Asglobalconsumptionincreases,IndustrialSoftwareisthe onlywaytoincreaseproductivity,lowerinputsandachieve environmentalsustainability. ElevenyearsafterprominentventurecapitalistMarcAndreesenwrotehisoped“Why SoftwareIsEatingtheWorld”inTheWallStreetJournal,thedigitalrevolutionhasstruck industrialmarketsbystorm.AtthecenterofIndustry4.0isthesoftwarethatnowplaysan increasinglyimportantroleinautomation,optimizationandbusinessgrowth Whatcontinuestodrivesoftwareadoptionacrossassetintensiveandlegacyindustries? Onefactoristheimmensegrowthinthevolumeofdata;previouslyunconnectedassets arecomingonlineandprocessesarebeingdigitizedandautomated.Anotherdriveristhe growingsoftwarizationandvirtualizationofhardware,bothfromatechnologyanda budgetandprocurementstandpoint.Andlastbutnotleast,softwaretodayisonlygetting smarterandmoreintegrated,easiertodeployandatamuchlowercost AreportbyIoTAnalyticssays2022marksthefirsttimetheaveragemanufacturerwill spendmoreonIndustrialSoftwarethanonindustrialautomationhardware Andthey estimatethatfiveyearsfromnowtheIndustrialSoftwaremarketwillbetwiceasbigasthe OThardwaremarket Softwareishere,anditisnoweatingtheindustrialworld. 2022marksthefirsttimetheaverage manufacturerwillspendmoreon IndustrialSoftwarethanonindustrial automationhardware.
Industrial Software is rapidly adopting the SaaS model and becoming its own category: Industrial SaaS.
Havewementionedthecloudyet?NoconversationaboutIndustrial SoftwarewillbecompletewithoutitCloudcomputinghasbecome increasinglyprevalentacrossverticals;andtheIndustrialSoftwareoftoday hasevolvedfromonpremise,clunkyandcentralizedofferingtoasmart, distributedservicemodelNosurprisethenthatIndustrialSoftwareisrapidly adoptingtheSaaSmodelandbecomingitsowncategory:IndustrialSaaS Andwhenwelookbackintohistory,itisfascinatingthattheevolutionofthis seeminglynewcategoryhasmanyinterestingparallelswithEnterprise SaaS.
The20yearperiodfrom2000to2020wasallaboutdigitization ManySaaScompaniesatthetimefocused onbeingonestopshopsforabroadrangeofbusinessfunctions.Thesalesprocessfollowedatopdown approach,andmostoftheofferingswerecommercialofftheshelfsolutions
WhatisIndustrialSoftware?
AbriefhistoryofEnterpriseSaaS
TheEnterpriseSaaSindustrytook40yearstogettoitscurrentformtoday:fromthetimetheconceptwas firstbornpreinternetinthe1960s,totheboomofcloudinfrastructureandprovensuccessesoficonic playerslikeSalesforceinthe2000s.
You may hear a number of different definitions that’s not uncommon anytime a new trend emerges We at McRock define the Industrial Software market as software companies that develop digital technologies to help big industries transform how they operate and address critical challenges for their workforce, assets, processes and business functions Big industries within the McRock industrial theme include sectors such as supply chain, critical infrastructure and mobility, manufacturing, and energy.
McRock's Industrial Software Investment Canvas
2020markedaninflectionwithlotsofpredictionsonhowSaaS20willlookinthenexttenyears Many peoplebelievetheneweraofSaaSwillbepoweredbyAI McRockhappenstoagree.Prognosticatorsalso believetheindustrywillseeadominanttrendofproductledandbottomupapproacheswhenitcomesto salesstrategy.Andlastbutnotleast,SaaS2.0willbesubstantiallymoreintegrated,andSaaSapplications willbecomemorecustomizable
IncumbentIndustrialSoftwareplayers,suchasPTCandAspenTech,begantograbpromisingassetsduring thisearlyperiod;someexamplesincludetheacquisitionsofThingworxandOnshapebyPTC,orMtelland mnubobyAspenTech
Sowhataboutthoseparallelswementioned?LikeEnterpriseSaaS,theIndustrialSaaSspacehasbeen quietlybuildingitsinfrastructuresincethelate1980s Legacydevicesstartedtoconnecttotheinternetin 1999 AndittooktenyearsforsensorpricestodroptoapointwheretheIoTtrulybegantopickupinthe 2010s.
