Consolidation in the high-growth IoT Cloud Platform-as-a-Service (PaaS) market continues as another one of the leading “pure play” vendors was acquired earlier this week.
Software AG announced its acquisition of Cumulocity GmbH on Monday , March 27th. The companies had been working together since 2014, and had engaged in a formal strategic partnership in 2016. According to Software AG, the acquisition will help the company bolster its IoT and Industry 4.0 software portfolio, which will be an essential growth-driver in the future for Software AG.
Cumulocity will retain its current corporate structure and brand, and will continue to operate as an independent organization for the foreseeable future.
Software AG, headquartered in Darmstadt, Germany, is a vendor of enterprise software and consulting services with approximately 4,300 employees and revenues of €870M in FY 2015.
Cumulocity was founded in 2010 after being spun out of Nokia, and has approximately 70 employees. The company generally white labels its software for telecommunications and industrial automation companies, allowing these customers to sell device management, monitoring, and analytics as an add-on to their core product. For example, Gardner Denver, a leading industrial air compressor supplier, sells a condition monitoring service based on Cumulocity to help customers track air compressor usage and maintenance statistics.
The acquisition lays the foundation for Software AG to compete in the high-growth IoT Cloud PaaS market, and will complement its recent purchase of IoT analytics vendor Zementis. Cumulocity will also help fill in some of the gaps between its MashZone NextGen dashboard builder and Apama streaming analytics framework by providing a tried and tested infrastructure for edge-to-cloud data ingestion, storage, and presentation.
Cumulocity joins the long list of Pure Play IoT Cloud PaaS vendors that have been acquired over the past few years. Other examples include LogMeIn’s acquisition of Pachube in 2011, PTC’s acquisition of ThingWorx in 2013, Telit’s acquisition of ILS Technology in 2013, Amazon’s acquisition of 2Lemetry in 2015, and SAP’s acquisition of PLAT.ONE in 2016.
The IoT Cloud PaaS market presents a huge opportunity. VDC project revenues in this market to grow beyond $5B in 2021. But the nature of platform economics dictates that the rewards will go to a few top vendors that have the largest and most vibrant ecosystems, as users will rely on a constant flow of community-generated ideas, applications, feedback, and buy-in to generate new IoT services and business models for their products.
Software AG faces the challenge of positioning Cumulocity to compete against massive, feature-rich platforms that promise to deliver at every level of the IoT stack. With established IaaS (AWS, Microsoft Azure), Industrial Conglomerate (Bosch, GE, Siemens), and Enterprise SaaS (Oracle, SAP, PTC) organizations already locked in a fierce battle for dominance, this may not be a realistic option.
Instead, Software AG should look to emphasize Cumulocity’s advantages as a smaller (but well-established) player: flexibility in scale, feature set, strong established customer base, and business model. We foresee a healthy demand for simple, less expensive, white label-ready solutions in the near term as OEMs and device manufacturers look to integrate and monetize post-deployment services through connected platforms.
As new customers buy into larger ecosystems, expecting a “full IoT package”, Software AG is already taking important steps to mitigate the threat from larger established players like AWS, Azure, and others, by building out its analytics portfolio, which will be increasingly important for building useful IoT applications. Additionally, Software AG will be able to leverage its size to draw Cumulocity further into its customer base.
Ultimately, Software AG could have moved slightly earlier to make this important addition to its IoT portfolio, but will benefit nonetheless from the rising tide of connectivity, which we expect to lift all boats in the IoT Cloud PaaS market.
For more information on trends in the IoT Cloud PaaS market, view our recently published reports: The Global Market for IoT Cloud PaaS.