Autodesk’s annual Autodesk University conference -- for customers, developers, resellers, other industry partners, and a gaggle of analysts -- reinforced several recurring themes about the company, namely its almost unique position in the industry in terms of the breadth of its product portfolio for addressing multiple end-market design technology requirements.
Attendance was up nicely from last year, though not back to pre-recession levels. The conversations with various relevant channel partners suggest that the business is doing well (though not back to 2008 levels in every case, as we can see from Autodesk’s own recent segment results), but the trend is right, including in Europe (Autodesk’s largest region).
Suites: Autodesk and Adobe
After a long period of strategic gestation, suites are now one of the company’s most significant business and product initiatives. The channel partners concur that Autodesk is “very serious about suites”, though there is “more to do” to prepare the channel for the major spring 2011 launches the company has spoken of. One of the things that Autodesk will have to do, as with all such suites strategies, is to do establish the “right” type, mix, and number (not too few, not too many) of configurations for the new offerings.
With so much attention now being paid to the suites initiative at Autodesk, and with Autodesk’s having looked to Adobe over the past few years as a “model” for suites, it is interesting to consider some differences between the two companies:
First, Autodesk is already doing just over a fifth of revenues from its current suites portfolio, including the three it introduced this year. When Adobe launched Creative Suite seven years it had been getting about 12%-15% of its revenues from the predecessor bundles/collections;
Second, Autodesk says it will probably not terminate the existing set of suites when the new ones launch, unlike Adobe, which quickly terminated the pre-Creative Suite products;
Third, if the proportion of maintenance in total suites revenue is comparable to the overall corporate average from maintenance (including maintenance from standalone products), we can infer that about 5%-7% of Autodesk revenues is already coming from suites maintenance, not a huge proportion but still better than Adobe’s recurring revenue proportion. The attach rate and renewal rates for suites maintenance is likely to be high, as with the standalone applications, consistent with the usual industry practice in Autodesk’s addressable markets;
Fourth, it remains to be seen (or at least Autodesk isn’t counting on its occurring) whether the Autodesk suites ramp will match the steep revenue trajectory of Creative Suite in its first few years. The addressable markets are similar in some respects but Adobe very likely has a larger unit opportunity. Autodesk’s suites revenues were $107 million last quarter, from more than a dozen available suites, while Creative Suite revenues were more than $350 million, from six configurations (the best-selling selling flavor of Creative Suite, Design Premium, seems to generate more annual revenues than all of Autodesk’s current suites together). Nevertheless, in the end, it’s likely that Autodesk’s suites could prove to be largely incremental to new license and maintenance revenues, given that Autodesk is the highest-volume supplier in technical software. With higher average revenues per seat likely, the effect will be incremental to operating margins as well.
Fifth, after the release of Creative Suite, the principal standalone Adobe apps, e.g., Photoshop, had by and large flat revenues, as opposed to a significant falling off. (Indeed, gross Photoshop eventually started to grow again, before the recession, with the introduction of the high-end Photoshop Extended.) It will be interesting to see if there is a similar effect for Autodesk, most especially as it relates to AutoCAD, its largest product (about a fifth of revenues, including maintenance and upgrades). Thus far, over the past five years, even with the rise of model-based design, standalone AutoCAD continued to account on average for half of all AutoCAD-based units (with average annual volume of more than 100,000 units for standalone AutoCAD).
Finally, for those closely tracking the company’s subscriptions metrics, e.g., deferred maintenance, seats under maintenance, it is important to note that to date the company has been counting each of the component apps in a suite as a seat under maintenance, i.e., if, say, a customer bought Revit Architecture Suite with maintenance, then each of the three constituent apps would count towards the maintenance seat base. Apparently, the future suites, including the three new ones introduced so far this year (Plant, Factory, Design) will be counted as a seat. Over time, the seat number will become less indicative (unless of course it goes flat or down), while billings (about $800 million for the trailing twelve months, up 13%) and deferred maintenance will remain highly relevant.
