By Tony Christian
Identifying and analyzing opportunities for investment in the technical software market requires a high level of rigor. It is a global market covering many industries—including computer-aided design and manufacturing, product lifecycle management, building information modelling, and geographic information systems in industries such as architecture, manufacturing, and utilities for the design engineer.
Like most markets, there are mature areas—where growth is modest but steady and entry is difficult, growth hot spots, and white spaces. Furthermore, many customers have made substantial investments in technical applications infrastructures, with well-established incumbent product sets that support product development workflows.
This market complexity means that evaluating investment opportunities is a multi-dimensional task, requiring many perspectives. Alongside the analysis of a company’s financial position and the capabilities and experience of the leadership team, assessment of its future prospects requires careful consideration of its technology in the context of market trends and competitor capabilities. It also requires consideration of a host of other factors including market size, penetration, and growth outlook for each of the industries; regions and segments to be addressed; channels to market; and pricing and licensing models.
The starting point for evaluating investment opportunities should therefore be a comprehensive market landscape that brings together all of the relevant factors that must be considered for the area of the market into which the opportunity falls.
A typical market landscape will cover overall market structure, the business models adopted for the chosen market sector, the trends in both of these areas, and quantitative market information—size and predicted growth for the segment(s) of interest. Such a market landscape can be tuned according the stage of the investment analysis—for example, if a specific target company has been identified, the attributes of that company and profiles of likely competitors can be incorporated into the picture (see Figure One).
While the market landscape provides the overall context for investment opportunities, identifying and assessing the opportunities requires careful analysis of each of the aspects, ideally supported by insights into the trends, relative product capabilities, buyer priorities and drivers, and so on.
In terms of high-level trends, new technologies change the methods in which users adopt technical applications, which in turn lead providers to adopt new business models for supplying technology and identifying new market opportunities. The dominant themes of the last few years have been firstly the cloud—and by extension, mobile applications and second, the massive increase in the reach of applications both in terms of accessibility and flexibility. The trend is promoted by vendors under the banner of democratization. For example, at the highly technical end there is a strong drive to put applications like simulation and analysis in the hands of general designers rather than specialists by dramatically increasing ease of use and providing greater computing power through the cloud. However, for vendors, democratization equals more users but lower revenue per user.
It is vital to understand the implications of such trends.
Other notable technological drivers are the increasing integration of applications to support whole workflows and, of course, social media. This opens up new ways of sharing information and therefore collaborating on product development projects as well as allowing manufacturers closer contact with the users of their products and services. A major, emerging area of opportunity for growth is the rise of smart devices and the related drive for automation through the Internet of Things. As software becomes an increasingly important aspect of product development, the scope of the technical applications market must expand in order to cover the tools for managing the embedded software lifecycle.
Opportunities and Threats
While these technological trends undoubtedly offer new and substantial opportunities, they also present significant threats to existing business models. This is similar to the early 2000s, when there was extensive debate about the impact of the Internet on business strategy and the value of IT. The new models of application delivery are changing the basis of value and competitive advantage, which are derived from engineering software applications.
For example, the increased accessibility and usability of previously highly esoteric applications like simulation and analysis means that there is potentially a leveling effect on the business practices and outcomes around those technologies. This reduces the scope for establishing sustainable operational advantages around them as point solutions and shifts the main basis of benefit to the integrated workflow.
The global nature of the market is a further dimension of complexity. There are likely to be significantly different requirements in each sales territory. For example, the end-user industry structure is likely to vary by territory, requiring changes in emphasis in marketing messages. Understanding such subtleties is essential.
The technical applications market continues to develop rapidly and is therefore full of opportunity, but making sound investments requires a comprehensive view of the many factors that will have a bearing on success or failure. The kind of market landscape proposed here provides an excellent framework for developing the necessary understanding to the right level of detail. SW
Tony Christian is director for the industry analyst and market-consulting firm, Cambashi. He offers experience in engineering, manufacturing, energy, and IT. His early career was in technical research and development roles, after which he moved into computer-aided engineering. Christian’s subsequent roles included divisional head of the IT subsidiary of an international engineering and construction company and leadership of teams developing and implementing manufacturing control systems at British Aerospace.