The race to the Internet of things

March 5, 2015, 6:00 PM UTC
Brad Keywell
Photograph by Saverio Truglia for Fortune

Brad Keywell is showing me around Chicago’s Cabrini-Green, a failed public-housing project in the heart of the country’s third-most-populous city. There’s not much to see. The last of the high-rise buildings that once housed 15,000 poor and largely African-American residents on the Near North Side—mottling Chicago’s skyline with a visual reminder of decades of botched integration efforts—were demolished back in 2011. Once a hotbed of gang activity, the neighborhood is now mostly uninhabited, and our Uber SUV is the only vehicle I can see for blocks. Keywell, a Chicagoan since 1994, asks our driver to hang a right, and we slowly cruise by a cluster of shuttered, three-story row houses. A light dusting of fresh snow covers the flat, dark-gray rooftops of the brick buildings; built in the 1940s, they are the only remnants of the once-notorious housing project.

The deserted January landscape is chilling enough from within the warm confines of our car, but for Keywell, a serial entrepreneur, Cabrini-Green is simmering with opportunity. “See that?” he asks excitedly, his large, pale-blue eyes gleaming as he points at a newish-looking suite of “mixed income” condominiums down the street. “That’s just the beginning.”

Fit, bald, and intense, Keywell has two seemingly opposing modes: borderline hyperactive and deeply reflective. He meditates daily (his guru is none other than alternative-medicine icon Deepak Chopra) and takes a biweekly, one-on-one philosophy class with a professor from nearby Loyola University Chicago. In his collarless long-sleeved shirt, jeans, and dark-blue knit cap, he looks as if he belongs onstage at a demo day in San Francisco’s SOMA neighborhood.

And given the nine tech companies he’s started since the mid-1990s, it’s kind of a wonder he’s not there. But then, nothing could be further from Keywell’s plans. “Everyone asks why I didn’t go to Silicon Valley,” he says during one of several lengthy interviews. “I never really considered it.”

Keywell, rather, is a Midwesterner to his core—and a believer, somewhere between altar boy and zealot, in the greatness of the Second City. Merely hint at the notion that the Bay Area has anything on his Great Lakes redoubt, and the fellow scoffs. When it comes to talent and ideas, he says, Chicago has what Palo Alto and San Jose have and then some—and Keywell and his partners at venture capital firm Lightbank have backed a dizzying array of companies in the Windy City to prove it. So far, about a third of the 91 startups Lightbank has invested in are based in or around Chicago. For the 45-year-old entrepreneur, it’s a multimillion-dollar bet.

A few minutes after we roll by the Cabrini-Green row houses, we arrive at our destination: a 1.25-million-square-foot office building bordering the north branch of the Chicago River. Built in 1872, the construction once served as the main warehouse of now shuttered retailer Montgomery Ward. Today about 4,400 employees of Keywell’s various ventures are headquartered here. There’s Lightbank, the venture fund he started with his longtime investing partner, Eric Lefkofsky, and Echo Global Logistics, a provider of management software for the transportation industry. There’s also the team that puts together Chicago Ideas Week, an annual festival that brings in thought leaders from around the world, and which last year attracted 32,000 visitors. And then, of course, there’s the most famous of Keywell’s creations: Group-on, the daily-deal site he launched with Lefkofsky and Andrew Mason in 2008.

It may not be the most famous for long.

Groupon IPO
At the end of Groupon’s first day of trading, the deal site was worth more than $23 billion. Three and a half years later, it’s worth less than a quarter of that.Photo: Mark Lennihan—AP
Photograph by Mark Lennihan—AP

What most people—many Chicagoans among them—don’t know is that Keywell has a wildcard up his John Varvatos designer sleeve. It’s a company called Uptake, and it’s going after a market that Cisco CEO John Chambers projects will be a $19 trillion opportunity. To hear Keywell tell it, Uptake is going to dominate the Internet of things. In truth, the goal is so outlandish that some might think it laughable. First, tiny Uptake, which has a mere 100 employees and an undisclosed sum of financing, is going head-to-head against the most diversified industrial giant in the world—General Electric (GE), the 27th-biggest company on the planet by revenue and a maker of everything from railway locomotives to mammography machines—which has already invested more than $1 billion in the effort. Second, though Keywell has proved that he can start companies, he’s never demonstrated that he can run one. He’s not Mark Zuckerberg, or Jeff Bezos, or Page and Brin.

