In the first part of this article, we looked at the general issues surrounding software distribution in the Engineering Applications and CAD/CAM markets. In this second part, we look at the performance of the market and individual players in the UK. In 2002, end-user expenditure (EUE) in the UK Engineering Applications market was down on 2001 by an average of 7%, the third straight year of decline. (For example, the UK mechanical applications market fell by over £35m in EUE over the last 3 years.

Figure 1. UK end-user expenditure in MCAx Applications 1997 -2002

The brunt of the fall in EUE in 2002 has been felt by channel members, rather than at the expense of the software developers' revenues. Whilst the overall engineering applications market fell by nearly 7% in 2002, company revenues in that market fell by only half that amount. Channels have been used as the primary supply vehicle for many software vendors to reach small accounts or where product margins do not support a direct approach. Managing a channel appears to be a black art; apparently straightforward to do when times are good, but equally contradictory when times get bad. As vendors push for volume, resellers have little alternative, when business is slack and competition fierce, except to discount to stimulate demand and meet quotas.


As margins fall, so does reseller profitability. Those who have diversified into value-added services, such as implementation, maintenance, training, integration, support and the like, have been buffered against the slowdown in new sales and discounted prices. This is especially true of those resellers that have gathered portfolios of products around which to add-value or who have concentrated on specific industry segments where their specialist knowledge is an asset. Customer loyalty rests with the reseller, rather than the software originator; some software suppliers find this a difficult concept to grasp.

As well as falling demand, resellers have also had to cope with encroachments into their customer bases by their software suppliers. Whether through direct sales organisations or subscription services, the result can lead to confusion in the client and worry in the partner that they have lost an account which they have developed. Managing potential conflicts sensibly requires an understanding that the good of the customer is best served to the profit of both supplier and reseller. Maintaining a local service requires a business model which can profitably support that local partner; in the present state of uncertainty it is by no means easy to square this particular circle.

One answer may lie in the rise of the Pan-European distributor, who can achieve the volumes necessary whilst also managing their costs within the margins now available. Computer 2000 Distribution, part of Computer 2000 AG in Germany (now part of the Tech Data US group) remains as a distributor to the UK AutoCAD dealer base. Mensch und Maschine (again from Germany) has recently taken-over the distribution of PTC products across Europe; whilst Rand (Canada) has moved to support CATIA. Since their success depends very much on the success of their dealers, we may see these players take more of the responsibility for promoting and supporting reseller partners than their software suppliers have done in the past.

Main players

Autodesk maintains the largest UK channel with around 50; yet ten years ago there were over 200 authorised UK dealers. We estimate that the UK Autodesk channel revenues were down by some £16m-£17m in 2002 over 2001, which is a lot of turnover to go in one year; it is no surprise to see that the channel numbers have a direct relationship to the health of the market. Some consolidation has occurred, with business combinations and buy-outs, and many dealers have more sustainable businesses as a result. However, it is clear that current business conditions in the desktop CAD market make it difficult to meet quotas and further changes should not be unexpected in the channel.
Autodesk is extending its product portfolio with more industry editions, to cover the market from budget CAD to 3D modelling with LT, AutoCAD Mechanical and Inventor in MCAD; LT, AutoCAD, Architectural DeskTop and Revit in the AEC space; and with Map and Civils portfolios for Infrastructure. On-line services complete the portfolio with Streamline and Buzzsaw collaboration portals. Autodesk are also just starting to push their subscription model to end-users. The user still signs a contract with the reseller, so account control is still within the channel. There is also the possibility that direct account sales teams may be extended to cover more accounts. The release and uptake of AutoCAD 2004 and Inventor series will be the greatest test of their new distribution and licensing arrangements.

Bentley, on the other hand, started subscription services some time ago and now claims upwards of 60% of users on subscription, with a new enterprise subscription service starting soon. During that time, the channel has effectively shrunk, with a series of business combinations and buy-outs along the way, so that 5 companies only are listed on the Bentley partner web-page for the UK. Bentley has also acquired applications developer Infrasoft (MX-series for road and rail projects) and consolidated the Rebis operation into the UK business, giving it a large presence in the UK market and more control of the channel from developer to end-user.

Bentley is concentrating on areas where it has more leverage than vanilla CAD. Each sale of MicroStation gives the right to use one engineering configuration from TriForma (architecture), Civil Pak (civil engineering), GeoGraphics (infrastructure) and Schematics (for plant engineering). Plant design and asset management make up the rest of the target areas.

