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Issue #521   :  :   June 5, 2007

In this issue:

McNeel Press Event

        - Where the Money Is
        - The 3D Opportunity
        - No Standard 3D Application in MCAD
        - Wiki Business World

        - Products and Licensing
        - Technology Strategy      
        - History of McNeel and Rhino
        - Product Strategy
        - Mac Version of Rhino

        - Event Photos
        - Additional Sources

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[Note from the editor: due to the length of this week's coverage of the McNeel press day, this issue of upFront.eZine contains no regular features.]

McNeel Press Event

So why bring the CAD media to Puerto Vallarta, Mexico just to talk about Robert McNeel's philosophy of CAD? Because it was in conjunction with DIMe, Design Industrial Mexico. "DIMe is how our business works," Mr McNeel starts off. "We had nothing to do with organizing these user group events." This year there are eight such events going on around the world, such as architects meeting this same week in Delft, The Netherlands.

Where the Money Is

Existing users provide most of the revenue to the traditional CAD vendors, who spend 70% on sales, marketing, and administration expenses -- most of which is spent on luring new users. Just 15% is spent on existing customers (ie, the 15% that is typically spent on R&D [search and development], and none on pure research). The remaining 15% is net income.

In other words, when you pay $4,000 on a software license, some $2,800 of it is needed to find new customers. McNeel reverses the ratio, so he spends more is spent on existing users (through development, free support, and training), and less on S-M-A.

In this way he thinks like Greg Milliken of Alibre. But unlike Mr Milliken's background in marketing, Mr McNeel's background is in accounting, and so he likes to follow the money. Whereas Mr Milliken's guide is "Innovator's Solution", Mr McNeel follows the precepts contained in "The Long Tail" (as do I).

Where is the money?, he wondered. And then he wondered if being public (having stocks publicly traded on an exchange) is on its way out, because it is no longer needed for sources of capital. In today's "Web 2.0" world, the LESS you spend on launching a new company the MORE you are admired.

 He examined popular methods of obtaining capital, and found them all lacking:

• Stock investment -- a zero sum that works only when more people are will to buy than sell.
• Dividend growth -- failing to support stock prices, which themselves are based on speculation; he noted that the Dow Jones Average has failed to beat inflation over the last seven years.
• Private equity -- outside of SEC oversight.

The large, public CAD vendors are organized to increase their market capitalization, which has increased by $5 billion over the last five years, much of which was due to Autodesk. Stock options, which are popular for keeping employees, only serve to keep employees focused on shareholders, instead of customers.

He feels that public companies are becoming obsolete, because stocks are a wealth transfer system, that moves wealth from employers, customers, suppliers, resellers to the stockholders. When a public company needs to compromise is needed, it will chose the side of the "win the jackpot" strategy. Wall Street pushes for an increase in stock value; with prices being largely flat, the primary method is for corporations to spend their profits on buying back shares (the resulting scarcity increases their price) -- not something that benefits users.

The 3D Opportunity

Next, he listed a series of numbers:

• 6.6 billion people on this planet.
• 1 billion have Internet access (approx. 15%).
• 2 million are 3D MCAD users.

Everyone believes 3D works now, and  are no longer experimenting with it. There is so much 3D: hardware, Internet, geometry, rendering, CNC, 3D printing. It is no longer an early market play; there is no need to convince people that it works -- but many believe that it might not work for them.

So why isn't 3D on Main Street? Why isn't it like word processing? At this point there was much discussion over the inherent limitations of 3D; it has a complexity that requires training, unlike Word. There is the cost, such as Autodesk's oft-repeated statement that it hopes to make 10x more from 3D users than 2D users. There is the oft-stated speculation that today's teenagers, many of whom are enveloped by 3D computer games, might be the needed breakthrough. Perhaps in ten years we won't have this discussion anymore due to the demographic shift.

Mr McNeel continued: There is no standard 3D platform, as there is among word processing. He sees a disruption happening, "a coming perfect storm," that may result from the following factors. [As I write this, our hour-late Alaska Airlines flight is passing over the part of the Mexican coast where cyclones (Pacific Ocean hurricans) form in the autumn].

