New manufacturing business models will influence PLM software

March 19, 2015


Things are moving fast these days. Vendors are speeding up their plans to catch up with new development. The changes are coming from both technological and business sides. Today, I want to focus more on the side of business. Few years ago, I put some of my thoughts in the blog post – Faltered licenses and future business models. Fast forward from 2010 into 2015… there are lot changes in the way software companies are selling their software. Actually, many of them are not selling software anymore. Subscriptions became a reality.

The following article caught my attention earlier this week – Keurig accidentally created the perfect business model for hardware startups by Bolt (venture capital firm focusing on hardware). Take a read – there are some great examples and comparisons of business models in the article. Here are few of my favorite passages:

Recurring revenue matters because it fundamentally changes your business. There are good reasons investors are averse to hardware but love software. One of the leading reasons revolves around future revenue. Investors pay huge premiums to own stock in companies betting on the likelihood that future revenue will be drastically larger than current revenue. If you’re in a traditional hardware business, future revenue is confined to cyclic product sales. This roughly means you get one shot at revenue with each customer per product development cycle: each sale must be painfully acquired by building a new product every 18 months or so.

This is where the brilliance of the Keurig model shines. The initial sale of a $120 Keurig brewer isn’t that difficult or costly. Keurig doesn’t spend a lot on marketing or advertising and the product isn’t complex to manufacture or service. In my rough estimation, the BOM for a brewer is around $40, giving Keurig about a 25% gross margin on the product. Time from PO to FOB is likely less than 2 months, yet high-margin K-cup sales start immediately and continue for years. Keurig spends less than $0.015 on each K-cup and charges 100% more per unit than bagged, ground coffee. Yet few people complain about this cost.


The big thing is recurrent revenues. It is much easy to sell something to your customers. Especially, if the price is a comfortable zone. This trend is going up these days.

It made me think more about business models of engineering and manufacturing software. PLM is included. And PLM was guilty many years for very “uncomfortable” price points. Which in many situations lead to wrong set of expectations and failure of PLM adoption.

I can see a trend among software vendors today to change that. It might be a good question how to bring PLM price point to “comfortable zone” and connect it to the use and adoption of software. The more you use it- the more revenues you will be able to get from customer. On the other side, usage of software means value for customer. Some sort of win-win situations.

What is my conclusion? Business models revolution is coming to enterprise software. In the next few years, we are going to see many examples of innovation in engineering and manufacturing software business models. Freemium and subscription is only beginning. The latest example of Onshape, which is inventing pay for privacy model. Watch that space for innovation. Just my thoughts…

Best, Oleg

Picture credit Keurig and Bolt article

Image courtesy of ddpavumba at

The complexity of PLM business models

February 6, 2015


I’ve been blogging about future of PLM licensing earlier this month. It sparked few interesting discussions online and offline. One of the topic I captured out of these discussion was related to relationships between different players in a business model. In some situations, relationships are simple and easy. You have suppliers and consumers. Consumers are paying to suppliers for products or services. Simple… However, the real life is much more complicated. In many cases, there is no direct connection between suppliers and consumers. Even more, modern business models can have more than one level of relationships. Simple example – Google. As a customer of “search” product, we use Google for free. However, companies and individuals are paying Google for advertising. Even more, Google is in business to sell advertising to companies using Google sales channel.

It made me think about complexity of PLM business models. I ended up drawing a following diagram, which contains “players” involved into typical PLM business.


Here is a question – do you think I missed any player? Originally, I put 3 main groups – Customer, Partners and Vendors. After some additional thoughts, I added Community. The importance of communities is growing these days and, often plays a significant role in overall business schema. Here are some explanations about each group:

1. Customers. If you think about typical manufacturing company, you can figure out multiple players – engineers (end users of PLM products), budget owners (for example, CIO), Exec sponsor (somebody from upper management, who is responsible for PLM program) and PLM team (you can often see a group of people responsible for PLM system deployment). Sometimes they are aligned, but sometimes, they might have different interests.

2. Partners. In many situations, companies are using partners for different reasons – indirect sales, implementation services, etc. It is not unusual for company to hire independent consultants to help with decision making or strategy. Implementation services can come from vendor, but also can be provided by independent company.

3. Vendors. There are multiple vendors involved into PLM system deployment. Of course, it starts from software vendors for CAD, PDM, PLM. Companies are often working with multiple vendors, IT/Software vendors are selling other enterprise software – databases, information systems, ERP, CRM and other enterprise software. Hardware vendors, obviously, is in business of selling computing resources. In modern eco-system, you can see new type of vendors – IaaS provder (Amazon is an example of public cloud IaaS). However, sometimes, IaaS provider can be provider of hosting computing services.