PTC has, even in the best of times, had little success at maintaining their channel relationships for any length of time. With the recruitment of their largest partner, RAND, by PTC's biggest competitor, Dassault/IBM, to sell CATIA V5, the rebirth of PTC's channel is vital. PTC has a large installed base in the UK (including a residual CADDS and Optegra element) which requires both maintenance and on-going support and training. The void which would be left by RAND had to be filled and Mensch und Maschine has been appointed as European Master VAR. A number of smaller partners have also been lined-up, some of whom have been in the PTC fold for some time, whilst others are just entering the space. Smaller players are required since the overhead of selling a £4,500 package can not be sustained by a direct sales force, especially into smaller accounts where the move from 2D CAD is driving 3D sales. We expect Wildfire to aid in protecting the old Pro/Engineer base as well as providing a more credible competitor to SolidWorks, et alia, now that it has shed most of its Unix heritage.
EDS PLM (aka UG Solutions and SDRC, et alia) has had a year of consolidation, rationalising it's large software portfolio and revisiting key accounts to spread their new strategy. With the NX range from EDS PLM, the incorporation of I-DEAS and other legacy systems into the mainstream Unigraphics and Teamcenter products has begun. This should provide some confidence and protection of investment for worried SDRC users, who have been the subject of intense campaigns by other vendors to switch from I-DEAS. EDS PLM has also been active in building their SolidEdge channel, though this is centrally-managed by EDS PLM, into a channel to compete with their biggest competitors, SolidWorks and Inventor, in the 2D migration market. How an indirect channel co-exists with direct sales is an area fraught with difficulties. However, small seat numbers are of no real interest to EDS PLM's direct team; like PTC, they need quality resellers to reach out into the SME (Small and Medium Enterprise) market and appear to have integrated their indirect channel well into their overall sales process.

Dassault, with Siamese twin IBM, has been pushing to establish wider distribution of their CATIA V5 package. The biggest coup has seen RAND commit to resell V5, rounding-off a turbulent relationship with PTC earlier than previous agreements indicated. We have thought for some time that IBM has needed to sell outside of its "comfort-zone" in automotive and aerospace to make a bigger impact in the market; the addition of a global partner like RAND signals such a move. With the acquisition of service partners like EADS Matra Datavision and the recruitment of analysis ISV's like MSC.Software as IBM Business Partners, CATIA has the engineering services capability to push forwards with V5. The downside, if there is one, is that this confirms that V5 will now be playing in a similar marketplace to SolidWorks, another Dassault package. Whilst Dassault and IBM are at pains to distinguish the differences between these systems, to the user, the similarity is often easier to spot than the difference, especially as SolidWorks Office Professional now contains many key applications, including PDMWorks. However, CATIA is still a big-ticket brand-name associated with IBM, whilst SolidWorks has morphed several times - first targeting Pro/Engineer, then others like I-DEAS and now Autodesk's Inventor and the 2D transition market - on the way to achieve its dominant mid-market position. SolidWorks' channel itself has seen some rationalisation, now that new sales are slowing - NT CADCAM taking over SolidBase in the UK, for instance. The next phase of the business is to consolidate their base and resist attack from such as PTC's Wildfire, EDS' SolidEdge and CATIA V5. Dassault may loose some SolidWorks sales to V5 and vice versa, but, either way, it still gets the revenues; IBM stands to loose out if SolidWorks breaks into existing IBM CATIA sites. However, this should be negated by the increased success IBM are having with SmarTeam PDM since it was made available to their sales teams.

Outlook

Whilst Europe and the UK started to suffer reduced demand earlier than the USA, the latest figures from economic analysts like PwC show that we are still not out of the woods. Growth estimates are being revised down for the Eurozone as a whole; the UK itself is struggling to reach 1.5% in GDP growth for 2003. However, prospects for growth in UK investment in plant and machinery remain good - public sector spending on infrastructure projects should stimulate demand, whilst manufacturing investment should benefit from lower interest rates. The lower value of the UK pound against the euro of late seems to have convinced some manufacturers that the time is now right to invest to be ready for any up-turn. Experience has shown that any such moves normally take at least 12 to 18 months to show in increased spending on engineering applications. For the moment, the challenge for software developers and their partners is just to survive until that time.

Nick Ballard

This article first appeared in MCAD in Sep 2003

Other articles from Cambashi:

Ripe for change Part 1

Engineering Applications in 2003 - boom or gloom?

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