Raimo Lenschow (Barclays Capital): There's a bigger big debate in the industry in terms of changing the business model towards more consumption (or subscription). Can you highlight what you're thinking around that -- if it really makes sense for the industry?
James Heppelmann (PTC): I think we need to separate a little bit what are the vendors saying from what are the customers are saying, because there is a bit of a disconnect there. Let's just look at PTC for a minute:
If you take our entire business, half of it is subscription (consumption) -based, that's our maintenance business. So let's just set half our business into the consumption category.
Of the half that's left, half of that is services roughly, so of our business more or less 25%-30% is license [revenue].
Now within that 1/4, we do offer rental agreements, and some of our customers take us up on them. The principal reason they take us up on them is because they like to think about this cost as an operating cost [OpEx], rather than a capital purchase [CapEx], and we do some big deals in that model.
Now on the other end, there's a lot of customers that say it actually is more economical to purchase the stuff. I always tell my colleagues here in the company: "Do you want to buy a car and be responsible for maintaining it, or do you want to rent one?" And the answer is, "Well, it depends if you're going to rent it for two days, you're better off renting it, but if you're going to use it everyday for multiple years, you're actually much better off buying it."
Our customers are pretty smart about these things, so they're running those models all the time. If that model lands their money on subscription, and we have a model to do that. I'd say it's a pretty small percent of our business that goes down that path, which really means, in our view, there's not yet strong demand.
Now I would never say never; I think the day they will come. But I think that you've got to look at each category of software and ask, "Where is it in its maturity curve?" If it's extremely strategic, then the customer says, "I actually want to develop it."
- GE thinks the industrial Internet is extremely strategic, so they're going to spend $1 billion creating a solution suite for GE.
- Somewhere in the middle people say, "It's somewhat strategic, I can gain an advantage, I have my own views on how to do this, I want to purchase it, integrate it deeply into my environment, maybe even customize it a little bit, but I don't want to spend $1 billion like GE did."
- And then I think at the opposite end of the spectrum, people say, "It's just a utility, I just want to use it."
I think we with PLM are kind of in that middle category, where people, by and large, want to own it. They think it's important. They're putting their most valuable intellectual property into the system. They're a little nervous about sharing that with everybody else, and it should be safe, but then again, we all read stories everyday about all these systems that got hacked and so forth.
And so people are saying like, "I'd rather own it right now. I'd rather have a financial model that's OpEx -- or a financial model that's CapEx." We're trying to really give them all the choices.
You want OpEx, you want CapEx; you want to run it in your IT center, you want us to host it for you -- we can do that. The key thing is just get the value to you as soon as possible.