PTC’s Acquisition of Onshape Highlights the Need for SaaS-Ready Solutions as Manufacturers Prepare to Move Away from On-Premise Applications

PTC’s buy and build strategy continues with the completion of its acquisition of product development platform provider Onshape for US$470 million.

Not only is Onshape PTC’s largest acquisition to date (previous acquisitions have been around US$100 million), it also cements the firm’s shift away from the perpetual licensing model and enables the firm to target the Small and Medium-sized Business (SMB) segment. Onshape is testament to the SMB segment’s acceptance of Software-as-a-Service (SaaS) solutions for Computer-Aided Design (CAD) and Product Lifecycle Management (PLM), but the enterprise segment remains wedded to on-premise solutions for the time being. With its acquisition of Onshape, PTC will be able to offer enterprise customers both types of solutions as SaaS-based applications gain traction, which ensures that PTC won’t be left only offering obsolete technologies. PTC’s results going forward will be worth monitoring as an indicator of large manufacturers’ appetites toward new technology delivery models.

Onshape was founded in 2012 by Jon Hirschtick, John McEleney, and Dave Corcoran. John McEleney and Dave Corcoran are veterans of the CAD industry, having founded SolidWorks in 1993; Solidworks was acquired by Dassault Systèmes in 1997.

Until now, PTC’s largest acquisition was its US$112 million outlay for Internet of Things (IoT) platform provider ThingWorx in 2013. Other recent acquisitions include generative software design company Frustum Inc. for US$70 million in November 2018, IoT communication provider Kepware for US$99 million in Jan 2016, and Augmented Reality (AR) technology platform Vuforia for $64.8 million in November 2015.

Both Onshape and PTC aim to provide solutions that accelerate how organizations develop products. The firms complement one another, with Onshape's multi-tenant SaaS-based CAD platform being utilized by over 5,000 customers (mostly in the SMB segment) and PTC’s on-premise CAD (Creo, Mathcad) and PLM (Windchill, Integrity) solutions sold to large enterprises.

Onshape’s solution provides design teams with not only CAD design software but also data management and collaboration tools and analytics capabilities to keep projects on track. Furthermore, team members can tweak designs or make comments via all types of mobile devices irrespective of operating system. This acquisition means that PTC avoids the cost and time required to create its own cloud-based platform.

PTC has been moving away from perpetual software licenses in favor of SaaS over the last few years.The Onshape deal complements and accelerates this transition and is important for PTC’s ability to serve the SMB segment going forward.

SMB clients typically do not want to purchase perpetual CAD and PLM licenses, but rather transact on a SaaS basis much like they do with other providers such as Salesforce, Xero, or Workday. In addition, innovations are more rapidly adopted in this segment compared to large enterprises as the firms look to scale up. The Onshape acquisition enables to PTC to expand its addressable market and innovations can be incorporated in their enterprise solutions. PTC will continue to invest in the on-premise Creo and Windchill products.

An overriding objective for the acquisition is for Onshape’s expertise to support PTC’s plans to enable other solutions in the portfolio to transition from on-premise to cloud-based platforms. The switch from on-premise to cloud-based CAD and PLM solutions has yet to reach a tipping point at the enterprise level; one concern is that SaaS-based solutions are not mature enough for enterprise buyers and switching costs will be too great. PTC has time to refine its cloud-based offerings for this segment.

One of the biggest differences Onshape will bring to PTC concerns their product development cycles; SaaS is faster and offers better version control. For example, PTC has to encourage enterprise clients to upgrade from Creo versions 4 or 5 to Creo 6, without promise. Meanwhile, as the company builds additional backward compatibility, Onshape is simultaneously releasing its 103rd upgrade to the entire user base. With larger and enterprise-focused competitors like Siemens making efforts to introduce cloud-based PLM solutions in their client bases, PTC needs to be ready for that shift and utilizing Onshape’s expertise will go a long way toward achieving that.