PTC’s Onshape Acquisition: Did SOLIDWORKS Founder Jon Hirschtick Have to Sell?
Verdi Ogewell posted on October 31, 2019 |

The founder of SOLIDWORKS, Jon Hirschtick, has done it again.

Way back in 1997, Hirschtick sold his 3D CAD desktop firm, SOLIDWORKS, to Dassault Systèmes for $310 million. With PTC’s announcement last week of the acquisition of Hirschtick's newest creation—the cloud CAD company Onshape for $470 million—this is the second time he has succeeded in selling a unique CAD company.

When SOLIDWORKS debuted on the market in 1995, it was the world's first desktop 3D CAD solution and brought 3D design technology to the masses.

Onshape has its own unique characteristics. It’s the first native 3D CAD solution developed for the cloud under a software-as-a-service (SaaS) model and runs on the Amazon Web Services (AWS) platform. Onshape is also equipped with multi-tenant capabilities for collaboration and an aggregated database technology (instead of being file-based).

In short, you rent the Onshape solution over the Internet.

The CAD technology in Onshape is good in itself, but not the most remarkable on the market. Instead what makes Onshape unique is how the solution is distributed, how it helps team to collaborate, and that it is both affordable and easy to start working with. Users can access advanced 3D CAD, integrated PDM, simulation, sharing functionalities, and can collaborate in real-time around 3D models without having to install any software on their own computer. All that’s required is an Internet connection and a browser. 

So, why did Hirschtick, his co-founders and the other partners choose to sell Onshape? Did they have to because the $169 million venture capital was running low? Was it the fact that they only had 5,000 paying licensed customers—instead of the 10,000 they needed to reach break-even? Or was it because Jim Heppelmann, head of PTC, wanted a fixed and ready SaaS solution to match a soon to be explosively fast-growing cloud CAD and SaaS demand?

In today’s article I’ll take a look at these aspects of last week’s big CAD deal.

When engineering.com’s Verdi Ogewell interviewed SOLIDWORKS and Onshape founder Jon Hirschtick (above) a couple of years ago, Hirschtick said that about 10,000 commercial users were needed to run the business at break-even. This has not been achieved at present. Only half that volume—5,000 users—has been reached, according to PTC. A reasonable guess, therefore, is that Onshape has been operating at a loss during their startup journey. On the other hand, Heppelmann believes that this SaaS concept has gigantic future potential, which means that the price tag—$470 million—can be justified.
When engineering.com’s Verdi Ogewell interviewed SOLIDWORKS and Onshape founder Jon Hirschtick (above) a couple of years ago, Hirschtick said that about 10,000 commercial users were needed to run the business at break-even. This has not been achieved at present. Only half that volume—5,000 users—has been reached, according to PTC. A reasonable guess, therefore, is that Onshape has been operating at a loss during their startup journey. On the other hand, Heppelmann believes that this SaaS concept has gigantic future potential, which means that the price tag—$470 million—can be justified.
This is not the first time Jim Heppelmann surprised the market. Over the past decade, the chief of PTC has increasingly emerged as one of the industry's leading visionaries.

At the top of his track record is the early realization that the Internet of Things (IoT) could play an important role in a product’s life and created a solution for this in PTC’s ThingWorx platform.

Heppelmann has also been the driving force behind the development of the market's strongest augmented, virtual and mixed reality (AR/VR/MR) solutions, as well as the creation of practical functionalities for feedback of data from the product in the field or the hands of the end-user to the PLM system through PTC’s Windchill, and making it possible to use that data for innovative product enhancements.

The SaaS Concept Attracted PTC

The SaaS aspects of Onshape are what attracted the attention of Heppelmann; partly because PTC's current CAD solution, Creo, is mainly used by larger corporate customers where the growth of new CAD seats is limited or slow.

During a briefing after the Onshape deal was done, Heppelmann said that PTC’s research on the transition to the cloud indicated that no company so far has been able to port existing systems to the cloud. Generally, all SaaS industry leaders built their solutions natively, rather than porting existing systems. 

Furthermore, Heppelmann noted that 70 percent of the new market in recent years went to Autodesk Inventor and Dassault SOLIDWORKS.

