Last Wednesday, PTC announced that the company signed a definitive agreement to acquire Axeda Corporation.
Axeda is a small software and services company with outsized visibility in the market to connect machines and sensors to the cloud for business value. PTC acquired Axeda for approximately $170 million in cash which Gartner estimates is an acquisition multiple of just over 6 times revenue. PTC’s pick up of Axeda closely follows the company’s acquisition of Thingworx just 6 months ago. In its press release, PTC positioned the acquisition of Axeda as a direct complement to the PTC ThingWorx business. In my opinion, Thingworx complements Axeda. In fact, I believe PTC needs Axeda much, much more today than they require Thingworx’ application development platform.
My reasoning is based on market needs today. Earlier this year I saw Dr. Jeff Smith of Numerex present at the M2M World Congress in London. In his presentation he had a wonderful slide that alludes to Maslow’s Hierarchy of Needs and applies it to the Internet of Things. In Maslow’s hierarchy, the base is Physiological Need.
In the IoT realm, our most basic Need is Connectivity.
We’re early days in rolling out the IoT. Most of the projects I see are focused on simple connectivity and the monitoring of assets. For many IoT initiatives to get Board level approval today, practitioners need laser-like focus on cost take-out from operations. Hard dollars; not good intentions. As one global Enterprise software vendor framed the sales challenge in a recent conversation:
“ROI demands from decision-makers relating to IoT initiatives is often the equivalent of having to negotiate world peace”
That means most green-lighted projects will be more focused on uses such as the identification of asset usage patterns from monitoring or basic remote control of assets to reduce break-fix and administration activities. Similarly, manufacturers will productize remote software releases and offer rules-based, thresholded monitoring as elements of premium support offerings.
The future is coming but it is not here yet. The general use of machine learning or neural and cognitive automation applied to business processes and assets – in such a fractured and un-standardized technology market – seems as far away as the flying cars and escalator sidewalks that I was promised as a child.
The market will need to learn to walk first before it learns to run….and the hard dollar ROI requirements often mean that Vision has to be self-funding.
This is a good acquisition by PTC and it should have been their first move into IoT. Axeda brings to the table broader capabilities in terms of device and asset management, secure connectivity agents and data management (in addition to application development tools which overlaps with Thingworx’ raison d’être). Additionally, Axeda has a knowledgeable sales organization and a stable of top tier partners that PTC will require to get in front of stakeholders (with whom they have traditionally had little exposure). Axeda will be PTC’s engine of growth in the Internet of Things.
We certainly expect to see more M&A in the IoT space but how much investment is unclear. I speak to a lot of investors and they are still trying to understand the capabilities and value of the hundreds upon hundreds of companies competing in the legacy telematics-M2M-IoT enablement software space (with most of those ISVs generating less than $10M in revenue even after a decade-plus of operation).
My peer, Al Velosa, and I will publish a few documents on this topic over the next few months. Please feel free to provide guidance on the type of information you require for your due diligence (as a User or as an Investor or as a Vendor Partner) in this software market. We’ll work to ensure your needs are expressed in our research.
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