By October 2, 2013 Read More →

Autodesk sales strategy includes discontinuing upgrade purchases

At an Investors Day meeting in San Francisco, Autodesk also announced modest layoffs and explained changes in its business model.

Autodesk Gallery in San Francisco (Source: Autodesk)

Autodesk Gallery in San Francisco (Source: Autodesk)

Autodesk today said it would discontinue the ability to purchase software upgrades on February 1, 2015. The move is part of its long-term strategy to move revenue from purchases to subscriptions and rentals.

Autodesk executives discussed the move as part of an Investors Day meeting at the Autodesk Gallery in San Francisco, where the company maintains offices and a display of products created using its software. In addition to a wide-ranging discussion of business, technology, and markets, Autodesk also said it will lay off approximately 100 employees, and close several facilities. Autodesk CEO Carl Bass said the layoffs are about re-balancing staffing, such as lowering the number of employees in under-performing markets like Southern Europe. The layoffs represent about 1.5% of the company’s workforce. The facility closures are to eliminate redundancies in locations where acquisitions have led to more than one Autodesk facility in a city or area. Autodesk will record pre-tax restructuring charges of between $15 million and $20 million in the next two quarters; about 80% of that total will be for employee termination benefits.

Multiple transition fronts

Bass and several members of his senior executive team spent four hours with investment analysts, describing the company’s plans for the next few years. Bass noted the company has a history of transition, and is proud of how it has adjusted to new markets and new technologies over its 30-year history.

Autodesk plans to grow revenue by increasing its subscribers and by pulling more revenue from each subscriber. (Source: Autodesk)

Autodesk plans to grow revenue by increasing its subscribers and by pulling more revenue from each subscriber. (Source: Autodesk)

Today’s business model is a mix of selling perpetual licenses for single products and suites, with some new subscription services and a small amount of software rental, introduced this fiscal year. The plan is to shift customers away from single product purchases toward suites, and to move from buying perpetual licenses to acquiring software on long-term subscription or short-term rental.

Autodesk now offers six distinctive technologies as cloud-based products, and plans to add many more in the coming quarters. Bass said the company intends to be an industry leader in leveraging the three macro trends driving the software industry today—social, mobile, and cloud. The three were mentioned often throughout the morning’s presentations.

Despite single-digit revenue growth in recent quarters, Bass and his team pitched an optimistic analysis of what the company will do in the next four years. By fiscal year 2018 (which ends January 31, 2018) Autodesk intends to reach:

  • 12% compound annual growth rate (CAGR) in billings
  • 20% increase in value received from existing subscribers, by offering new products and services
  • 50% more subscribers, including new initiatives in education and consumer markets
  • 70% of total revenue as recurring.

Autodesk estimates its total addressable market is currently $21 billion, “and we do not have the lion’s share,” said Bass.

Our take

Among the top vendors in CAD/PLM and related software, Autodesk is the only one in which enterprise sales are not the dominant (or only) market. Autodesk has always more subject to the ups and downs of the economy than rivals like Dassault Systèmes and Siemens PLM, partially because it is a dominant player in construction but also because it is basically a small business/consumer vendor. In years past changes in computer technology were driven by the enterprise market, not the consumer market. The fast rise of mobile, social, and cloud have turned things upside down; as the most consumer-oriented vendor among the big CAD players, Autodesk is now better positioned for growth.

A summary of Autodesk financial goals through Fiscal Year 2018. (Source: Autodesk)

A summary of Autodesk financial goals through Fiscal Year 2018. (Source: Autodesk)

 

 

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Posted in: AEC/Geo, BIZ, Featured, MFG & PLM

About the Author:

Randall S. Newton is Managing Editor of GraphicSpeak. He has been writing about engineering and design technologies for more than 25 years.

13 Comments on "Autodesk sales strategy includes discontinuing upgrade purchases"

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  1. Rakesh Rao says:

    I completely agree with you about the fact that Autodesk, its size notwithstanding, has been quick to pro-actively embrace the consumer side of CAD business. It may not bring them a lot of money now, but whether the strategy will pay off in future, remains to be seen.

    In any case, stopping upgrades from 2015 is not unexpected. The weaning off process has already been on for a while now.

    With the hear on from many new players in desktop .dwg CAD market, I guess Autodesk does not see there being more to lose in sticking to its subscription-only policy.

    Amidst all this, it is interesting to see that they are still fighting for the DWG trademark. Not sure what to make of it.

  2. David says:

    I think Bass and his team are pitching something they can’t deliver.

    While the process of moving people of upgrades has been a slight of hand for a while, Bass is clearly not realizing they are not in the same place as the company they love to follow Adobe.

    What Bass is missing, is that frustrated customers DO have other alternatives, whereas Adobe clients don’t.

    The only way to achieve some of the targets given the inevitable reduction in customers will be to increase prices. After seeing the latest and poor filing, I cant say that’s a good idea.

    Realistically they may achieve 2 of the 7, possible 3, but no more than that. I think the location and the dog and pony show was to try to put a positive, aggressive spin on things. And keep people from asking hard questions about it’s relevance – it’s future.

    The only problem with these key points, is now people will expect Bass to deliver and that’s the takeaway from this. Looking at the ask price for the last year, and competition in ALL sectors, and the lack of starts in all markets their in, these key points are clearly one dream that ain’t going to happen.

