CIMdata's Vice President, Stan Przybylinski, recently sat down with Kevin O'Brien, Divisional GM of the PLM Segment at PTC, to learn more about the company's cloud strategy.
Let's find out!
The content was edited for length and clarity.
How important are cloud-based solutions to the strategy of PTC?
Kevin O’Brien (KO): I would say from a Windchill standpoint, we’ve been in the SaaS business - offering PTC hosted and managed Windchill for many years.
Stan Przybylinski (SP): 17 years, I believe; I think you guys first got into it back in 2003.
KO: Windchill’s 100% web-based architecture was originally designed to easily integrate with existing IT, internet, and security infrastructure for agile/flexible remote work and multi-site collaboration. With Windchill already “cloud-ready” and other strategic enterprise applications, like ERP and CRM in the cloud, we logically started looking at PLM in the cloud.
In 2013, we acquired NetIDEAS to start the journey. While most of our customers were not ready to make the move, we knew directionally this is where they all would eventually want to go. In 2017, we continued down the path with the introduction of Windchill SaaS. And last year, we further invested with the acquisition of Onshape, a SaaS-native CAD application. While we are still in the early days of PLM in the Cloud, many companies have already made the move. SaaS delivery is now a material part of our business. In our FY20, which ended in September, Windchill SaaS represented 10% of our total annual recurring revenue (ARR) for PLM and is growing. In FY21, we anticipate that 20% of our new Windchill bookings will be delivered as SaaS in the PTC Cloud. COVID-19-related remote work requirements have accelerated this trend and further put a spotlight on cloud-based collaboration.
Windchill’s SaaS offerings also meet strict security safeguards and compliance requirements such as FedRAMP & Impact Level 5 (IL5), for the Department of Defense, and Medical Device validation of the software to expedite FDA approvals. The IL5 certification is one of the big reasons we won that U.S. Navy expansion – the large contract that we announced earlier this year. To me, it speaks to what we can deliver in terms of security because we have some of the most secure, the most reviewed types of environments that we offer as SaaS. We have an ability to answer those questions from customers that are a little more concerned.
SP: Well, that’s really the question. There’s a difference between SaaS and then how it is delivered. That’s part of the issue with this whole space. People talk about solutions delivered on the cloud, and even if you say it’s using cloud infrastructure to deliver it, there’s a wide range of what that could mean.
KO: From our customer’s point of view, there is cloud deployment AND SaaS delivery. Windchill is certified to run on AWS and Microsoft Azure, which means that we have optimized Windchill for both environments and provide “cloud” deployment guidance. Customers, in this case, run our software in the cloud themselves or with the help of a system integrator. This is Windchill “deployed” in the cloud. Windchill SaaS, which I referred to above, includes both the Windchill application and application support (PTC running and managing Windchill in the PTC cloud, which refers to the PTC Managed Cloud Service hosted on AWS and Microsoft Azure). We take care of the software and the hardware including security, performance, scalability, etc. The customer receives a URL and is ready to go with the software/hosting/managed service wrapped together. All upgrades and updates are included, as well as dedicated production and non-production environments, storage allotment, and 2D and 3D CAD Publishing. In this case, Windchill is delivered as SaaS AND is deployed in the PTC cloud. From an IT perspective, cloud deployment means having to manage multiple partners in the cloud with lots of points of failure. SaaS represents less overhead and faster time-to-market.
Two examples:
For the U.S. Department of Defense, not only does it cost millions of dollars to run applications in their own data centers, obtaining security permissions to run in the cloud is onerous and time-consuming. Windchill SaaS enables collaboration and access to product data from anywhere with a SaaS environment appropriate to the level of information security required (Public Cloud, FedRAMP, IL2, IL4, IL5). It also features an Information Security Management System based on ISO 27001:2013; Certifications / Compliance include FEDRAMP, DISA IL5 PA, ITAR, SOC 2 TYPE II; disaster recovery with backups streamed offsite, and 24x7 data center, server and security-level monitoring.
For Medical Device Manufacturers, Windchill SaaS is validation-ready, enabling our customers to reduce the cost of poor quality (COPQ), improve compliance with government regulatory requirements, and improve new product introduction (NPI) cycles and performance.
SP: You said you get requests for some others. Do you mean offerings like Oracle or IBM or Google or another provider? Or is it something more exotic?
KO: We provide our customers with complete flexibility to deploy in the cloud of their own choosing. For example, Google is a Windchill customer and, surprisingly enough, they would like to run Windchill on the Google Cloud. We want to support them, of course. For Google or any customer that wants to deploy in a cloud environment that has not been validated/tested by PTC, we provide a platform certification matrix. If they are running Windchill at the right operating system level, that’s no different than running it on servers in their own data center.
Please describe the ecosystem of infrastructure, applications, and partners that are part of your offerings?
KO: We already spoke about our focus on AWS and Azure. Our IL5 capability runs on a different cloud, a set of servers under our own control within a Sungard data center. Historically, Sungard has always been one of the most highly secure providers. We are also exploring AWS and Microsoft Government Clouds.
For our medical device validation, mentioned above, we partner with USDM Life Sciences to deliver a compliant SaaS solution supporting the healthcare industry to bring new and enhanced products to market. USDM Cloud Assurance provides validation for Windchill SaaS, enabling customers to meet FDA’s 21 CFR Part 11 and global computer system validation and computer software assurance requirements.
SP: What drove you guys to pursue this certification? Was it a particular client? Or was it just because you’re so heavy into aerospace and defense (A&D) that you felt you need to have it?
KO: Defense is such a big vertical for PTC. But you know, for some of these workloads they just don’t have an option; it must be IL 5. You know what’s interesting with this Navy contract is that we moved their deployment timeframe up by a year. In their original plan, it would have taken much longer to get their own environment up and running. We were able to set up an IL5-certified environment much faster.
