Research Rap: Impact of Economy on Smaller PLM Vendors

A quick peek into some research on
… how the economy has impacted smaller companies in
the engineering software market. This is a follow up to last my
post on the impact
of the economy on the engineering software market as a whole,
with the detail I promised on smaller vendors. Last week I tipped
my hand by saying that  smaller companies believe they will
weather the storm, and some feel they will come out stronger on the
other end. That generated some interesting discussion, so I thought
I should hurry to post some detail, so here it is…

Research Background
My presentation at COFES
indicated that 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” and was the result of 1,000 survey responses. As I stated
last week, the research was not intended to be an economic
forecast, but instead an indication of the sentiment
of the industry. The study was designed to guage
respondents’ opinions about the
market, and should be take as such.

Research Results - Smaller Vendors
The survey allowed respondents to classify themselves as customers
(those that use engineering software), vendors, or channel (among
others). Vendors were then broken down into the following two major
categories:

• Broad Vendor - (broad suite) - a software
  company that offers a broad range of solutions
• Targeted Vendor - (targeted solutions) - a
  software company that offers one (or a few) best of breed
  tools

I was particularly interested in how the smaller vendors were
weathering the financial storm. These smaller vendors play
an important role in the PLM ecosystem, frequently pushing
the boundaries of current functionally (I call these companies
“innovators”) or serving a niche solution or population (I call
these “specialty vendors”). These companies typically provide
deeper capabilities for a specific industry, user population, or
process that the larger vendors don’t support as well. These
companies help to fill in the gaps for manufacturers while they
wait for the larger vendors to address these needs (of which, some
will probably remain unmet).

So what is happening to these vendors? The chart above shows
that 75% felt that these companies would struggle, but survive.
Given how drastic and unpredictable this economic downturn
has been, I find that a surprising level of
confidence.Still, 32% of respondents believed that smaller
companies would go out of business, and 28% believed they would get
acquired. Note that while this was supposed to be the “most likely”
outcome, respondents could pick multiple outcomes. I believe this
data is showing that respondents believe that some smaller
companies will survive, and others will be acquired or go out of
business. This is not an “either-or” situation, the
scenario will be unique for each of the smaller vendors.These
results are far away from the “doom and gloom” that are prevalent
in some other industries.

My favorite view into this subject can be seen in the table
below. When you analyze the opinions of what will happen to the
smaller vendors based on who is commenting, you find a few
interesting things:

• Targeted vendors don’t think they are going
  away
• Bigger vendors think they will be acquired (by
  them, I assume?)
• Bigger vendors are the most pessimistic about
  specialists, but interestingly the customers
  disagree

So the view from the smaller vendors’ perspective is not as
bleak as some might thing. On the other hand, few believe
it’s “business as usual.” These are tough times, and there have
already been corporate casualties.

My Thoughts
What does all this mean? My opinion is that the engineering
software market - as a whole - will struggle but
survive.The smaller vendors, who are more nimble but also
more vulnerable, believe they will stand the test of time. This is
good for all of us, as they typically push the limits of the
current solutions and help bring more innovation to the software
market.

Implications for Manufacturers
For manufacturers, you should make sure to know how healthy your
vendor is, but don’t panic. I don’t believe that a “rip and
replace” strategy to save on software and maintenance costs will be
easy to justify as a short-term reaction. Stick with your
strategy, but update it based on the economic realities.
If you are in the position to take advantage of it, this
might even be a pretty good time to look for some deals
from your vendors.

So that was a quick peek into some recent research on the impact
of the economy on smaller vendors, I hope you found it interesting.
Does the research reflect reality? Do you see it differently? Let
us know what it looks like from your perspective.