September 03, 2007
Are EDA Companies Getting Fair Value for their Software?
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Jack Horgan - Contributing Editor


by Jack Horgan - Contributing Editor
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    -- Jack Horgan, EDACafe.com Contributing Editor.


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    • Are they really willing to change? September 04, 2007
      Reviewed by 'r36579'
      Certainly there is some talk about value-based pricing for some time now, especially in the area of DFM where such tools should apparently save millions or even billions.
      Here the opportunity of value-based pricing is again discussed but finally a traditional EDA model is being applied to sell the software. So why settle again for the traditional?
      o Because it is more predictable short-term satisfying analysts and shareholders?
      o Value-based models are not accepted foremost by the users, but also analysts, shareholder?
      You state:
      "[...] It is hard for any industry to change its basic pricing model. However, the EDA industry has moved in recent years from perpetual license to time based license and subscriptions. SIP firms have had success with a combination of licensing fees and royalties. The industry might be willing to consider new pricing innovations. [...]"
      New pricing innovations?
      What does this mean? We already see higher prices, segmentation, no more volume bundling of all products by large vendors, debit card principles,...
      But is this really new? Or does it look more like variations of the established TBL, commitment, backlog principles?
      Really new would be value-based models with shared risk/ reward! Success components! Flexible volumes!
      While it fluctuates heavily the IC industry outgrows the EDA industry. Yes, it seems like a more risky investment but has shown traditionally higher returns that the stable, slow growth, (for analysts) very predictable EDA industry.
      Are EDA companies really willing to entertain really new business models? New ways of working with their customers to realize and demonstrate value on the product level? Tapping into new sources of incoming streams other than license/ consulting sales? Establishing some solution orientation?
      Is there an infliction point that has to happen before these models can change? If yes, which one? Maybe a new generation of EDA leaders which are not stuck in old ways of doing things? Less influence by VCs and serial entrepeneurs who look more towards cash than to solve the problems of EDA customers?
      Right now the EDA industry rather seems determined to capitalize by all means possible on the increased R&D spendings of the IC industry. Like a leech.
      The EDA business/ market is increasing, alright. But at what hidden "cost" to his user base? Are they all 'satisfied' with this new 'hunger'/ demand of the EDA industry to ferociously grow since the IC industry grows?
      I would think that the current EDA accounting principles and the analyst expectations for predictable and long-term growth as well as the short-term expectations to capitalize on the increasing IC R&D budgets are creating a tremendous innovation bottleneck in terms of new models! And therefore cutting off new possible streams of income such as value-based models, success components.
      The cited move from perpetual to TBL licenses was a concerted effort by both the EDA industry and the EDA users.
      It is now time to sit together again to think about the next new model change.


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