Last week saw the coming together of two of the biggest suppliers of CAD/CAM systems, creating plenty of speculation about what will be the next step in this fast-consolidating market.
The agreed bid saw EDS snap up SDRC, creating a $1bn revenue business around the management team of UGS (formerly known as Unigraphics Solutions), which is also owned by EDS.
So where does that leave us? When you compare like with like, there are now four players of roughly equal size dominating the market in engineering applications. There is EDS’ new UGS/SDRC operation. You also have Autodesk, Dassault/IBM and PTC. After that, the next biggest players are only about a fifth of the size of these giants.
However, the next round of mergers is unlikely to see any of the ‘big four’ coming together. Rather, we will likely see the union of an engineering applications supplier with a business applications specialist – one of the firms that supplies software to run your business, or what used to be known as ERP.
There are lots of possibilities. German giant SAP, for example, is a business applications outfit that is cash-rich, is much bigger than any of the big four engineering applications groups and could buy one of them with relative ease. The only surprise is that it did not seem to be among the suitors for SDRC.
Similarly, Oracle could get closer to engineering applications group PTC. Or how about Baan, which could also consider teaming up with an engineering software group, with the help of funding from its acquisitive parent Invensys? Then there are the likes of GEAC, which has looked acquisitive in its own right, and JD Edwards.
The appeal of such link-ups is easy to see. Apart from development costs, the sales force takes a huge financial toll on all software companies. But, with the move from CAD/CAM into broader engineering applications, the sales pitch of this kind of software is now being directed at exactly the people who are the target of the business applications sales forces.
The beauty of putting all this together is clear – a substantial saving in costs. The other kind of link-up which will become increasingly prevalent is between the engineering applications companies and mainstream management consultants. Of course, there is no need for acquisitions to make these partnerships go with a swing – it is simply down to alliances. EDS already owns AT Kearney, which is a decent-sized consultancy, although it is also likely to continue cultivating relationships with others such as PA Consulting.
Right now, though, the focus at EDS will be to put SDRC and UGS together, with all the usual product transition issues to address. And the combined operation will have serious clout.
Until last week, for example, IBM/Dassault could reasonably have claimed to be the global leader for engineering applications in the automotive industry. But not any more.
Now, two of the big three US car-makers are UGS customers, and three weeks ago UGS won another big contract with Fiat.
The automotive number one title is up for grabs, and it will probably be decided in Tokyo. Toyota, the last of the auto-making giants not using a system from one of the big four, is being wooed by both UGS and IBM. The fight is now on.
Mike Evans is managing director of IT industry analyst Cambashi.