Activist investors want to maximize the profit of public companies, i.e., ones that sell shares to the public. Once investors have at least 5% of an American company's shares, they can get a seat on the board of directors. Once on the board of directors, they can influence the direction of the company. The sole aim of activists is to increase the value of the company's shares and so profit greatly from their actions. Entire firms exist in the US whose sole purpose is to 13D other companies.
("13D" is the SEC rule that requires those having acquired 5% or more of a company's shares to report the ownership publicly. In popular parlance, 13D has come to refer to people who take over control of publicly-held companies and then make big changes.)
A bland March-15th press release from Autodesk welcoming new directors to its board possibly marked the beginning of the end of the company as we know it. The new directors are three activist investors representing firms who each purchased 5% or more of ADSK shares. As per the way things are done, they've agreed to do nothing until after 30 September. According to Bloomberg, the usual time-of-peace lasts a year, and so these six months are usually short.
As of October 1, the three get to start swinging their battle axes, possibly with the assistance of other sympathetic directors on the board. (They will need help, as together the three control only 16% of shares; they need a majority of 51%.) We know their plan: they want to make "changes to management, operations, cost structure, and strategic plans" to drive up the ADSK price.
In detail, activist actions involve selling off poorly performing divisions, halting unprofitable programs, and axing executives -- getting rid of anything that distracts from the ADSK share value. One possible target is Autodesk's M&E (media & entertainment) division, which for many years has been doing poorly as sales fall year after year. Autodesk possibly keeps it around for all the Oscars the software wins, but activist investors might be inclined to sell it off, because poor sales likely are weighing down the ADSK price.
At the end of Autodesk's Q4 conference call on February 25, company ceo Carl Bass made an unscripted statement about activist investors. In it, he equated them to armchair quarterbacks who "know better" than do professional sports players and coaches about how to play the game, but have no skin in it. He made a dark reference to the disastrous 2013 takeover by Men's Wearhouse of the Jos A Bank clothing chain.
His comments were meant to warn investors that unnecessary change lay ahead. Subsequent to the conference call, Autodesk on March 11 had to place the three activist directors on its board. And so that's why, after September 30, Autodesk could experience profound change.
The Future of Autodesk Software
Setting aside the worries of investors, what future can Autodeskcustomersexpect from the software they use to make their living day after day. We can get an idea from what Autodesk has already accomplished, and then we can then add in recent statements made by company executives, and so project forward to the future.
Autodesk execs have stated that the future of their company rests on two cornerstones (I was going to write "a two-legged stool," but that's not a very stable image): subscriptions, and the cloud. See figure 1.
Figure 1 The reason Autodesk prefers subscriptions: Orange: Cost to customers paying for one perpetual license of AutoCAD + annual maintenance Gray:Cost to customers on annual subscription to AutoCAD
The template helping us understand the future of software is Fusion 360. This is the company's first full-function, cloud-enabled CAD software. The passion of Mr Bass is making things, as expressed in the many interviews given to the popular press; making things involves MCAD software. We see his influence in areas like the Spark 3D printing platform, the Pier 9 showcase --- and the unique progress made by Fusion 360. It is the future as Autodesk sees it, and so will influence other software, AutoCAD and Revit in particular.
Job #1 of Fusion 360 is to replace Inventor as Autodesk's next-gen MCAD software. It is hybrid software, where 2GB of downloaded code runs on desktop computers (for local speed and for protection against Internet blackouts), while some functions benefit from running on lots of cores. Functions like rendering, FEA, and translation reach out to Autodesk's servers to run in parallel the most-up-to-date code (as well as the latest bugs).
The other key to our Fusion 360 template is that Autodesk wrote it to run on "any" platform. This promise harkens back to the mid-1980s when Autodesk vowed to support AutoCAD on "any viable engineering platform." Back then this meant all variants of hardware running on the many versions of the PC/MS-DOS and Unix operating systems. Today, however, "any platform" means hardware for OS X, Linux, and mobile (Android and iOS), as well as the ultimate-independent platform, the Web browser.
Meanwhile, back on the Windows desktop, Inventor faces a Solidworks-like future. Both suffer from the "problem" of having far too many customers to simply be killed off like an Actrix, and so they will lumber on, patched and updated, for an undetermined period towards an uncertain drop-dead date some years from now. Customers lucky enough to own perpetual licenses can keep running their favorite software for a decade or longer after software vendors lose interest. (Two pieces of software critical to running my business boast copyright dates of 2000 and 2006.)
This is how popular the desktop- and Windows-bound Inventor is: Autodesk remarks that only 10% of Fusion 360 users come from its own customer base. That's inertia!
The No-Version Future of AutoCAD and Revit
With Fusion 360 as our guide, we now turn to Autodesk's other really important software. While AutoCAD and Revit are as firmly desktop- and Windows-bound as Inventor, Autodesk has been writing server-based software to nibble around the edges. They have names like AutoCAD 360, PLM 360, and Docs 360.
Publicly, Autodesk is doing the easy thing (writing supporting software) while they no doubt are privately doing a major overhaul of the AutoCAD and Revit code to make each as hybrid as Fusion 360. For instance, AutoCAD 360 serves as placeholder while the company's programmers work furiously behind the scenes to cloud-ize the full program.