What is my conclusion? PLM business models are complex and composed of multiple players and relationships between them. To make it work is not a simple task. To make it profitable is even more complex goal. PLM vendors are operating in an existing eco-system of customers, partners and other players. This eco-system was mainly created as a result of years of relationship building between vendors, companies and partners. My hunch, customers are thinking about some sort of “re-imagining” and refresh, which is driven by new business models and trends. It is a time to think and ask right questions how to do it. I can see vendors are coming with additional services, subscriptions and other business initiatives. A good start, but what will come next? Just my thoughts…

Best, Oleg

photo credit: Money fight via photopin (license)

Utility and future PLM licensing models

January 13, 2015


Razorleaf article More PLM Licensing models made me think about business models and licensing transformation that happening these days in engineering and manufacturing industry. I guess, we knew changes are coming… Back in 2012 I shared some of my thoughts about PLM Cloud and Software Licensing Transformation. In a bit different perspective I’ve been discussed future PLM business models at PI Innovation Congress 2012 in Munich.

One of the key aspects of licensing transformation is related to upfront cost customers are requested to pay for PLM systems. I can see it as a future battle for PLM upfront cost. You may hear an opinion that customers are winning and chances are service or subscription model can be a dominant licensing model in the future. I’m not sure about winners and losers. However, my thinking is more about revenue models comparison before discussing licensing options. The biggest question is how customers want to consume PLM software and pay for the usage. I can see the majority of PLM sales as value based sale. Slow ROI and low value proposition is creating some challenges for existing dominant PLM businesses. Razorleaf article mentioned a combination of floating licensing and subscription as a traditional licensing model. I can only add that before vendors sold named licensing, which was even more restrictive.

Cloud and SaaS software pushed industry towards subscription based licensing. It was a natural step that can change fundamentally PLM sales model. However, I’m not sure the switch was done completely. It certainly moves PLM software expenses towards operational. However, in case subscriptions are prepaid for 1-2 years, it is not eliminating upfront cost of PLM. But it clearly a change from perpetual licensing and support models.

So, what future can hold for PLM software vendors and manufacturing companies? I guess, user adoption is a biggest challenge for vendors to show full potential of PLM in an organization. The trend towards lowering upfront cost will continue. Subscription trend will continue. The challenge, however, will be to manage a diversity of subscriptions. I suggest to look back in the history on how TV, telecom and internet business was developed for the last 10-15 years. Customer preference simple subscriptions and bundles of TV, phone and internet services. The same trend we can see for computers and operational systems where software sold on a premise of buying computer or other device.

What is conclusion? I guess a good chance PLM licensing will be shifting towards utility pay. The fundamental assumption – if a service used by a manufacturing company, it must be available for majority engineering and manufacturing personnel. To calculate usage can be a bit challenging, but future shift towards transparency can make it possible. So, do you think we are going to see “PLM licensing meter” in the future? A chances, vendors will charge customers for how much PLM they consume. It will make both customer and vendors more transparent and responsive. Just my thoughts…

Best, Oleg

What Oracle Results Mean for PLM vendors?

March 29, 2013

For many years the business model of CAD, PDM and later PLM vendors was structured as high upfront license combined with continues maintenance payments. The same is true for many other enterprise software vendors. PLM vendors built their businesses around expensive licenses sell covering significant sales cycle cost and even pilot implementations. The majority of PLM software is running on top of relational databases (RDBMS) licensed from big 3 vendors – Oracle, Microsoft and IBM. Back in 2010, I posted Faltered licenses and future PLM business models. 3 years ago it sounded as something that will never happen to enterprise software. However, things are going differently in 2013. Navigate to ReadWrite Enterprise article Oracle big miss and the end of an enterprise era. The author, Matt Asay, VP of 10gen, the outfit behind noSQL open source database MongoDB is clearly biased with the disruptive ideas and business models coming to the enterprise space. Even so, some of his assumptions in the article resonated. One of the key points – Changing the way how vendors get paid. He doesn’t see the problem of bad sales execution, but a fundamental shift in technology and product landscape. Here is my favorite passage:

This isn’t just a matter of improving legacy software products. It’s a matter of fundamentally changing how these legacy vendors deploy and charge for software. For example, Oracle’s entire cost structure is built around the premise of a hefty upfront license and high-margin maintenance (Over 20% of the license fee). We believe the primary issue is a fundamental shift in the technology landscape away from legacy systems towards a new breed of better products at a lower cost both in Apps and in Data Management. Virtually every emerging software trend is having a deflationary impact on spend.

