GE was already an investor in ServiceMax, having participated in an $82 million funding round last year, and has been a customer since 2010. It is also a major customer of Salesforce, on whose platform the ServiceMax application runs, and which was an early investor in ServiceMax. The company had raised a total of more than £200 million in venture funding.
Both GE and ServiceMax are strong advocates for the concept of 'servitization'. Commenting on today's news by phone, ServiceMax CEO Dave Yarnold says GE's longstanding emphasis on building service revenues had been an important contributor to the deal:
We started working with them back in 2010 and had built a fantastic relationship with a company that really gets it when it comes to servitization. It's been at the core of their business model for at least the past 20 years and they're getting incredible results out of ServiceMax ...
We just have loved working with them. They're straightforward, tough, visionary abd incredibly aligned in terms of seeing what we've been doing in our relationship with them and how they can extrapolate that to a growing economy.
Yarnold says ServiceMax will form the core of GE Digital's offerings for service transformation, one of three focus areas alongside the Predix Internet of Things platform and asset performance management, where GE's $495 million acquisition of Meridium in September provides core capabilities. Yarnold will play a leadership role in this focus area, as he explains:
A third pillar is service transformation which we know is so key to transformation of industrial manufacturing going forward.
I'll be heading up that product line with ServiceMax at the core of that.
Becoming part of GE Digital will allow ServiceMax to accelerate its product development plans and global expansion, says Yarnold.
It allows us to accelerate our roadmap. If we look at opportunity areas around assets — asset-centric as opposed to pure scheduling-centric — there are a lot of opportunities that revolve around maintenance and management of assets, that go beyond field service.
The marriage of all of this to IoT and asset performance management, there's tremendous opportunity there that we were going to go after over time. In discussions we've had with the GE folks, this gives us the ability to accelerate those plans.
We are looking forward to going into the market with a very serious brand behind us.
Yarnold does not expect the acquisition to negatively impact ServiceMax's existing relationship with PTC, another industrial Internet player that also invested in its funding round last year, nor with Salesforce.
My guess is that we're all committed to this relationship and if anything this'll help us to expand it — there's no reason to think otherwise.
Bill Ruh, CEO of GE Digital, told Bloomberg the company had considered developing its own ability to automate and digitize servicing, but instead decided to buy ServiceMax based on its experience of working with the company's products over the last two years. Elaborating in a press statement issued today, he says:
This acquisition builds upon our ongoing efforts to enhance our overall technology stack around the Predix platform and advance our Industrial Internet vision. Improved productivity is critical for the Industrial Internet and digitizing field services is a cornerstone of a successful digital industrial strategy.
Founded in 2007 as Maxplore before rebranding later as ServiceMax, the company achieved its first round of venture finance after it triumphed in a contest for $1 million in funding put up by Emergence Capital for a startup building an application on the Force.com platform.
Jason Green, founding partner at Emergence Capital, told me at the time that building natively on the Salesforce platform meant his company's investment would yield 5x the return on capital that would be possible had they built on their own infrastructure. That was enough to get the company to a point where it could attract larger venture investments to fuel further growth, he told me today.
There was a lot of leverage early on. As the company scaled, it became more of a traditional sales and marketing approach in terms of acquiring customers and scaling those customers. We were able to raise $200 million, and that certainly provided the resources to continue to invest aggressively.
As well as being the largest acquisition to date of a Salesforce native ISV, today's deal also sets a new benchmark for a SaaS acquisition by a company from outside the enterprise sofware world, says Green.
This one is really unique — it's the first billion-dollar SaaS acquisition by a company outside of the software business. This is putting their cards on the table that they're serious.
This is a harbinger of further SaaS acquisitions to come this year, he believes.
If you look at the data for the year, we've had the largest SaaS acquisition in the history of the industry. These are multi-billion deals that are getting done — [the acquirers are] other SaaS vendors, traditional enterprise software vendors, private equity, industrial firms.
You've got this perfect storm of willing and able buyers that see the cloud as the future of their business, combined with an IPO market that isn't very robust. It creates a climate where acquisition is very favorable.
Companies such as IBM will be under pressure to add to their SaaS portfolios, he believes, while others outside the traditional tech industry are realizing the importance of IT and digitalization as a competitive advantage, he says.
Everybody's recognising that it's no longer adequate to have IT as an internal core competitive advantage. You need to turn IT into a customer-facing competitive advantage. They need to beef up their strategic IT capabilities.
I don't think anyone anticipated back in 2008 that Emergence's $1 million investment would launch a company valued at almost $1 billion less than a decade later. Kudos to them for identifying the potential so early.
The journey ServiceMax has undertaken underlines the huge growth in the cloud application space over the past decade, one that's continuing today as established enterprises begin to make the switch to a more adaptable, pay-as-you-go delivery model.
We've been impressed in the past by GE Digital's thinking about the cloud-enabled service opportunity. These are two companies that appear to be thinking on the same wavelength and it will be interesting to see how the acquisition plays out.
The wider takeaway is that this acquisition is a huge endorsement for the SaaS model as well as Salesforce's application platform strategy.