Entry in the market for CAD/CAE/CAM
software in the cloud

A leading CAD/CAE/CAM software provider was considering entering the market with on-line visual (OVC) and on-line design collaboration (ODC), i.e. visual and design collaboration in the cloud.  The innovation would advance the state of the art in mechanical CAD/CAE/CAM visual and collaborative technology, possibly representing a sizable market opportunity.  The development decision required making a significant acquisition predicated on resolving several market uncertainties, including:

  • High technological complexity to develop the breakthrough software
  • Unknown size of the market potential, volume, price, penetration rate
  • Many competitors potentially vying for this technology, difficult to read their intention
  • No one player with all the necessary capabilities
  • Sizable acquisition required to achieve necessary capabilities resting with one software company
  • Uncertain achievable market share
  • Undetermined cost structure to serve the market
  • Unknown overall financial attractiveness

We recommended going forward with the technology and the acquisition:

  • The value of the opportunity to the company was estimated at above $1 billion
  • The company acquired the leading company in Visualization and Visual Collaboration technology for $204 million
  • The acquisition served to round out the required capabilities for OVC and ODC
  • The firm made additional investments of $120 million in IT hardware and software over the next 4 years to roll out Cloud capability
  • As a result, the company was able to set the industry standards for OVC and ODC
  • Built technological  advantage and industry leadership
  • Denied entrance to direct competitors
  • Established dominance in a $11 billion market
  • Became cash-flow positive in year 4
  • Generated more than $500 million/year in cash by year 7

We performed a strategic assessment of the opportunity, including the following analyses:



Identified all required technologies and capabilities to deliver OVC and ODC, ie. the “Technology Stack,” including the following:

  • Collaboration
  • Visualization
  • Abstraction
  • Geometric modeling
  • Translation services
  • Portal services
  • ANX



Identified all customer benefits of OVC and ODC

Verified benefits with potential users

Analyzed market structure, segments. and market share

Estimated the market potential and growth in terms of volume (i.e. number of seats for OVC and ODC)

Estimated pricing based on comparable analysis of customer benefits

Developed market projections and penetration rates based on similar product introductions



Identified roughly 80 competitors in the CAD/CAE/CAM industry

Determined axes of industry profitability

Mapped strategic groups

Identified direct competitors, analyzed these for capability and commitment to OVC and ODC

Singled out Dassault/IBM and PTC as vying strongly for the technology, but lacking Visualization capability



Identified company XYZ as leader in Visualization and Visual Collaboration technology

Established strategic rationale of the client as follows:

By acquiring Company XYZ, ABC will accomplish the following

Lock in unique technological capability in the industry

Define de facto industry standard

Establish company as industry leader

Provide potential avenue to expand enterprise account penetration

Pre-empts entry by competitors

By not acquiring Company XYZ, ABC will be put in the following position

Denied access to online design collaboration industry

Relegation to off-line market, low player position

Furthermore, otherwise-acquiring competitor will gain first mover advantage, including

Set up competitive war

Define de facto industry standard

Establish itself as industry leader

Gain potential avenue to expand enterprise account penetration

Pre-empt entry by other competitors



Valued the acquisition of XYZ at roughly $200 million

Estimated additional investments in IT hardware and software over the next 4 years amounting to $120 million

Developed a discounted cash flow analysis, including revenue projections, cost structure, schedule of investments

Determined the following:

• the project would be cash-flow positive in year 4

• the technology would expected to generate $1 billion in free cash flow at steady state

• Valued the technology at above $1 billion subject to varying risk assumptions

Value of $1.1 billion at discount rate of 22%

Value of $1.4 billion at discount rate of 20%

Value of $2.2 billion at discount rate of 16%