Yet talk to one tech insider after the next, and nobody counts Brad Keywell out.

Not since the terms “B2B” or “cloud computing” entered the business vernacular have so many companies been so excited about a tech meme. The Internet of things is one of those ethereal concepts that lend themselves to breathy superlatives and not quite imaginable numbers. Fifty billion devices will be connected by 2020, according to several estimates, sending untold terabytes of data about every aspect of operational efficiency to computers to be analyzed. The term is sprawling in its definition, encompassing everything from fitness-tracking wristbands to jet engines that transmit reams of real-time data with each revolution. It’s this latter subset—which GE calls the industrial Internet—that offers the biggest pot of corporate gold.

Companies worldwide are expected to spend richly on such analytics, hoping to save even more in preempted maintenance problems and averted crises for their critical machines. “Eliminating unplanned downtime is the aspiration of the industrial Internet,” says Keywell, who seems as if he, too, is a piece of high-energy equipment stuck in pitch mode. “The benefit is not tens of millions of dollars, it’s hundreds of millions of dollars of increased revenue and profitability.”

For the past year Uptake has been in super-stealth status, quietly building up an arsenal of algorithmic models that, unlike most analytics systems, do a lot of the pattern-seeking legwork in the data-storage level itself. Another critical piece of the platform, says Keywell, is the ability to push the “signals” found in the data to the right person in near real-time.

“We have slightly over 3 million machines running somewhere in the world every day,” says Doug Oberhelman, CEO of Caterpillar, based in nearby Peoria, which is the first (and only) Uptake customer Keywell is willing to talk about. “What we don’t have today is all of those [machines] hooked into a system that can predict failures.” The two CEOs met a couple of years ago at a Chicago-area breakfast hosted by British Prime Minister David Cameron. They quickly hit it off and began exploring ways to partner on the new venture. (Apart from Caterpillar, the company’s funding has come from Keywell’s VC firm, Lightbank.)

For months engineers from both companies have worked side by side to develop software solutions for Caterpillar’s mining and construction equipment. While Caterpillar takes anywhere from three to five years to develop new products—designing a bulldozer that operates in the Arctic and the Saudi Arabian desert is no small feat—Uptake’s software updates are measured in days and weeks.

“The way I look at it, we do great things developing machines that push dirt and supply power and so on, and Brad’s strength is around software and disruption,” says Oberhelman. “Put these two together and I think there’s really something there.” And beyond the realm of earthmovers and hydraulic shovels, Keywell says he is already partnering with insurance, automotive, and health care companies.

The challenge—apart from the enormous technological one—is that, well, GE is already entrenched in many of those industries. And the powerhouse ($149 billion in revenue) is flexing all its financial muscle to make sure it dominates not just the hardware but the software services that its CEO, Jeff Immelt, believes will drive
a much-needed wave of growth for the company.

A few years ago, amid a flatlining stock price, Immelt realized that GE’s biggest threat came from software firms, not other manufacturers. The company that makes much of the world’s heavy machinery had little access to the trove of information created by those machines, and was facing the risk of being upended by nimbler players that could jump in and sell their services to GE’s customers.

Immelt’s answer was to build out a massive software center about 30 miles east of San Francisco, in the bucolic suburban town of San Ramon. The company says it is now able to capture billions of data points from 10 million sensors installed on $1 trillion worth of equipment, and it has already notched more than $1.1 billion in annual revenue from the various software and data products developed there.

“Connecting machines is the topic du jour, and we get to do it on a scale no one else can touch,” says Bill Ruh, head of GE’s software center. GE has already enlisted an impressive lineup of customers, including United Airlines and BP. Last March the company announced an industrial Internet alliance that includes heavyweight partners like Intel, Cisco Systems, and AT&T. Intel, for example, will embed support for GE’s platform—called Predix—on upcoming processors.

“It’s not just about GE—this is about the extended enterprise,” Immelt said at a company event last fall. “We’re going to take the platform we’ve developed internally and open that up to non-GE customers and non-GE industries.”

