Who’s Right, Gary or Seth?

Last Friday, I took the 45 minute drive from Torrance to Montrose to have coffee with Gary, a successful entrepreneur who is one of the founders of a fledgling IP company. I was introduced to Gary by a friend at Synopsys who suggested that I meet him because he’s had great success and has a lot of insight into how to run a successful business.

Gary brought along his partner, Art, and we had a very good conversation, almost an hour and a half. We discussed what I was working on, what his company was working on, and my revolutionary ideas about the EDA industry. Gary has a lot of experience and he provided some insights I had not heard before:

  • How can EDA companies provide flexible pricing to smaller customers and not to their biggest customers?
  • Software-as-a-Service works for cookie cutter processes like sales and HR and expense reports but not for customized processes like EDA tool flows

And he enforced some feedback that I had heard before:

  • Why would a large EDA company want to cannibalize their long-term license sales with short-term licenses?
  • It’s been tried before and failed.
  • The guys with power have no reason to change the status quo.  They are holding 4 aces.

In short, my discussion with Gary amounted to this … your idea has tremendous value to the end user, the designer, the customer, the small startup or design services company … but the big boys, who have all the power, have no incentive to play ball, and every incentive to leave everything as it is. Gary never came out and said this verbatim, but the message was clear … “you don’t stand a chance!”

_______________

As I drove back from my meeting with Gary, a little discouraged, yet grateful for the honest feedback, I turned on the audiobook version of Seth Godin’s new book Tribes : We Need You To Lead Us, which I wrote about in my last post. Somewhere around downtown LA, near Chinatown, I heard the following:

“All you need to know is 2 things.

  • The first thing you need to know is that individuals have far more power than ever before in history. One person can change an industry. One person can declare war. One person can reinvent science or politics or technology.
  • The second thing you need to know is that the only thing holding you back from becoming the kind of person who changes things is this: lack of faith. Faith that you can do it. Faith that it’s worth doing. Faith that failure won’t destroy you.

… More and more people, good people, people on a mission, with ideas that matter, are stepping forward and making a difference … An individual, or a small group, has the power to turn an existing system on its head. Now, most of the time, we call heretics, leaders. The heretics are winning. You can, no, you must, join them.”

In short, Seth Godin’s book “Tribes” amounted to this … the technology that is available today via the internet (blogs, podcasts, social networks, etc, etc, etc)  provides the leverage to enable one person to initiate and lead a movement that can change the world. All that is necessary is to conquer the fear, to selflessly lead a tribe of people where they already want to go, to enable them to work together to achieve the goal. The message was clear … “you can do it!”

 _______________

So, who’s right, Gary or Seth? This will sound like a cop out, but they are both right.

Gary is right about all the challenges that exist to keep a change from happening.  In EDA, as in many industries, the status quo has tremendous inertia. Those who benefit from the status quo are usually those who have the most tangible power. And they will use that power to maintain the status quo. For all the reasons that Gary gave me.

And Seth is right, that despite all the reasons that change is hard to initiate, change can be ignited from a single spark. And long established industry giants can fall.

Look at the music industry, where the accessibility of music production and distribution capabilities has made the record companies increasingly irrelevant. Independent artists can self-produce and self-distribute their work, without have to sell their futures to the record companies.

It will be the same in the EDA industry. Independent EDA tool developers will be able to self-produce and self-distribute their work, without having to look to an acquisition by one of the “big 3″. I’d like to lead this movement, but I need to be honest … I’m a little scared.

  • Scared for my reputation as a reasonable level headed person.
  • Scared for my relationships with people in the EDA industry who stand to lose out from this change.
  • Scared that I’ll waste several years chasing something that is never going to happen.

I’d like to know that I am not alone. That others will offer their support, their time, their effort, to make this happen. That we can build a Tribe that can change the industry.

If you agree with me … if you feel the same as I do … then let me know. Encourage me so I can encourage you.

And we’ll change the world. (Well, at least the EDA industry).

 harry the ASIC guy

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5 Responses to “Who’s Right, Gary or Seth?”

  1. Sean Murphy Says:

    This is not a new concept at all. The guys at Berkeley were talking about it more than 12 years ago, see http://www.eetonline.com/news/96/hr905.html they thought it would happen between 2001 and 2003, and certainly Toolwire was one of several “ASP” providers that tried to crack the EDA market. Their focus was FPGA tools.

    You have to determine what’s held it back for all of these years. It’s probably more than one barrier, both from a technology as well as economic perspective. Salesforce is more than ten years old so SaaS is an established fact in the enterprise software market. But it hasn’t impacted EDA in any meaningful way…yet.

    Disruption starts with unserved non-customers and customers that are unattractive to incumbents.

    For startups SaaS allows them much more visibility into what their customers are doing (this was tried with the on premises model in EDA by a company called Aqueduct which was an add on which reported a lot more about design activity).

  2. Paul Hylander Says:

    To a large extent, we’re banking on your premise that it is more possible than ever before for smaller EDA players to compete with the bigger players as outlined in your post http://theasicguy.com/2008/09/05/birth-of-an-eda-revolution

    At the same time, I do share some of Gary’s views and I think there are several other factors that may make SaaS as exemplified by Salesforce.com not a reasonable scenario for the majority of EDA applications.

