I watched a program about the UK cheese industry a while ago on TV and it struck me that in many ways it demonstrates what happens in a mature market, when demand slackens and competition increases. One could say it was ripe for change - no more puns, I assure you!

Ripe for Change?

Looking at the UK engineering applications market and in particular the way in which distribution patterns have changed very quickly following a period of relative stability, it mirrors what happened in the cheese industry. The program I watched focused on a small cheese co-operative which had been bumbling along quite nicely for 30 years or so. With falling margins on milk, quotas, etc, the farmers began to expand these operations to add vale with extra cheese production, selling all through one distributor, which had worked well up to the present time. However, their distributor, in response to a falling market, had started to acquire small, rival groups of cheese-makers to distribute into their increasingly large supermarket retail business under their own brand names.

The crunch came when the distributor decided to take only 50% of their "order" from the farmers- there was no contract, all was run under a "gentleman's agreement" - leaving them with a 5-ton cheese mountain and no customers. A "Plan B", there was not! The farmers, with no real marketing experience, set out to launch their own brand. Needless to say, breaking into the market with a new brand proved far more difficult than they expected; the path to the supermarkets was effectively controlled by - their old distributor! Whilst one felt for the farmers (as they had clearly been badly done by) they should really have seen it coming! It showed a lack of business awareness and planning that, sadly, is probably present across a large swathe of UK businesses.

CAD Channels Contract……

If we look at the channels for CAD in the UK, we see a similar set of pressures. Many small software companies have relied on one large developer to wrap their products round or simply resell. In the early days it was easy to make money - margins were high and the developers did not have competitive products in their portfolio. However, as desktop CAD became a commodity item, with falling margins despite increased volumes, the large developers began to look at other ways to maintain their revenues. Some started to invest in their distribution channels; others bought-out their small niche developers. Sometimes, the developers released niche applications content with their main offerings, in direct competition to their existing channel and partner products. In the end, the nature of channel partnership itself came under severe scrutiny from all sides. Many resellers combined their businesses, merged with other resellers and groups or simply moved out of CAD altogether into applications like data and document management.

Clearly the market is changing. Vendors are adapting with new channel models and new products. In the next installment we'll investigate the responses and current status of the key players in the UK market, namely Autodesk, Bentley, EDS PLM, PTC and IBM/Dassault.

Nick Ballard

Other articles from Cambashi:

Engineering Applications in 2003 - boom or gloom?

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