CAD Vendors Think This Many Customers Want Subscriptions

via WorldCAD Access

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 above.

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.