Today's hot news in the PLM world is PTC’s surprise announcement regarding the purchase of PLM developer Arena Solutions.

It’s clear that SaaS in the cloud is something that PTC’s chief, Jim Heppelmann, firmly believes in. He bought Onshape–Jon Hirschtick's cloud CAD company–a little over a year ago. The explosion in cloud use in recent years appears to be proving him right.

From PTC's perspective, this deal is a logical extension of their belief in selling PLM as a Service in the cloud. What is unexpected is that PTC is buying Arena Solutions—and paying $715 million in cash for it.

“A year ago, PTC entered the SaaS world of product development software with our acquisition of Onshape,” says Heppelmann. “This step reflects our strong belief that our market is approaching a tipping point with respect to a desire to jump on SaaS and cloud technology. This trend follows the trend in many other software markets.”

The PTC leader further discussed how the effects of the COVID-19 pandemic have dramatically accelerated this inevitable shift.

“Absolutely,” Heppelmann says. “PTC's customer surveys indicate a 25 percent increase in interest in SaaS PLM since the start of the pandemic. With Arena in the portfolio, our leadership position will be significantly strengthened as we continue to redefine the future of our industry.”

Who holds the leadership position can be debated, but regardless, PTC is ahead of the major companies that analyst CIMdata usually calls "PLM mindshare leaders.” This list shows Siemens as the revenue leader, with Dassault second and PTC third.

PDM is the Largest Share of PTC’s Revenue

In 2019, PTC drew approximately 33 percent of its total revenue from the cPDm area, a sub-PLM sector to which Arena Solutions belongs. Relatively speaking, this means PDM was a larger share of total revenue for PTC than it was for any of PTC's closest competitors. With Arena Solutions in their portfolio, this PDM revenue share can be expected to grow significantly more than what would have been possible for PTC to achieve organically.

But for Jim Heppelmann, this is probably of secondary importance. Instead, what can be put on the table in terms of combined SaaS PLM and SaaS CAD is of much greater importance. In the cloud combined with SaaS models, Heppelmann sees the company's future.

It’s important to point out that among the PLM industry's major consumers, for example in automotive or aerospace and defense, generally there has been skepticism toward full cloud transitions. But the SaaS trend points to an erosion of this resistance.  More and more companies are ready to make the journey to the cloud, at the same time as they change their licensing from perpetual to subscription, buying PLM service rather than the software.

All in all, the investment that PTC is making boils down to their aspiration to become a market leader in terms of the capacity to deliver on a combination of CAD and PLM as a cloud SaaS service. with a strong and well-functioning integration between Onshape and Arena in the cloud.

For those who know Jim Heppelmann, this is not something that is expected to take a particularly long time. Remember how quickly PTC developed and launched the first common smart factory package, FactoryTalk Innovation Suite, with Rockwell—less than a year after the start of the partnership. In short, Heppelmann is not someone who hesitates to pull the trigger if he thinks something should happen quickly.

This Is Arena Solutions

So, who is Arena Solutions? Those who read engineering.com already know about Arena, even though the company is one of the industry's smaller revenue makers.

Headquartered in Foster City, California (just south of San Francisco), Arena has more than 1,200 customers in the electronics, high-tech and medical technology industries, including world-class innovators such as Nutanix, Peloton, Sonos and Square. In addition, Arena will greatly expand PTC's presence in the attractive middle market, where SaaS solutions will become standard.

“As the SaaS PLM pioneer, we were first to see that engineers and product developers would benefit from a new paradigm in the way they collaborate and drive product innovation,” said Craig Livingston, Arena Solutions president and CEO. “We were ahead of the market in the early days, but in the past several years we’ve seen an acceleration of market receptivity and demand. This acquisition validates our original vision and we are pleased to be joining an established leader in CAD and PLM capable of hastening the movement of our market to SaaS.”

Livingstone further claims that the Arena Solutions product development platform combines PLM, quality management and requirements management, in a way that enables all participants throughout the product design and manufacturing process—as well as across an extended supply chain—to work together in a secure cloud environment with high availability.

Furthermore, Arena has always aimed high, the company was one of the first out on the PLM side with a cloud-native solution and has gradually strengthened the platform's capabilities, most recently with the $6 million purchase of Omnify PLM about two years ago.

$50 Million In Revenues 2019

Today's announced deal will be followed by a more penetrating article, but in summary it is an interesting investment with the aim of creating the PLM market's sharpest SaaS and cloud players.

The acquisition of Arena will add almost $50 million to PTC annual revenue of $1.4 billion, but its contribution is expected to increase significantly in the next few years. As PTC has stated, Arena PLM has had double-digit growth figures in recent years, 2019 included, according to PTC's press material. The money for the purchase is obtained by PTC partly through its own cash flow and partly through loans already granted.

It will be very interesting to follow what PTC will do around the solution they acquired. 

My Take: A Huge Growth Potential

My general view on PTC’s announcement is that the company’s key asset is the convergence of technologies for product design, data management, IoT, AR and product service lifecycle support. I view PTC’s strength as the leverage of these technologies and the investment in its roadmap to support products from concept through service, particularly to leverage product data as a strategic asset throughout lifecycles. The capacity to do this effectively is a critical success factor for any of the big PLM developers, according to a general observation from Gartner’s analyst Marc Halpern.

I couldn’t agree more.  

The purchase of Arena Solutions fits well into this pattern, with a promising integrated combination of cloud SaaS around CAD and PLM/PDM not too far ahead on the horizon.

One can add that the Rockwell Automation investment and partnership with PTC demonstrates what PTC short term can produce in adding manufacturing operations and maintenance dimensions that has great potential for feedback loops to continuously improve design for manufacturability and design for service.

Strong and visionary executive leadership is another strong point.

However, many acquisitions within a short time frame also puts some pressure on PTC. There is much to do with integration of acquired products. But when they eventually get there, the potential of commercial breakthroughs contains promises of exponential growth numbers, mainly in the IoT, AR, and PLM SaaS in the cloud areas.