001-2011), GE’s stock performance has been slow as compared to the
likes of Siemens which had doubled, and IBM. To drive up the stock prices, GE needed
good growth prospects in the future.

4. GE specific advantages
With a large consumer base with strong customer relations and presence in various sectors
for a long period of time gave GE access to large data sets. This allowed them to understand
how the different sectors work and what kind of functionality is needed in the software to
approach the customers enabling them to capture a large share of this growing market.