Such proclamations don’t seem to faze Keywell much at all. Nor does it seem to lessen the confidence of other Chicago-area executives who know the man well. “If you look at what he’s done, he’s sequentially tackled bigger and bigger problems,” says Laura Desmond, CEO of Starcom MediaVest Group, which was an early customer of another of Keywell’s companies, Mediaocean. “He takes what he learns and applies it to the next big series of problems.”

Indeed, few who have worked with him doubt that Keywell will be able to take what he’s learned from the enterprises he has co-founded and apply it to Uptake’s business. He’ll be smarter about the technology, savvier about the marketing, more sophisticated about the business model. The real question is whether he has learned enough from his own role, or lack of involvement, in this smorgasbord of startups—and if so, whether he can transform himself into an actual manager.

Though he and his investors have made hundreds of millions of dollars from his companies so far, Keywell hasn’t stuck around at any of them for any length of time—at least not in a substantive management role. That approach isn’t likely to work with the latest venture, given the soaring financial stakes of the market, the entrenched competition, and the buttoned-down corporate customers Uptake, GE, and others will be battling to land.

For now, Keywell seems to recognize that: “I would not be surprised if I’m involved in a leadership position for much longer than in some of my previous companies,” he says. Lefkofsky, his longtime business partner, agrees. “Uptake is a huge idea,” he says. “It plays in a much larger space and has a much bigger runway, which ultimately may keep him there longer.”

Then again, when your self-diagnosed “sickness” in life is, as Keywell told an audience at Loyola Marymount University, the insatiable need to start new businesses, sticking with one project is easier said than done.

I first meet Keywell at a posh hotel restaurant near a quiet section of Chicago’s famed Magnificent Mile. This is where he eats the same breakfast—granola with fruit and yogurt, plus plenty of coffee—almost every day, whether dining alone or with company.

Keywell was born not in Chicago but in a suburb north of Detroit. His mother was a schoolteacher turned homemaker, and his father was a corporate lawyer. The young Keywell caught the entrepreneurial bug when he was just about 6 years old. He designed and sold greeting cards, charging friends and neighbors a buck apiece (the company’s cutesy name: Key Creations). By the time he got to the University of Michigan, where he got his undergrad degree and later attended law school, he was selling guidebooks and posters at high margins. “I was hustling nonstop,” he says.

Beyond his affinity for finding a need and filling it, he was a natural-born salesman—especially when it came to pitching himself. While still a freshman, he heard about an entrepreneurship class for graduate students and persuaded the professor to let him enroll. One day Chicago businessman Sam Zell came to speak to the class. Keywell used the opportunity to introduce himself.

“He was very aggressive, and very hyped up,” recalls Zell, “and I was impressed.” That initial conversation blossomed into a summer job at Zell’s Chicago firm, Equity Group Investments, and a mentorship that has lasted well over two decades.

After graduation Keywell applied to law school, pressured by both his father and Zell. On the first day of classes he took a seat, looked down the row, and saw Lefkofsky. The two had grown up in the Detroit suburbs and had lived in competing fraternities during college. But it wasn’t until law school that they discovered they had a shared goal: Neither wanted to become a lawyer.

Despite the primordial urge to build a business, Keywell took a job with Zell’s company after graduation in 1994. But soon after, his famously feisty mentor sat him down and told him he had to go. “I discouraged him from working here because I felt that this was a place that dealt with yesterday and today, and Brad is really focused on tomorrow,” says Zell, sitting in an armchair in the sixth-floor downtown Chicago office where he has worked since 1983. Behind him, quietly pecking at the window, is a small Rouen duck, which has made the real estate mogul’s office balcony his home for the past nine years.

After the friendly firing from Zell’s company, Keywell and Lefkofsky, both 24 at the time, decided to take their first real leap of faith. Each saved and borrowed about $500,000, and together they bought into a children’s athletic-apparel business in Wisconsin.

The two entrepreneurs quickly realized they had to offshore 400 jobs, which did not go over well. They were also overleveraged. Eventually they closed down the plant and bailed out of the company, hightailing it back to Chicago. “It’s an example of a couple of guys with a lot of energy picking a shitty idea and trying to make it into something that it wasn’t,” says Zell. “But what is an entrepreneur? An entrepreneur is someone who sticks his neck out.”

