We don’t see a lot of Arena Solutions in the technology news. Despite being a pioneer in cloud-PLM solutions, the company does not disclose revenue figures, and does not compete in the typical headline accounts such as Tier 1 automotive and aerospace companies.
Founded in 2000, Arena was actually the first developer with PLM in the cloud and today it has a broad, integrated all-in-one platform for product development. The Arena solution combines PLM, ALM (Application Lifecycle Management), supply chain collaboration and Quality Management Systems).
Arena has carved out a strong niche for their platform for design and manufacturing in the electronics industries including high tech, consumer electronics and medical technology. In terms of features, Arena has an edge in supply chain collaboration, configuration and BOM management.
It was also pointed out that Arena Solutions managed to sell PLM to a number of larger enterprise customers including Intuit, Citrix Systems, Nutanix, GoPro, Thermo Fisher Scientific and eBay. In total, this PLM player has over a thousand customers and the business spans over 125 countries.
These are all good reasons for last week's news that US venture capital company JMI Equity has chosen to invest in Arena.
“A GROUNDBREAKING SOFTWARE”, says JMI’s general partner, Brian Hersman, pointing at Arena.
The Partnership with Rootstock’s Cloud-ERP
So, what is JMI “buying” into? Arena is a proactive developer in the PLM market. Cloud-PLM is of course the best example of this, but lately they have also worked hard to widen the connection between PLM and ERP systems. A good example is the recent partnership with Rootstock Software regarding ERP.
The background here is that seamless integrations to tie together all parts of the product realization chain are becoming increasingly important. When companies take the next step to sharpen their collaboration efficiency across the traditional siloed boundaries, PLM (product development) and ERP (manufacturing, purchasing, distribution, etc.) become priority domains.
Notably, for a couple of years, Arena and Netsuite have claimed a seamless 2-way integration.
While good ERP connections are important, it is the general cloud abilities that are Arena’s “secret weapon”. TEC (Technology Evaluation Centers) says that as a cloud-based vendor, Arena can play a significant role in certain niches. Their “thesis” is that existing on-premise PLM-implementations are being complemented with cloud-based product development platforms.
In a blog post P J Jakovljevi claims that an increasing number of large manufacturers are beginning to replace on-premise PLM systems with multitenant single-instance cloud-based product development platforms providing the ultimate scalability and ease of upgrades, patches, new seats, and bug fixes for the user.
He continued, “This change will be seen in specific markets where manufacturers are using or embedding complex electronics, oftentimes in a high mix, high rate of change where time to market is important. The main driver is the availability of an expanded set of cloud-based processes, feature sets, and capabilities that are integral to new product development and new product introduction (NPI) in these specific markets”.
The cPDm Market is Characterized by Two Main Groups
Arena is one of the smaller players in the PLM area in general and cPDM (collaborative Product Definition management) markets in particular. From an overall point of view the market can be divided into two main groups:* The dominant players, such as Siemens PLM (Teamcenter suite), Dassault Systèmes (3DEXPERIENCE/Enovia), PTC (Windchill), SAP (SAP PLM) and Oracle (Agile PLM) where revenues range from Siemen's PLM's close to $2 billion to Oracle's barely 800 million dollars.
* The smaller players, such as Autodesk (specifically for the cPDm area and their cloud-PLM platform Fusion Lifecycle), Aras PLM (Innovator) and Arena (Arena PLM), all estimated to be below $100 million per year in revenue.
In the latter group, we do not know the exact revenue levels–except for Autodesk, which according to CIMdata, takes in about 70 million on cPDm–since they are not generally published. In any case, it is a striking fact that the players are either really big or quite small, at least in financial terms. No medium level exists.
"Arena has big growth potential"
Three years ago, competitor Aras PLM (according to an ENGINEERING.com interview with the company CEO, Peter Schroer) did not have "revenues over $50 million". The company is thus in the same segment as competitors such as Autodesk.
Autodesk is the world's dominant player in the CAD area, but the recent efforts made in PLM have not correspondingly shifted to match the levels that CAD revenues bring in. Their Fusion Lifecycle platform revenue is currently around $70 million, a figure that is probably not very far from what Aras PLM can produce.
Where Arena is on this scale is uncertain. However, according to the new investor, JMI Equity, there is a great growth potential for the American cloud-PLM developer.
In its investments, JMI has a focus on "leading software companies". Founded in 1992, it has invested more in than 130 companies in its target markets, successfully completed 85 "exits", and contributed more than $3.0 billion in capital.
Provides Expertise and a Broad Industry Network
The amount of money invested in this round was not disclosed. However, Craig Livingston, Arena’s CEO, points to accessing JMI's network and competent management team. "We're pleased to receive this investment from JMI and now have access to their expertise and industry network, which we believe will be critical to our continued growth and expansion," said Livingston. "This is the right time for our business to take its next step as we are in the midst of a sustained customer expansion and evolution of our industry-leading product platform. We're excited to be working with the JMI team as their perspective and passion for our business are closely aligned with our own."
He also points out that the company is well-positioned in SaaS applications for the product development market, particularly in the technology, electronics, and life sciences verticals, where the increasing convergence of hardware and software components creates complex manufacturing processes.
Unanswered Questions
All of this is of course good, but there are a couple of questions that remain unanswered:
How much money did JMI Equity invest? What was the valuation of Arena before the investment? And what are the uses of the investment capital? Will it be used for marketing to reach new customer groups outside the high-tech, consumer electronics and biomedical areas? Or will most of the funds be dedicated to continuing to improve the Arena software platform?
This said, my take is that the great thing about getting a venture capital firm like JMI on board is that it reduces the impact of a potentially weak spot: size. Arena is a comparably small company on a market with big players with almost unlimited development resources. Arena must depend on what can be developed internally as opposed to having an extended eco-system of collaborative developers, or contributions from an open source community as does their competitor, Aras.
As the world of product realization explodes in complexity Arena’s small size could become a limiting factor in terms of software product development. JMI has the financial resources, the experience of dealing with software organizations, the network, and the management knowledge that can give Arena the necessary “horse power” to meet and match the technology revolution that we’re in the middle of.
Of course, JMI stands to gain a lot if this investment is successful. Back in the mid 90s, venture capital firms Atlas Venture, North Bridge Venture Partners and Burr, Egan, Deleage & Company, provided about $4.5 million in funding to then early stage SOLIDWORKS. In a second round, the same VC firms along with Kubota (who became SW’s Japanese reseller) and other investors put an additional $9.2 million into the company.
When Dassault Systèmes acquired SOLIDWORKS in 1997, these investors got a large slice of the $310 million DS paid.