SP: There’s certainly a lot of opportunity in that space.
KO: From a compliance standpoint, we have many customers in the medical device industry. We’re running the traps and pre-certifying those environments, so the end customer doesn’t have to. It’s a base level requirement in that market. The fact that we have those certifications in a SaaS environment, like the Navy example, helps our customers get to market faster. It is a big differentiator for us.
SP: You talked about Azure and AWS as being your focus for cloud-based delivery, and then with your own, what about on the partner side? Do you have particular partners that you work with?
KO: We have channel partners that sell Windchill SaaS and complementary migration/configuration services. I think you also see some of the big global system integrators (SIs) get involved in customer projects where they might be moving PLM amongst a program or portfolio. Things are going to cloud, so you’ll see them get involved sometimes in those migrations where they are moving customer implementations from on-premise to the cloud.
How does your solution and its go-to-market address the issues raised by your customers and prospects (e.g., packaging, licensing, deployment options)?
SP: Clearly, based on your revenue growth, your pricing and packaging and how you deploy must be hitting a nerve with customers. How does your approach cover the issues most often raised by prospects? What is it that you guys are doing that gives them comfort regarding your approach and their ability to work successfully with you?
KO: We’ve been at it for a while, so we can show them the types of numbers they’re going to save. We’ve got a pretty robust modeling technique to go in and calculate what they spend now, what PTC will charge in a SaaS model, and here’s what they’ll save. That kind of TCO approach is well-baked at this point and allows you to move through a sales cycle and give some assurances of the savings they’re going to have.
Some of the softer benefits we probably have a bit more confidence speaking to now, once somebody’s in SaaS. It’s a heck of a lot easier to add additional seats, whether it’s in their supply chain or in their organization. It’s a more flexible model and a more seamless process for them to extend the value of the application within their enterprise and out into their suppliers. Look, I think historically the customer base that’s familiar with PLM has an awareness that the upgrade process is a lift and taking that off their plate is something that’s of interest to them.
How would you describe your primary target customers (e.g., startups, small to medium sized enterprises, anyone)?
KO: Our core target customer really does not change – generally medium to global enterprise scale discrete manufacturers who manufacturer complex products that benefit from PLM.
SP: Some providers in this space are more BOM-centric than CAD-centric. Would a 500 seat customer with no CAD data management be a good prospect?
KO: Sure, we have no issue with supporting that approach. But our target customers typically have complex requirements. They have a big user base, they must customize some things, and they have to integrate with a number of systems. Most of them need real integrations back into design tools, like CAD.
I think there’s a fundamental misconception sometimes where people think that the 3D data and the visualizations are an engineering-centered concept. What we find in our customer base is that as PLM gets usage out into the supply chain, procurement, manufacturing…to people outside of day-to-day engineering, the visualization capability massively increases the ability to collaborate, and it is also a big differentiator in closed-loop quality. Rather than having people dig around in flat product structures and dig around in documents, they have a 3D model that has all the data attached to it. It irons out a lot of problems as you can try to communicate the engineering intent throughout the enterprise.
Can you provide any information on your installed base that are in production: how many customers, their industries, etc.? How well has it been growing recently and what do you expect over the next 2-5 years?
KO: We have changed our business model from perpetual to subscription, and we do the lion’s share of our licensing on a subscription basis. When I talk about SaaS, I’m talking about where PTC is running the application, running the stack for the customer. The customer gets a login, and they log into it, but they’re not running any of the applications on-premises.
We currently have about 200 customers for our SaaS offering.
Q: How are your offerings going to evolve in the short to medium term (1-3 years) – what are the primary themes/strategy on your roadmap?
KO: SaaS provides the opportunity to move our customers into a more timeless innovation band where they can deliver more innovative products faster as they are not gated by their IT departments. Think DevOps meets engineered products. We are evolving Windchill SaaS, based on the Onshape Atlas platform, towards making moving to new technology as effortless as possible. Over time, we will be able to automate this more and more. Windchill SaaS will offer more flexible collaboration with new paradigms for design, manufacturing, and supply chain no longer beholden to serialized ways of working.
Another reason to get to SaaS is that way more machine learning and analysis can be done. You cannot do AI if you don’t have data. With more of our customers in the cloud, it provides the opportunity for us to provide insights, increased automation, and collaboration based on PLM data.
And we will continue to improve the total cost of ownership compared to on-premises (hardware and people) as we evolve the Windchill architecture to look more like a cloud-native application like Onshape.
SP: Will the two solution lines come together on SaaS?
KO: That’s a good question. We’ve been doing a lot of modeling exercises in terms of adoption and adoption rates. Today there is no model where you get everyone into SaaS. You know, we certainly don’t have an expectation that everyone is going to go. But it’s still a worthy business, even if they don’t all go, and important to know that we have a commitment to it.
SP: Thanks for the very informative conversation. Have a great day.
This blog post is part of a collaborative research program on adoption and use of cloud/SaaS PLM solutions. CIMdata is looking for industrial respondents for a survey that CIMdata is running on this topic: [Take the Survey]
We look forward to hearing your comments and hope you are able to take the survey!
Stan
* At the time of press for this interview, PTC announced a definitive agreement to acquire Arena Solutions, a pure, multi-tenant SaaS PLM provider. The acquisition needs government review before it can close, but PTC expects the acquisition will directly complement its Onshape pure, multi-tenant SaaS CAD, and PDM solution. This combined solution will nicely complement PTC’s existing Windchill and Creo businesses by expanding the company’s presence in the attractive mid-market, where SaaS solutions are widely adopted.
