How much cost to build PLM software?

How much cost to build PLM software?

plm-startup-cost

The new normal – we need less money to build software these days. My attention caught Andreessen Horowitz article The Happy Demise of the 10X Engineer. In a nutshell, we live in the era when infrastructure cost is going down and the cost of software engineers is going up. The following passage is important:

As the leverage of the individual software engineer increases, the barriers to becoming a code creator are falling fast. The same software foundation (open source software, development tools like Github, infrastructure as a service provided by the likes of Digital Ocean, and more) that allowed Whatsapp and Imgur to scale, means that experience and skill writing software become less important. An individual can now scale a web app to millions of users with Digital Ocean, Heroku and AWS (perhaps coordinated by Mesosphere). It no longer requires a sophisticated understanding of MySQL parameters to scale a database on Google App Engine, just as it no longer requires a knowledge of the CPU chip it’s all chugging away on.

Nowadays, the open source software foundation, Amazon (AWS) and web distribution allows you to build software and ship it initially without significant upfront expense. Another article by ReadWriteWeb – You Don’t Need To Be An Engineering Genius To Start A Billion-Dollar Company compares the cost of hardware and storage with the cost of engineers between 1998 and 2013.

infra-vs-eng-cost-plm-software

In 1985, storage was a key expense, running $100,000 per gigabyte, while a developer could expect to get paid $28,000 per year. By 2013, things had changed considerably. Now storage is cheap, costing $0.05 per GB. Developers, on the other hand, are expensive $90,000 per year.

Both articles made me think about what is the cost of building PDM and PLM software today. Does new normal rule of building web and mobile startups apply to the world of engineering and manufacturing software? The world of enterprise software is probably different from web and mobile. At the same time, changes I mentioned above in development eco-system and infrastructure cost apply to PLM world as well. So, the answer is far from yes or no. Here is more structured answer related to building of PDM/PLM software.

1. Foundation and Development Infrastructure

Web and open source eco-system created a huge software foundation stack. As a new company, you have a huge opportunity for re-use. This stack wasn’t available 10 years ago. In the past, enterprise companies didn’t tolerate open source software. The situation is completely different today. From that standpoint you can build new software with near to zero development infrastructure cost.

2. Private vs. public cloud

Public cloud is the best world for web startups. Most of them can run in production on AWS or similar public cloud hosting services and scale as usage will increasing. However, many manufacturing companies are still sitting on the fence of private vs. public cloud decision. So, you need to choose. You can either cut your potential customer audience or will be required to incur an additional cost of private cloud configurations, data centers and infrastructure.

3. Domain expertise

You need to get your hands dirty into engineering and manufacturing business. It is different from web photo sharing, messaging and mobile games. There are less people available in this field, which will obviously bump your cost up compared to some other industries.

4. Distribution and sales

To go viral is one of the most desired way to distribute web and mobile software. You go viral or die. The applicability of “viral model” for PLM is questionable. Speak to enterprise sales people and they will explain you the difference between software that needs to be sold vs. software that can be bought. Sales and marketing expenses in enterprise space can be huge.

What is my conclusion? It is easy to build technology and product. However, it is very hard to build business. The technology is getting cheaper. The best part of this trend – it allows you to experiment without significant investment to find product-market fit. PLM industry has its own domain ecosystem and specific rules. Engineers need to be familiar with use cases, existing software, tools and environment to succeed. The last one can push engineering cost of building PLM software even higher than average. The last and the most critical part is distribution and sales. Be prepared to pay huge cost for that. The good news – you don’t need to do it upfront. Enterprise software space is changing dramatically these days. So, I’d agree with Excite founder Joe Kraus and his 2005 article – “There’s never been a better time to be an entrepreneur because it’s never been cheaper to be one”. Just my thoughts…

Best, Oleg

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  • Ross Bernheim

    The cost reductions from using public clouds and building on open source software are real, but they always have been a small part of the total cost of ownership for PLM. Depending on the size of the enterprise, the costs can be spread over more seats.

    The trick is how to get the other costs down to a level that smaller companies can afford PLM and vendors can afford to cater to them. The costs are down to a point that medium sized businesses can now not afford to use PLM.

    It is still the small companies just starting that need PLM and are having trouble learning about and justifying PLM. Those companies just starting out are in the most need to get PLM before it becomes too expensive to institute. This is the challenge moving forward.

  • beyondplm

    Ross, you are right about TCO. At the end of the day, customers will be looking how to make PLM software affordable (especially for SME).

    Open source and public cloud technology can provide a significant reduction, but most of PLM vendors are still far from leverage that. There are lots of potential in collective multi-tenant usage and resource utilization when it comes to the cloud.

    On the side of business, I think most of PLM vendors today are restructuring towards subscriptions and services models. Sales, marketing and distribution cost is still very high. There are still lots of not answered questions.