This Pond Isn't Big Enough for All of Us (PLM Strategies Column)1 Feb, 2007 By: Kenneth Wong
Fight for SMB market share is waged through speed, strategic acquisition, partnerships and Skype.
Let's say you decide to bite the bullet—you clench your teeth and sign off on a PLM system for your 15-person component-manufacturing business in Minneapolis. Then you hurry off to board a plane to meet a supplier halfway around the world. Two days later, you watch the sun rise from a hotel room in Shanghai. By then, your brand-new PLM system —the one you green-lighted before you left—could be in operation.
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Forget those multiyear, multiphase epic implementations you've heard about. Two business days is what it typically takes for many customers to get their systems up and running with Agile OnDemand, according to Agile. Similarly, Arena Solutions says its subscription-based PLM solutions can be implemented in a matter of hours or days, not months or years.
Agile, headquartered in San Jose, California, sells its Agile Advantage PLM products under the on-demand and traditional perpetual license models. If you're a small business owner, Agile will entice you with PLM solutions that promise, among other things, low upfront costs, flexible licensing options, quick time-to-benefit and the ability to scale effectively from several users to several thousand. About 50 miles away in Foster City, California, Arena Solutions also serves up PLM modules under the SaaS (software as a service) model. Arena draws small businesses with a 45-day free Arena PLM trial: a functional test drive for as many as five employees and all of your suppliers, free training and customer support and industry-specific features. Both offer PLM options for about $100 per user per month. (For more on this topic, read "Pick What You Want, Pay As You Go," Cadalyst, September 2005 or "Great Expectations for Software as a Service," Cadalyst, August 2006.)
Figure 1. In the Fall 06 release of Arena PLM, Skype, a popular social networking VoIP tool, becomes a supply-chain communication application.
For large enterprises—the Boeings and the GMs of the world—the complexity of the business processes, the number of suppliers involved and the amount of coordination required may make plug-and-play PLM an impractical approach, but for many moderate-size businesses—usually those that fall under the SMB (small and mid-size business) category—these products now are a viable option.
Plug and Play
Perhaps overnight or 48-hour implementation is overly optimistic, a scenario restricted to the best circumstances. Nevertheless, in its July 2006 issue of Enterprise Strategies, market watcher Aberdeen Group (www.aberdeen.com) noted that companies that have chosen SaaS PLM products reported achieving "operational implementations within weeks."
According to Aberdeen, "Best-in-class SMEs [small and mid-size enterprises] are four times more likely to employ PLM solutions—and they are achieving double-digit cost, revenue and time-to-market gains . . . For many of these top performers, the key to removing implementation barriers and improving product development performance is SaaS PLM or on-demand PLM solutions . . . SaaS solutions reduce PLM implementation barriers common to smaller manufacturers by offering lower barriers to entry—because SaaS solutions require fewer IT resources; low total cost of ownership; [and] fast, easy adoption."
Craig Livingston, Agile's vice-president and general manager of small and mid-size enterprise solutions, said, "Given a choice, about one in four customers selects on-demand." He also remarked, "We're offering not just on-demand products; we're also in the perpetual onsite PLM market—delivering the vast majority of implementations in two to three weeks—and have the unique capability to easily migrate customers from on-demand to perpetual to our enterprise solutions as they grow and their needs become more complex."
Swimmers in the SMB Pond
Mark Holman, Arena's senior vice-president of operations and strategic development, said, "We tend to focus more on the mid-market because our delivery method makes it much easier for these customers to deploy. Larger enterprises are more comfortable spending the extra time and money to make their PLM systems exactly they way they want."
Going Down the Food Chain
In the highest sphere of the lifecycle market, three titans—identified as UGS, Dassault Systemes and PTC by AMR Research—continue to devour anything they find easily digestible ("MatrixOne Acquired by Dassault Systemes—PLM Consolidation Close to an End," AMR Research, March 2, 2006). But don't think for a moment that the smaller fish in the mid-market are on a diet. Some of them exhibit an appetite that's just as voracious as those of their larger counterparts.
In June 2006, Agile announced its plan to gobble up Prodika, an established PLM vendor in the consumer packaged goods sector. With this conquest, Agile stepped into the food and beverage sector, quite unlike the automotive, electronics and high-tech sectors where it has already made a mark. At best, we can expect Agile to somehow blend Prodika's recipe-and formula-management expertise with its existing design-data management and bill-of-materials management experience and then come up with improvements that'll please Heinz and McDonald's as well as Lockheed Martin and Dell.
