Opinion: A perspective on the SaaS tipping point in product development

PTC President & CEO Jim Heppelmann talks through the SaaS tipping point in product development, as well as the company’s SaaS strategy during and post COVID-19.

When PTC acquired Onshape in 2019, I shared my thoughts on the future of the product development industry: While the CAD and PLM on-premise (on prem) industry will remain strong for many years to come, the CAD and PLM Software as a Service (SaaS) industry will continue to grow exponentially. The acquisition of Onshape was demonstrable proof of how deeply PTC cares about our CAD and PLM future and how committed we are to giving our customers the “Power to Create” in the ways that best meet their needs.

Since the time when we made the Onshape acquisition, the world has been flipped upside down.

When the COVID-19 pandemic struck, companies across all sectors had to quickly adapt to working remotely. Meanwhile, at home, parents and students navigated through an entirely new way of learning online. We’ve seen extraordinary examples over the past year of businesses, schools, and educators embracing a more digital world, using various SaaS tools for virtual collaboration and innovation – all in the face of disruption on a scale none of us could have predicted.

I’ve said many times before that “digital saved the day during COVID.” What I mean by that is knowledge workers (also known as desk workers) like those of us who work from home, can do most everything digitally – leveraging software tools that allow us to maintain business continuity while collaborating effectively. By enabling work to be done from anywhere on any device, SaaS has been a game-changer during COVID – our research shows that COVID-19 has dramatically accelerated companies’ efforts to evaluate new technologies like SaaS to navigate the challenges of working in a remote environment.

 

Because of COVID, companies are now more seriously looking to adopt SaaS technologies for product development processes, following what they already have done for so many other parts of their business. At PTC, we’re ready to meet that demand with the industry’s leading CAD and PLM SaaS offerings. With our recent acquisition of SaaS PLM leader Arena Solutions, PTC is building on our investment in Onshape; together, Onshape and Arena will deliver a complete SaaS CAD + PLM solution that perfectly complements our existing Creo and Windchill businesses.

Let’s take a closer look at the SaaS tipping point in product development, the benefits of SaaS now and into the future, and how PTC’s strategy has established us as the SaaS leader in industrial software:

Slow SaaS Adoption in Product Development

The field of product development software is far behind most other categories of business software like ERP or CRM when it comes to adopting SaaS. When thinking about when and if SaaS will overrun the CAD and PLM industry, you have to start by digging into why SaaS hasn’t been adopted sooner. In my mind, there are two main factors:

• Performance: Both CAD and PLM involve lots of data and lots of graphics and computation. There must be a reason engineers have had graphics workstations with lots of RAM, and the fastest CPUs and graphics cards on their desktop. Most engineers waited years to see the performance they always wanted – nobody wants to take a step backward.

• Perception of IP security: CAD files capture the design intent with such detail and precision that you can manufacture directly from them – after all, that is the point. If these files are stolen, a competitor could get your complete design and move right into manufacturing. This has led to a belief that, to make sure designs are secure, companies should keep them on their own local network instead of in the cloud.

In recent years, however, we’ve seen a series of breakthroughs that have shifted the perception of these two barriers to SaaS adoption. For starters, network speeds have increased dramatically and are approaching parity with the local network. Even more importantly, SaaS tools have unlimited computation power thanks to the elastic compute resources of the cloud.

If you have a computer on your desktop, well it is what it is, and it won’t be getting any faster until the next hardware replacement cycle. Over the years, many a CAD engineer has started their day by opening an assembly model in PLM and heading to the breakroom to get a cup of coffee while the assembly files are downloaded and the model regenerated.

Compare that to computing in the cloud, where compute resources stretch to meet the specific need. With SaaS, your “computer” is as big as the job needs it to be – if you need 10X more compute resources, so be it. With no downloads, and virtually unlimited resources, you’d be surprised to see how fast you can open that assembly in the hyperscale SaaS world!

On the case of cybersecurity, the mindset has shifted to where most people now believe that a professionally managed cloud environment is almost always more secure than a typical company’s own local network simply because the massive scale and focus advantage of cloud vendors translates into a much greater volume of security resource investment and talent attraction. Every company still needs a cybersecurity strategy of their own, but most now view that greater leverage of SaaS tools is a strategy to minimize their overall cybersecurity problem.

So, we’ve largely mitigated the performance issue, while opening some new advantages for SaaS and reversing our thinking on the security issue. Having removed these barriers, we can focus on the innumerable benefits that already drove most other areas of the software industry to adopt SaaS: cost effectiveness, innovation velocity, collaboration, mobility for a hybrid workforce, elastic compute resources – the list goes on. It’s time those who work in product development enjoy the same benefits of SaaS as their counterparts elsewhere in their company.

 

The Tipping Point in SaaS Adoption

With the SaaS benefits no longer blocked by the traditional issues of security and performance, we’re seeing SaaS adoption reaching its tipping point in product development.