An so this is what the future of AutoCAD and Revit (assuming they keep those names) might look like:
A multi-GB core program that is downloaded once and runs on the desktop
Ancillary functions that run on servers (a.k.a. cloud), as needed
Updates that are required, or the software won't run (see figure 2)
Payments required by subscription, or the software won't run
Figure 2 The future of software: upgrade of quit
Autodesk didn't react to the introduction by Graebert Gmbh of its ARES Kudo browser-based CAD program, which currently runs only inside Onshape as the drawing component. Contrast their no-reaction to the outrage penned by Mr Bass at last year's launch of Onshape. He spoke out against Onshape management's claim to have the first cloud-based MCAD program; Fusion 360 was, he insisted. Both are wrong, in fact: Alibre was first, beating both by many years when it launched in 2000 (but then failed as the Internet wasn't strong enough yet to support MCAD). In any case, Fusion 360 runs mostly on the desktop.
No, Autodesk didn't react to Kudo, perhaps because a server-browser version of AutoCAD is well underway. In any case, Autodesk does not perceive Graebert as a threat, having never targeted the Germany company with negative advertising (as Autodesk has for other competitors); by contrast, however, Mr Bass seems to consider Onshape a significant threat. This, even though the upstart lacks the distribution and marketing system that powers Autodesk sales worldwide.
The No-File Future of Autodesk Software
An issue left unaddressed by Autodesk is another future direction of software, the no-file environment. Not so new, as Windows at one time was supposed to do this, but instead we got Windows 98. "No-file" is where CAD programs no longer store drawings, parts, and assemblies in distinctive files like DWG and RVT, but instead in a single, massive, proprietary database.
Dassault Systemes, the largest CAD vendor in the world, already does this. All of its V6-labeled software, such as its Catia MCAD program, stores models and related data in a database called Enovia. The idea is to make it easier for users to find existing parts, share models, and ensure backups. The other reason for retreating to behind the walled-garden of a database is to make translation of Catia models really, really hard for competitors and third-party translator firms.
Mr Bass some years ago demo'ed at an Autodesk University an all-encompassing file format that encapsulated data from several programs. For Autodesk, no-file could be the ultimate purpose of PLM 360. Or perhaps not: Dassault is finding customers have no appetite for such a leap, and so the six-year-old V6 represents just 15% of sales.
What Others Think
"I think there's going to be a huge internal fight from end of September onwards," opines Martyn Day of X3D Media, "as the activist directors prioritize commercial aspects over expansive development. Their targets will be old and new products that Autodesk has had problems turning into new streams of income.
"While we know the growth rate of each division, we don't know the overhead of each. The activists will go through the numbers, seeking out higher cost areas. While M&E is perhaps an issue, Autodesk pretty much has a monopoly in that area of the industry. The investors are big fans of Adobe; one wonders if they would strip down the assets of Autodesk, and then sell to Adobe.
"I suspect, however, that they might target Carl's pet interests in manufacturing, for which Autodesk has invested highly by hiring expensive direct sales, spending on Fusion 360 development (with little return so far), having PLM 360 chasing big deals (that have long sales cycles), direct sales services,Pier 9,Instructables,Ember,Delcam, and so on. Plus spending on cool offices in San Francisco, and now Boston and Toronto -- let alone theBio Nano research, theMemento/Recapand laser scanning development, holding theREAL event, setting up the office of thecto of Marine Research, and buyingThe Living. We cannot fail to recognize that Autodesk's development has been innovative in many areas.
"This is a lot of stuff that bankers and accountants wouldn't understand, be able to rate, or even value, but these have served to make Autodesk cool and appear innovative.
"Imagine also the millions of dollars Autodesk has stored outside the USA[73% of its cash] that they cannot bring back without paying heavy[35%]taxes to the IRS. Should a deal with the US government allow tech firms to bring back their off-shore funds, I am sure the activist directors would prefer to use the massive cash injection towards hiking the share price or paying out dividends -- instead of doing something positive for customers.
"The management team at Autodesk is a pretty tight unit and has been together for a long period, some of them going back as far as the days of Ithaca Software. So, there's no guarantee that a few activist investors on the board will be able to get their own way," concludes Mr Day.
What Ralph Grabowski Thinks
The result of Autodesk's master plan is software that never again enjoys the hype of big-R releases, and customers paying month after month to keep their livelihoods alive. I believe customers will revolt. Those who like subs have already signed on; those who don't will hang onto to their perpetual licenses for dear life.
Autodesk on January 31 cut off sales of perpetual licenses for individual programs, and Q4 sales fell, surprising executives, though not me. The final deadline is July 31, when perpetual licenses for bundled programs are halted. I expect further declines in Autodesk sales at that point. Because for customers, perpetual licenses = job security.
I expect core functions over time to move from the desktop to servers, a la Onshape. One thing that AutoCAD for Mac and AutoCAD 360 have shown us is that Autodesk is having a tough time moving the Windows-specific code of yesteryear to tomorrow's bright OS-independent future. For Autodesk, the cloud is the endgame; for millions of its customers, the cloud is just one more option to consider.
All of this is, however, in jeopardy with activist investors on ADSK's board of directors.
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