Keywell and Lefkofsky tried again. In 1998 they launched Starbelly, an online purveyor of T-shirts and coffee mugs. Just two years later Ha-Lo Industries, a 50-year-old promotional-products company, bought Starbelly for $240 million. The entrepreneurial duo went to work for their new corporate bosses. But only one year in, Starbelly’s acquirer filed for bankruptcy. “It was my unhappiest time,” Keywell says. “I wasn’t creating.”

Two more companies, Echo and MediaBank (later Mediaocean) followed, but their biggest hit by far was Groupon. The site, which hawks deeply discounted (but quickly expiring) deals from local merchants online, did more to put Chicago on the startup grid than any other company (see map). In 2007, Andrew Mason, a 27-year-old web designer, pitched Keywell and Lefkofsky on the idea that eventually became Groupon. The two entrepreneurs decided not only to go into business with Mason, but also to put him at the helm of the newly formed company. All of a sudden, everyone seemed to be buying up Groupon’s offers for deep-tissue massages and mixology classes, and the company quickly reached $1 billion in sales. The problem was, not everybody was using them before they expired, and the discounted services weren’t translating to new, long-term customers for merchants.

Despite the red flags, suitors like Yahoo and Google came courting. In the fall of 2010, Google reportedly offered an unprecedented $5.75 billion to buy the company (Keywell won’t confirm the number), which at the time was the biggest deal ever offered to an Internet startup. The owners chose to pass—much to the surprise of many in the web’s chattering classes—and instead took the company public.

At the close of its first day of trading after its late-2011 IPO, Groupon was worth more than $16 billion. But as quickly as the public markets had crowned the fast-growing company the next darling, doubts over its business model crept in. After several quarters of missed expectations and a stock price that sank way below the company’s offering price, Mason was fired. (The entrepreneur, who now runs a mobile audio-tour startup in San Francisco, did not respond to requests for an interview.)

In his place, Lefkofsky took over the company, whose market cap is now at $4.9 billion (less than Google’s reported 2010 offer). Under Lefkofsky, the company has tweaked its business model and expanded internationally. While Groupon has yet to turn a profit, its 2014 revenue was up 24% year over year. Even before the IPO, Keywell cashed out more than $150 million worth of shares.

Back in downtown Chicago in January, the entrepreneur is intently studying my face for signs of an opinion.

“What did you think?” he asks excitedly.

“It looked pretty similar to a Silicon Valley incubator,” I reply.

Keywell can’t help looking pleased. We have just exited 1871, a massive co-working space for startups in Chicago’s Merchandise Mart, just a mile down the river from Keywell’s offices. When it first opened in 1930, the Merchandise Mart was the largest building in the world, and today it still feels pretty big. A 50,000-square-foot space on the 12th floor of the building, 1871 houses more than 300 startups.

Named after the year of the famous Chicago fire, 1871 isn’t one of Keywell’s “babies” (it was backed by local financier J.B. Pritzker). But as with most of the area’s efforts to transform into a center of innovation, Keywell is involved. He comes by often to speak to budding entrepreneurs, and his VC firm has donated to the space. In his mid-forties, he is already something of a legend here—at least by the league-table metrics of startups funded, IPOs notched, and dollars made.

“There’s never been a time when I needed something for the city that he hasn’t stepped forward,” says Mayor Rahm Emanuel, Chicago’s outspoken Democratic leader and a former U.S. representative and White House chief of staff. “We’re very lucky to have Brad Keywell in our city.” The sentiment is echoed, remarkably enough, by two other former White House chiefs of staff and well-known Chicagoans: Democrat Bill Daley, who served President Barack Obama, and Republican Sam Skinner, who served President George H.W. Bush. Says Daley: “The fact that Brad and Eric chose to be here and not in California or New York—that’s a statement.” Says Skinner: “Illinois has always been strong in technology, but it was known as a manufacturing center. Brad has the ability to challenge the thinking here. He wants to make a difference.”

Those who know Keywell well believe that his biggest chance to do so is likely to come with Uptake. Sure, outracing the mighty GE—with a $1 billion headstart, no less—comes with some pretty long odds. But then, it’s not as if we’re saying the Cubs will win the World Series or anything. 

This story is from the March 15, 2015 issue of Fortune. Editor’s Note: An earlier version misstated Groupon’s market valuation after its first day of trading; it was worth more than $16 billion, not $23 billion. Fortune regrets the error.