PTC made headlines recently when we announced the $470m acquisition of Onshape, the only pure Software-as-a-Service (SaaS) CAD and PLM company. As usual there has been a lot of speculation about what this means for both Creo and Onshape, so I am writing this blog to help you understand why PTC made this acquisition, and what it might mean to you – and to the entire industry – over time. Let's take a look:
Onshape’s cloud software seamlessly blends powerful 3D CAD, collaboration, and data management capabilities in a solution that runs in a browser on Windows or Mac computers. There is nothing to install or set up, and nothing to administer, patch, upgrade, or backup. All of the data resides at all times in a database in the cloud, so there is no need for file servers or similar infrastructure for storing and sharing data. You’ll also find a full-featured Onshape app in the iOS and Android app stores for your phone and tablet, and you’ll be surprised how useful it is. In my view, Onshape is an impressive piece of software.
We at PTC have helped make the CAD market what it is today. But we also have a sense of where it is going over time, and we want to continue to provide great technology to all of our customers even as your needs change. Up to this point, the CAD market has predominantly been an “on-premises” market. Over the past few decades CAD has migrated from mainframes and terminals to Unix workstations, and finally to Windows PCs. In each generation the hardware and software has been installed and maintained at the customer site. Some vendors, including PTC, offer managed services to run the software for you on our servers, allowing you to use the software as a service rather than as an asset you own. But each customer’s system still requires somebody to perform installation, install security patches, do upgrades, and other types of administration work. The system administration workload hasn’t gone away, it has just shifted from the customer back to the vendor. Consolidating the administration workload of many customer systems under the vendor’s control does create valuable efficiencies, but we’d all be a lot better off if the administration workload went away rather than simply trading hands.
In nearly every category of business software other than product development tools, the industry has evolved a big step beyond managed services to a pure SaaS model. In a pure SaaS model, the software has an entirely different architecture. Vendors like Salesforce.com use a multi-tenant model, where many customers share a single highly-secure backend system. Provisioning a new customer requires minimal effort because they just join the running system, and whenever the system is upgraded with new feature innovations or patched, everybody immediately benefits. Every customer is always on the latest version, so upgrade planning becomes a thing of the past. SaaS technology is very different, but so too are the business processes. Uptime standards are extremely high, the frequent system-wide upgrades require very careful planning and testing, and backward compatibility of external interfaces is a must.
To help understand how different SaaS and on-premises software is, let’s make an analogy to the automobile industry. The vast majority of cars on the road today use internal combustion engines (ICE). There are hybrid vehicles that complement the ICE powertrain with electrification to gain further efficiency. Tesla has disrupted the car industry with their best-selling pure electric vehicles (EV). Tesla took a “from scratch” approach. After initial experimentation, they realized that you can’t just take the ICE engine out and replace it with batteries and an electric motor and get to the right place, because an EV car could and should be different in so many other ways, too. While Tesla was initially dismissed by the big auto OEMs, consumers loved the idea and the demand for EV’s grew quickly. Tesla became a sensation, and today every major auto manufacturer has launched an aggressive electrification strategy in an effort to catch up.
I personally drive an ICE-powered vehicle today, and probably the next vehicle I buy will be ICE-powered too due to my concerns about EV driving range. But I can imagine at some point in the not-too-distant future I will be driving an EV because the battery technology is advancing so quickly. There is no right or wrong choice between ICE, hybrid, and EV – all are valid options, each meeting a different market need. Today, most large auto OEM’s now offer all of the above, giving drivers the greatest variety of choice they’ve ever had. Though EV’s represent a small percentage of the market today, most everybody acknowledges that there is an unmistakable trend developing in that direction. While it is projected to take many years for EVs to surpass ICE market share – and ICE vehicles will remain in the market for many decades to come – every auto OEM is scrambling to build EVs in order to have a sustainable future, in part because they fear ICE sales are nearing their peak levels and are likely to begin dropping year after year as the share shifts toward EVs.
I trust the parallels from this analogy to the world of CAD are obvious: all of today’s well-known CAD systems are like ICE powerplants – proven technology, but something new is coming. Managed services is a hybrid strategy because it adds incremental efficiency to software that was designed to run on-premises. Then, by extension, Onshape is like the EV pioneer Tesla whose break-through innovations are proving the viability of the pure-SaaS model. Like EV’s, the market share of pure-SaaS is small today in the world of product development software, but it is growing fast thanks to strong customer interest. Just as with automobiles, there will be a “tipping point” where on-premises CAD sales peak and the growth shifts to SaaS. It won’t happen overnight, but it won’t take decades, either, because in the software world the SaaS advantages are comparatively larger than the advantages EV’s have over ICE vehicles in the automotive world. I’m convinced the winning solution in the SaaS world won’t be a remodeled version of on-premises technology, because that strategy has been tried many times in many different software industries and consistently met with failure.
