How digital unbundling will destroy traditional PLM business

“Digital” was a big word  last year and I think it will become even bigger trend in 2018. While some companies are in full speed adopting digital strategies and methods, other companies are still learning. Today I want to talk about PLM vendors and how their business might be negatively impacted by digital technologies and transformation.

Wait a minute…  PLM companies are moving full speed towards digital technologies. PLM companies are dreaming how digital technologies will come to manufacturing companies and transform their business. PLM is actually a driving force behind digital transformation. This is what you can hear and see in most of PLM marketing presentation – PLM, PLM IoT, digital transformation, digital platforms, Innovation platforms. So, what is wrong?

Here is the problem. PLM business model. PLM businesses are monolithic and selling PLM licenses for long time. So, business model doesn’t change for PLM vendors. Even recent trend of switching PLM software to cloud and SaaS doesn’t change much. The percentage of cloud deals sold by major PLM vendors is insignificantly small and even so, vendors are selling multi-year subscription contracts to the same software that was sold before with some limitations (eg. no customization,etc.)

It is hard to change business model. How digital transformation can change it? Here is one of possible options. I shared it in my article last year – PLM: From selling software to buying services.

PLM systems are going through the transformation from the status of business software for data management to a set of services to perform specific engineering and manufacturing activities. By measuring these activities, companies will make an assessment how new PLM services  improve the business. The consumption of future PLM services will be growing as soon as companies will be discovering new services and transactions supported by PLM cloud services. The old process of selling software will transform into the process buying services by companies, similar to how companies are buying storage and internet services today.

In much older article I published in 2013, I’ve been sharing my thoughts about “unbundling strategies in CAD and PLM”. Future unbunlding of features and services from CAD/PLM product suites can provide a potential opportunity to diversify market and solution options available for manufacturing companies. Cloud and SaaS models will be very helpful in this process. It is much easy to use unbundled cloud services compared to old set of CAD/PLM tools.

As much as I can see the process of unbundling is starting and it can be way traditional PLM business models will be destroyed.

Earlier today, I was reading McKinsey article – Why Digital Strategies fails. Read the article. I found it very interesting. My favorite from the article was about economics of digital.

One of the first concepts we learned in microeconomics was economic rent—profit earned in excess of a company’s cost of capital. Digital is confounding the best-laid plans to capture surplus by creating—on average—more value for customers than for firms. This is big and scary news for companies and industries hoping to convert digital forces into economic advantage. Instead, they find digital unbundling profitable product and service offerings, freeing customers to buy only what they need. Digital also renders distribution intermediaries obsolete (how healthy is your nearest big-box store?), with limitless choice and price transparency. And digital offerings can be reproduced almost freely, instantly, and perfectly, shifting value to hyperscale players while driving marginal costs to zero and compressing prices.

What is my conclusion? PLM vendors are looking into bright future of digital transformation. But, this future might not be as bright as it might look and sounds now. Their monolithic products will be disrupted and unbundled digital services will be consumed in new profitable SaaS products in new digital models. It is gloomy prediction for existing PLM products. But, PLM companies have resources and can make a change. Will they do so? It is a good question. So, next few years in PLM can be a very interesting time. Just my thoughts…

Best, Oleg

Want to learn more about PLM? Check out my new PLM Book website.

Disclaimer: I’m co-founder and CEO of OpenBOM developing cloud based bill of materials and inventory management tool for manufacturing companies, hardware startups and supply chain. My opinion can be unintentionally biased.