Bet on ecosystem or on disciplines?

CAE warsThe demand for simulation is growing in almost all industries and in all regions. This generates sufficient momentum for the organic growth in CAE industry. Even during the last global recession (2008-2009), most CAE companies reported about two-digit increase in CAE software business.

How to ride this wave to get larger market share? Major CAE software players choose different approaches.  Essentially, they bet on the ecosystem (CAD-CAE-PLM), or bet on disciplines (multi-physics, or multi-discipline, structural-mechanical-CFD-electrical-magnetic).

When the $413 million acquisition of Abaqus by Dassault Systems was announced in May 2005, it marked the new era in CAE industry: compete with an ecosystem. Before the acquisition, only UGS (later acquired by Siemens as Siemens PLM Software in 2007) had its own ecosystem. Apparently, Autodesk is positioned to enter CAE market based on their acquisitions of Algor, Moldflow and CFDesign in recent years.

For a CAD or PLM player, providing CAE solution is a natural expansion. Compared with pure CAE players, thy have at lest two advantages:

  1. Cross-sell. CAD market is far larger (in terms of the number of license, and users) than CAE market, and most new CAE opportunity lies in the CAD adopters.This means CAD vendors have inherent advantages in finding new CAE opportunities, if they have proper CAE solutions.
  2. Loyalty of CAD users. A lot of the new CAE users are designers, not full time CAE practitioners. Actually, the number of analyst or CAE specialist in most industries does not grow much. CAD users will demand something easy to use (push a button, then get a solution), something with similar interface to the CAD software with which they are comfortable. This suggests the CAD vendors can easily provide compelling CAE solutions to CAD users, if they have proper integration of CAD and CAE.

However, to convert such advantages into sales, is not a simple task. You need a trusted CAE solution, usually a trusted solver. You also need a deep integration not just glue or just a bundle.

Another approach of expansion is to increase your physics or disciplines. Ansys is an example. In 2006, they acquired Fluent with about $560 million to compliment their earlier acquisition of CFX. In 2008, they acquired Ansoft.with $830 million. And just in this August they acquired Apache Design Solutions with another $310 million. Through such acquisitions, Ansys is able to dominate in CFD segment, and is well positioned in electronics industry. Recently, MSC also added CFD capability through partnership with the Next Limit Technologies.

But such expansions in disciplines is just a simple addition, if the integration and coupling lag behind. Nobody can deny the importance of multi-discipline (or multiphysics) simulation, but how far can the technology can go and how it is implemented are quite open. Nowadays, the slogans of realistic simulation, multi-physics or multi-discipline simulation, or real world simulation illustrate the importance of including more disciplines.

Betting on disciplines may have its own advantages:

  1. Low risk. Adding sensible solution for a new discipline will immediately increase the revenue. This usually makes investors happy even though sometimes the profit margin decreases. Such acquisition usually has very low risk unless it is over-priced.
  2. Software branding. For CAE software, especially FEA software, the technological difference become actually smaller. For most of the problems, different FEA software (in the same maturity level) should give you similar results: some may be slightly more efficient; some may be slightly more accurate. One of the biggest challenges is how to brand the software. Adding more disciplines can easily penetrate your brand into the domain you competitors are not aware of.

These two approaches: betting on ecosystem or betting on disciplines are not mutually exclusive. On the contrary, they compliment each other. The first one is the long term strategy; the other is the low-risk strategy.

Owing a CAD-CAE-PLM ecosystem does not necessarily give you advantages in the market. For example, people tend to have the conception (sometimes wrong)  that your CAE solution may be not flexible if they have more than one CAD system. In this case, CAD-neutral CAE solution is the keyword they are looking for. Although you may have both CAD-embedded CAE solution, and stand-alone (CAD neutral)  CAE solution,  it is quite difficult for the marketing people to pass both of them effectively.

Discipline expansion always need deep level technology integration; otherwise, you just get fragmented products and the growth is not sustainable. Because the concentration of CAD and PLM software is relatively low (TYI: the top 4 CAD/PLM vendors, Dassault, Autodesk, Siemens, and PTC, have less than 60% market share), CAD-neutral is still a very powerful marketing word. However, as this domain grows more mature, the concentration will higher, then the ecosystem will be critical.

In short, betting on ecosystem is the sensible direction. However, current low concentration in CAD/PLM industry gives very good opportunity for CAD-neutral solutions. So, betting on multi-disciplines is still an efficient way to gain market share.

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