So where is Agile going with this? AMR Research's Burkett anticipated a move toward "chemical-based industries like health and beauty" ("Agile Bites Into the Food and Beverage Industry with Prodika Acquisition," AMR Research Alert, June 28, 2006). He praised the acquisition as "positive for both companies," but in the same breath warned that "while Agile has strengthened its footprint with Prodika, it also becomes an attractive acquisition since it is the only remaining independent PLM provider neutral to CAD or ERP systems."
During a recent public conference call, PTC outlined what it believed to be the shortcomings of its mid-market competitors, Agile among them. According to upFront.eZine's paraphrased record of the call, PTC's upper management said, "I think the problem with the Agiles, the Matrixes, the companies that are sort of in the middle, they don't have any heritage on the CAD side, they don't have any heritage on the ERP (enterprise resource planning) side. Customers do not want a whole new data model in the middle of this already-complicated problem."
Is a CAD or ERP heritage a critical factor? Perhaps for some businesses that are deeply entrenched in a certain design environment or enterprise system. Others might argue that as long as a vendor provides a heterogeneous environment that can accommodate the prevalent CAD and ERP tools, it's not likely to alienate potential clients.
IM on PLM
It's a pop-up window where you can be an avatar. It's eBay's investment experiment. It's the teenagers' preferred gossip exchange medium. It's an inexpensive way to chat with friends in Kuala Lumpur or Bangalore. It's a lightweight VoIP (voice-over-IP) application called Skype. And now, it's a PLM tool.
Since the Fall 06 release, sub-scribers are communicating with their suppliers around the world and coworkers in remote offices using Skype's text-messaging, voice-streaming and group chat features.
Reflecting on his own use of instant messaging, Arena's Holman said that, for the most part, his text messages to his colleagues are strictly business communications, but social interactions inevitably creep in. It might begin with an occasional "Are you ready for lunch?" Soon, the conversation may take on a more casual tone.
"The line between social and business is now blurred. I believe that great workplaces are the ones where this line is respectfully blurred, so to speak," Holman remarked. "I happen to believe the blurring of the boundary will help get better products to market faster. In work environments, the social lubrication helps businesses operate a lot better. If we understand and respect one another, understand where we are coming from, we'll be able to solve issues more quickly."
Another enhancement introduced in the Fall 06 edition is the integration of dynamic content from Avnet Prómiere, a supply-chain information and services provider. The new feature gives Arena subscribers access to Avnet Prómiere's database of more than 19 million unique electronic components, comprising parametric data, predictive end-of-lifecycle information (in other words, when certain parts are due for retirement), pertinent RoHS (restriction of hazardous substances) and environmental regulation information, product change notifications, part datasheets and more.
"Historically, Avnet has offered this content through its partnership with IHS (Information Handling Services) on an on-demand basis," explained Holman. "So we struck a partnership with Avnet to provide the same content through Arena." This, he argued, should be appealing particularly to SMBs, because to undertake such an integration on their own would be a costly proposition. "It could be a $50,000 to $100,000 investment," he estimated. "For a SMB, that's way out of its league. But because of our on-demand architecture, we were able to do the integration on our end, using our engineering R&D. For our customers, it costs nothing to access that database. Now, a SMB can also contact Avnet directly, but they'll have to pay Avnet a subscription fee."
More Ripples in the SMB Pond
According to analyst reports, the SMB pond is expanding at a much faster rate than the PLM open sea. In AMR Research's estimate, "Mid-market manufacturing (defined here as companies with $30 million to $999 million in annual revenue) is the fastest growing segment of CAD/PLM application spending, growing at 12% annually. This growth rate is substantially higher than the overall market average of 9%" ("Mid-Market Manufacturers Investing in Innovation Technology," AMR Research Alert, September 14, 2005). By 2009, there'll be around $4.2 billion floating in that pond, AMR Research predicts. That's a pond that even the big fish might want to wiggle back into.
In late 2005, UGS did just that. It dove into the SMB market with the UGS Velocity Series: a bundle of Solid Edge (mid-range CAD), Femap (analysis) and Teamcenter Express (data management). Later, it added NX CAM Express to round out the collection. The branding, with emphasis on Velocity and Express, offers a clue to what the PLM giant is thinking—in the SMB pond, speed is more important than size.
Kenneth Wong is a former editor of Cadence magazine. As a freelance writer, he explores innovative usage of technology and its implications. E-mail him at kennethwongsf at earthlink.net.