A Reluctant Buyer? PTC Acquires NetIdeas

By September 11, 2013 Mergers & Acquisitions, PLM

A couple of years ago, when the notion of cloud-based application delivery was beginning to gain interest in the manufacturing industry, I asked PTC’s CEO Jim Heppelmann about his plans to offer cloud-based flexible subscription options for Windchill customers. His response, typical to other PLM vendors at the time, was that there was no real demand for this capability.

On Sept 10, PTC reversed its position and announced it had acquired long-time partner NetIdeas, Inc., a New-Jersey based provider of PLM software hosting and engineering consulting services. NetIdeas has been a PTC partner for more than a decade, offering “Windchill On Demand” hosted with SunGard Data Systems datacenter in Philadelphia.

The purchase price was not discussed – PTC does not have to disclose details of deals under $63M, or 5% of the company’s revenue.  But considering NetIdeas annual revenue of about $1M (as reported by Dun & Bradstreet), this was a very easy transaction for PTC, even if NetIdeas got a sweeter deal than the typical 2-3X revenue multiplier, which is not very likely given PTC’s past lukewarm interest in hosted applications.

So why the change of heart? Why did PTC buy NetIdeas?  I suspect this is more a statement of intent in response to pressure from Wall Street and market analysts than a strong belief in a new market opportunity.  In fact, the pricing of hosted Windchill will be based on a per-user price, the same as of a standard on-premise installation. This pricing strategy, which, admittedly, is not unique to PTC, has been one of several reasons for the tepid adoption of cloud-hosted PLM. When I spoke with customers of NetIdeas, GoEngineer and other providers of PLM on demand, they often complained that in addition to the hosting fees, about the need to pay the software vendor for a regular per-user license so that they are eligible for training and technical support.

Going forward, PTC’s wait-and-see strategy may backfire, not so much from existing Windchill customers, which are slow to move to the cloud anyway, but rather from limited ability to exploit future market expansion, especially in smaller organizations that find flexible hosting options much more attractive than purchasing high price monolithic software and the IT resources it requires. The acquisition of NetIdeas will bring necessary expertise and hosting resources in house to compete effectively against ERP and PLM competitors that already have robust hosting offerings.

While current PTC customers are not going to be impacted by the acquisition (or even care), NetIdeas customers should see value in having software and hosting services provided by the same company, although time will tell if this will result in better pricing or the other way around.