In June 2018, PTC and Rockwell signed a US$1 billion equity agreement to align their respective smart factory technologies. The immediate result was the creation of the FactoryTalk InnovationSuite, powered by PTC, an integrated offering that combines PTC’s ThingWorx, Kepware, and Vuforia with Rockwell’s FactoryTalk Manufacturing Execution System (MES) and FactoryTalk Analytics platforms. Since then, the Alliance has served nearly 250 customers, created a Factory Insights as a Service offering (IN-5850), and seen a growing number of companies expand their engagement. Now, on the heels of a record quarter, the duo is expanding and extending their contract another two years, through FY23. This Insight reviews and dissects the most notable changes.
Comprehensive Digital Thread
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IMPACT
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Under the new terms, Rockwell has the right to resell PTC’s Windchill and Onshape products (in addition to Thingworx and Vuforia), while PTC has the right to resell Rockwell’s Emulate 3D products. Also, Rockwell’s commitments to PTC shift from ACV to ARR, which means accountability for renewals in addition to new bookings. The overall idea is to simplify the operating model and increase field collaboration; the shift from ACV to ARR is better aligned with the trend toward subscription-based offerings.
Another important element pertains to go-to-market. Rockwell is PTC’s largest Thingworx and Vuforia re-seller. Furthermore, in February 2020, Rockwell acquired Kalypso, a U.S.-based consulting firm which helps companies in the life sciences, consumer goods, and industrial sectors improve product design and development processes, production management, and service delivery (IN-5773). Kalypso is one of PTC’s best PLM and IIoT GSIs in terms of implementation, which benefits the sales cycle.
The last piece of the puzzle is Emulate 3D. Emulate 3D was a potential acquisition target for PTC before Rockwell picked it up in 2019 and could be one of several pieces that help the two companies present a comprehensive digital thread offering. For example, there are already built-in emulations between Emulate 3D and CREO.
Two-Way Street
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RECOMMENDATIONS
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For a long time, Rockwell’s main Industrial IoT (IIoT) businesses have been oriented around condition-monitoring solutions—which include sensors, integrated hardware, and predictive maintenance software—as well as energy-monitoring products, which are hardware components with associated software that manage power use to improve equipment Total Cost of Ownership (TCO). The PTC relationship bolsters these capabilities with additional technology elements (IoT, AR) to provide a more comprehensive digital thread solution (from upfront design through operation, maintenance, and optimization) and serves to make Rockwell a serious U.S.-based contender for E2E digital automation.
When the announcement was first made in 2018, we pointed out that there are two ways to create shareholder value: financial and strategic. Financial value is found in terms and conditions and is measured by multiples of revenue, earnings, sales growth and profitability. Strategic value has to do with how a company’s product or market position can help or hinder that of another. Strategic value is measured not by the value added to one company, but by several companies’ collective success. Ultimately, strategic value is more important because it drives financial value.
The original arrangement gave Rockwell 9% of PTC, and PTC got a strategic sales channel and partner. It also made sense because the two had been working together for years, with major deployments of Windchill, ThingWorx, and Vuforia at Rockwell’s 17 manufacturing plants around the world, among other examples. Now, it’s clear that the deal is delivering strategic value for both companies. For Rockwell, it’s a digital factory automation solution and set of foundational technologies that help it pivot more toward software and services in addition to better penetrating competitive accounts. For PTC, it’s a key channel and implementation partner that provides great access to new logos (so far, 70% are new logos for PTC). For both, it’s the ability to offer a digital thread or combination of tools—many of which are best-of-breed—to a wide range of customers.
While IoT used to be a lot of trial and error (and there’s still a lot of testing and learning going on), companies are increasingly starting to favor packaged solutions that target specific needs of buyers. This is one of the reasons PTC has seen an increase in combo deals, which are deals where customers buy multiple products at once. This only makes the addition of Windchill, Onshape, and Emulate 3D more significant in terms of options and capabilities. In the future, ABI Research expects announcements in the areas of simulation, virtualization, and collaboration.
