The Decline of Parametric Technology
Pro/ENGINEER faces increased competition from SolidWorks and other mid-range modelers
excerpted from January 2002 CAD Report
by CAD/CAM Publishing
Since Parametric Technology Corporation missed its sales forecast in the quarter that ended June 30, 1998, the company's sales have gradually trended downward. PTC's revenues peaked at just over $264 million in the quarter that ended April 4, 1998. In the quarter that ended September 30, 2001, they had fallen to $225.4 million. In the previous decade, PTC had grown from a startup company to become the largest seller of mechanical CAD software. [Ed. note: Quarter ending Dec 29 showed revenue dropping even further, see PTC Q1 Revenue Down 15% to $198.9 Million]
Pro/Engineer's decline is attributable to a number of factors. Chief among them is the rise of much lower-priced, feature-based CAD systems such as SolidWorks, Solid Edge, and Autodesk Inventor. While these systems lack some of the more sophisticated functions of Pro/Engineer, they are easier to learn and use and are adequate for many customers.
Pro/Engineer also failed to keep pace at the high end of the market. Automobile and aircraft companies demanded software for advanced surface design, but PTC didn’t meet their needs. In order to book impressive profit margins, PTC skimped on development expenses. In the first quarter of 1998, PTC spent just 7.9 percent of its revenues on research and development while rival Unigraphics spent 16.5 percent and Dassault Systèmes spent 29.6 percent.
PTC also fell victim to structural inefficiencies. Company executives were determined to keep prices high even as competition was forcing them down. PTC's complex licensing schemes made selling and installing its software too costly. Customers and salespeople often became confused about which licenses they needed to get their work done.
While total revenues have held up better, PTC's CAD license revenues have fallen by half since 1998. CAD licenses consist mainly of Pro/Engineer sales. License revenues don't include annual maintenance payments.
An Adverse Reaction
In 1999, PTC began responding to the challenge to make its software easier to use. The 2000i release made the first step toward conforming to Microsoft's user-interface guidelines. In the 2000i2 version, PTC started to overhaul its procedures for creating features. These changes introduced programming errors that caused Pro/Engineer to crash too frequently. Some customers refused to upgrade to the 2000i2 version.
With Pro/E 2001, reliability has improved, but customer relations remain strained. A recent survey of 5,000 Pro/E users found that they were not satisfied with PTC's overall performance. According to a letter from senior vice president Mark Hodges, the survey showed that PTC needs to improve: relationships with its customers, the quality and reliability of its products, the customers' “buying experience,” and technical support.
The quality problems experienced by Pro/Engineer users are caused in large part by PTC's attempt to improve its CAD software rapidly. Pro/Engineer is a complex 13-year-old program. When attempting to upgrade such code, it would be extraordinary if some existing functions weren't broken in the process.
PTC's managers have no choice but to continue improving Pro/Engineer even if they risk ruffling customers' feathers. Despite the rapid growth of Windchill, Pro/E still accounts for more than 75% of PTC's revenues. PTC executives would like to expand their business by developing new product lines based on the Windchill technology. But Windchill isn't growing fast enough to replace Pro/Engineer in the foreseeable future. PTC's survival depends on reversing the decline of Pro/E sales and adding new data-management applications to its product suite.
Even if Pro/E were as easy to use as SolidWorks, PTC could not afford to match SolidWorks' prices. PTC therefore needs to add capabilities that justify the higher price of Pro/Engineer and that SolidWorks and Autodesk can't match.
But PTC faces several challenges in reversing the trend. First, it must persuade existing customers to adopt the new collaborative capabilities of Pro/Engineer.
PTC will need to convince customers that its new software makes collaboration sufficiently easy to justify its costs. Those costs involve not only software licenses but also the investment required to set up servers and learn to use collaborative capabilities.
PTC will have a tough time getting customers even to evaluate its new products because it has made a shambles of past beta testing programs. After beta tests were complete, programmers made last-minute changes that broke working functions. And the poor reliability of Pro/Engineer 2000i2 has shown customers that early adoption of radical new Pro/E releases is a costly and frustrating exercise.
Because of its advanced capabilities, Pro/Engineer customers will probably stay with it for the foreseeable future. However, the next two years are likely to prove especially challenging for PTC and Pro/E users. PTC's CAD sales may continue to stagnate for the next 12 to 18 months. If PTC can entice users to adopt its new product concepts, it may start to win business from its rivals and grow again. The challenges PTC faces are as much cultural as technological and cultural changes are the hardest to effect.