Daily PLM Think Tank Blog

I found a very interesting Forbes Magazine’s story – The Future of Enterprise Software. The author is writing about coming Cloud Software revolution. The write up is saying- Cloud Applications are coming and vendors won’t be able to lock in customers with the specific software. Customer will be “free to stay” or “free to go” and use any software from cloud.

“While concern over lock-in has a long history in hardware and services, it’s relatively new in enterprise application software. Companies always figured they owned the software because they put so much work into customizing it. Now, it appears, they are willing to forgo that level of ownership for the ability to move freely among cloud providers for the lowest possible cost or the best security benefits”.

This article made me think more about lock in and CAD/PLM software. The story behind customer lock in with enterprise software is not simple. And this is because of massive software customization that happens in the enterprise. Customers are building enterprise solutions based on software provided by enterprise vendors – MRP, ERP, CRM, SRM. The resulting solution is something to create strong affiliation between customers and software vendors.

However, in the context of CAD and PLM is even more interesting. In addition to customization and solution building on top of software products, customer creates intellectual property (IP) that dependent on CAD and PLM software. So, this IP in the forms of CAD models, drawings, Bill of Materials, etc. is an additional strong link between software vendor and customer. This dependency always discussed by CAD and PLM industry as “the interoperability” issue. I think, this issue will come back as soon as we’ll enter to the era of cloud CAD and PLM software.

Let’s try to understand what is the fundamental behind vendor lock in. I think, the ugly truth behind this is the cost of new customer acquisition. It is very high. To get a new customer on board is an expensive process and vendors are trying to keep customers not only by providing them more value and additional products, but also by putting additional cost them to walk out and use alternative products. This cost is translating of CAD models, export engineering and product data. This process is not always straightforward and requires experience, deep knowledge of software on both sides.

Now, let’s turn back to the cloud software. What is that about? I think, on the fundamental level, this is also about how to decrease new customer acquisition costs. Cloud software as services can simplify a selling process, can provide an easier way to demo software and provide free trial versions available for customers. In the end, fewer vendor bucks will be spent to get another happy customer on board. Done deal! What’s next? Do you think customer’s walk away from cloud software will be different than a similar process with software installed on premises? No, I don’t think so… The rest is very similar, in my view. Customer’s data, customization and many other factors will keep users on these systems exactly in the same way as it was before.

So, what is my conclusion today? Cloud is the way to software vendors to simplify the selling process. This is a huge advantage. In addition to that, there are many additional advantages related to the software on cloud. However, vendor lock in is with us to stay….

Just my thoughts… What is your view? What are your expectations from cloud software business relationships on both sides – vendors and customers?

Best, Oleg