“Today, we see that small and medium-sized CAD customers in this fast-growing part of the CAD market are shifting their interest towards SaaS delivery models. But we also expect the interest from larger customers to grow over time,” he said in a comment.

New CAD system sales and business opportunities are mainly coming from mid-market environments, and PTC wants to have a larger slice of the mid-market pie. Can Onshape prove to be a catalyst in this context, as well as a way to expand PTC’s SaaS business?

Onshape Needed 10,000 Commercial Users

We need to remember that in many respects, Onshape is still a fairly new company. Founded in 2012, Onshape spent the first three years developing their basic product and as a consequence the company didn’t have any revenue. In 2015 they launched the first beta, after which they began to sell the solution.

A massive breakthrough, like SOLIDWORKS’ debut in 1995, has yet to be seen.

“To build a cutting-edge CAD solution isn’t what it used to be 22 years ago, like when we developed SOLIDWORKS. It’s much more complicated. A good analogy is to compare this to what it’s like to build a car today compared to the 1970s. The complexity difference is ‘miles wide.’ Figuratively speaking, it’s a computer and software on four wheels.  It's the same with CAD. Consequently, it takes longer today to develop a unique, not to say CAD system, of the future solution,” asserts Hirschtick.

That said, the pace of development at Onshape is intense. Technologically, it isn’t really until recent years that the product has become a full stack of capabilities. It was only in 2018 that Hirschtick and his Onshape crew launched a full core set of tools on the platform. This lifted Onshape from being a CAD and PDM platform up to much higher levels by adding things like release management, fully customizable workflow, Bill of Materials, configurations, roles-based access controls, analytics, and more. 

One conclusion to draw from this is that the company still is in a development phase where the costs exceed the revenues. So far, Hirschtick has managed to collect $169 million in venture capital including $80 million from Andreessen Horowitz and $64 million in seed funding captured in three rounds from North Bridge, NEA, and Commonwealth Capital Partners.

In an interview a few years ago, Hirschtick told me that he needed around 10,000 paying users to reach the break-even point. Today, PTC states that Onshape has about 5,000 commercial users. These are the ones who pay for subscriptions of the “professional variants” of Onshape and form the revenue generating parts of the cloud solution.

In addition to this group, there is also a significantly larger base of users–“tens of thousands,” according to Hirschtick–who use Onshape's free entry model, which is characterized by less extensive opportunities in utilizing all the capabilities of the software, such as sharing capabilities, PDM and simulation.

Jim Heppelmann believes that “the SaaS model in the CAD and PLM markets will quickly evolve towards becoming the industry's best practice in these and most other program domains.” He further points out that, “the SaaS model enables customers to work faster, improve collaboration and innovation, with lower costs and without an IT infrastructure to manage and maintain.” No one will dispute these conclusions. The question is rather how far into the future this massive transformation to the cloud will take place.
Jim Heppelmann believes that “the SaaS model in the CAD and PLM markets will quickly evolve towards becoming the industry's best practice in these and most other program domains.” He further points out that, “the SaaS model enables customers to work faster, improve collaboration and innovation, with lower costs and without an IT infrastructure to manage and maintain.” No one will dispute these conclusions. The question is rather how far into the future this massive transformation to the cloud will take place.

Did Onshape Have to Sell?

While developing the basic features of the product during the first three years, Onshape had no revenues, but still had costs for development staff–growing from the initially around 50 to the 100 people they have today–and overhead.

Onshape doesn’t reveal any numbers in terms of financial results, but it’s always hard to establish a new technology on the market. Costs are high and revenues initially non-existent—and likely to remain low later on, before financially healthier revenue streams can be obtained. This means that there is still some distance to go before Onshape will reach a break-even point and eventually a profitable business level.

On the other hand, this is outweighed by the fact that Hirschtick’s movement appears to be well capitalized—the $169 million—and capable of covering high development costs during the years of its infancy.

