The real reason for the AVEVA acquisition of OSIsoft

Oil IT Journal listens-in to contrasting opinions on the $5 billion acquisition of the developer of the PI System by Schneider Electric’s AVEVA industrial software unit … before catching the big reveal!

Our first witness is Russell Herbert (Aveva’s head of oil and gas) who recently provided insights into the rationale behind Aveva’s acquisition of OSIsoft earlier this year. Herbert was quizzed by Tom Trapel* who observed that while both companies have been ‘dominant players’ in the industrial software space for many years, their coming together into one organization has ‘left many wondering what new developments these changes will bring’ in particular, what will this mean for oil and gas. Herbert responded that there are two sides to the story. Companies like OSIsoft have been talking about data and the value of managing and using data as well as possible. Companies like Aveva are focused on advanced analytics, applications and digital twins. The Aveva/OSIsoft acquisition means that one company now has ‘the data, the applications and the analytics pieces of the puzzle all in one portfolio’. For customers this will mean real world use of digital twins in an operational environment, ‘combining predictive tools with live operational systems’.

A few years ago, the analytics and digital twin paradigms were new to everyone. In the interim, people have been experimenting and have learned a lot. Some customers have tried to deploy this technology into their operations. Often with their own in-house data science teams that are trying to do these kind of programs. This means being much better at managing data, focusing on context, structure and data quality, exactly what the PI system does. PI is now ‘in the middle of all these applications and analytic systems within the Aveva toolset’.

There are ‘big trade winds’ blowing in the oil and gas world at the moment that are ‘pushing the industry towards separating its data and its applications and analytics strategies’. Herbert warned that not all are going in the right direction, in particular, the idea that the historian is ‘just a source of information that we can just suck into third-party data platforms … that’s definitely going in the wrong direction!’

* On the Aveva Intelligent Oil & Gas Podcast.

Next up is no less that Patrick Kennedy who was OSIsoft Founder and CEO until the take-over. He is now chairman emeritus at Aveva. Kennedy was interviewed by Dale Peterson* and gave an informative account of the founding of OSIsoft, its 40 year-long record of successful operations, and an inkling of the rationale behind the sale. What has characterized OSIsoft’s activity over the decades is a focus on occupying a sweet spot between acquisitions systems (Scada/DCS) and applications (ERP, MES).

Back in 1980, the situation in the Scada/DCS world was of multiple, more or less proprietary systems producing data in a range of formats. Kennedy spotted an opportunity and developed the PI data logger/historian along with software interfaces for the multitude of sensors in the wild**. Staying ‘in the middle’ has been ‘in the business plan for decades’. ‘We found that were good at what we do and focused on doing it better and better’. ‘We stayed away from anything that looked like competing with vendors, our goal was always to be infrastructure’. As new protocols came along, OSIsoft told clients that they would interface with ‘anything they wanted so long as we maintained and supported it’, initially at a fixed price of $10k. Kennedy thought that this activity would quieten down after a while but no, the company still spends a third of its development effort on interfaces.

And so to the big question, why sell to Aveva? Kennedy reported that there had been offers to acquire the company right from the outset. The first was in 1980! The problem was that the acquirers ‘wanted us to be their digital force, this would be good for them but not so good for us. Our plan was to be independent broker’. So why sell now? Kennedy sees a great future for data. ‘I think people have underestimated the size of systems by orders of magnitude. Think smart cities with huge systems for water, power, electric cars. Add-in solar on the roof, batteries … the whole thing is beyond capabilities of people. The grid, the supply chain, there are very many systems out there and exploding data volumes and novel data types like streaming video. Reasons which, in our opinion argue for a great future for OSIsoft’s staying in the middle approach’.

In recent years, Kennedy was approached by Kleiner Perkins and other VCs who convinced him that the company needed more cash to finance its expansion, ‘even though we had plenty of money in the bank!’ Kennedy eventually came up with a more compelling reason for selling, ‘One of the reasons was that I thought now was a good time is that .. I’m old!’ (Kennedy is a sprightly 78 year old). ‘It’s time for me to not work so hard’. ‘But there are plenty of good people in the company and we are going on ahead into the big new systems. It’s time to expand, instead of thinking few million points think few trillion. That’s really what’s coming!’

Comment : It sound a bit like OSIsoft has abandoned its ‘stay in the middle’ principles with the Aveva acquisition. Another tricky piece of navigation will face the combined company as it tries to prize the ‘digital twin’ from the hands of its clients’ in-house data science teams.

* On the excellent Unsolicited Response/S4XEvents podcast.

** As an aside, the situation back in 1980 was pretty much the same as it is today. Many in industry looked at the competing systems and decided that all that was needed was ‘a standard’. Kennedy’s lot just rolled up their sleeves and got on building interfaces. As for the standards, they too are still going strong, with almost as many competing standards as there are vendors. The latest in the ring is Universal Automation, from no other than Aveva parent, Schneider Electric!

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