The growth of software-as-a-service has affected from licenses to pricing models to data security. Analysts are eager to see what comes out of this flux in the product life-cycle management market.
Generally, the big players in the global product life-cycle management (PLM) market have performed well in the last few years, but no doubt all of them have felt the impact of the global economy. Not immune to economic fluctuations, the PLM growth curve is flattening out. Economic caution has led to fragile spending, which won't change until the world economic recovery is well entrenched.
Here are some numbers from analyst CIMdata:
2011: Overall investment in PLM was up 15.2 percent to $29.98 billion compared to 2010.
2012: The PLM market grew 11.6 percent to $33.4 billion.
2013: The growth rate fell by more than half to 4.8 percent for a total market size of just under $35 billion.
PLM spending is still growing, and this trend will continue, according to CIMdata. For 2014 the analyst forecasts 5.5 percent growth, and looking toward 2018, it sees an annual growth rate of 5.8 percent to a $46.3 billion market. The growth figures are much lower than the "extreme" growth levels of 15.2 and 11.6 percent in 2011 and 2012.
"The past five years have been characterized by weak global economic conditions, tight credit markets, reduced liquidity, and extreme volatility in many financial markets,” PTC CEO Jim Heppelmann explained in the company's 2013 annual report. “Although revenue increased year over year in each of 2010, 2011, 2012, and 2013, the economic environment remains uncertain. If the economic environment does not improve or deteriorates, our business may be unfavorably impacted."
Autodesk's CEO, Carl Bass, reasoned in similar terms, saying, "As our business has expanded globally, we have increasingly become subject to risks arising from adverse changes in global economic and political conditions. The past several years have been characterized by weak global economic conditions …While some recent indicators point to a slow economic recovery, on the whole indicators continue to suggest a mixed trend in economic activity among the different geographical regions and markets."
Even Dassault Systemes’ CEO and president, Bernard Charles, in the firm’s 2013 annual report, confirmed the trend captured by CIMdata. "In an uncertain business environment, and after two years of record results, we delivered a total revenue growth of 5 percent … compared with 2012," he said.
The Tricky Problem of Licensing Models
One problem in assessing PLM investments for 2013 and beyond has to do with the changing licensing models, a matter which to some extent is connected to merging technology platforms, like the cloud.
Increasingly, vendors are moving from paid-up licensing models to subscription models. Paid-up models have annual maintenance fees in the range of 18 to 22 percent of the license purchase price. Subscription models demand payment each year that is in the range of 30 to 40 percent of today's list software pricing.
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"While most of the software in the market today is paid-up," said Marc Halpern, Gartner’s vice president of research, "I see subscription offerings growing, and the vendors are motivated to grow the subscription model rapidly because there is less pressure to sell new licenses. If subscriptions grow as fast as the vendors would like, the increase in revenue would not necessarily reflect real growth in the number of users. Each user would be paying more, with software vendors possibly selling fewer new licenses."
Furthermore, the Gartner analyst asserts that vendors are trying to convince customers that the subscription model will reduce internal IT costs since subscriptions mean that software version upgrades happen automatically. “So end-users theoretically pay more to the vendors but overall costs drop,” he said. “I am undecided whether or not I believe this. It is an area of research for me. But, if the subscription model works, we will see higher spends on PLM in 2014 and 2015."
The Cloud Is Not a Goldmine… So Far
Has the hype around PLM in the cloud resulted in customer investments? So far, the answer is no. In fact, it may be the other way around. The cloud has affected the pricing and results on the on-premise market negatively, plus, while many PLM vendors have offerings, most have yet to see any real returns on their investments.
Meanwhile, the discussion of SaaS (software-as-a-service) has created expectations of at least more effective pricing models. This picture may change quickly if the new business models for delivery and support of PLM act as triggers for greater investments.
"If SaaS for PLM succeeds, then more SMBs will invest," Halpern said, adding that concerns about hacking, cyber terrorism, and (for companies outside the United States) U.S. government sanctions and monitoring of Internet traffic passing through U.S.-owned servers might delay these ventures. "But if software vendors overcome these inhibitors and the business models succeed, users will be spending more on PLM software, which will lift revenues even if the number of users remains the same."
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This article was originally published on ThomasNet News Industry Market Trends and is reprinted with permission from Thomas Industrial Network. For more stories like this please visit Industry Market Trends