PLM developer PTC is moving ahead at full steam. Within a week, the company has announced that it is buying the German application lifecycle management (ALM) developer Intland Software for $280 million, and as well as making an effort to achieve a more powerful impact for its SaaS model by selling a substantial portion of its related service operations to the Indian company ITC Infotech.

“It’s about lift and shift,” says PTC’s CEO, Jim Heppelmann to engineering.com. “With a new SaaS transition service provider and with Intland’s ALM cloud-based SaaS solution, Codebeamer, we have more tools that allow us to speed up SaaS implementations on the market.”

Although on the surface these deals may look like two separate investments, they are part of a larger underlying plan. Both pieces are instances of a more aggressive go-to-market model in SaaS with new cutting-edge tools and a dedicated organization aimed at radically increasing growth of on-premise customers transitioning to SaaS in the cloud. In the latter case, we are talking about more than 5,000 projects with PTC PLM customers on-premise that potentially will be transitioned to the cloud and SaaS.

In this context, it is not without good reason that Heppelmann sees huge SaaS potential—and he’s going after it.

“This new agreement with ITC Infotech will allow PTC to realign its own professional services experts to a unique thought leadership role in the industry in enabling digital transformation and cloud-based SaaS for industrial companies across engineering, manufacturing and service,” Heppelmann says. He further explains that the bet on Intland’s Codebeamer goes in a similar direction. “We’re talking about a next-generation SaaS solution, that will strengthen our position in software management.”

In today’s article, I will take a look at both these deals based on a discussion with PTC’s leader, Jim Heppelmann, starting with ITC Infotech’s purchase of a portion of PTC’s SaaS Services business. The later part the article is focused on why PTC, one of the big three in PLM, has bought a new ALM solution in Intland’s Codebeamer, in light of the fact that they already have the Integrity solution.

PTC Has a Lot To Do

No matter how you look at it, work is mounting up for PTC these days; they simply have a lot to do. In parallel with the Intland Codebeamer purchase and the ITC deal, PTC is also working hard with integrations around Onshape, Creo and the new Atlas platform, where the latter solution will serve as cloud platform. What are the priorities here?

“SaaS is of course a big priority,” Heppelmann says. “And Atlas plays an important role in the architecture we want for SaaS. We would like to have CAD and PLM, sub-areas like ALM, and so forth to work seamlessly together in Atlas’ SaaS environment. We want to offer a fully integrated experience here, where customers can work seamlessly without having to set anything up.”

This tells us a lot about the significance Atlas has as a cloud and SaaS platform foundation for PTC’s PLM tools. Not only as a “carrier” of the Onshape cloud CAD solution PTC bought a couple of years ago, but also for the classic Creo CAD software, Windchill PLM+, Arena PLM and sub-PLM areas like ALM and the Intland Codebeamer.

Atlas definitely plays a key role, which is heavily underscored by today’s announced deal with the large Indian consultant ITC Infotech, whose purchase of a substantial portion of PTC’s SaaS service business.

Heppelman wants to speed up business aggressively, which is how he wants the ITC Infotech deal to be perceived. The content of this deal is that PTC and ITC Infotech intend to accelerate customer digital transformation initiatives, focused on the adoption of PTC’s Windchill PLM as Software-as-a-Service (SaaS).

5,000 Projects for The New ITC Business DxP Services

To make this happen, ITC Infotech will acquire a portion of PTC’s PLM implementation services business and create a new business unit of ITC Infotech, called DxP Services. DxP stands for Digital Transform Physical, and will combine PLM professional services experts from both companies.

“Acquire a portion.” What exactly does that mean? PTC’s services revenues last year were around $150 million. By acquiring a portion of that, ITC will get a head-start for the new DxP unit, which according to my interpretation is worth around $50 million. Moreover, the deal contains both people and projects, which means that the people at PTC affected by the ITC Infotech purchase will continue with the same projects, but with their paycheck coming from ITC. How many workers that will move over to ITC is not yet clear, but a good guess is less than 200.

PTC has not disclosed what ITC is paying for the acquired business.

“Correct,” says Heppelmann, “services companies are not as high-valued as software companies,” indicating that the price is lower than what a pro-dollar revenue basis would indicate. “But it’s nowhere near the size of what we paid for Intland,” he says.

More on the “Lift and Shift” Project

ITC and PTC have worked together for more than twenty years. Moreover, during this period PTC has developed quite a large eco-system of partners, such as Deloitte, Calypso, PDSVISION and others. The ITC deal is a global contract, though it is special in that it is focused around the “lift and shift” project.

This, in turn, means that the transition of on-premise customers to cloud and SaaS will get their full attention. This area already contains a lot of growth potential. “Generally, PTC’s on-premise solution business in 2021 grew by around 10 percent, while the SaaS part of the business grew around 30 percent,” says Heppelmann. He also expects SaaS revenues as a part of PTC’s total revenues will grow from 15 percent now to 33 percent in five years.

The point of all these figures is that they all indicate the huge growth potential that lies among other things in SaaS and the “shift and lift” project that Heppelmann talks about. What is it about?

“Now that we have these new capabilities in the cloud available, Windchill+ which runs on Atlas, we will sell it to new customers starting immediately, but also to old customers that bought Windchill on-premise and wish it was in the cloud. We want to do a conversion and convert those Windchill on-premise systems into the running SaaS system. In this context we use the term “lift and shift.” We want to lift those systems and shift them into the cloud. That’s a services project. The systems need to be upgraded—some of them can be several versions behind—and in some cases we also want to get rid of old customizations that are no longer needed which we don’t want to put in the cloud environment. Each of these lift and shift projects is really an upgrade, de-customization and a shift. We have more than 5,000 of these systems running at customer’s sites. We’re talking over time and over years here, about thousands of customer projects,” Heppelmann says.

