Second in a four-part series, originally published in 2007 in CADCAMNET and Engineering Automation Report
By Randall S. Newton
Money is like water, it flows along the path of least resistance. To move either in a specific direction, you must either provide an unobstructed channel or give it a push. When Autodesk started selling drafting software for $1,000 in 1982, it created a wide open channel for money to flow out of the pockets of computer-using drafters everywhere. Twenty-five years later, AutoCAD rules 2D. The marketplace likes standards, and it has one in AutoCAD and DWG. So why, asks Bob McNeel, if the market likes standards so much, and the money so clearly voted for AutoCAD as the 2D standard, is there no clear winner in 3D?
That is just one of the many questions that keep McNeel, CEO and co-founder of Robert McNeel and Associates, from spending more time riding his ten-speed bike. The answer, McNeel muses, comes when you look closely at the sales and marketing models of today’s leading CAD firms. In the last five years, he says, CAD users spent $50 billion, helping the CAD industry achieve $5 billion in market capitalization. That’s $10 billion a year, divided into a few key markets (various manufacturing segments, construction, plant, geospatial). If you add in various small markets such as product design, facility management, and digital content creation using CAD tools, you might be able to double the sales numbers.
Most of that $50 billion came from existing users, who long ago made their software choice. McNeel says that new users provide little revenue to most CAD companies. When compared to selling into existing accounts, selling to new users is like trying to make water run uphill. McNeel says most CAD firms spend 15% of their revenue on research and development, 15% goes to net income, and 70% goes toward sales, marketing, and administration (S/M/A). The money they get from existing users is needed to fund the expensive work of finding new users. It is little wonder, then, that the 3D CAD market has not settled on a standard. A variety of choices all hit the market at about the same time, and each has found a niche. NX is strong in automotive, CATIA is strong in aerospace, and Pro/ENGINEER has a foothold in general product development. But each of these big three also has a toehold in each other’s markets. The amount of money spent by these three and all the other 3D CAD firms continue to cancel each other out in the marketplace as they throw big bucks after a small number of new users. It may be OK for typical CAD companies to spend 70% of revenue on S/M/A, but for a company that thinks like a professional services firm—as Robert McNeel and Associates does—it is anathema. So they don’t.
Behold the CAD Whisperer
Enter a pasture holding tame horses, walk up to a horse and then turn your back on it. What happens may not make sense to a human, but it makes good horse sense. Most of the time the horse will look at you like you are an idiot, and then attempt to gain your attention. Horses are, after all, social creatures; herd animals who abhor isolation. A horse that has to reach out to a human is a horse more likely to trust the human because the relationship has been engaged on the horse’s terms. It is the basic trick of people known as horse whisperers.
The same thing seems to work with selling free-form 3D design software. The way Rhino enters a market is to release its software and then do the CAD company equivalent of standing around waiting for the horse to respond. No fancy ads in magazines, no big multi-city user campaigns. If the users want to gather to talk about the software, let them organize the meetings themselves. McNeel does exhibit at industry conferences, usually with a local dealer or third-party developer. The booth is always short-staffed, so that existing users and potential users will meet, socialize and take care of business. It is much cheaper than filling a booth with employees, and the existing users tend to be better sales people.
Refusing to spend a high percentage of revenue on S/M/A turns out to be very liberating. “By making Sales and Marketing and Administration more efficient, can we spend the savings on increasing user productivity? Can we spend it on development, support, and training?” Bob McNeel asks rhetorically. “Shouldn’t we focus on users instead of Wall Street?” In the Way of Rhino, the answers are all “yes.” As explained in Part 1 of this series, (“The Way of Rhino, Part 1: CAD Master Bob’s Most Excellent Launch Trajectory,”) Robert McNeel and Associates sees Rhino users as corporate stakeholders. So to avoid spending a huge sum on S/M/A to attract new users, The Way of Rhino says to leave money with the users. “We are happy to leave money on the table,” says McNeel associate Scott Davidson. “Our obsession is user success.”
One way to leave money on the table is to let users act as employees whenever possible. Rhino users test the software by working with early versions; they market the software by talking to colleagues; they sell the software at trade shows. Part of the savings is invested in R&D, and part of it is returned to the user in the form of setting the retail price lower than similar CAD products.
When the user is the company stakeholder, the very act of setting the price becomes a user-oriented decision process. The current price of Rhino is $995. That is the amount of money a typical professional who needs 3D CAD can afford to pay in the poorest industrialized economy in the world today—currently Vietnam. One global price means not having to constantly juggle prices as economies and currencies shift. It means you can treat every customer and every dealer equally. It also means, in the Internet era, that there is no advantage for a potential customer to shop around for the best deal. Local sale, local service, local community of users—even if “local” is a virtual arena for users such as jewelry designers.
The CAD Whisperer Sees a Storm on the Horizon
There are about 6.6 billion humans. 1 billion have access to the Internet, a number growing rapidly. “How many will use 3D?” asks Bob McNeel. “Any small percentage is a huge market.” The 3D CAD market is not an early stage market, where there are as many skeptics as believers. 3D CAD works and everybody believes it works. 3D is no longer an early market play in terms of having to convince people it works. We are back to the question asked at the top of the article: Why are there so few 3D CAD users as a percentage of the total installed base of computer-aided design users? Why is there no clear standard for 3D CAD, as there is for 2D? The Way of Rhino says the answer to that question lies in the perfect storm brewing on the CAD industry horizon. That storm, and the forces stirring it up, is the subject of Part 3 of this series.