In what was probably the last major announcement of 2013, PTC announced it had acquired ThingWorx, a small Internet of Things (IoT) software platform provider, for $122 million. PTC expects the acquisition will add more than $10 million of revenue over the next 12 months.
PTC sees the ThingWorx platform as a key component of its strategy going forward. Coupled with product lifecycle management (PLM) and service lifecycle management (SLM), PTC wants to be the provider of the most comprehensive set of software tools for manufacturers seeking competitive advantage and increased revenue by designing and servicing the emerging world of smart, connected products.
The press release discussing the acquisition and numerous analyst reviews cite a recent report from the McKinsey Global Institute that estimates that by 2015m the Internet of things will create economic impact of between $2.7 and $6.2 trillion annually. This is huge! And it raises several questions concerning how PTC plans to tap into this splendid opportunity.
How Real is the Potential of the Internet of Things (IoT)?
McKinsey’s estimates for the total market impact by 2025 of the Internet of Things may be correct, or exaggerated one way or the other, as the open and flexible nature of the notion of IoT allows a myriad industries and business models to be considered. Nonetheless, I expect a relatively slow growth for quite some time before we see the beginning of a meaningful cumulative economic impact and hit the exponential growth curve that will bring us to an economic impact of several trillion dollars annually. Why? Several reasons that are somewhat related and intertwined:
- The rosy economic forecast is predicated upon on having a many smart and connected devices that collect and disseminate critical operational information to allow monitoring, analysis and actions. The vast majority of deployed machinery where this kind of capability has sufficient business value, such as industrial devices, factory machinery and mining equipment, are still not equipped to do so. As the cost of retrofitting this equipment can be prohibitive and the refresh rate of these types of equipment is slow, realizing the value of the IoT will take some time.
- On the other hand, the plausible rapid proliferation in connected home appliances and consumer products is not the answer either, because the level of consumer adoption and the revenue potential of home and consumer services are yet to be proven.
- Finally, the IoT space, which until recently was frequently referred to as M2M (machine to machine) communication, is notoriously fragmented. Lack of data collection and transmission standards, hodgepodge of devices and strategies, myriad of players that span the length of the value chain, and yet to be monetized business models, all resulted in a very active space, but one that continues to prove slow to mature.
How Does ThingWorx Relate to PTC’s Other Businesses?
It’s easy to see how ThingWorx platform complements PTC’s service lifecycle management strategy. One component of SLM’s long-term vision is a network of instrumented and connected devices that are monitored remotely, “call home” when a service is needed, or even in advance of a hard failure, and help service organizations deliver highly efficient and profitable service. Absent standard interfaces and methods, the ThingWorx platform helps connect products and data acquisition devices to implement the IoT for equipment monitoring and servicing.
With greater visibility to asset performance and to service operations, product companies can gain critical insight into product quality and reliability and close the loop between design, serviceability and service operations. This is a well understood concept that is seldom utilized because of fragmented product development processes and lack of data and tools to connect these activities.
What are the Challenges for PTC?
While the SLM space continues to grow, and PTC does an excellent job painting the SLM vision, educating the market and articulating the business case, there are inescapable long-term businesses challenges PTC will have to address soon.
Today’s conversations about the IoT are concerned primarily with connecting devices: how many devices may be connected and when (although it’s not always clear enough what they will be connected to and for what business purpose). Indeed, given the current state of M2M and IoT practices, this is a technical undertaking needing a platform such as ThingWorx, Axeda or Etherios.
However, the connectivity challenge will gradually diminish as everything (and everyone) is becoming an always-connected IP node in an ever-present Internet cloud. The potential economic value of the IoT will migrate from establishing conduits to generating and exploiting the value of content. Or, said differently, the focus will move to the edges of these conduits: sensors and data acquisition at one end, and business-specific analytics and high-value services at the other. These are the areas that PTC’s strategy currently lacks.
PTC is in an excellent position to help companies realize the value of the Internet of smart connected devices, and I expect it will continue to pursue the momentum to reach market leadership. My advice:
- In the long run, your business value will come from helping companies implement new business models, not from connecting devices. Gradually build more capabilities at the ends of the IoT network, especially at the high-value business end, and demonstrate your advantage over M2M companies that offer an “end to end” solution, such as Axeda.
- This will require deeper understanding of vertical businesses. SLM isn’t a uniform standardized activity and takes different business process and economic value in the industries that are prime candidates for IoT, such as oil & gas, mining, automotive and factory automation. This will require pursuing “extreme verticalization” to drive market penetration and product development activities.
- Related to the foregoing, customers will expect greater capabilities in analytics and decision support that can synthesize different data sources, both structured and unstructured, the span many nodes of the IoT.
- Ultimately, the value you bring to your customers is in the ability to realize a “digital thread” that connect all product lifecycle activities from concept to service, and provide feedback loops and insights throughout the process. It does not mean that all products must be integrated from day one, and as more capabilities are consumed from the cloud, the easier the integration is going to be, but a detailed and credible articulation of a unified framework and a product roadmap will help elucidate the value of combining PLM, SLM and the IoT, as well as other yet untapped key assets such as MKS, under a single umbrella strategy.