While Ansys, Autodesk, Cadence, Dassault Systems, PTC, and Siemens collectively make up the majority share of the CAD and PLM market, as digitalization and 3rd platform technologies (cloud, mobile, big data/analytics, social) become more prevalently used, there are smaller PLM vendors that have had success over the past three years. This includes companies such as Arena Solutions and Aras Corporation, which both offer configurable product innovation platforms that can scale on their own, or tie into existing, legacy CAD/CAM/CAE and PLM systems as the product development project and program layer. Aras offers their products deployed in on premise and cloud environments (or a mix of the two), while Arena Solutions is 100% SaaS cloud.
In the past two weeks, Arena and Aras both received infusions of cash from the venture capital community: Arena Solutions a strategic growth investment (undisclosed amount) from JMI Equity, as well as a minority stake from BA Venture Partners and Otter Capital, and Aras $40M from Silver Lake, as well as a minority stake from GE Ventures. Both JMI and Silver Lake will have one seat each on the board of directors of the respective companies.
Silver Lake is no stranger to the PLM market, having funded UGS back in the day, when (now Aras board member) Tony Affuso was President and CEO. It’s all about connections. This experience with R&D, engineering, and PLM, combined with substantial financial support, will certainly benefit Aras as they continue to compete with the “big guys” in PLM. The minority investment by GE Ventures will as well: bringing a manufacturing plant lens to the product lifecycle is critical with the dynamic demand, extended supply chain, and quality requirements that all manufacturers face today.
JMI Equity’s expertise is in growing small, sub-$50M companies like Arena, presumably through product and people investments - however, Arena only indicated there are “a number of things” they are looking to invest in now. Arena’s recent focus has been on expanding its SaaS PLM offering to include quality management and ALM (application lifecycle management) capability, primarily in its sweet spot of the high tech and medical device markets.
Although Aras and Arena have received multiple (mostly) small rounds of funding over the past 10-15 years, the size and timing of the funding is notable. $40M and a strategic investment from seasoned tech industry investors are votes of confidence in the cloud PLM market as well as in flexibly deployed, hybrid PLM (cloud, and on premise) - recognizing that manufacturers are looking for flexible, cost effective, and in some cases, complementary, PLM capabilities. Open, flexible, cloud based PLM is appealing to a greater number of manufacturers today, and it’s not only small and medium businesses. The market has been moving steadily toward a subscription based pricing model, and the market for cloud based engineering and R&D applications is following closely behind. We think as manufacturers of all sizes move through the upgrade cycles of their on-premise systems over the next three years, that many will move completely to a cloud based approach, or at least with certain key product development scenarios. Arena, Autodesk (FusionPLM), Propel (SaaS PLM), and PTC (SaaS PLM launched in 2015) have all seen double digital growth in the cloud SaaS offerings over the past 12-18 months. Our recent Product and Service Innovation survey data shows the majority of respondents have at least some of their PLM-related apps in the cloud – notably quality management, service, design review, and supplier collaboration.
There will probably always be an element of on premise apps supporting product or formula design, product data management, development, and collaboration – either driven by compliance and regulatory concerns, or the perceived risk of sharing product IP in the cloud. And some manufacturers will always prefer to work with a large and/or well financed company, vs. a smaller SaaS or hybrid cloud vendor – hence why the infusion of cash is critical for Arena and Aras at this inflection point in the market. For others, the benefits that cloud PLM provides of speed to market, rapid time to value, easier collaboration with external constituents, and flexibility of usage outweigh these risks; a product innovation platform for these manufacturers will be completely cloud based. It’s for these reasons that large, classic PLM companies are rapidly developing cloud based SaaS offerings, and why smaller, cloud PLM vendors need VC money to expand their product and service offerings, and stay competitive.
I’ll continue to follow the growth of cloud-based product design, development, and lifecycle management in the coming year and beyond. Although PLM users have been late to the cloud game compared to other enterprise application areas, they are rapidly catching up and vendors in the market are working hard to keep pace.