In the Q&A (paraphrased below), notice that analysts seem puzzled that Autodesk is doing so well when their background data indicates softness in several markets. Autodesk, meanwhile, emphasizes repeatedly the profits from future upgrades to 3D.
Sources of Increased Revenue
Q: Over the past several years, the objective of Autodesk has been to increase the revenue-per-customer, particularly through subscriptions. Do you have any data on this?
A: Moving customers to 3D is the automatic driver of average-revenue-per-customer, even more than more products. 3D is 25% more expensive to 4-5x more, and then that rolls into subscriptions. 2D [AutoCAD] growth is in at 20%, 3D at 93%.
Q: You said your software is easy-to-use. What could increase service income, which would detract from ease-of-use?
A: Our goal is to have our solutions work out-of-the-box. Our service business helps us make our products easier to use, not generate more revenue. Still, our software is getting into more complex projects, and sometimes the customer want process help, not software help. Our target is that our customers use our software themselves. If we have to send consultants all over the world, we won't sell much.
Softness of the Market
Q: We have some data indicating softness in the automotive sector in the Midwest. Would that be too small to affect you?
A: I wouldn't even know where you got that data.
Q: We talked to some resellers in the Midwest who told us that things had softened in the last quarter.
A: I don't know who you talked to, because we haven't seen that at all.
Q: Do you see manufacturing recovering in Europe? There have been some concerns about Germany and some other countries.
A: Actually, it's been very strong. From our standpoint, we think Germany is on a much better trajectory, and the East Block [Eastern Europe] is doing extremely well. As far as we're concerned, it's better news than a year ago.
Q: There appears to more use of your architectural products in the housing sector. Is there any way to quantify this?
A: Housing isn't as much into architectural software as it is in Buzzsaw. When they put up 2,000 homes in a subdivision, you don't get 2,000 different designs, but ten. The design part of that market is not a big market. It's the process control, the data management that's the biggest part.
Subscriptions
Q: You offered some discounts on subscriptions. Can you give some color [additional information] on that?
A: We do discounts, and we'll do some of that in the second [financial] half [of the year], but it's less. We encourage customers to look quickly at the new releases. Part of it is to get our customers acclimated to the fact that they should be on the newest technology, and it should be on a subscription.
Q: Have you had any experience on subscription renewals?
A: The vast majority of our [subscription] customers renew.
Q: After an obit, what percentage is left on the table? ["Obit" is an Autodesk term for disallowing major discounts on upgrade pricing.]
A: We have that data, but we have never made it public. We have a group of customers called the "legacy pool."
Q: You have 17% on subscription. What's your target for the future?
A: About 30% of our business is renewal: subscriptions and updates. I don't want it to be larger, because 70% is new seat-growth.
Part II of this Q&A tomorrow.
I am puzzled too, because given that 3D is moving towards the mainstream, and therefore will cost less, it's hard to see how the cost of 3D is anywhere near as high as Autodesk seems to think.
It would seem to me, that Autodesk wasn't referring to cost of 3D in general, but rather the artificially high cost of "Autodesk-compatible 3D".
Posted by: Tony Tanzillo | Aug 24, 2005 at 09:34 AM
It's more a case of Autodesk dangling the promise of higher profits in front of financial analysts.
The problem with having an all-time-high share price is that it now has to go higher!
And higher.
Posted by: ralphg | Aug 24, 2005 at 09:44 AM
I work in a VERY small architectural practice these days (mind you, it's great to not have to worry about office politics etc.) I would like to move to REVIT, not Architectural Desktop, from AutoCAD 2002 LT, but how do I justify the $10,000 Aus $ investment per licence. Autodesk's pricing policies simply puzzle me, especially the ever-increasing cost of LT.
Posted by: Robert Israel | Aug 28, 2005 at 08:01 PM