    Gary brought up several things which I think I can boil down to two things (I discount “it’s been tried before”, because the world has changed):
    1. The big guys are not motivated to change their licensing approach
    2. SaaS doesn’t work for customized flows

    I agree with Gary here on both counts. Let me talk about the first one for a minute:
    The big guys revenue and profit is largely dictated by their large customers. They cannot change their pricing/licensing policies too drastically, because their entire corporate culture is geared towards the high-cost-of-sales approach.

    A bigger problem however is that the EDA sales cycle is by it’s very nature very long. To understand why, 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 yes, companies would like lower prices on tools, but when push comes to shove, they still want to do a 6-9 month eval 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 six months? You’re looking at at least a 1/2 AE and 1/4 sales guy at a minimum. With the sales guy fully loaded at $300K and the AE fully loaded at $150K, you’re looking at 75K just to support hte pre-sales campaign. So they’ve got to sell for $75K just to recoup their cost of sales, let alone R&D and G&A.

    So the bottom line is that not an obvious way to address this long sales cycle and the resulting economic impact on pricing. The big customers seem to be unwilling to take alternate approaches. The AE’s and sales guys in the EDA companies are not motivated to change it (it’s their jobs that would suffer). And the EDA management seems to be content with the status quo.

    With respect to Gary’s second point (SaaS doesn’t make sense for customized flows), I also think Gary is correct. There are lots of reasons for this. Let me enumerate a couple:
    1. Performance. Most serious EDA apps (where the money is) require lots of performance. Think about place&route, layout, functional verification, analog simulation, etc. Local installation, where performance and compute resources are under user control, is a major plus in this area.
    2. Interoperability with other tools. When a piece of software is hosted, it becomes much more difficult to interoperate with other tools through scripted flows. Scripting is a fact of life in every design I’ve ever worked on. So again, local installation becomes a major factor.
    3. Data security. From my experience, companies are very gun-shy about letting any design data off of their corporate network. For most big customers it is simply out of the question.
    4. There’s not a lot of upside for a web-hosted or offsite-hosted EDA. For CRM, there are advantages for web-accessible data so that your sales force has access from anywhere. For HR/payroll/accounting, there are other advantages. But for EDA, I don’t know of any compelling advantages to offsite-hosting, other than potentially reduced hardware costs and administration. But hardware costs are small. I can see administration, but I think this is outweighed by the interoperability issue mentioned above.

    So all in all, I think their are a lot of barriers for the big guys to start selling their software via SaaS and making their licensing terms more economical.

    All that being said, I do think that some of the points you outlined in your earlier article on the coming EDA revolution are valid. The first is that with the advent of more interactive web sites, high-speed internetworking, and web 2.0 facilities (blogs, social networks, video conferencing, screencasts, etc), and sites such as Xuropa (www.xuropa.com), small EDA companies are in a position to market their software on a large scale much more cheaply than they could in the past. The result will be that small EDA companies will be able to reduce their cost-of-sales and be able to compete with the big players more effectively.

    Because of this low cost-of-sales, small EDA companies will be able to afford to utilize SaaS pricing models, such as monthly subscriptions, or metered usage. This could be attractive to some customers. For reasons I outlined above, I don’t think that web-hosted or offsite-hosted distribution is going to work. But for most customers, the biggest benefit of SaaS is affordability. So if you can provide affordable software that provides for at least partially local installation, that can be a reasonable offering.

  3. harry Says:

    Sean and Paul,

    I appreciate you taking the time to post such thorough comments and analysis. Thoughtful give and take from people with perspective from real experience helps to push this concept forward. It won’t be overnight but we’re gonna get there.

    Thanks,

    harry

  4. Aditya Ramachandran Says:

    Hello Harry.

    A quiet EDA revolution would be in order, i guess. Don’t take on the big guys head-on. Work from the inside (stealth, subterfuge, etc). At this point, you may have realized the broad strokes/motivational advice before is just because I have NO specific idea how it shall be accomplished. If we’re lucky, the current model will self-destruct. But a change is model is a response of a revolution rather than a revolution in itself.

    If the big three support all open standards tomorrow and are perfectly interoperable, is the work done? or are we looking for a more democratic EDA industry? to hype it up a tad, Are we looking to save the industry from the big guys?

    Aditya

    Btw, I added a link to your blog in my “Blogs Of Note” section in my blog (The Tao Of ASICs @ http://asictao.blogspot.com/)

  5. Sean Murphy Says:

    Gary Smith and Daya Nadumi wrote about this in today’s EET: Software as a Service in EDA Part 1
    http://www.eetimes.com/news/design/showArticle.jhtml;?articleID=212200078

    key graf:

    Cadence is no stranger to the world of hosted software and indeed could even be called a pioneer of sorts. Back in the days of the nascent world-wide web, EDA companies were testing different ways to approach new business models that would allow them to deploy software as a hosted service. The majority of these attempts however were difficult to implement partly because of bandwidth issues and partly because of security concerns. For those who remember companies like Toolwire and DevelopOnline, these vendors entered the market, believing that they could be successful in EDA design by primarily addressing PCB and FPGA design. Success they felt was sure because of the new approach and cost benefits they could bring in through this new deployment model. The market however was not quite as accepting of the new model and these efforts gradually sank into the background where they lived on mostly as research projects.

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