Theperiodfrom2004to2014waswhenseveralenterpriseSaaSunicornswereborn.Thiswasalsowhenwe sawtheemergenceofanewclassofcloudbasedorhybridsoftwarethatcrossedtheriverintoindustrial usecases;thinkenergymanagementorindustrialassetoptimization
Inthelasttwoyearswe’vestartedtoseeproofofscaleforIndustrialSaaS,ascompanieslikeC3aireached the$100Mrevenuemarkandwentpublic Andinearly2022,theiconicdealbetweenAspenTechand Emersonmarkedasignificantmilestoneforthetwocompaniesandthespaceasawhole.
It’snowevidentthatlargeandlong standing stakeholdersaresteppingupinabigwayto competeandgrabmarketsharesinIndustrialSaaS.
TheevolutionofIndustrialSaaS
TakeforexampletheearlyadoptionofAIpoweredanalyticsinsomeindustrialverticals Whilesomelarge enterpriseSaaScompanies,includingSalesforce,didn’tstarttoembraceBigDatauntilHadoopwascreatedin 2005,C3.aihadalreadyshiftedtoanalyticsbeforeitwentpublic.
TheevolutionofIndustrialSaaS Manyofthenewtrendsortechnological advancementsthathavehappenedinthe enterprisespacepost SalesforceIPO,haveseen theircounterpartsonthefieldlevel.
ThemodernenterpriseBigDataandAIstartupsweren’tbornuntillateintheEnterprise10phase,andyetwe haveseenmanyindustrialAIcompaniesstartmuchearlier.Onereasonforthisacceleration?Thetremendous economicgainpromisedbyanalyticsfortheindustrialsectors Anotheristheindustryisatadifferent maturitylevelwhenitcomestoBigData&AIcomparedtotheearly2000s.
ThelearningsofEnterpriseSaaSarefuelingtheaccelerationofIndustrialSaaS
Infact,manyofthenewtrendsortechnologicaladvancementsthathavehappenedintheenterprisespace postSalesforceIPO,haveseentheircounterpartsonthefieldlevel.Lookatworkertrainingand communication,BigDataoperations,orAI/MLOps allgreatexamplesoftechnologiesthathavebeen penetratingbothworldsinalmostthesametimeframe
Thepaceofdigitaltransformationstillvariesintheindustrialspace that’sjusttherealityofanyinnovation.And webelievetherewillbeacoexistenceofbothEnterpriseSaaS10and20characteristicsacrossdifferent segmentsofthemarket.
AndthatlastcharacteristicofthiscoexistencerelatestogotomarketstrategyInsteadofdistincttraditionaltop downorbottomupapproaches,themarketwilllikelyseeacombinationofbothTechnologyadoptionwill continuetohappenthroughalighthousemodel meaningIndustrialSoftwarewillstartwithaspecificlocation, plantorasmallgroupofusersbeforegoingenterprisewide
Second,solutionsthatworkoutoftheboxwillremainappealingtomanycustomers,buttheplatformsandthe toolsthatcancreatecustomizableexperiencesatscalewillalsothriveThere’sroomforeveryone!
Ourtheoryisthatbigindustriesareatatippingpoint,facingprofoundeconomicandtechnologicalchallenges andopportunities,andtheirbigadvancementsarebeingpoweredbyIndustrialSoftwareItdoesn’ttakeacrystal balltoseethealignmentoftechnologicalmaturation,marketdemandandtransformationalcultureshiftsinthe nexttenyearscreatingthebestopportunitiesforcompaniesandinvestorsinthissectortoinvest,growand achievemassivesuccess.Ouryearsofexperienceinnavigatingandsucceedinginthisspacearecertainly helpingtomakethisvisionclear
Bigindustriesareata tippingpoint,facing profoundeconomic andtechnological challengesand opportunities,and theirbig advancementsare beingpoweredby IndustrialSoftware. There’snocrystalball, butwehaveagoodideaofwhat’sonthehorizon Ifyouareanentrepreneurbuilding IndustrialSaaSsolutions,oraninvestor interestedinthespace,let’sconnect. deals@mcrock.com
Whatwillthiscoexistencelooklike?First,therewillbeavarietyofsystemsofengagement,recordsand intelligenceinthespace.Vendorsthatsucceedarethosethatwillprovidesimpleentrysolutionsbutalsothe capabilitytogrowwiththeirclientsastheypreparetoadoptthenextphaseoftechnologyadoption