GE has teamed up Frost Data Capital to incubate industrial internet startups

[company]GE[/company], which has been making big bets on the industrial internet, has teamed up with [company]Frost Data Capital[/company] to create an incubator for entirely new companies built to offer products for connected enterprises. After building a software business based on the idea that connected sensors in a variety of industrial applications will throw off terabytes of data that need to be analyzed, GE is taking its bet on the internet of things further.

It is creating the Frost I3 incubator and working with Frost Data Capital to seed 30 (or more) new companies over the next three years. Already the incubator has helped create five new, undisclosed businesses, said Stuart Frost, managing partner and CEO of Frost Data Capital. GE has pledged to provide 20 percent of the funds for each new incubated company with Frost and others providing the rest of the money to get ideas off the ground.

Frost works primarily with corporate venture partners and few select firms, and the plan is to build a scalable model for building startups that are solving problems that arise from connectivity. The idea is that because this is an entirely new way of viewing the world and IT, we need entirely new ideas and companies. In the release announcing the news Frost called it a way to ensure “predictable, scalable innovation.”

The incubator is looking for both products that solve an underlying technological or logistical problem across a wide range of industries as well as industry-specific software or products. But this isn’t for existing startups — the goal here is to build something from scratch, so if you have an idea, it had better be drawn up on a napkin as opposed to in customer trials.

“This isn’t about investing in existing companies, this is aimed at incubating new ideas aimed at this area,” said Frost in an interview. In that same conversation he and Bill Ruh, vice president for GE Software, explained that some areas they think are ripe for new startups include remote patient monitoring and sensor-based healthcare. Others involve the oil and gas industry, where remote pipelines and malfunctioning equipment in those hard-to-reach areas can cost billions in lost productivity.

Other more horizontal ideas involve data analytics offerings that could tie into GE’s Predix software for analyzing sensor data or combining machine learning with business expertise to make it easier for people to build prediction algorithms without data scientists.

Ruh explained that he believes there are huge breakthroughs ahead of us in understanding how to apply data that will only come to fruition once we have the data to start experimenting with. Making sure that companies are ready to take advantage of that is one reason GE and Frost are creating this incubator.

As for how the incubated companies will evolve, its unclear. What’s so interesting about the industrial internet — and really the internet of things in general — is that like the web, it’s more powerful when it’s open. However, openness risks commoditizing products or leading to a more consulting-oriented business, which tends to scare off investors.

Ruh and Frost both expect companies that are part of the incubator to build products that tie into GE’s systems, but Ruh also expects that those products will also need to work with equipment made by GE’s competitors for it to be truly valuable to the end customer. So they are betting on open — or at least nothing tied to too tightly to GE.

Finding the right mix of openness without sacrificing margins and your competitive advantage will be a challenge for these incubated startups as well as all companies building the industrial internet.