We at PTC believe that the on-premises CAD industry as we know it will remain viable for a long time. More than 95% of CAD use is on-premises today. PTC’s own Creo and Windchill businesses are growing at a healthy double-digit rate, and it remains a top priority to further extend and build on this success. But we think in parallel the upstart SaaS industry will grow much faster, albeit from small initial numbers. I trust it makes sense to you why PTC would want to have strong offerings in each technology genre, so that no matter which delivery model the customer prefers, it is PTC’s CAD technology they want to see delivered. Our goal is to give you a choice.
In my view the acquisition of Onshape provides demonstrable proof of how deeply PTC cares about our CAD and PLM future. We want to capture market share now, and we want to ensure our long-term sustainability as a CAD and PLM vendor as the market shifts toward SaaS over time. We will continue parallel innovations in Creo and Onshape for as many years as I can foresee. We’ll look for opportunities to share technology back and forth between the different platforms. A good example would be our recently acquired Frustum generative design technology. Independent of PTC, Onshape had been pursuing a partnership with Frustum as well. So even as we are preparing to deliver Frustum-based generative design technology in Creo 7 where it will unlock immense new value, we’ve started the investigation as to how we should build it into Onshape as well. I think you’ll see more of that going forward.
Thinking of Onshape complementing Creo raises many parallels to what Dassault did over the past two decades with SolidWorks and Catia. Most CAD industry veterans would agree that SolidWorks probably saved Catia, and by meeting the needs of different segments both products prospered. However, there is a very important difference in how PTC will proceed with Creo and Onshape. We don’t view Onshape as a “low-end” system, and unlike SolidWorks there will be no glass ceiling placed on its capabilities. We plan to make Onshape a full-featured SaaS complement to Creo. We don’t need to differentiate on capabilities, because we have such a clear differentiator in the deployment model. If you want a traditional deployment, we’ll tell you about all the great technology that makes Creo best-in-class. If you want a SaaS deployment, we’ll tell you why Onshape is best-in-class.
Today, the R&D investment that PTC makes in Creo and Windchill dwarfs that of Onshape, and I expect this to be true for many years to come. But Onshape investment will grow quickly from current levels, and the product will continue its rapid increase in capability thanks to dramatic efficiencies that the SaaS model brings to software development and innovation velocity. Not only does Onshape release new capabilities every three weeks, but the entire customer base is upgraded with each release. Every customer is on the latest version, immediately benefitting from all new feature innovations and patches, and they didn’t have to do anything to get there.
Onshape is innovative in ways that go far beyond SaaS. Its user experience is best in class – a big step beyond anything you have seen. Users collaborate with each other in Onshape the way they do in Google Docs – actively working in the same designs with full awareness of each other. Designs can be forked and merged like it were GitHub. It has a feature definition language called “FeatureScript” that allows users to create custom features. Onshape takes advantage of the virtually unlimited compute power of the cloud, which will enable us to do amazing things with AI, generative design, simulation. The list goes on and on and on.
Separate from all of its technology innovation, think about the value the SaaS model itself creates for the industry simply by keeping everybody on the latest version without any work at the customer end. Today there are globally at least 100,000 companies of all sizes who use mechanical CAD. Let’s assume on average that each customer has a single CAD administrator (big companies have many more, whereas in small companies it is a part-time job for an engineer). If a CAD administrator costs $100k on average, that gets us to $10B/year across the industry. We could probably double that to capture the costs of file servers and high-end workstations that are typically required. So, we have an industry spending $20B in care and feeding for CAD software they paid about $5B for. It is this massive inefficiency that Onshape was born to solve.
Some people have asked if Onshape will be ported to Creo or use the Creo kernel? The simple answer is “no”. I don’t think that would make any more sense than asking if an EV is fully compatible with an ICE vehicle. Both vehicles are compatible in the sense that they can be used to drive to work, or can park in the same spot, but to declare they must use the same fuel or spark plugs would make no sense. Onshape doesn’t have files for example, so I can’t really say the file format is compatible. I think that over-constraining the future to ensure full compatibility with the present would be a very big constraint on innovation, so we don’t intend to do that.
Data interoperability is a high priority for Onshape. It is needed so Onshape can complement installations of existing CAD systems – for example suppliers might use Onshape – and also because as companies transition their CAD strategy to the world of Onshape SaaS, they’ll want to bring their existing data with them. We’ll ensure that Onshape and Creo work together, but we’ll go beyond that to ensure Onshape works well with all the major CAD systems, just a Creo does today with its UNITE technology.