  3. Landis says:

    There are some troubling issues with Autodesk strategy and I believe they will alienate some of their largest and most profitable customers.
    The firm I work for has a large Autodesk portfolio of perpetually licensed software that is all covered under Subscription. Previously, when Autodesk added enhancements to their software products it was included as part of the base software product, and since we have the software covered under Subscription (maintenance) the new features were provided “at no additional cost”. Now when Autodesk adds a new feature to a software program they only allow you to access the feature if you upgrade the base software for one of their high end suites, which is much more expensive than the base version.
    Autodesk was a key player in the Architectural, Engineering & Construction market but it seems that the customer base is being used as a stop gap as Autodesk moves to the Cloud/App market. Is it better to sell a single seat of AutoCAD for 4000USD or sell 10,000 Apps for 1USD? I guess we are all going to find out in the next few years.
    The article also mentions Autodesk pulling more money from each Subscriber, but in a time where every company is looking for ways to be more cost effective the time has come to fully evaluate what other vendors are offering and if the transition to those products makes sense.

  4. ralphg says:

    Consumer sales won’t power Autodesk in the future. A long-term study released this week shows that the percentage of free apps on the iOS store is increasing, reaching 95% earlier this year. Adding apps that cost just 99 cents makes it 98%. This leaves 2% priced at more than 99c, of which Apple snaps up 30% for itself.

    Another study this week reported consumers would rather put up with ads than pay for apps. Autodesk talked last AU about pushing ads onto its customers, but I have not heard whether they have found success there.

    As Landis writes, it makes more sense to sell thousands of $4000 packages than millions of $1 applets.

    Autodesk’s revenues will continue to fall, because it is scrambling to be everything to everyone — Social! Mobile! Cloud! Desktop! Perpectual! Subscription! Rental! Free! The company needs to focus, not flail.

  5. Hi Randall,

    Thanks for the update. While they are positioning for those trends, most of the adoption of those things is currently outside of product development. There is some movement, but will it happen in the short term?

    Stan Przybylinski
    VP of Research
    CIMdata, Inc.

  6. Jeremy says:

    This move is all about profit generation. They aren’t making enougoh money right now off software because people don’t buy into the yearly subscriptions since, for most users, the current version of software will work just fine for the next 3 – 5 years, and sometimes longer. Not to mention that the yearly release cycle has made the software so buggy that it is unuseable until the second or third service pack is released (which means autodesk is using us end users as software testers to cut their operating costs).

    Then there is the problem that most users can’t afford to pay thousands of dollars now for software and then have to pay another thousand every year just to keep that software working.

    There is also the problem with people being forced to purcase a suite full of software they do not want or need, when all they wanted was a ssimple Autocad, or just 3ds max, or just Civil 3D. ALOT of users out there have no need to have 3ds max AND mudbox, or Inventor and Revit. It is total ignorance on the part of Autodesk to elimintate single software prepetual licensing, and it will be their downfall.

    The loss of perpetual licensing will will hurt them alot more than help them I will drop 3DS entirely for the always free Blender, which can do ANYTHING that 3ds max can do. The company I work for (which is the worlds largest engineering firm) said, when autodesk first discussed stoppping the perpetual licensing, that if they force the subscription to suites on everyone they will make the switch to using Bentley software exclusively, and while I am not sure how that would affect Autodesk, It is not going to be good to lose 50,000 seats of Building Design Suite overnight, and will be horrible for their bottom end.

    Autodesk is destroying thier own company by doing this crap to its users.

  7. Lucklucky says:

    Bad news. Never rentals.
    Blender is getting better every year – to not talk about Cinema 4d and Houdini while improvements in Autodesk 3d apps like Softimage, Maya, Max have been lack lustre at least. With a lot of Autodesk people moving around or going out and not doing much in it . Autodesk has created a lot of bad blood in 3d community about how they manage the 3 main M&E applications. Stifling them in practice.
    The top management don’t seem to be even aware of that.
    Maybe when they start to get hit in bottom line.

  8. Lucklucky says:

    A correction: never rentals should be read as never exclusively rentals. A rental might be a good idea for a certain project, application or customer. But not force everyone that route. They might start to check alternatives.

    I think Autodesk is not aware how much of their revenue comes from customer inertia. If they break that inertia they might start a movement they maybe will not like the end result.

  9. angker says:

    autodesk isn’t focus now about how they sell the product.. i can’t wait to see another downfall of a company in another few years forward..

    -sorry for my bad english-

  10. Ocean says:

    This is so bizarre. It is a money grabbing, greed based model on the backs without consideration of the 10Milliion worldwide users that have come to rely on the Autodesk software for design.

    Autodesk needs to go back to its roots, and educate its users – not in Las Vegas, where only .1% of its Technical users can afford to attend, but rather in Africa and in the developing nations where the needs are emerging.

    While Social Media is exploding, and Mobile design development is the way of the future – quarterly rental of software
    sux. Without upgrades, how will users know that they want/need to move to another product – I guess now you’re going to tell me Autodesk is eliminating the free 30-day trial of software too….OMG!

    If Autodesk continues down this path and embraces the move to rentals, clients will revolt. Who was the advisor on this “strategic model” Blackberry?

  11. Joe says:

    FEAR based selling in the long term never works.

    By trying to frighten customers into parting with more money by abandoning upgrades will only work for a smaller percentage.

    This and other recent moves smacks of desperation to prop up a failing company, and a falling stock price.

  12. Heikki says:

    This plays into the hands of Blender.org in a nice way.

  13. ninja wars says:

    if they warn’t so greedy about their tools , people would have buying them and all of this nonsense wouldn’t happen.
    if game studio’s selling games in 69$ , they could sell their products in 200 $ and charge 50 extra for upgrades . either way in this new module they will earn even less , cause people will continue to use pirate softwares , and if they would like to go with it to production then they maybe will use thise rental service . AUTODESK you will keep earn less in this new business model, just sell your products on 200 $ , people will accept this amount of money cause people want legal copy of software .