So, did Hirschtick have to sell? My assumption, based on my own rough calculations, is that Onshape still had multiple years of cash in the bank when the discussions with PTC began. From a financial standpoint, and with strong support from his investors, my impression is that Hirschtick didn’t have to sell. However, that doesn’t mean that it was unwise to sell were the right conditions to emerge, which Hirschstick clearly believed were the benefits that a PTC commitment would bring to the table. 

Jim Heppelmann could offer Onshape the “right” SaaS vision, and a strategy to realize that vision, which he has been betting on for several years. Heppelmann has proven multiple times that he is willing to back up vision with action. In addition, he could also offer an effective global marketing environment as well as significant resources in terms of financial strength, additional technologies and product development capabilities.

“As a part of PTC, Onshape can get to more customers faster, and expand the toolset on the platform even further,” claims Hirschtick, adding that, “The tipping point in the market for cloud and SaaS in product development has not yet occurred, but it's coming and we will be there.”

It’s not hard to agree with him. SaaS and cloud companies and business models are well-known to consume capital, but also to build exceptionally strong business models long-term.

There’s nothing strange, unexpected or unusual in this; it’s a natural element of any pioneering work. There are few people in the PLM business who know more about this than Heppelmann, especially after his IoT journey. To change the way people design, the platforms they use and the tools they work with has never been easy. PTC’s own parametric solution, Pro/ENGINEER, is one example of the opposite; SOLIDWORKs is another. However, that doesn’t automatically mean Onshape is the same.

The leap from startup to fully commercially competitive player is long and requires more than the brain that created the original idea—in particular, it needs an organization with financial muscles, an extensive market presence and driven sales capacity, among other things.

Is the Price Too High?

The good news is that PTC is just such a player. The 10,000 users Hirschtick needs has not been achieved at present, with only half of the target so far. It’s definitely not a large community, which raises issues around the $470 million price tag. Is the price Heppelmann paid for the solution too high?

Given both the background and the promising future for SaaS and cloud, I don’t think so. Heppelmann believes that this concept has a future for itself with a great deal of potential, which means that the size of the deal can be justified. Heppelmann has been correct before, when most people shook their heads wondering what he was up to—I’m talking about his IoT bet, and the reactions he generally met during the first couple of years.

In the end, the technology he initiated has turned out to contain unexpectedly great potential. However, the more massive IoT or AR breakthrough still hasn’t arrived, mainly because it takes time for potential users to develop the new business models this requires.

This is a challenge for PTC, but also a huge opportunity for significant growth—as soon as today’s pilots and smaller bets materialize and move to larger installations and expanded models.

Slow Adoption in the PLM Area

Until recently, the PLM area has been sluggish when it comes to cloud adoption. To some extent this is still true, but things have started to move. The ERP arena provides a great parallel; the maturity needed to transform takes time—longer than one might generally assume based on the market rhetoric from big players like SAP, Microsoft and Amazon.

One of the strong messages from Microsoft during its EMEA Directions event in Europe a couple of weeks ago was that, “it is NOW that the cloud is really happening.” Of course, this has been talked about for a long time in these European companies, but the real impact has yet to arrive.

There are several reasons why this doesn’t happen more broadly, but among other things it’s a matter of resources and capacity. Many Microsoft partners simply cannot move more implementation projects than the ones currently underway, despite the need. This may in turn be related to the fact that Value Added Resellers (VARs) have had a tough time adjusting, and a growing number of people are realizing that they need to work with integrations and Independent Software Vendors (ISVs). It’s a complicated process that needs to be thoroughly planned, and competent resources must be close at hand. If not, the implementation of cloud solutions will take longer than expected. In this respect, the PLM area isn’t much different.

Make no mistake, however; both Heppelmann and Hirschtick are right when they claim that it will come, and Onshape can be a shortcut to quick success.

With regard to Onshape, PTC press materials point out that the solution, "is the first product development platform built on 'Software-as-a-Service' (SaaS), which combines robust computer-aided design (CAD) with powerful data management and collaboration tools (PDM). "

PTC also expresses an expectation that this acquisition will, "accelerate PTC's ability to attract new customers with a SaaS-based product offering and position the company to take advantage of the inevitable industry transition to SaaS."

