A US$1 Billion Industrial IoT Partnership: Who Wins?

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By Ryan Martin | 3Q 2018 | IN-5175

PTC and Rockwell Automation are aggressively jockeying for position in the digital domain to help customers transform their physical operations. As of June 11, 2018, PTC and Rockwell entered a US$1 billion equity agreement to align their respective smart factory technologies, namely, PTC’s ThingWorx IoT, Kepware, and Vuforia, and Rockwell’s FactoryTalk MES, FactoryTalk Analytics, and Industrial Automation platforms, for an integrated solution offering whereby Rockwell becomes the preferred delivery and implementation provider and PTC assumes the role of IT/OT technology enabler.

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What’s in US$1 Billion

NEWS


PTC and Rockwell Automation are aggressively jockeying for position in the digital domain to help customers transform their physical operations. As of June 11, 2018, PTC and Rockwell entered a US$1 billion equity agreement to align their respective smart factory technologies, namely, PTC’s ThingWorx IoT, Kepware, and Vuforia, and Rockwell’s FactoryTalk MES, FactoryTalk Analytics, and Industrial Automation platforms, for an integrated solution offering whereby Rockwell becomes the preferred delivery and implementation provider and PTC assumes the role of IT/OT technology enabler.

US$333 Million per Year?

IMPACT


While both may well argue the length of tenure in the M2M/IIoT business, it is only in the last few years that the two companies started to reformulate their strategic priorities to make a concerted run at the space. Nowhere is this clearer than in more recent investment activity in the context of current and planned IoT offerings.

PTC’s US$700-million-plus buying spree started with the ThingWorx acquisition in 2013, followed by Axeda (2014), ColdLight (2015), Vuforia (2015), Kepware (2015), and, most recently, Waypoint Labs (2018). These assets account for the company’s app development and data ingestion, industrial communication, and augmented reality/digital twin capabilities, in addition to the supporting infrastructure for managing advanced Machine Learning (ML) models.

Rockwell, for its part, acquired vMonitor LLC (2013), Jacobs Automation (2013), and, more recently, MagneMotion (2016) and system integrator Maverick Technologies (2016) in a push to shore up its wireless sensor monitoring and industrial automation offerings. Today, its main IIoT businesses orient around condition monitoring solutions, which include sensors, integrated hardware, and predictive maintenance software; along with energy monitoring products, which are hardware components with associated software that manage power use to improve equipment Total Cost of Ownership (TCO). It is this heritage of working with, in, and for capital-intensive physical-first environments that amplifies the potential lifetime value of deeper IIoT software integration.

Strategic Value versus Financial Value: Greater than the Sum of Its Parts     

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There are two main ways to create shareholder value: financial and strategic. Financial value is found in terms and conditions and measured by multiples of revenue, earnings, sales growth, and general profitability. Think of it as the impact of a decision or set of factors (e.g., customer composition, bookings) on the company’s valuation. Strategic value has to do with how a company’s product or market position can help or hinder that of another. Strategic value is measured not by the value added to one company, but by the collective success a decision or relationship brings to another, in terms of both profitability (offense) and protection (defense). This is why a startup with several employees and a cash-negative position can sell for many millions of dollars, while a multi-million-dollar entity may struggle to attract a fraction of that amount.

Strategic, not financial, value drives long-term success. The challenge is looking past the cost of capital in physical-first environments. While most products are still assembled by human hands, monitored by localized systems, and inspected manually, digitizing these processes can amplify the value—and payback profile—of such resource across Information Technology (IT) and Operational Technology (OT) assets; improve existing operations for redundant tasks capable of being performed by software (Artificial Intelligence (AI)/ML); and lead to better service at lower cost. The key is getting from a volume-based to a value-based approach. PTC and Rockwell are aiming for this goal.

The value of a PTC/Rockwell pairing, aside from supporting PTC’s mission to move from a perpetual license to a subscription model (annual license to own software versus a periodic fee for the continued right to use software and associated technical support), will ultimately come in the form of new self-service tools that enable the role of the end user to change from tool consumer to tool creator. With the right guidance and execution, this is a very big deal and one that will not go without a response, with heavy-hitting competitors like Amazon, IBM, Microsoft, SAP, and GE in the mix – at both the edge and in the cloud.

So, who wins? Maybe it’s the customer. Maybe it’s PTC/Rockwell. But more than likely, it’s the market as a whole.

For more information on the key players in this market and their strategy assessments, see ABI Research’s latest report, The Industrial Cloud.