CAD Vendors Think This Many Customers Want Subscriptions

They can't agree

 

The executives of stock-funded CAD vendors need to roll in increasing revenues to satisfy Wall Street, enhance the value of shares, make shareholders happier, and subsequently keep their jobs. One way to increase profits in a mature market like CAD is to charge customers more. One way to charge more is to charge customers every year (aka subscriptions) instead once (aka perpetual).

Subscriptions are (supposed to be) v-e-r-y lucrative. Using the latest pricing from Autodesk, for instance, we see that the world's second largest CAD vendor makes more from customers by charging them annual subscription fees after just four years, as compared with a perpetual license + annual maintenance fee. See figure below.

Customers can expect the gray line to steepen as Autodesk over times charges even more for subscriptions; prices have already increase since subs were first introduced.

What PTC and Dassault Say

We know Autodesk's stance, as they eliminated perpetual licensing at the end of January for all stand-alone software (except for AutoCAD LT sales in Japan), while suites are to follow at the end of July. They feel 100% of customers want to pay over and over again. What do the other big CAD vendors think?

It turns out that the thinking is not monolithic:

Andrew Miller, cfo of PTC: For years customers have been wanting to buy under subscription and our market studies showed that more than 70% of our customers preferred to buy subscription.

[In the past] we were probably like many other software companies forcing to try to get a perpetual license with upfront revenue. And, of course, [today] our sales reps are pushing our strategy.

 

Bernard Charlès, ceo of Dassault Systemes: The fact that [Solidworks customers] would have to pay subscription to continue to use the product is very adverse to a vast majority of these customers. Large customers can accept it. [But] the core of our market is more mid and small customers who are really [used to perpetual], except when they have a need for a period of time and this is what we [are] satisfying ... with the offering subscription for Solidworks.

Mr Charles provides two more reasons why subscriptions are a problem for customers:

• Solidworks is sold only by dealers, and they prefer sell perpetual licenses, because it makes them more money
• Customers should not be hobbled in poor economic times when they might be unable to make those continuous subscription payments

More Subscriptions = Lower Revenue

Ironically, the drawback to Autodesk and PTC going gung-ho on subscriptions is that their revenues are falling, while Dassault's is increasing. PTC is stuck in the low $1-billion revenue range, Autodesk at around $2.5 billion, while Dassault is surging from $3 billion last year to breaching $4 billion next year.

In summary:

• Autodesk says 100% of customers want subscriptions; reported revenues are falling
• PTC says over 70% of customers want subscriptions; reported revenues are falling
• Dassault says vast majority of Solidworks customers don't want subscriptions; reported revenues are increasing

Autodesk and PTC insist the revenue decline is temporary. Dassault doesn't need to make the apology.

 

Sources:

• http://seekingalpha.com/article/3966810-ptc-inc-ptc-ceo-james-heppelmann-q2-2016-results-earnings-call-transcript
  http://seekingalpha.com/article/3967121-dassault-systemes-dasty-ceo-bernard-charles-q1-2016-results-earnings-call-transcript

 

 

Comments

[Dwayne Wilson]

When Autodesk says 100% of its customers want subscription maybe they missed my survey replies. I am 100% for perpetual licenses with a subscription available and 100% against the new Desktop subscription. I think they are using the word subscription in both options to muddy the waters. Autodesk is involved in a lot of flashy and interesting things which is great, however I work for a living and am not sure how long I can keep paying their bills.

[David]

Interesting. How much is AutoCAD LT in Japan and where sells it?

[Dave Ault]

I did fill out a survey for Autodesk and was adamant about being against the subs model. Count the stats the P&R people want I suppose. I get tired of being taken as a fool by these types like anyone with any sense would do more than laugh at such a statement. Pushing the subscription model is bad enough but when outright absurdities are trotted out as evidence to bolster this bad thing you have to wonder what they are drinking. It really makes me mad that Autodesk was on the way to market conquest based upon the assembly of vital parts to a complete manufacturing ecosystem and would have earned much more money in voluntary transactions over time with increased seats sales. Maybe I am naive and this subs garbage was the plan all along, I don't know. What I do know is the second my permanent license is voided there won't be any subs money forthcoming. I will not be alone.

I don't know anyone quite frankly that would place their companies core CAD CAM data creation and archiving into a subscription based model. As a matter of fact 100% of them wont around here. There you go, another statistic but perhaps more germane to customers viewpoints.

[Mat8iou]

While I can see that there are reasons for some companies wanting to use subscription only licensing, I struggle to believe that this move was driven by customer demand.

A few years ago, people were debating the fact that perpetual licences were in most cases sold with an accompanying subscription - although at that time, you could jump off the subscription train at any time and continue to use the last version of the software that you had been sent through the subscription.

A few years prior to that, people were debating the forced obiting of software after 4 releases. (preventing any further upgrades to old copies) AD claimed that this is what they had always done, neglecting the fact that releases used to be 3 or more years apart rather than annual. It was clear that this was one of many attempts trying to push customers onto the subscription train.

Crossgrades are another technique that have been used to push lapsed subscriptions onto products higher up the cost tree for those with lapsed subscriptions - VARs were happy to upgrade your long out of subscription copy of AutoCAD to a copy of BDS Premium (with a subscription agreement) , but not to a newer copy of AutoCAD.

This is not to say there are no benefits to subscriptions - in the past we have wanted to set up project offices for 1 or 2 years, where we would be taking on say 20 staff for a set duration. The only purchase options for software for that period never worked out cheaper than outright purchase, but then at the end of the period, you are left either maintaining the software that you are not using (in case your team grows again), or at best, with a load of expensive software that you no longer require. The company where I worked cancelled all subscriptions in the 2009 financial crisis when they downsized massively. I imagine many other firms in the UK did the same.

Why can't we have subscriptions and perpetual licences? Different people need different things from their software. They could even get the two models sold by different teams, to make them competitive against one another - so that either seems an attractive option, rather than artificially killing off other options by making the alternatives appear less palatable.