In Stay Sharp Episode 120, Private Equity, SaaS, and Software Risk in Digital Engineering, co-hosts Jonathan Scott and Juliann Grant welcome Monica Schnitger, President and Principal Analyst at Schnitger Corporation. Monica draws on her deep expertise across digital engineering products and ecosystems to give her perspective on how to evaluate risk in the changing engineering software marketplace.
Which Risk is Risky?
Jonathan starts by asking about the impact of private equity (PE) firms buying up software companies. While Monica acknowledges that 30-40 years ago there were organizations that bought companies in order to take them apart and sell off the pieces, that isn’t today’s reality. “I think private equity companies nowadays don’t really do that anymore because they’re destroying value,” she explains. “They pay money for something, and they want to grow its value. They don’t want to destroy its value.” In her opinion, PE isn’t the industry boogeyman anymore. In fact, it’s “way down on the list of what I would look at as risky,” she says.
What’s more important is evaluating if the software meets you needs entirely—or enough—as well as being realistic about if your users will actually use it. She admits the PE question could come into play if it’s a strategic piece of software, however, noting, “If you are going to make CAD parts that you’re going to be using for the next 20 years on an aerospace program or something like that. It’s a good question to ask, will this company be around in 20 years? The odds are if it’s been around for 20 years, it’ll be around for another 20 years.” Jonathan agrees: it’s more important to focus on whether the software provider will be there in the future, not how their ownership is structured.
None of this is to say that consolidations and acquisitions aren’t still reshaping the marketplace, and Monica explains some of the reasons that’s happening. Investors are looking to make a profit, and digital engineering software tends to be attractive because it’s an inherently “sticky” product—since manufacturers aren’t likely to change platforms mid-stream in a project. Strategy is also a common reason, such as Synopsys acquiring Ansys to gain more market share and/or improve their own offerings. It’s also true, Monica says, “that a lot of the people who are founders in this space are aging out. And they’re looking at what happens to their customers and to their employees and to the thing that they’ve built and are really proud of. We’re seeing a lot of consolidation from that perspective as well.”
The Changing Software Landscape
How software is sold has changed significantly over time—from OEMs selling direct, to value-added resellers providing software solutions and support, to people buying more and more online. The challenge today is customers often buy online but still need support from resellers. Monica says, “The reseller channel is being stressed from both ends: from the e-store side from a selling perspective, and then from the fact that we all have all this online training stuff and chat groups.”
The prevalence of software-as-a-service (SaaS) means customer expectations are also shifting as we become accustomed to buying software online and using it immediately. The value for customers lies in starting quickly, not needing to pay resources to help get them started, an attractive price point, and no specific hardware requirements. The big challenge is that with this route, customers don’t always receive the training that might be necessary to use the software well. Jonathan notes, “I see that a lot when we talk to folks about PLM systems, MES systems, things that are more process based, that there’s that expectation of like, well, if I check all the functionality, I’m fine. Well, were you expecting to use the process that the vendor had in mind, or were you expecting to use your process? Those are the kinds of disconnects you see.”
Monica ends with her ideas for what’s ahead in the marketplace—AI, of course, but also other improvements and innovations—and some advice for companies evaluating digital engineering platforms. “Don’t be afraid,” she says. “Try stuff, download a demo version or whatever you can and give it a whirl. See whether or not it’s something that does something that your business needs.”
Learn More About Evaluating Digital Engineering Software
The full podcast contains more discussion and details on a variety of topics, including why sales channels might start to shift back to OEMs, why core engineering and operations aren’t ready for AI just yet, how digital twins are finally starting to be real, and more.
Be sure to check out Stay Sharp Episode 120: Private Equity, SaaS, and Software Risk in Digital Engineering and join us each week for a new podcast.
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