A major component of General Electric's (NYSE:GE) future growth is its plan to become a leading digital industrial company, selling its customers software services that help improve the reliability, efficiency, and performance of their industrial equipment. Last year, GE generated about $5 billion in software sales. By 2020, it aims to sell $15 billion per year in software and digital services.
To get there, GE built the world's first cloud-based industrial operating system and app store called Predix and Predix.io, respectively. Predix sits at the center of internet-connected industrial assets, big data analytics, and real-time optimization, while Predix.io enables customers to purchase, develop, and sell industrial apps. Longer term, GE hopes Predix.io will spark an industrial app revolution that's eventually worth more than $225 billion.
Judging by the efforts of Honeywell (NYSE:HON) and Siemens (NASDAQOTH:SIEGY) to bolster their own digital offerings, it's clear that GE isn't the only industrial company wanting to bring industry into the digital age.
Honeywell's tech emphasis
According to Bloomberg, eight of Honeywell's most recent 11 acquisitions in the last two years have been focused on technology, and come at a time when it's struggled to achieve revenue growth from its core industrial businesses. Thus far, Honeywell's acquisition focus appears to be more geared toward warehousing and fulfillment applications than GE's catch-all industrial approach.
However, last June, Honeywell CEO David Cote noted that about half of its 23,000 engineers are now working on software for simulation, product enablement, or as a business. And this revelation came days after Honeywell launched its Uniformance Suite, a software platform that collects, stores, and interprets all types of industrial data.
Uniformance features a web-based software package that enables users to visualize insights without requiring local installation. Honeywell argues this key difference helps reduce implementation times compared to locally installed software, and also claims it can increase user productivity and reduce investigation time by up to 50%.
Like Predix and Uniformance, Siemens' Sinalytics platform leverages industrial expertise to produce software solutions that can improve the performance, reliability, and productivity, of an industrial asset. Siemens seeks to differentiate Sinalytics by not requiring a centralized, cloud-based platform to manage customer data, which many view as proprietary information. Instead, Siemens emphasizes that "it lets its customers decide where and how they want their data to be utilized."
In 2012, Siemens had 120,000 industrial assets connected to its platform and processed around 3 terabytes (TB) of data per month. Near the end of 2015, Siemens had 300,000 connected assets in its network and processed 17 TB of data per month. Based on current exchange rates, Siemens' digital services generated about $678 million in revenue during full-year fiscal 2015. This accounted for less than 4% of Siemens' total services revenue.
Follow the money
While Honeywell and Siemens are stepping up their efforts to become more digitally focused, they seriously lag behind GE where it matters most: revenue. Not only did GE generate $5 billion in digital sales last year, but it's also on track to hit $7 billion in orders this year. For perspective, Honeywell's digital sales are so small that they aren't disclosed to investors, and Siemens isn't likely to hit the $1 billion mark in digital sales for at least another couple of years.
In other words, GE has a sizable lead on its direct competition, a lead it plans to maintain as it works to generate $15 billion in sales by 2020. If successful, GE will likely reach its goal of becoming a top 10 software company within this time frame, and the competition may have some serious catching up to do.
Steve Heller has no position in any stocks mentioned. The Motley Fool owns shares of General Electric. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.