Research Rap: Impact of Economy on Engineering Software Market
A quick peek into some research on
… how the economy has impacted the engineering
software market I presented at COFES this weekend indicates the
engineering software market is staying positive in
challenging times. The research, conducted jointly by with
Tech-Clarity, Cyon Research, and Design Insight, was
presented at the annual “Congress for the Future of Engineering
Software.”
The Research
The research is based on 1,000 survey responses from the users of
manufacturing software, software vendors, and other related
companies. The majority of the respondents (about 2/3) were
engineering software customers. The participation broke down as
follows:
| Customers (users of the software) | 682 |
| Vendors | 121 |
| Channels | 107 |
| Press/Analyst | 24 |
| Other | 65 |
The research was not intended to be an economic forecast, but
instead to indicate the sentiment of the industry.
The study was designed to gauge respondents’ opinions about
the market, with the intent of driving a deeper conversation at
COFES on the threats and opportunities arising from the current
market economy. I am not an economist and I don’t even play one on
TV, so these figures are for your discussion only and should not be
used to make any financial decisions. In other words - I hope this
is useful but in the end all it will tell you is how those in the
engineering software market told us they felt. That said, the
results are pretty interesting.
Economic Impact
Overall, the most common response to the question
“Which of the following best describes the
impact of the current economy on your 2009 business
performance?” was “moderately
negatively impacted.” As the figure above shows,
only about one quarter indicated “severe negative impact.” What is a bit more
interesting is the breakdown of who is being impacted the most.
The
figure below shows that “Customers” - defined as a firm that uses
software design tools - are feeling the most impact. Over 25% of
the customers surveyed said they were experiencing severe negative
impact on their business performance. The Channel - a firm whose
primary role is to deliver products and services to customers, but
not a software vendor - was the second hardest hit. This is likely
because when the channels are not selling software,
they are also not starting new software implementations.
Vendors, particularly the larger suite providers - a software
company that offers a broad range of solutions - are less likely to
be severely impacted by the economy. This is most likely because
they can rely on existing maintenance revenue to keep them going in
difficult markets.
Implications for Manufacturers
What this means
to manufacturers is that your vendor is probably doing OK in
difficult times. You should probably not feel any real need to jump
ship and move elsewhere based on the downturn. Next week, I will
share some positive insight on smaller, specialty vendors and
startups. The news there is that smaller companies believe
they will weather the storm, and some feel they will come
out stronger on the other end.
So that was a quick peek into some recent research on the impact
of the economy on the engineering software market, I hope you found
it interesting. I will share more soon. Does the research reflect
reality? Do you see it differently? Let us know what it looks like
from your perspective.
Jim Brown commented:
Mark, Thanks for your reply to Marc. Maybe if I had read your reply
first I would have left it at that. Thanks for your comment, you
are right on. I do see people investing in PLM in difficult times,
but it is more in extending what they have or implementing
something new. And in those cases, they should evaluate all options
(including alternative models like open source, if they can support
it).
Jim Brown commented:
Marc, This was a topic at COFES. I do expect that many
manufacturers are sitting down with their software vendors and
looking for ways to reduce cost. In fact, some of the research Brad
Holtz of Cyon Research presented shows that they are. There, we
agree. What I didn't hear in my study were the words "excessive"
and "gouging" used by end customers in describing their vendor
relationships. What they expressed was pain from the market, not
their PLM vendors. I have also not experienced "indifference" from
the vendors. We are all on this together. To extend a desire to
reduce cost to say that manufacturers should consider ripping and
replacing their enterprise systems (PLM included) to save money
doesn't sit right with me. What I am trying to say is that
companies don't need to panic about their software vendors,
particularly about the smaller ones. Manufacturers have a lot to
deal with right now, and making major upheavals in their systems is
probably not at the top of the list. So knowing they are not forced
into it makes sense. Are you suggesting that it is in a
manufacturer's best interest to rip and replace their PLM system
right now in order to improve their profitability in a difficult
economy? Really?
Mark@creekside commented:
Marc, I'm sure it would be helpful if people undertook new PLM
projects right now for Aras, unfortunately more people are
preserving capital, reducing staff, etc. and are unlikely to do a
"heart transplant" of their PLM system without a significant, short
term ROI (I hear 90-180 days). Jim's point, which is supported by
the research and market knowledge, is that it doesn't appear that
PLM vendors are at risk of going Chapter 11. In the current
environment many supply chain managers are trying to assess risk of
failure in their supply chain (look at auto suppliers and
electronic component suppliers) -- at least in PLM that don't need
to be too concerned about a crisis "re-sourcing".
MarcL commented:
Jim, Have to say that I disagree with recommendation to
manufacturers, "What this means to manufacturers is that your
vendor is probably doing OK in difficult times. You should probably
not feel any real need to jump ship and move elsewhere based on the
downturn." If manufacturing companies are experiencing 'Moderate to
Severe' impact (55%) and mega-vendors are not because they are
gouging customers (i.e. the manufacturers), there is a serious case
of inequity and indifference on the part of the big vendors. This
is exactly the time when end user manufacturers should be looking
for proven alternatives to save money and shareholder value.
Manufacturing companies need to escape the excessive costs of PLM
software (both licenses and implementation) to strengthen their
competitive position in these challenging economic circumstances.
My sense is that this is exactly the time to have an adult
conversation with your PLM system vendor and renegotiate those
excessive rates or replace the system. End of story. That’s
just smart business, and not taking action would be irresponsible.
MarcL www.aras.com