Another aspect of disruption is related to developer communities. Software developers and CIOs of enterprise companies are looking for technological platforms. They don’t like the idea of expensive licenses and approvals of enterprise vendors to develop software on top of their platforms. As a result of that, they are turning to open source as an option to have their “platform of choice”. Here is a interesting quote:

With the rise of open source…developers could for the first time assemble an infrastructure from the same pieces that industry titans like Google used to build their businesses — only at no cost, without seeking permission from anyone. For the first time, developers could route around traditional procurement with ease. With usage thus effectively decoupled from commercial licensing, patterns of technology adoption began to shift…. Open source is increasingly the default mode of software development….In new market categories, open source is the rule, proprietary software the exception. The top-down approach, in other words, is losing its currency within the enterprise, as both open source and cloud enable developers (not to mention line of business executives) to get work done without getting permission.

So, getting back to future PLM business models and ways to disrupt PLM today, what does it mean for PLM vendors? I want to outline 3 main points:

1 – Alternative business models.

Customers are looking for alternatives to existing PLM licensing models. The biggest conflict here is between high cost of lucrative PLM licenses and interests of PLM vendors to take PLM software upstream and downstream in the organization in order to increase usage. However, adoption speed of PLM software is low. High cost of additional licenses is one of the factors preventing customers to expand the usage of PLM software. PLM vendors need to think how to provide flexible portfolios with options allowing to customers to spread PLM systems and technologies across the enterprise.

2 – Diversify revenues and activities

PLM vendors need to learn from the past of IBM and some other vendors. Years ago, IBM reshaped their business from software licenses to services and consultancy. IBM was extremely successful in this change. We can see how existing enterprise software vendors (Oracle, Microsoft, SAP, etc.) are trying to diversify their activities by providing new services and solutions. PLM vendors might be taking a similar path in the future.

3 – Pay attention to open source disruption

Open source is disruptive. Period. It is very hard to compete with free software and good technologies that can be used to develop solutions. Mainstream web is running on top of open source technology foundation. New generation of developers are coming with a significant baggage of knowledge and experience in this space. PLM vendors, system integrators and service providers need to take a note, until it will be late. You future competitors are developing from Starbucks shop next to your office.

What is my conclusion? I think, Oracle miss is a big alert sign to PLM companies. Changes are coming. It will come from customers that will be looking for alternative business models, from developers that cannot tolerate an expensive infrastructure and from technological vendors that will propose alternatives to expense PLM infrastructure. All together it will move PLM industry towards new horizons. PLM vendors need to take a note. Just my thought…

Best, Oleg

PLM Open Source is Better Without Open Source

January 2, 2013

Open source is one of the PLM trends I covered in the past in my blog. I wanted to come back to this topic again. The title of my blog post was half stolen from the article on opensource.comOpen source software policy is better without open source. Read the article and made your own conclusion. The following passage is my favorite:

When the OMB and DOD declared open source software to be "commercial software," it wasn’t a bureaucratic trick to legitimize open source. They meant it quite literally: software is software, and whether it was developed by open source, a proprietary company, or a team of monkeys, all the same rules apply.

Open source software introduced lots of changes in the way software developed for the last 10 years. If I recall open source software policies used by the company I worked for a decade ago, it was completely different back that days. The biggest problem of manufacturing companies (and other enterprises) to deal with open source is trustful support contacts. Here is another passage from the same artcile:

The underlying concern (beyondplm: about support), though, is valid. Unsupported software presents a risk. Poor support is almost worse—think of the hours we’ve all wasted with an unqualified or unresponsive support operation. This isn’t specific to open source. Bad support is bad support, no matter how the software was developed.

Aras PLM, the company experimenting with open source and PLM was on my monitor for the last 5 years. Aras developed their business strategy around so-called Enterprise Open Source. The definition itself is not self-explaining. One of a few "smaller PLM vendors" staying alone and independent since early 2000s, Aras’ experiments overall are quite interesting. Making some research on Aras website, I found it presents little to none mentioning of "open source" terms at least from home page.