Jon Hirschtick, along with former SOLIDWORKS manager John McEleny, co-founder of Onshape.
Jon Hirschtick, along with former SOLIDWORKS manager John McEleny, co-founder of Onshape.

“The Future Belongs to SaaS Concepts”

Onshape’s head office is in Boston, and the names that appear in the company's founding crowd are familiar to SOLIDWORKS users as Hirschstick brought a number of his former SOLIDWORKS employees into his new project. Onshape’s founders are the trio of Jon Hirschtick, John McEleney and Dave Corcoran—all technical inventors and former managers from SOLIDWORKS.

Onshape’s SaaS model makes it available from all connected sites or devices and eliminates the need for expensive hardware, software installation and administrative personnel to maintain.

In the context of the trend toward distributed and mobile development teams of designers, engineers and others who can benefit from software on the cloud, Hirschtick's solution enables users to sharpen their collaboration and dramatically reduce the time needed to develop new products—all while staying updated with the latest software version.

“We at PTC have gained a reputation for being successful in developing innovative software solutions that drive business growth,” commented Heppelmann. “Based on the strong driving force we have with our CAD and PLM platforms, we see that the future will be to a large extent borne by SaaS concepts. Today's business will support our growth in this area.”

A Logical Step for PTC

Furthermore, this acquisition is a logical next step in PTC's overall business model. The first part of this was the company's transition to subscription licenses, which was completed in January 2019.

“The SaaS model in the CAD and PLM markets will quickly develop towards becoming the industry's best practice in these and most other program domains,” says Heppelmann.

He further points out that the SaaS model enables customers to work faster and improve collaboration and innovation, with lower costs and without an IT infrastructure to manage and maintain. But there are also good consequences for the software developer’s business:

“Yes, the SaaS model has proven to generate a more stable and predictable revenue stream,” Heppelmann continues. “We also note that it increases customer loyalty.”

PTC added that Onshape will function as a business unit within PTC, with current management and reporting directly to Heppelmann.

"I am very pleased to have received such a talented team of technical and skilled business leaders for our company and look forward to taking our business to the next level of growth," Heppelmann concluded.

“I am very pleased to have received such a talented team of technical and business-savvy leaders for our company and look forward to taking our business to the next level of growth,” says Heppelmann.
“I am very pleased to have received such a talented team of technical and business-savvy leaders for our company and look forward to taking our business to the next level of growth,” says Heppelmann.

Hirschtick: "We Share PTC's Vision"

“Onshape shares PTC's vision to help organizations change how they develop products,” said Jon Hirschtick. “We and PTC believe that the product development industry is approaching the ‘tipping point’ of SaaS. The attractiveness of this type of offering will increasingly entail a transition in the utilization of CAD and data management tools to SaaS. This model will improve their competitiveness.”

CAD in the cloud has many points, Hirschtick continued.

“Firstly, this is the only fully cloud-based CAD software. Of course, the cloud platform also means that it is more cost effective than traditional solutions, as well as with upgrades completely disappearing. We release new updates on a regular basis and in a constant stream. As a result, all users immediately—in the same second as the new release—are working on the same version: the latest. Designers can work with Onshape together in their teams via web browsers, smartphones or tablets.”

Built on Amazon's Cloud

Ideologically, the business model is focused on delivering what Onshape does well—and what they do well is primarily producing an easily accessible, habitable CAD tool with various tangible functions. When it comes to things that Onshape does less well, Hirschtick and his team decided to work with like-minded companies to get secondary services such as Finite Element Analysis (FEA), rendering and other tools needed in the app store.

A modern database architecture, an equally modern API and an integrated product data management have been added to Onshape’s cloud CAD solution, and everything is based on AWS cloud.  This makes it well positioned to cope with the latest trends in product development, such as digitalization, analysis and control, among others.

An example of Onshape’s interface.
An example of Onshape’s interface.

Both Direct and Parametric Editing

When it comes to design work, Onshape offers a combination of direct and parametric modeling in CAD, laid out in a single geometric system that takes the model throughout the entire design process from concept and detail design to production documentation. The 3D direct modeling functions, its branch and merge function and its real-time layout make it easy for users to work together in one document.

