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The Internet of Bling: PTC Acquires Axeda

By Eric Goodness | July 28, 2014 | 4 Comments

Tech and Service ProvidersoutsourcingMobilityMachine-to-MachineM2MConvergence of IT-OTCloud

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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  • Steve Jennis says:

    The term “IoT platform” is used regularly, liberally and in some cases carelessly. In Gartner’s opinion what are the key functional components of an ideal IoT platform (for business-critical systems, not consumer IoT)…….and who are the likely consolidators (other than PTC?) who will bring this vision to reality? No doubt the mega-vendors like IBM and Microsoft will have their own plays, but who are the dark horses poised to pass them on the rails. What key functional components are the hardest to find/acquire and so who are the other contenders to sell for >5x revenues in the next 6-12 months?

  • Eric Goodness says:

    Hi Steve,
    I agree. The term ‘IoT Platform’ is all over the place. After 14+ years of being a Gartner analyst, I’ve learned that strict doctrinal mandates on definitions never work. I no longer fight those battles – internally or with vendors. The market seeks guidance, in generalized terms, on definitions so that users can perform due diligence and vendors have a reference point for development. The key features and capabilities I’m tracking are:

    Authentication & security
    Service management
    Device management
    Data aggregation & analysis
    Metering & billing
    Usage management & optimization
    Complex event processing & automation
    Integration & API management
    Application development

    It is way too early to pick winners and losers in this market. I think PTC’s spotlight and attention comes from having the presence of mind to cobble together an IoT Platform; not that they’ve cobbled together the best platform.

    We’ll have our first IoT Platform doc out in August. We’re glad PrismTech will be part of the analysis.

  • With acquisitions like these heating up the Internet, it’s no wonder why mobile device [anything] and development platforms are becoming the hottest trends out there. At 6 times revenue according Gartner, Maslow’s Hierarchy of Needs boosts Axeda to the top triangle.

  • Bryan Kester says:

    Eric, totally agree that it is early days and that connectivity is an important and valuable first technological step. Also agree that your criteria for what constitutes IoT-ish capabilities is on target.

    On the “world peace” front—-IoT and M2M projects involve 80% to 90% of budget going to devices and connectivity. There isn’t room today or possibly in the foreseeable future for many six figure, first year application software sales into such projects. So it’s not surprising a large enterprise applications vendor feels like they are selling uphill… If they aren’t a cloud- or SaaS-oriented organization from offering to sales model, this is a hard ride.