To be clear, the tipping point we’re talking about here is the point at which an unbiased person about to make an on-premise versus SaaS decision looks at the facts and chooses SaaS – meaning, essentially, the scale has tipped in favor of SaaS.

SaaS in Education

We’ve already reached the SaaS tipping point in education – with technologies like Onshape and Google Docs both supporting remote learning during the pandemic and paving the way for a completely new way of learning once schools re-open. The ability to work on any device at any time means students can work on CAD designs on a PC or Chromebook in the computer lab at school, or on their phone on the bus ride, or on a MacBook at home after dinner – all of the functionality and latest data is always accessible because it was never resident on any of those devices to begin with.

Because of the pandemic, schools have had to take education out of the classroom – as a result, students, parents, and educators have looked for alternative solutions and discovered that, with SaaS, learning can happen anywhere, at any time. I see SaaS adoption in education attributed to two things: 1) students are open minded “digital natives” who readily embrace good technology, and 2) schools typically aren’t entrenched with legacy requirements that would be a barrier to moving to the cloud. The workforce of tomorrow (students) are already adopting SaaS methodology and they’ll bring it into the professional workplace as they graduate.

SaaS in Small to Medium-Sized Companies

Schools are at the tipping point now, where a majority of new decisions are in favor of SaaS, and we’re seeing smaller companies approaching that same tipping point. As with schools, startups tend to be less entrenched in their incumbent technology and data; small businesses are, therefore, more willing to try new innovations that might give them a business advantage.

The way it typically works in software is that, after a few years of momentum with smaller companies, medium-sized companies get more interested. A few years of momentum in the mid-market tends to attract the attention of large companies – and this is exactly what we’re seeing now. In software there is an old saying that “death comes from below,” because the larger high-end incumbents don’t typically get displaced by other high end technology; instead, they get displaced by startups moving up market with more disruptive technology that is now maturing to work at scale.

PTC research paints a clear view of the product development market’s perspective on SaaS: the tipping point is here. In a survey of 150 directors and VPs who lead the engineering design, manufacturing design, and product lifecycle management functions for their companies, 91% indicate they are now considering SaaS for CAD, 90% for SaaS for PLM! There has been a dramatic shift in the favorability of SaaS since the onset of the COVID pandemic.

Onshape + Arena = A Complete CAD + PLM SaaS Solution

With all signs pointing to the product development market’s readiness to adopt SaaS, I trust it’s easy to see why PTC made the decision to acquire Arena, the industry’s leading SaaS PLM solution.

CAD and PLM are like peas in a pod – they always go together. The better CAD works, the more companies need PLM, but of course they need both functionalities to be well integrated. So, if you’re going to have SaaS CAD, you’ll obviously want SaaS PLM, with the perfect answer being an integrated solution that looks seamless to the end user.

The significance of the Arena acquisition is profound: The combination of Onshape and Arena establishes PTC as the only company that can deliver a broad and integrated CAD and PLM SaaS footprint.

These two platforms together give PTC limitless possibilities for innovation within PTC’s SaaS business unit, which now includes Arena and Onshape, in addition to Vuforia Augmented Reality Suite.  Already, we are seeing new and more robust SaaS offerings shipping well ahead of schedule on PTC Atlas, a robust platform of core services that can be used to power SaaS applications. We’re excited for what’s to come!

The Long-Term Strategy for Creo and Windchill

Over the long term (say 5-10 years), we believe SaaS will become the dominant deployment methodology for engineering software. We know that our large base of Creo and Windchill customers want to embrace the power of SaaS, but we know they don’t really want to switch tools, either. As such, PTC plans to have two different SaaS application suites: one that offers an unbridled opportunity to innovate (with Onshape and Arena), and another that offers SaaS benefits underpinning upward-compatible versions of Creo and Windchill. We will of course continue to offer on-premise versions of Creo and Windchill indefinitely.

For our Creo and Windchill customers, our strategy is to deliver the benefits of SaaS with no disruption to the way they use those products today. Forward compatibility will be our “north star” and we expect the user experience to be seamless. Today, you can open up a 25 year-old design in Creo and go right back to work on it with the latest version. When we take Creo to SaaS using Atlas, you’ll be able to open your old Creo designs in the cloud and get back to work – but you’ll see all the benefits of SaaS, with upgrades coming all the time because this is all taken care of for you now.

A good model to think of is Office 365 from Microsoft. A few years ago, PTC “upgraded” from Office on-premise to Office 365 which is delivered in a SaaS model. As a power user of the Office suite, I really didn’t notice much difference, other than we are no longer so many years behind Microsoft’s latest and greatest, like when companies were using Office 97 in 2008 or something like that (SaaS is always at the latest version).

What it ultimately boils down to is this: We want to meet our customers where they are, letting you choose the platform that’s right for your business. There are advantages and benefits to both on prem and SaaS platforms – we believe our parallel strategy to pursue SaaS on new and legacy PTC platforms will best position our customers to succeed today and well into the future.

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