But there is more: Onshape also offers a new type of data management—one built into the CAD system and with transparent delivery in the cloud. This is a step forward, although Solid Edge from Siemens PLM was the first to offer integrated PDM. But in general, PDM has been considered an "add on solution" for a long time.

Onshape seems to have thought things through the other way around, "actually building a CAD system around PDM rather than following the traditional path," as PLM blogger Oleg Shilovitsky puts it.

In any case, data management is clearly becoming increasingly important for manufacturing companies, which is why new product data management technology is particularly interesting.

We can also note that Onshape, together with Dassault Systèmes, is the only company that builds its database model on an aggregate system, rather than the most common one: a file-based solution. “This means that data is never copied. It’s more like Salesforce’s database, with everything gathered in one place,” says Hirschtick.

How Much Does Onshape Cost to Use?

Onshape offers everything from free solutions to professional layouts with extended functional capabilities. Both variants, free and paid, provide full functionality, but the free solution has limits on data storage and on the number of documents a user can access at any time.

The advantage of the free level is that it makes it easy for those who want to share work in collaborative arrangements similar to other companies' viewer solutions, though it’s more capable than just offering those who are partners in the product development work the opportunity to look at, rotate and turn and zoom in to view 3D models and drawings.

  • If you want a tool to work a little wider, the STANDARD solution costs $1,500 a year.
  • For those who want Onshape's advanced solution package, PROFESSIONAL, the price rises to $2,900 a year.
  • The ENTERPRISE solution starts at minimum $20,000 dollars per year for a whole team.
Simulation in an Onshape environment.
Simulation in an Onshape environment.

Nothing to Install, No License Keys, No Service Packs

But the cloud and browser solution is a big point. This makes the platform accessible everywhere and on all modern devices such as mobiles, tablets and more. Users do not need to download anything, install anything or think about license keys or service packs. In the cloud, on the web, the latest version is always available and always compatible. You do not have to spend time managing file management or PDM issues.

“Check-in, check-out and IT overhead, which come with the old-time PDM system, are history. Onshape's sharing, collaboration and control capabilities are, I dare say, actually revolutionary,” says Hirschtick. He explains that, “It is very easy to share documents with suppliers and partners, as well as the fact that data management is no longer a headache. You also save local storage space and the backup needs disappear. No more lost files or broken links.”

Conclusion: Can Onshape be the Tool That Makes a Difference?

Finally, can a tool like Onshape make a difference? I think so, given that the market maturity for cloud has reach the current acceptance level. The easy accessibility, the simplicity of working in the solution, the real-time functionality, the continuously updated version management, integrated product data management, SaaS ... there are undoubtedly many reasons for this to grow successfully.

Oddly enough, the market for professional 3D mechanical CAD systems is actually smaller than one might think. In my latest article around Onshape, I noted that according to analyst Ora Research, there are currently between 10 and 15 million engineers globally who could benefit from a 3D CAD mechanics solution.

Nevertheless, the number of commercial professional seats is only just over one million. Why? Instead of doing it themselves, many engineers rely on other people in the organization who are 3D CAD-knowledgeable in managing a design.

With the easily accessible and easily managed Onshape SaaS, among other things, the growth potential is high.

However, the 5,000 paying users they currently have hardly justifies the price of $470 million.

That being said, the point is the SaaS capability and technology that PTC gets with the purchase. It is true that there are no major customer volumes to speak of, but if anyone can gain commercial momentum in this project, it will be Heppelmann and PTC.

Let me quote how blogger Oleg Shilovitsky so elegantly formulates it: “Once, PTC was disrupted by SOLIDWORKS and PTC doesn’t want to be disrupted twice (now by Onshape). And disruption starts from the bottom, from smaller customers using disruptive technologies.”

This happened back in the late 1990s, and Dassault’s purchase of SOLIDWORKS is one of the best buys ever made by CEO and president, Bernard Charles. SOLIDWORKS has since been one of Dassault’s primary profit engines for more than two decades.
It wasn’t that big when it was bought back in 1997, but grew in the global commercial environment that Dassault now offers.

Nothing indicates that in PTC's hands Onshape would not be able to do make similar trip.

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