• Underserved markets.
• The shift to low-wage production, and then to low-wage design, and finally low-wage development.
• The emerging "Wiki business world" with the Internet as the backend, powered by LAMP (free Linux operating system, free Apache Web server, free MySql database system, and free Python programming language). This affects not just CAD, but also CRM [customer relationship management], and so on.

There was one number he presented that we just didn't believe: 150,000 users of Rhino. It just seemed to low. When Mr McNeel admitted it was a rough guess, that was even harder to believe: an ex-accountant who's imprecise with numbers?

No Standard 3D Application in MCAD

There is no single dominate player in the MCAD (and AEC) world, unlike Word, Windows, and PDF. The marketplace likes standards, and eventually will decide on a winner, but it is unknown as to when or who. Mr McNeel's advice is to be ready when it does happen. He feels that SolidWorks is the obvious contender right now; Autodesk has the right model, but its users are not switching to 3D.

I asked, does this standard happen at the OS level? Kernel level? Or the UI level? "No, at the level that works for the users. That can be at any level."

He then attempted to present a survey of underserved markets, based on the market penetration of Internet connections. This resulted in numbers like Africa 15%, South Asia 33%, China/HK 20% -- which, quite frankly, I didn't really understand. We media spent some time questioning the meaning of his numbers.

Other than MCAD and AEC, most market segments are too small for CAD vendors to look at. Geographically, most seem to ignore Latin America, which Mr McNeel thinks is an amazing opportunity. Mexico has 60 design schools, teaching a total of 6,000 students a year -- which is not sufficient for large CAD vendor; in any case, Mexican schools can't afford to spend $6,000 - $10,000 on software per student.

Thus, there is a large opportunity for small market segments.

He has noticed that after manufacturing and then R&D move to lower cost centers, they are followed  by branding and styling moving overseas. There is little interest in North America on design, whereas it is important in places like Korea. He challenged us to name non-North American brand names, and it wasn't hard to come up with many. It's not just Nike, Coke, and Microsoft anymore.

Contra to the thesis of "The World is Flat" book, he finds the world bumpy, but flattening is happening. Capital is no longer a barrier, because technology is nearly free. The current demographic is well-versed in 3D.

Large CAD vendors are kicking third-parties out of their sandbox; they are cannibalizing their third-party's technology leaving behind a large talent pool which still has expertise. Vista is another disruption, whereby Microsoft gave the CAD industry a clear message that 3D CAD not important by Vista's lack of proper support for OpenGL [despite protestations whitepapered by The Chronos Group, owner of OpenGL]. Mactel [Intel CPU-based Apple computers] is now the fastest growing hardware platform, he noted, which would lead to another topic later.

Other disruptions include the free Google 3D (a.k.a. SketchUp) and the much-partnered Acrobat 3D (which has lots of Adobe money behind it). "We love chaos," he exclaims, as best he can in his laid-back manner. "Markets shutting down, things going in different directions from expectations." One disruption that he likes is...

The Wiki Business World

Mr McNeel went on to describe the Wiki business world, a.k.a. Web 2.0. This new way of running a business has these attributes:

• No central control.
• No source of capital.
• Contributors are beneficiaries.
• Open everything -- collected intellectual property, peer review, value-added opportunities -- with customers in control.
• Both customers and suppliers are global.
• Users provide self-service sales, training, support.
• The value of proprietary intellectual property is under attack; the value is in implementation, testing,support, and maintenance.

Naturally, Mr McNeel feels many of those attributes apply to his business. He says he is obsessed with user success, and focuses on that which helps the user:

• Long-term stability.
• Profitable growth, instead of fast growth.
• Focus on market penetration, instead of quarterly sales targets.
• Funding through retained earnings, instead of Wall Street or venture capital.
• Complement other products, instead of competing with them.
• Use proven technology, instead of new technology. (While he admitted that new tech is more interesting, it's flaw is that it is too disruptive).
• Reputation with customers is important, instead of status within the industry.

In the McNeel world, every customer is a user, developer, tester, support person, trainer, and sales person -- which keeps down the employee count. He spends his time on overhauling business processes, removing fat and those things that don't add value. He thinks globally for every aspect: development, marketing, sales, support, and training. (The software is available in 11 languages, with two more coming this year).