What is my conclusion? Aras enterprise open source is an innovation in PLM licenses and business models. The discussion about "true" open source definition I’ve seen in the past is probably irrelevant in case of PLM. I’ve seen little to none interest of manufacturing companies to modify existing software code. Opposite to that, I’ve seen lots of interest to develop on top of the software platform with predictable licensing model. The development of new business models is one of the most complicated areas enterprise software is going to discover coming years. Enterprise open source, free software, software-as-a-service (SaaS) – here are just few examples of different approaches in this space. Just my thoughts…

Best, Oleg

picture credit article

“JT Open” and the Future of PLM 2.0

August 29, 2011

Despite the fact “PLM 2.0” was first articulated by Dassault back in 2006, I think, the term itself has some rights for expanded live beyond DS V6 platform. In my blog last week I discussed some aspects of comparison between PLM 2.0 and Web 2.0. One of the most important conclusions, also mentioned in the comments, were about “openness”. Actually, the conversation about openness is always dangerous in CAD/PLM domain. The vendors’ walled gardens provide significant barriers to develop solutions for heterogeneous enterprise environment.

During the weekend, I had a chance to read Design News article – SpaceClaim Stakes Manufacturing Claim. Have a read and make your opinion. SpaceClaim is clearly one of the youngest representatives of CAD vendors. However, what specially caught my attention was a comment made by Blake Courter about JT Open:

Another core area Courter emphasized in this new release was interoperability — a critical requirement, he said, for making in roads in the manufacturing production space, particularly in the automotive sector. In this vein, SpaceClaim built on its backing of Siemens PLM Software’s JT Open technology with the new release’s support for semantic Product Manufacturing Information (PMI). This means SpaceClaim users can leverage JT data in a lightweight format, or they can work with richer, more associative information, including meta data and PMI.

Courter applauded Siemens PLM Software’s efforts around JT Open, particularly as far as the format has made inroads into the automotive sector. “Kudos to Siemens for creating a level playing field and making a neutral format for delivering the goods,” he said. “The JT Open guys have done the right thing going after ISO certification and paralleling other standards where they can.” SpaceClaim is putting its money where its mouth is, Courter said, by becoming a JTOpen and ProSTEP iViP member.

Blake’s comments made me think about future potential paths of JT Open as a potential enabling technology for PLM 2.0. As you remember from the history of Web, some key technological elements made a significant contribution to the development of Web 2.0. The famous LAMP (Linux, Apache, MySQL and PHP) was one of the key elements. Bundle together with AJAX and development of the blogs and wiki platform it enabled live people involvement into the broader development of web content.

One of the biggest problems of PLM these days is the ability of PLM applications to proliferate inside of organizations upstream and downstream. PLM vendors developed multiple exchange formats, and as it seems to me, stack in their transition to the agreement. What can move things forward is some business innovation in this space? Open Source is one of them. What if the technological leader such as Siemens PLM will release JT Open formats and tools under one of the possible open source licenses? Does it sound crazy? I’m not sure. It will allow to remove all barriers to proliferate data and processes downstream in organizations and boost usage of JT Open by other CAD and PLM players.

What is my conclusion? For a long period of time, many ideas were considered as crazy of impossible for implementation. However, for the last decade, we’ve seen already some very interesting industry and technological moves. Will JT Open become another one? Time will show. What is your take? Speak your mind.

Best, Oleg

COFES, Microsoft and Engineering Software Business Models

April 16, 2011

COFES is a think tank for engineering software. This is a place where you can drop any idea and see if it resonates. One of the COFES sessions is so called Maieutic Parataxis session. Think about pitching your idea in front of 300 people. You can see a sequence of 7-10 pitches from people compressed in a row. This is what Maieutic Parataxis is about. Last year I shared the story about Simon Floyd of Microsoft talking about PLM Excels:COFES, Maieutic Parataxies and PLM Excels. This year Simon came with a new idea of future business models for engineering software. Some of Simon’s slides and observations were resonating with my previous thoughts about PLM software business models. About a year ago, I wrote about Faltered Licenses and Future PLM Business Models. I talked about Subscriptions, Advertising and Reverse models. Take a look on Simon’s slides and make your opinion.

What is my take on this? The engineering software is changing slowly. The dynamics are different from the consumer market where the idea of market pace was realized and succeed. I can see multiple reasons why it happens. The most important reason is what I call “a good enough” principle. Traditional manufacturers are very conservative. Software is just a tool for them to produce the result. Existing software can run these companies for years. At the same time, I can see signs of changes. There are two main reasons, in my view: cost and competition. In order to compete on the market, companies need to find more efficient software to get a job done. Engineering software market place can offer a diverse set of tools that can be used. However, the compatibility of these tools, data access and many other reasons can potentially lay down this idea. Leading companies in this space are thinking about market place and application granularity. I think next 5-7 years can show the potential of the realization of this model. Just my thought…

Best, Oleg

[tag PLM, COFES, Microsoft, Business Model]


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