(This article is based on material presented at COFES 2017, Scottsdale AZ, 6 April 2017)
With growth rates of 2 or 3% being hailed as great successes in the developed economies, our forecasts for the engineering software market of 7.2% for 2017 and 10.6% for 2018 indicate an industry in good health.
A Picture of Growth
The blue bars in figure 1 show the global engineering software market, in this case, end user expenditure on engineering software measured and forecast in constant 2013 USD, shown on the right hand vertical scale. The blue line, and the left hand vertical scale, shows annual growth. The only services included are those from the software providers. Third party services, which amount to another 25-30% of the total, are excluded from these totals.
The components of the total are listed in the key at the top:
- PLM is the broad PLM, that’s all CAD, CAM, PDM and PLM, plus MCAE.
- BIM is mainly BIM for design, with some BIM data management. But BIM for construction, operations and maintenance is not in scope.
- GIS is geospatial, everything that has a map component.
- Viz is visualization, there’s a lot of that in PLM, this Viz category includes media and entertainment applications.
- SEES is a Cambashi name, it stands for Systems Engineering and Embedded Software development tools, this is part of Application Lifecycle Management - that is, the software development tools market – specifically, the part used to develop software to be built into products (so excluding software tools used to develop software for financial services, or payroll and so on).
- EDA is mentioned here because I’ll add it in later to give a sense of scale, but it's excluded from these totals.
So what's going on here?
The growth line is not smooth, but there are reasons for this outside the general health of market demand. The figures are constant 2013 dollars, but even constant currency cannot eliminate all the market effects of 2015's enormous exchange rate fluctuations – remember in 2015 the dollar went up by nearly 20% compared to the Euro; 41% compared to the Brazilian Real, and 58% compared to the Rouble.
The 2016 number was affected by a shift to subscription-based software licensing – less revenue this year, more in the future. Taken on its own, Autodesk’s decision to mandate subscriptions accounts for about 2% of the 2016 dip of global growth rates, but other software vendors also offer subscription options that seem to have been more popular than expected.
The reasons for this popularity are not too hard to find, for example:
- In times of uncertainty, every CFO is very careful before making investments in assets - because there is no escape, these costs are then depreciated over the number of years justified in the business case. So subscriptions (so long as there is a reasonable cancellation option) are more attractive, even when the predicted total cost of ownership is higher.
- The initial contract commitment in a subscription is almost certainly lower than a perpetual license, this may enable sign-off at a lower level in the organization.
- In some industries – construction is a good example – a subscription is an identifiable expense which can be passed through to a client.
- The trend of internet and cloud services is strongly biased towards subscription and pay-per-use expectations and therefore business models.
2017 is year 2 of subscription's emergence as a significant model in the global market. 2016’s revenue growth decline gives a lower comparison, so growth rates are recovering. We forecast 7.2% for 2017 and then 10.6% in 2018.
Which Application Types?
In figure 2, the blue bars from figure 1 have been split into their component application types, and EDA figures for 2015 and 2016 have been added. The growth lines for the individual application types have also been added, so the growth % scale on the left hand side has changed.
The light blue line at the top, goes with the blue parts of the bars. This is SEES, systems engineering and embedded software development tools. It's mainly at the top, so it's growing fastest. SEES has been our handle on the Industrial Internet of Things for quite a few years now because it captures the move to software in product development. But watch this space, we’ve got a research project running to map out who pays whom for what in IIoT projects, from cloud services to communications to development tools to runtime software and so on.
Back to today’s figures, the yellow line with the lowest growth in 2016, a decline of nearly 5%, is the growth line for BIM, and goes with the yellow parts of the bars. With Autodesk such a major player in BIM, the move to subscriptions had a big impact in 2016, but as that subscription effect unwinds, you can see it recovers well.
In 2017, the PLM, BIM and geospatial lines are all clustered in the 4-7% growth range, but add in the double-digit SEES growth, and growth of the total market comes out at 7.2%, as I mentioned earlier.
How Does This Fit Into the World Economy?
Figure 3 shows 45 years of the world economy, as reported by the UN in early 2017, with the world divided into 6 geographic regions. The lines track percentage share of GDP for each region each year.
There’s not much doubt that the green line– Asia – is trending upwards, and the red line– Europe – is trending downwards. A trend for the blue line (North America) isn’t so clear – mathematically, it’s going down, but only very slightly, visually a horizontal line would look OK.
In the smaller regions, the grey line (Latin America plus Caribbean) is interesting – it looks as if 2011 to 2014 was around 7%, up from around 5% back in the 1970s. But the shape looks like it could be slipping back. Africa (dashed line) was going down from about 1980 to 2003, but has been nudging upwards since then.
So, for the big regions, the summary is: Asia up, Europe down, North America nearly holding steady.
But, before I let you think too badly of Europe, let's try and eliminate currency effects. Figure 4 shows GDP amounts, calculated by the UN, using 2005 dollars as the constant currency.
This is a more reassuring chart from a European perspective. In the big three regions, all that’s happened in 45 years is that Asia has moved from 3rd place to first, Europe has slipped to second place.
But what this chart hides is the narrowing of the gaps between the big three regions.
In 1970, the gap from 1st to third was about $4.5T – nearly 25% of the total for the three regions.
In 2015, the gap from 1st to third was only $2T, about 4% of the much larger total.
There’s another factor, total population, which is important for forecasts. Even though the gap between GDP has narrowed so much, the populations of these regions are very different – as defined for this report, the population of North America is about 360 million, Europe is about 740 million, and Asia is about 4 times the total of those two, about 4.4B. Of course there are many more factors, but if population is a necessary contributor to GDP, then Asia has a population able to sustain its upward GDP trend.