Customer Views: Then and Now
As it has done for the past several AUs, Autodesk arranged a customer panel for investors. The panel consisted of a small cross-section of Autodesk’s customers in terms of size and end-markets, including Intel (semiconductor facility layout), Ford (where the Autodesk products are used more for manufacturing facilities layout, etc. than actual vehicle design), Worley Parsons (an Australian engineering company), and Little (a US AEC consulting firm).
At the panel two years ago, the main themes were that:
3D is here to stay (but so is 2D). The adoption of model-based design (otherwise known as “3D”) is well established. Nevertheless, many customers will continue to use (standalone) AutoCAD (as discussed in the section above). I would reiterate a market observation, namely that the usage trend is 2D and 3D, not just 2D to 3D. Autodesk clearly continues to advance the AutoCAD-based technology (which is no longer strictly a 2D product in any event), e.g., DesignScript, a new programming language for AutoCAD. .
Pulling the pieces together. One of the requirements from Autodesk that was very much highlighted had to do with the integration and management of multiple products from Autodesk. Many customers have purchased products in effect from different Autodesk business units, and then used them together in their design infrastructure. Integration was again very much a keyword at the 2010 panel too (along with licensing models and data management); good integration is in itself a valuable and right thing to do, and it is of course a necessary condition for suites. At the 2010 management lunch with analysts, Autodesk noted that it has been investing in the “glue”, and that we would see more evidence of that next year.
Data management. There was also a clear interest from the 2008 panel in Autodesk’s having an answer for customers’ data management needs. The same was the case a year ago, and remained so at the AU 2010 panel. That view is quite understandable, though Autodesk has noted this year that its Vault products are in fact widely used; even so, it would be useful therefore for the company to be more specific about its Vault family of products. In addition, perhaps the rumored combination of Vault for AEC/NavisWorks/Buzzsaw will be a useful answer for the data management needs of AEC market, where Autodesk is the design tools leader with AutoCAD and Revit.
License flexibility. With respect to the aforementioned issue of licensing models, the largest customers, such as Ford, have access to pools of multiple products and multi-flex usage. The standard (small/medium) customers (which comprise most of the base still) would like to see some more flexibility to mix and deploy their licenses. We could see over time some professional apps available “on the cloud” and/or by some kind of “token” methodology (the latter would entail time-based revenue recognition). The company doesn’t yet say “cloud” obsessively but it is clearly moving towards more web-based services and capabilities, e.g., Project Neon, the new position of vice president of suites and web services.
Revenue and channel. With Autodesk’s having guided to 10% growth for next year (its FY12), it’s likely that it will set the channel sales quotas, typically, a few hundred basis points above the external goal. With respect to the domestic channel itself, the recent combination of Rand and Avatech indicates a movement towards a more concentrated mix of one or two large national players, a number of significant regional players around the country, and then the remaining group of smaller local partners (some of whom may end up being acquired, not unlike the consolidation wave we saw earlier in the decade).
Management noted at the analyst lunch two years ago that pursuing and investing in vertical market development, with the reseller channel, would remain one of its key initiatives -- and indeed this has been and will be the case.
The General Theory of the General Session
Among the main technology themes from the CEO/CTO's general session were leveraging increasing computing power to improve design productivity and “impact,” similar to the main themes at the analyst meeting last June. At the same general session two years ago, among the new concepts introduced were:
- Algorithmic design -- allows users to apply computer “scripts” to create designs.
- Anticipatory design -- design software that anticipates user design intent and explores “all” options for what would work best.
- Cloud computing -- applied to computationally-intensive applications, such as realistic visualization.
Management did not use the same terms this year, but it’s clear that much of what was discussed then is now becoming implicit in the Autodesk portfolio, or will be. This matters, as it reinforces the depth of Autodesk’s capabilities, not merely its breadth.