At the tactical level, he wants to deliver exceptional value and user experience. Users expect it to be easy to buy, implement, install, and use. Everyone gets the same support, whether student, developer, competitor -- even bootleg users. His company has no call tracking, no requirement for reporting serial numbers, because that gets in the way of providing support. [That recalled my long discussion last week with an ESL Alienware support guy over the exact spelling of my email address.]

(Speaking of bootlegs, Mr McNeel feels that the price of the software is a small cost of its value. He thinks that the cost of adding hardware or software protection overwhelms the income that they may or may not receive by forcing users to be legal. So, take that, BSA!)

His focus on many, small, open, clear-leader, under-served markets; he's staying out of large, established markets. The goal is to reverse the expenses of tradCAD: he wants to spend 70% on development, support, and training, but less than 20% on sales and marketing.

Indeed, he worried if it was a worthwhile expense to call the CAD media together to this meeting. And so I asked, "Why are we here?" It was not just to hear him out, but also provide him with feedback to the question, "Am I crazy?" Also, he hopes that our coverage will hook potential users to be more successful with 3D products, hopefully with McNeel's.

The global price of McNeel's software based on the lowest local price, which is Viet Nam; he ignores the competition, its feature sets, and pricing. Thus, Rhino is US$1,000. We wondered just how affordable that was by Vietnamese; it was, he reassured us, by companies in Viet Nam. Considering his love of the Wiki world, we were surprised that it was not sold as a download; his reasoning: Rhino is sold as a solution.

McNeel supports an open development process, with about 10,000 users using beta in field testing. The development process goes through these steps:

1. Labs-version contains features might or might not get in. Since it is easy to write lots of new functionality that is unfinished, unfinished commands are sent out to see which ones customers want finished.
2. WIP (work in progress).
3. Beta.
4. Shipping.
5. Service releases.

Products are not written to spec; instead the feature list is created by those customers who "whine early and often." Many new features are often designed as plug-ins, which can be emailed to customers. Rhino 4 shipped in February, 2007; Rhino 5 is in beta, but it is not known when it will ship.

Products and Licensing

McNeel's line of software consists of:

• Rhino -- 3D freeform modeling.
• AccuRender -- rendering, also available for SkechUp, and is used for rendering in Revit.
• Flamingo -- accuRender for Rhino.
• Penguin - non-realistic rendering.
• Bongo -- animation.

Rhino is US$1,000. The educational version is $195 for single users, with a flat fee of $1,000 for educational labs, which allows unlimited time and unlimited users. Upgrades are optional; there is no penalty for skipping upgrades. Users receive unlimited direct support; there are no hardware or software locks. The evaluation version allows 25 saves.

Later, we learned that Rhino is now in the Latin American Top Ten -- for pirated software. It is something of a status symbol to be among the ten most pirated software packages.

Technology Strategy

"License as little as possible for the core." Non-core products, such as the Catia translator, have to licensed from third-parties, and hence are priced separately. Rhino is built on its own SDK [software development kit], and the basic technology is all McNeels' own:

• NURBS curves, surfaces, and solids are at the base of Rhino.
• It also handles point clouds and meshes.
• Supports raster and annotation.

Moving forward, McNeel wants to tighten them up so that all operations operate on all objects, such as Booleans between surfaces and curves. Anything that can be built in 3D should be able to be modeled in 3D.

History of McNeel and Rhino

Robert McNeel & Associates was founded in 1980 in Seattle WA USA. Mr McNeel's background is in accounting, but then found himself porting timeshare software written in Fortran to micro-based computers for engineering firms. This somehow led him to becoming an AutoCAD dealer and developer in 1985. In those days, you could become a dealer just by buying two copies, and McNeel's first customer wanted two copies installed. (CADalyst founder Lionel Johnston got his start with AutoCAD in a similar manner.)

He is still headquartered in Seattle, but now has seven regional offices with 80 employees worldwide. Each of the 25 employees in Seattle owns a share of the business through a pension vehicle, which owns 30% of the company. No commission sales people; profit sharing.

