A few days ago I wrote an article discussing why the strategy of building PLM on top of PDM can be a wrong solution – 3 Reasons for not growing existing PDM into full PLM system. I also enjoyed discussion and comments on LinkedIn. Check it out here.
This discussion made me think about another aspect of PLM development -business models. During the last decade, we’ve seen software (and not only) vendors are actively moving to subscription-based models. Is it time to review PLM business models and licensing? Maybe PLM packages are required a different business model and licensing approach.
Let’s take a look back and check how PDM/PLM sales worked for the last 1-2 decades, Most of the packages in this space were sold using existing CAD resellers networks or using direct sales. The reality of these sales models was to license PDM (and PLM) as an attachment license to the CAD system. It is easy to explain and easy to measure. If you have a CAD system, a user will need to have a PDM license to manage these files. Later, PLM vendors realized that the potential for PLM to grow is to sell these systems for an entire organization. It worked for enterprise PLM sales, but the distribution of licenses outside of CAD attachment was always a big issue when vendors made attempts to target an entire organization.
As the industry is moving PLM business to subscription models, the question of business models and licensing will be coming again, in my view. PLM business models are gravitating between CAD / PDM licenses and other business software (think CRM and ERP) to justify their value and compete for some of the functions and features companies can get from other tools. These days you can see a large number of “digital transformation” projects with PLM involvement.
The complexity and high cost of PLM packages created a massive number of “shadow PLM” solutions homegrown and built on top of content and document management software (think about Microsoft SharePoint based PLMs). Don’t forget about Excel – most companies will admit these days that using Excel for product development would be a suboptimal solution.
I think the question of PLM package licensing will become more important in the next few years because most of the vendors are stuck between two options: (1) CAD attachment and (2) user-based licenses. While the second options seem to be a reasonable alternative, it has the same PDM-ish challenge. Not all users are equal. And while paying 100$ per user/month subscription might be ok for some sophisticated roles, when it comes to simple data reporting, sharing and consumption, it might be hard to justify.
The problem I described above might be disappearing as you go to the upper segment of the PLM market and start selling 1000s of licenses. The cost of a license can go low into 20-30$ user/month range. Check this example. But the number of manufacturing companies buying 3000-5000 seats of PLM software is not as big as the PLM industry can dream about.
The main reason to sell PLM as CAD attachment is related to the fact that this is a place where PLM systems today can show the biggest value. PLM sales are heavily using an “engineering door” to get to manufacturing companies and sell them the first solution (land and expand the strategy that used all the time to up-sell CAD licenses). But this is also a place where these projects can often get stuck and die.
The beauty of subscription models is that it introduces a much lower barrier for a manufacturing company to get a tool. Combined with a proper cloud and data management technologies, these new PLM solutions can leverage the economy of scale by offering solutions to manufacturing companies to explore their value in a diverse set of departments and organization units. However, to make it happen will require an introduction of appropriate licenses and business model. An obvious example – selling CAD-bundles to maintenance and support organization doesn’t make much sense.
What is my conclusion? For a long time, PLM business and sales models were actually using CAD attachment for licenses. It was easy for CAD sellers to approach organization from the engineering door and sell them PDM package as an add-in for CAD systems. But these days it looks like a very limiting approach. Moreover, to stuck in PDM development might be not the best strategy to expand and to show fast ROI and value proposition. It is a time for PLM vendors to learn more about business models and licensing for SaaS businesses and apply them for PLM development. Just my thoughts…
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.