I’m sure many Creo customers will give Onshape a look, and over time many will probably want to introduce it into their environments. But selling Onshape to Creo customers is not PTC’s primary objective. Most Creo customers are medium- and large-sized companies and Creo is deeply ingrained into their business processes. On the other hand, most SolidWorks and Inventor customers are smaller companies, and in many cases these customers have a more casual relationship with their CAD technology, and thus more flexibility to switch. Targeting smaller accounts with Onshape is key to PTC’s strategy simply because that is where the biggest opportunity lies! Last year about 70% of new CAD seats were sold into the lower end of the market, so it makes sense to have Onshape compete where the action is.
Thinking about the disruptive power of SaaS, there is a saying in software that “death comes from below”. It means that the most disruptive new technologies target small customers first because these customers tend to be less entrenched in their incumbent technology and more willing to try new innovations that might give them a business advantage. After a few years of momentum with smaller companies, medium-sized companies get more interested. A few years of momentum in the mid-market attracts the attention of large companies. History suggests it almost always works this way, with Salesforce.com being a perfect example. The point is that Onshape SaaS technology will spend years working its way through the traditional low-end and mid-market strongholds of SolidWorks and Inventor before larger Creo, Catia, or NX customers consider adoption. That day may come somewhere down the road, but please understand that our intention is to use Onshape as an offensive thrust against SolidWorks and Inventor, rather than a defensive strategy for Creo. If anybody says otherwise, it is because they have some ulterior motive and believe that spreading falsehoods – fear, uncertainty, and doubt (FUD) – will help their cause.
So far, I have been talking mostly about CAD, but let me go a little deeper on PLM. Onshape has built-in PLM capabilities that are highly useful to coordinate the work of engineering teams and the ecosystem around them. It offers collaboration, data management, versioning, bill of material management (BOM), viewing, and more – all inside the SaaS application. Some call it “PDM”, but in my view these terms don’t have standard definitions, and the semantics are not worth debating, so let’s just call it PLM. Onshape PLM is built into the CAD application in a way that is completely unobtrusive, and because of that I would argue that Onshape PLM is probably the most user-friendly PLM in the world today.
Windchill PLM is typically used at a higher level across CAD and other applications. Windchill is frequently used to manage Creo data, but it is also used to manage data sets from Catia or SolidWorks or Inventor or combinations thereof, plus other authoring applications and business systems like ERP. A lot of Windchill software is deployed in more standalone PLM situations where CAD doesn’t play a key role, like in our retail accounts and other places. In short, Onshape has PLM within the application whereas Windchill is PLM across applications. Windchill will get called on to provide PLM across Onshape and other CAD systems that Onshape may co-exist with. Over time we’ll think about how Onshape could graduate to broader PLM across applications and for standalone situations using the SaaS model. That won’t be a near-term priority but stay tuned for more on this topic over time.
I fully expect that Onshape will thrive at PTC, just as our prior acquisitions of the ThingWorx Internet of Things (IOT) and Vuforia Augmented Reality (AR) businesses have. Both ThingWorx and Vuforia were smaller than Onshape when we acquired them, but have grown rapidly and are much larger today. In each case, PTC has been able to accelerate the technology roadmap through higher investment levels and additional skillsets, to increase visibility through broader sales and marketing, provide the safety factor that startups really need to give comfort to customers, and even make additional tuck-in acquisitions to help round out the functionality. As a result, the ThingWorx IOT business has grown 60-fold since we acquired it 6 years ago, and the Vuforia business has grown 10-fold in a much shorter time. ThingWorx and Vuforia are larger and stronger than ever, and industry analysts regard each as best in its respective class. Frankly I’ll be disappointed if we don’t achieve the same with Onshape.
I remember that customers were concerned in the early days of PTC’s IOT and AR pursuits that these strategies were distractions from our core focus in CAD and PLM. Time has proven the opposite to be true as Creo and Windchill have continued to advance quickly – even leveraging IOT and AR technology – and are thriving with growth rates roughly double the CAD and PLM markets as a whole.
Simply put, like our efforts in IOT and AR, the Onshape acquisition is all about growth and revenue synergy. Onshape instantly positions PTC to be the #1 leader in SaaS-based CAD and PLM. I think Onshape, living inside PTC, will be a grand slam home run that is incremental to the success we are having with Creo and Windchill, and to ThingWorx and Vuforia. Onshape has a multi-year lead over everybody in SaaS, and our goal at PTC is to accelerate Onshape’s trajectory going forward to help it become recognized as the industry’s best full-featured SaaS CAD and PLM platform. The Onshape team is completely aligned with those of us in the broader PTC company, and I expect that nothing will stop us from achieving this goal!