In our 2017 Product and Service Innovation FutureScape, we predicted that by 2019, 75% of global manufacturers will leverage the cloud for key product innovation processes, and 25% replace their on premise PLM systems.
With strong sales performance over the past year of cloud PLM providers Arena Solutions and Propel, as well as the uptick in sales of cloud based PLM and overall subscription revenue from “traditional” CAD and PLM vendors such as Autodesk and PTC, indicators are that the market for cloud PLM is accelerating. Consider the following:
- Arena Solutions, the 17-year old provider of SaaS/cloud PLM, has seen revenues accelerate over the past two years, with double digit year-over-year growth. They recently reported their best quarter ever, with the average deal size 32% higher in Q4’16 over Q4’15.
- Autodesk launched cloud-based Fusion Lifecycle (formerly PLM 360) in 2012 to complement their design focus. Overall subscription revenue for the company grew 15% YoY 2015-2016 – although this is not all due to cloud PLM licenses, recent conversations at their customer event indicates a healthy interest and adoption in their cloud PLM offering by existing and new clients.
- Propel, the two-year old provider of cloud PLM reports rapid growth over the past year of “several hundred percent” and customers using their product across engineering, sales, and service.
- PTC launched its cloud PLM offering in January 2015, and has seen a steady increase in subscription revenue, from 5% of total revenue in 2015, to 10% in 2016. The company also reports that their cloud services business doubled last year.
In our research, we've seen the largest manufacturers show interest in moving some key product development processes to the cloud, such as design review, supplier collaboration, quality, and services execution. The common thread with these processes is that they are collaboration and data intensive, thus requiring a lot of processing power – which cloud infrastructure can provide. As the value chain of design partners for many manufacturers extends to tier one (and beyond) suppliers, design and consulting firms, and academia, establishing an open, easily accessible, scalable platform that helps accelerate innovation becomes mission critical.
Concurrent with cloud based PLM growth, security and analytics are expected to be increasing focus areas for manufacturers. In our 2016 vertical insights survey, when asked which of the following do you believe will have the most impact on your business in the next five years, the top three answers were cloud services, business analytics, and cybersecurity.
Source: 2016 Vertical IT & Communications Survey, IDC, May, 2016
Security has always been an inhibitor to cloud PLM adoption, and it remains critically important during product ideation, design, development, and introduction. Companies increasingly recognize security as a business issue, and thus, they balance business and technical risk to find the optimal compromise. Recognizing this, cloud infrastructure and PLM providers will continue to invest in the latest encryption, authentication, and intrusion detection technology, plus 24/7 data center security monitoring – which is likely more than most small IT teams that manage on-premise systems can do. And as the cloud’s processing power is leveraged to churn through quality and service data, as well as connected product performance and usage information, analytics becomes more important – to power decision support throughout the product lifecycle.
Despite the acceleration of cloud-based PLM adoption for specific processes and full systems, classic design and PDM tools remain a small piece (growing to an expected 4-5% of the market by 2020) of the enormous overall enterprise app cloud market. However, the market for cloud based collaborative applications is large and continues to grow. In 2015, 58% of spending on collaborative apps was done in the public cloud, with that number growing to over 80% in 2020 per IDC’s research – this bodes well for PLM, which is essentially a collaboration system powered by product data, enabling decision support. For PLM, more complex supply chains, increased customer and partner driven designs, and the demand for more customized, local products drive the need to collaborate with a diverse, global team of constituents, For these reasons, and the need to more effectively and quickly manage enterprise quality and service, manufacturers of all sizes are considering PLM in the cloud. I expect this trend to continue, making for an exciting next few years as PLM continues to transform.
In the coming months, we will have fresh cloud usage data on the PLM market and beyond. Until then, as always I welcome your thoughts.