by Peter Thorne
@Cambashi_Peter
LinkedIn

Engineering software enabling new processes

Part of the value of COFES is the breadth and depth of engineering and engineering software knowledge and experience which participants bring with them. This know-how is liberated through the long-established COFES culture and facilitation of ‘corridor-conversations’ – new and seasoned delegates alike expect to talk shop, to find shared interests, to explore technologies, concepts and markets not only by listening to presentations, but also (and perhaps mainly) through interaction with other participants.

So it would be misleading to suggest the event can be summed up in a few insightful bullet points. My path through COFES was different to every other delegate. For me, a significant takeaway from COFES boiled down to adjustments in my mental model of the progress engineering software is making as an enabler for new engineering processes.

Faster growth

This is important because growth of revenue from engineering software is higher than the economic growth of the sectors which buy engineering software.  Figure 1 shows this effect by charting engineering software spend per vertical-industry-sector. Here, the spend is measured as a percentage of the economic value-added of the sector.

Figure 1: Global engineering Software Spend 2012-2018 with forecast to 2020, expressed as percentage of economic value-added in each industry sector

Economic value-added is broadly ‘gross-profit’ (UK), often called ‘gross-margin’ in the US. It is what’s left of revenue after deducting the cost of external payments for non-overhead materials and services which are required to earn the revenue. So, for a company, economic value-added (“what’s left” above) is available to the management team to spend on everything else – staff, taxes, buildings, tools, overheads.

Measuring spend on engineering software as a share of this ‘available money’ captures an integrated view of the importance of engineering software as perceived by management teams across the industry.

This “% of economic value-added” figure for engineering software revenue is expected to be different in each industry – the scope of ‘engineering software’ here is not exactly neutral across the design-make-use lifecycle, it is overweight in design, so part of the difference simply reflects the design-intensity of the sector.

Why the upward trend?

But why is there a general upwards trend in the historic figures (2012 to 2018)? Figure 2 shows a range of reasons why the annual number of new users in a sector may follow a shape different to a bell shaped curve. The bell curve might be a first estimate of take-up rate versus market lifecycle progress (and is probably a decent guess for static technology). Just one of the reasons for additional growth in the number of users is that the sector grows – the others are to do with innovation and scope of applicability of the (changing) software.

Figure 2: Growth of the sector is only one of the reasons for change in the number of new users each year (vertical axis) changing as the market lifecycle progresses.

The engineering software spend values in figure 1 eliminate most of the impact of economic growth. What’s left is to do with changes in the way engineering software is used.

  • Intensity: New software increases intensity of use (use of the software contributes to a broader range of the user’s tasks) and justifies an extra product or module or higher price.
  • Scope: Growth in scope of application – so additional groups, departments and functions buy the software

Revenue growth

There is plenty of actual growth to look at. Figure 3 shows software provider revenues for the same scope of engineering software as shown in figure 1 – PLM (including CAx) plus BIM for Design plus GIS and Visualization.

I presented these charts at COFES, and in follow-up discussions, several delegates asked about the impact of subscription based licenses. Subscriptions have a lower initial price but cost more over time. The market trend is towards subscriptions. In these charts, there is no clear separation of subscription effects – however, in figure 1, the dip in the orange AEC (Architecture, Engineering and Construction) industry line from 2015 to 2017 is a result of Autodesk’s decision to make subscriptions mandatory from 2016. The big message from figure 1 is the relative stability of engineering software’s share of available spend. This is a reminder that there are two sides to every transaction. Total market size and growth depend on user-buyers’ budgets as well as provider’s sales and marketing efforts. At the boundaries, of course it is possible to liberate new budget with well presented innovation, and the upward slope of the lines in figure 1 show this is happening.

This relatively stable trend in allocation, by user management teams, of the share of their money to spend on engineering software, is one input Cambashi uses for its forecasts – as can be seen in the 2019 and 2020 values in figure 1.

Figure 3: Global software revenues for PLM (includes CAx) plus BIM Design plus GIS and Visualization in 2014 USD. 2017 and 2018 are actuals. 2019 on are forecasts. Tools for embedded system development (SEES) and electronic design (EDA) are excluded.

New intensity and increased scope

It was encouraging at COFES to hear of cases which validate this concept of increasing intensity and scope of use of engineering software:

  • New use of simulation in product development
  • New use of PLM by technical support teams to manage bill-of-materials
  • New use of tools related to additive manufacturing

This is hardly an exhaustive list, and naturally COFES included plenty of discussion on the potential for more use of many engineering software existing and emerging capabilities – design-space-exploration, generative design, AR/VR, cloud, as well as topics which extend the scope covered by the charts above, such as internet-of-things, predictive maintenance, embedded systems development, 5G and more.

So engineering software as an enabler of new engineering processes is making strong progress – enough to be visible in market figures. But even though the aggregated market shows this pattern, it seems every individual case is different – the trend is up, but exactly how company A spends will be different from company B. The corridor conversations at COFES help all participants feel they have seen and have thought about a good proportion of the enormous number of available choices for engineering approaches and software.

The charts

The charts in this article are from Cambashi’s Market Observatories. Find out more here.

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