A Declining Services Business in Favor of a Growing Partner Ecosystem

He adds that PTC used to have a much bigger services business years ago. In recent years, however, they have shrunk that business in favor of a partner ecosystem.

“We want to be a software company with a services partner ecosystem, rather than PTC being a software and services company. But now we need to run those thousands of projects and PTC has to be involved in every project, because we receive the result and if anything doesn’t work, it’s our problem,” Heppelmann says.

What he implies here is that the ecosystem partners cannot simply do whatever they want in these contexts; things have to be done very carefully and PTC has to be involved to see to it that things work as intended.

“Right,” says Heppelmann. “What we wanted to do was to pick a special partner to jointly develop this concept of lift and shift—or SaaS conversion, to be precise.”

This is how ITC Infotech came into play. “Yes, we picked them and to give them a head start we effectively spun out about a third of our own services business, all PLM people, into the new unit ITC created called DxP.”

The Intland ALM Purchase: What Can Codebeamer Do That Integrity Can’t?

When it comes to Application Lifecycle Management, PTC already had the Integrity software in its portfolio, which they bought back in 2011. But the development in this area has been explosive in recent years, which is a motivating factor behind PTC’s acquisition of German Intland Software for $280 million.

The mere size of the purchase price shows how much importance Heppelmann and his staff have placed on buying this state-of-the-art developer with the Codebeamer program.

This platform definitely belongs to the ALM family of software products, including next-generation, cloud-ready and fully integrated capabilities.

What is it, then, that Codebeamer can do which Integrity cannot?

“The main thing is that it is a modern and more up-to-date product. It is SaaS-based, and that is an important thing, while it still can be sold and used as an on-premise solution,” Heppelmann says. “We don’t sell Integrity as SaaS, so that is one differentiator. Codebeamer has a much more modern interface, which has been a complaint about Integrity in recent years. It also integrates with all the modern software tools such as GitHub. So, Codebeamer and GitHub is a common combination, but a general point is that the latter can be used in much broader contexts since Integrity does not work that well with outside tools. Integrity has its own source-code management tools, for example, which are okay, but they are not as modern as GitHub. Think of Codebeamer as the next generation of Integrity. If we started over with a clean sheet of paper and created something really new, it would look like Codebeamer.”

Software Development in Automotive: ALM in the Leading Role

Regarding software development in automotive, I asked Heppelmann to elaborate around the challenges he sees here, and how this relates to the $280 million investment in Intland?

“In the automotive industry, a couple of things happened,” he says. “Number one is that there is much more software than ever and it is growing almost exponentially every year. Autonomous driving and the sophisticated software systems that run and coordinate practically every functionality in the car, are typical examples. In this industry segment, software is regarded as safety-critical—meaning that if you have an error in the code, people could die.”

“Now, the code isn’t developed by just one company, it may be developed by many companies. Some on the OEM level, some are Tier 1, others are Tier 2 suppliers, etc. And so, understanding changes that are being made and being able to validate that they perform correctly is critical to maintain safety. With automobiles, with aircraft, with medical products—products that go inside your body such as pacemakers, for example—they all need strong configuration control, even in the supply chain. To make sure that someone didn’t change that code that could cause systems to fail and people to be injured or even die. That’s why an ALM solution like Codebeamer is so important in these and other industries.”

But we are also talking about the value that a modern ALM solution can bring to the table in terms of optimized pace and integration flows when developing a new car or airplane model. Integration is an important step to reach optimization. 

“Yes, generally software moves faster, but remember that within the same hardware you can always update the software,” says Heppelmann. “Even inside a car you purchased two years ago, somebody could change the software code and download the new version, which could cause accidents. So even in models already produced, it could be a problem. But generally, yes, integration is important.”

“How does it integrate? The car has requirements and some of the requirements are satisfied in mechanical parts, some in electronical parts, some in software parts. What companies need to be able to do in these safety-critical environments is to secure that there are functionalities in the development tools that make it possible to validate that configurations and possible changes made can meet those requirements. This means that a lot of this is about that the requirements and test management validations can make sure that everything together works as intended in the required configurations—including if you change the software version. That’s why an ALM solution like Codebeamer really needs to be like a sub-system of PLM, like Windchill.”  

The press material states that Codebeamer will become integrated in the Windchill PLM suite and also in PTC’s other PLM system, Arena. What does that timeframe look like?

“We don’t have any timeframe yet. You know, we are not allowed to operate here until the deal closes. But generally, in terms of this kind of integration, we’re talking about months, not years. If I have to guess, I’d say six months after the closing of the acquisition. But at this moment, it is only a speculation,” Heppelmann says.

My Take: A Wise Investment

The purchase fits well into PTC's aggressive SaaS plans, as Codebeamer is both cloud-based and SaaS-ready. It is also clear that Codebeamer provides PTC's customers with new requirements, risk and test management capabilities, while supporting modern agile software development and integrating with the best DevOps and source code management tools that a software developer tends to be quite fond of using. Codebeamer's advanced templates and partner integrations make it easier for customers to meet the stringent requirements common to regulated industries.

Speculation or not, the acquisition can be expected to significantly broaden and deepen PTC's ALM footprint of security-critical and regulated industries.

It is a wise investment in a competitive environment where PTC is successfully challenging its toughest opponents in the PLM area, Siemens Digital Industries and Dassault Systèmes.