In addition, there are 750 dealers, distributors, and OEMs, plus another 3,000 third-party developers, of which of which 300 are available to the public, the rest used internally in firms or for R&D.

Over the years, he created 20+ Autodesk-based products through his consulting business, including his first software hit, AccuRender. The agreement was that both the customer and McNeel got to keep the source code and do with whatever with it. As Autodesk added features to AutoCAD, he began to develop Rhino.

Originally developed in 1992, "AccuModel" was an AutoCAD plug-in to provide high-end surfacing for ship designers in the Seattle area. It turned out that the AccuModel name was already taken, so McNeel adopted the software's internal code name, Rhino. This, in turn, came from the folder name in which the first programmer placed the code. (It was not named after Albrecht Durer's famous rhinoceros woodprint, as is popularly believed.) The programmer, Michael Gibson, later left McNeel & Assoc to write a tablet-oriented 3D CAD program named Moment of Inspiration.)

AutoCAD was so 2D-oriented that users found it easier switch to Rhino's own Windows UI. The big launch came with a startup-size booth at Siggraph; the software had 150,000 beta users when it finally launched.

Product Strategy

Rhino is supposed to provide uninhibited free-form 3D modeling. If you can get it built from 2D drawings, then you don't need Rhino. The types of people who do use Rhino include:

• Precision freeform shapes, like airfoils, and optics
• Unique styles and fashion
• Front end for FEA [finite element analysis], CFD [computational fluid dynamics], mold flow, and optics.
• Used to defeature CAD models so that the analysis time is shorter.
• CAM; used to split the model into machining steps.
• Reverse engineering, because it can read just about any data.
• STL repair and 3D printing.
• The occasional engineer, who needs a freeform shape that AutoCAD, SolidWorks, or others cannot do.
• Illustration and animation users of 3dsmax, SketchUp, Adobe Illustrator, who need it to bring a Catia model into 3d studio.
• File translation and repair, particularly for IGES files.
• Education.
• Researchers who need a 3D platform, such as medical.
• Developers who need a 3D development platform.

Speaking of which, developers can reskin Rhino to look different and not even use the Rhino name. A royalty-free library is available for reading and writing native Rhino files. As well, Rhino reads and writes as many 3D, 2D, and raster formats as possible. McNeels offers an SDK so that third parties can write translators, such as 3D PDF, SolidWorks, MasterCAM, Algor, GibbsCAM. And, Rhino reads and writes directly to hardware, such as 3D printers, 3D scanners, and 3D trackballs -- anything for which Windows doesn't already have drivers.

Mac Version of Rhino

A developer showed up at McNeel's office with a Mac version of Rhino to prove it would work. (Already have  users running Rhino 4 on Macs through Bootcamp and XP.) The initial beta will become available in a few weeks for free. Rhino on native OS X will run on both types of processors, and is compatible with the Windows version at several levels:

• File compatible.
• Interface compatible.
• Graphics pipeline compatible, using OpenGL.
• Localization compatible, with the same 11 languages.
• Plug-in compatible.

The difficult part was getting picking right, such as object selection and view rotation.

Event Photos

VW Beetles in Puerto Vallarta, Mexico.
The "ll" is pronounced like "y": Port-o Vye-arta.
 

Children playing on the Pacific Ocean beach at sunset.

The beach front of our NH Krystal hotel.

Young children selling tiny fish toys to my wife for 10 pesos (US$1).

These two Rhino fans (left) drove 23 hours to meet Bob McNeel (at right).

The hotel's pool area often hosts wedding receptions on weekend evenings.

A rooftop dinner at dusk for editors and special guests;
in the background, Puerto Vallarta curves along the bay.\

Additional Sources

The CAD Insider: "Mexico Wants In" cadinsider.typepad.com/my_weblog/2007/06/mexico_wants_in.html ...plus additional articles on the event.

WorldCAD Access: "McNeel's Rhino Conference Day 3, Part II" worldcadaccess.typepad.com/blog/2007/06/mcneels_rhino_c_1.html ...plus additional articles on the event.

[Disclosure: Robert McNeel & Associates provided me with airfare, hotel accommodation, some transportation, and some corporate gifts, as well as airfare for my wife.]

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