Recently, I read a blog by Harry...the ASIC guy that really resonated with me. It was titled Birth of an EDA Revolution. Harry's thesis in this blog was:
The pieces are coming together for a revolution in EDA. Like most revolutions, it is starting small, hardly noticed by the big guys on the block. In the next 5 years, it will change our industry forever by levelling the playing field, allowing smaller EDA companies to compete with larger ones, giving customers greater flexibility on how and when they access tools and which vendor’s tools they use.
The reason this resonated with me is that we here at Hyper Analytix are banking on the premise that it is more possible than ever before for smaller EDA players to compete with the bigger players.
So what has changed in the last few years that makes us believe that we can compete with the big players? To answer that question, let's first take a step back and look at what hasn't changed. Some things that haven't changed are:
- VLSI design is not getting any simpler and schedules are not getting any longer. As a result design teams still fundamentally need even better solutions.
- Design management teams are still looking for the best
ROI from their EDA tool investment. - The big EDA companies are still fundamentally tied to their high cost ways of doing business and their customers are still locked into licensing terms that are inflexible.
So the bottom line is that there is still demand for leading edge tools that provide good
A major problem in trying to figure out how to deliver tools more flexibly and with better ROI is that very often the sales cycle is 6-9 months long and that translates into a lower bound on the licensing cost and/or less flexible license terms. To understand this situation, you have to consider the economics. Companies are spending 20+ million on a chip design. A single turn can cost 2-4 million. And the cost of a schedule slip for a high volume product can easily be 10-20 million. The entire EDA budget for a project will likely be a small fraction of the project cost. Also, for highly technical software such as that found in EDA, it simply takes a while to determine how the potential adoption will impact a project. Finally, new tools can only be inserted into a project at specific times (early). The result of all this is that although companies would like lower prices on tools, when push comes to shove, they often still want to do a 6-9 month evaluation to make sure a tool works as advertised, is not going to adversely impact their schedule or quality, and to fit into the next available slot at the beginning of the next project.
What does the EDA company spend during this time? A traditional "big-company" EDA firm will invest on the order of 1/2 of an application engineer and 1/4 of an account manager during this time. With the account manager fully loaded at $300K/yr and the AE fully loaded at $150K/yr, it ends up costing upwards of 75K just to support the pre-sales campaign. So the traditional big-company EDA firm has got to sell for $75K just to recoup their cost of sales, let alone R&D and G&A. A big question is whether it is possible to address this long sales cycle and the resulting economic impact on pricing. The big EDA firms seem unwilling or unable to find a solution. Their field staff is not that motivated to find a solution − after all, it's their jobs that would suffer. And their management seems content with the status-quo.
But is there a possible solution to the problem of high cost of sales? At this point, I don't know, but I'm betting that EDA companies can make a dent in the problem by taking advantage of modern web 2.0 capabilities and other trends:
- Blogs (such as this one) can help a company interact with a broader audience in ways that a sales force cannot.
- Social networks such as LinkedIn and Plaxo enable word-of-mouth to spread more quickly and be more effective.
- Search-engines allow people to quickly find a company and its products.
- High-speed networking, secure hosting facilities, and ubiquitous encryption enable secure hosting of critical design data outside of a design company's network. The same networking and hosting technologies can also enable broader scale access to product demos, training labs, and screen casts without requiring heavy involvement by the EDA company's sales force.
- Sites such as Xuropa have recently become available. These sites can enable small EDA companies to cost-effectively provide online demo's and labs without having to set up the infrastructure internally.
The result of taking advantage of all this is that small EDA companies can market their software on a large scale much more cheaply than they could in the past. This may enable small EDA companies to reduce their cost-of-sales and be able to compete with the big players more effectively.
The key idea here is avoid expending large amounts of time and money to find and engage with potential customers. Instead, use technology to enable potential customers to find you and then enable those potential customers to do the initial phases of evaluation on their own. If an EDA company can provide potential customers with the necessary resources online to do a first cut evaluation of their technology and products, then it is a win-win situation:
- For the potential customer, they avoid having to "deal" with intrusive sales guys when they don't even know whether they're interested in the products. They can also take as much or as little time as desired to do their evaluation without feeling pressured.
- For the EDA company, they avoid having to spend time and money on chasing after numerous leads − many of which will never pan out.
Once a potential customer is ready and fairly confident in taking the next steps, then it makes sense to engage in face-to-face meetings and full-scale evaluation.
In addition to the enabling web technologies, an equally important element in making this work is the content that enables potential customers to take the first several steps on their own. There needs to be sufficient materials available online. These include:
- Slide-ware and white-papers explaining the value proposition, possible adoption models, methodology components, and supporting details.
- Overview and detailed demonstrations sufficient to convince a typical engineer that their is a significant value proposition
- A variety of labs and tutorials that enable engineers to learn about various aspects of the software at their own pace
- A sufficient quantity of application notes and FAQs that can answer many of the questions that a potential customer might have
- A set of success stories (admittedly a chicken-and-egg problem) to corroborate the value proposition
Now you could argue that most EDA companies already provide most or all of the above. This may be partially true, but in my experience, these sorts of materials are fragmented and not generally available online. Instead large EDA companies tend to rely on live pre-sales engagements to communicate this information with customers and depend on pre-sales application engineers to aggregate whatever materials there are on a case-by-case basis.
In contrast, I believe that a small EDA company, hoping to take advantage of the web, needs to have a primary focus on creating a complete online pre-sales package. And the process of creating this online package needs to be one of the highest priority activities in the company.
The upside of this sort of approach (if it works) is that you cost-effectively open yourself up to a much larger set of potential customers than you could with a standard engagement model, and you can price your products more competitively. But as with anything, there are several trade-offs or risks:
- By exposing so much of your core value proposition on the web, you open yourself up to competitive threats.
- Potential customers may fail to comprehend or realize the value of your solution. With more traditional engagement models, you can gauge their understanding as the engagement proceeds. The result of such misunderstandings could be the loss of those potential customers.
- You can spend a large amount of time creating pre-sales collateral that ends up not being worthwhile.
- Without a direct feedback loop, you may miss key unmet requirements or blocking issues.
These are all certainly important potential downsides. Some are inherent risks and some can be ameliorated by other strategies or tactics. Finally, having an effective online sales campaign does not preclude taking advantage of direct sales campaigns when it is appropriate or advantageous. But more on these at a later time.
All in all it remains to be seen whether this approach can work, but I'm betting that it can. I'd love to hear your comments.
--Paul
