Martyn Day examines this long standing can of worms and concludes that while the way we access the tools may change, the price we pay for them is likely to remain the same
As if we need reminding, we are experiencing one of the most horrendous economic climates for almost a century and yet I find it hard to think of many CAD Value Added Resellers (VARs) that have gone bust. In previous recessions, CAD dealerships were very ‘hand to mouth’ and a slight inflection in trading conditions could send a number to the wall. Yet today, a year on from the financial apocalypse, and we are talking about growth again, with very few dealership losses.
One could say that VARs are more experienced, or wiser, but one of the fundamental reasons that we’ve not seen them collapse has been in the way they get rewarded. In the past, dealers sold boxes of CAD, peripherals and their own services (training etc.). With the wide adoption of yearly subscription from the CAD vendors, dealerships get rewarded for their subscription renewals providing future deferred income. This appears to have given some much-needed breathing space to downsize and ride out the worst of the current economic downturn. Yes, it’s tough out there but the VARs are proving to be exceptionally resilient this time around.
When anything is overpriced we look for an alternative and the markets will naturally move to where this volume is set. However I don’t really see the price of CAD coming down anytime soon
Cost of CAD
Computer Aided Design software has always been at the top end of the software pricing scales. Even our budget 2D drafting tools can cost up to £1,200, well beyond other industries’ equivalents such as Adobe’s Creative Suite. The arguments for the high price of CAD are a) because of the value it brings to customers, b) because of the development costs compared to the number of people who might acquire a copy and c) the cost of sales. With a business head on for a minute, you do have to congratulate the CAD vendors on generating so much turn over. However, with a CAD customer’s head on, you’d have to start thinking that the margin on a box of CAD was, at the least, considerable.
There is no doubting the benefit to engineers that 3D modelling software brings. It’s probably the most fundamental reason why the software costs so much to acquire – because it is what the market will bear. And here, the more expensive the product being designed, the more the software companies can charge. Both automotive and aerospace pay tens of thousands of pounds per design seat and hundreds of thousands on Product Lifecycle Management (PLM) company-wide systems.
For the mainstream, mid-range CAD tools, we seem to have settled on the £3k-£8k sweet spot for multi-purpose 3D design tools. Out of this comes any cost of sale (the dealer margin and any distribution cost). There are a number of sub £1,000 products, like Rhino and Alibre, that really are bucking the trend and have established decent sized user-bases as a result. These developers have not made an impact on the mainstream vendors, or the price we pay for CAD.
The model has worked very well for the last ten years but with increasing saturation of the engineering base and the incompetence of western bankers, there are undoubtedly some tough challenges. Looking at the saturation issue, new seat sales are not like they were in the good ol’ days. Here, the CAD developers have proven resourceful in coming up with companion products or services that will assist dealers in selling subscriptions and ‘more shit to the same people’. Yet, the downturn has seen many engineering firms reduce headcount and slow their spend on technology.
In a mature market this is even more of a problem as there are excess CAD seats at companies. Many software firms don’t allow these to be sold to a third party and once subscription expires they may need to be repurchased. CAD subscription policies appear to frequently change and rarely for the benefit of customers.
There are changes ahead. All the key vendors are looking to offer CAD tools, analysis and management in a SaaS (Software as a Service) model. Here customers use web applications as their engineering backbone and pay a usage fee, or subscription. SolidWorks recently showed its technology at SolidWorks World, with the Chief Executive Office, Jeff Ray talking about how it would make applications cheaper to own. This obviously has yet to be seen but I can’t imagine the CAD developers giving up their current profit margins below what they are used to. The only ‘natural’ saving could be the reduction of margin given to the existing dealer and distribution channel.
The cost of CAD is mainly inflated to the price we think it’s worth to our business. When anything is overpriced we look for an alternative and the markets will naturally move to where this volume is set. However I don’t really see the price of CAD coming down anytime soon and CAD developers won’t do it for less unless they have to. The future deployment of CAD-on-the-web systems looks very much to be in the hands of existing players and the number of engineers isn’t going to dramatically increase to bring down the per unit price. While there may well be change in how we access the tools, the one thing that will remain is the price we pay for them.
Martyn Day is consulting editor of DEVELOP3D. He is currently enjoying the California sunshine and has found himself secretly hoping for a mini tremor just so he can experience what it feels like.
Martyn Day wonders why CAD systems cost so much money.