Tracking a CAD Giant (Cadalyst's 25th Anniversary Celebration, Part 2 of 5)31 May, 2008 By: David Weisberg
A 25-year perspective on how Autodesk came to shape — and eventually dominate — the CAD industry.
To understand why Autodesk succeeded in a competitive industry when others failed, it's necessary to understand the forces shaping the CAD marketplace in the early 1980s.
During that time, the CAD industry was dominated by five players: Applicon, Auto-trol Technology, Calma, Computervision, and Intergraph. They were primarily systems-manufacturing companies that generated the major portion of their revenue by selling computer hardware, graphics terminals, digitizers, plotters, and printers. Often, software was viewed as just something that helped to sell more hardware.
The systems these companies developed were built around minicomputers, which typically supported four to eight graphic terminals and usually sold for more than $100,000 per seat. Because they were so expensive, customers installed them in CAD departments, where full-time operators served the needs of the design and engineering teams. Often, these departments operated for two and even three shifts per day to maximize the return on their investment.
The early 1980s saw the turnkey CAD vendors in the midst of a transition from storage-tube display terminals to raster displays, including a new generation of color monitors. Much of their engineering efforts focused on improving graphic performance because customers were creating increasingly complex drawings. They all offered three-dimensional software, but most customers were still using these systems for pure drafting tasks. Everyone was experimenting with solids modeling, but no commercially viable products were available.
Sales and support were rather consistent among the vendors. The companies handled sales directly because they thought that the systems they sold were too complicated to be distributed by independent resellers. Service was provided on a monthly fee basis for which users received both technical support and periodic software upgrades. In addition, third-party software developers were discouraged in that the information needed to write such software was tightly controlled.
Product packaging from AutoCAD 80 to AutoCAD R14. (Courtesy of Autodesk)
Meeting of the Minds
In 1981, the CAD industry was an approximately $800 million industry that sold somewhat more than 2,000 systems incorporating roughly 7,000 graphic terminals. The personal computer industry was in its infancy, and none of the major CAD vendors was paying any attention to the PC. This was the environment in which John Walker and Dan Drake invited 14 friends to meet at Walker's house to discuss establishing some type of software business. One of those invited to the meeting was Mike Riddle, who had been developing a basic drafting package.
By early 1982, a total of 16 individuals had committed to starting a company that would publish personal computer software programs. The 16 people chipped in a total of $59,000 to start what is now Autodesk. Today, the company has a market capitalization of more than $7 billion.
Most people don't realize that Autodesk did not set out to be a CAD company. Shortly after the company was started, Walker wrote a document he called "Information Letter #1." In it, he listed 14 programs on which the founders were working or had the capability to develop. Most of these were what we would refer to today as system utilities, such as a file-management program called Cardfile. Only one program targeted computerized drafting: that was Riddle's package, which was initially called Interact.
In return for royalty payments, Riddle signed a nonexclusive licensing agreement with Autodesk for Interact. It's possible that Walker was willing to accept this software on a nonexclusive royalty basis because he underestimated its market potential. We do know that he expressed concern over the fact that the software required a hard disk or at least double-density double-sided 8-inch floppy disks, both of which were fairly expensive at the time. Ultimately, the terms of this agreement resulted in disputes and lawsuits between Riddle and Autodesk.
Some of Autodesk's founding fathers (from left to right): Rudolf Künzli, Mike Ford, Dan Drake, Mauri Laitinen, Greg Lutz, David Kalish, Lars Moureau, Richard Handyside, Kern Sibbald, Hal Royaltey, Duff Kurland, John Walker, and Keith Marcelius. (Courtesy of Autodesk)
In March 1982, Autodesk demonstrated Riddle's software, which was renamed MicroCAD, at the Sixth Annual West Coast Computer Faire. The real launch of the software, which was then called AutoCAD, occurred later that year at COMDEX in Las Vegas. It was there that the software proved to be a hit. The basic version of AutoCAD sold for $1,000.
A Real Winner
It was near the end of 1983 when Autodesk realized it had a winner on its hands. Other software packages in development soon fell to the wayside. The company opened its first office in Mill Valley, California, and began hiring full-time employees. Within several years, Autodesk became a major force in the CAD industry.
AutoCAD v2.18, 9, 12, 14, and 2002 running at the same time, editing the very same NOZZLE.DWG file from AutoCAD v2.18. Samples dated April 5, 1985 by Don Strimbu.
In addition to a vast difference in price, a number of factors distanced Autodesk from the traditional turnkey vendors. Perhaps most significant was the company's decision to sell AutoCAD through a reseller channel rather a direct sales force. The company also encouraged third-party software developers by providing tools for writing add-on packages. The software was priced low enough that purchases did not require a high level of management approval.
As the 1980s progressed, the turnkey vendors switched to using commercially available engineering workstations produced by companies that included Apollo and Sun Microsystems. The average seat price of these systems dropped to approximately $50,000, meaning that these vendors had to sell twice as many systems as before just to stay even. This change put tremendous pressure on the companies, and soon Applicon and Calma were acquired and Auto-trol and CV struggled to adapt. Meanwhile, Autodesk's sales and earnings were growing rapidly, and by the end of 1987, the company had sold more than 150,000 copies of AutoCAD.
In early 1988, Parametric Technology Corp. (PTC) began delivering Pro/ENGINEER, a feature-based 3D parametric modeler. This development changed the dynamics of the CAD industry, making it much more software focused. What's more, computer and graphics hardware became more standardized. Vendors that focused more on software than hardware began to play a larger role in the industry. Among these were SDRC, UGS, and Dassault Systemes.
An early version of AutoCAD running on an IBM system. Anyone who bought two or more seats automatically became a reseller. (Courtesy of John Benstead)
Autodesk's transformation into a truly modern company probably started with the release of Walker's "Information Letter #14" in April 1991. In it, Walker, who had turned the role of president over to Al Green several years earlier, criticized the company's management and called for renewed focus on AutoCAD. After a tumultuous 12 months, Carol Bartz from Sun Microsystems was hired as president and CEO. Over the next several years, she put a stop to several extraneous business activities in which Autodesk had become involved and refocused the company on AutoCAD.
During the 14 years that she ran the company, Bartz turned Autodesk into a technology powerhouse. Some of this was done through acquisitions — including Softdesk, Discreet Logic, Alias, and Revit — and some was done through internal development, particularly for Inventor. Meanwhile, the overall industry became oriented toward software and services, PCs took over from minicomputers, and engineering workstations and managing design data became as important as creating them. During the past decade, we have seen the emergence of low-cost and mid-range software packages such as Alibre, KeyCreator, and SolidWorks that compete directly with Autodesk's products. As with most maturing industries, a great deal of consolidation also occurred. Today, just a few of Autodesk's original competitors still are publicly traded companies.
In 2006, Bartz handed the company's reins over to Carl Bass, who has since seen Autodesk's revenues skyrocket. With nearly $1 billion in the bank, it's interesting to contemplate what Autodesk might do next. My expectation is that the company will begin to focus more on enterprise-level solutions that address the complex lifecycle issues faced by large multinational firms. It will be difficult for Autodesk to continue its rapid growth by selling AutoCAD one copy at a time. The company must develop a business model in which customers spend millions of dollars for the company's products and services.