Provide real value to help customer design innovative product

In September 10th, I interview Mr. Jeff Ray, the CEO of DS SolidWorks at Dassault Systemes Shanghai Office. Mr.CK Goh, the general manger of SolidWorks greater China, and Mr. CC Chan, the technical director of Asia & Pacific region of SolidWorks also joined the interview.

In September 10th, I interview Mr. Jeff Ray, the CEO of DS SolidWorks at Dassault Systemes Shanghai Office. Jeff talked with me about a few topics, including the product strategy, pricing strategy, value proposition, ecosystem building and cooperate culture of SolidWorks globally and in China. Mr.CK Goh, the general manger of SolidWorks greater China, and Mr. CC Chan, the technical director of Asia & Pacific region of SolidWorks also joined the interview. We have very deep communication with each other, and I think this interview paper will help the customer clearly understand how SolidWorks could help them design more innovative products.

Jeff Ray, the CEO of DS SolidWorks

Jeff Ray, the CEO of DS SolidWorks

Pei Huang: Formerly, DS SolidWorks was widely thought as a 3D CAD provider. Now, SolidWorks has CAE/PDM solution too. So, are there any changes about the positioning strategy of SolidWorks?
Jeff Ray: Our positioning strategy has not changed. Our goal has always been and will be to provide great 3D tools for professionals being engineers and designers. But the 3D tools are beyond just 3D modeling. So, you will see products that we will bring out in the next 2-3 years. They will go beyond the traditional market that we have been in. The best way to communicate a design is in 3D, the best way to experience a product is a digital model in 3D. To experience that first digitally is very powerful. So, we want to continue to develop tools and technologies to make it easier for people to create those very rich 3D models and communicate them.

Pei: As I know, your simulation business is growing very fast, who are the main users? Are they designers or simulation analysts?
Jeff: We have certainly seen strong adoption from both. It really has to do more with the nature of simulation. We provide design validation solution that engineers and designers are using it, and that was our original intent to take the power of FEA and make it easier enough, yet protect the integrity of the FEA process and put it in the hands of the engineers and designers. The best time to validate the design is up front when you actually creating it. It was almost 7 years ago that we made those statements that we were going to provide powerful analysis software for engineers and designers. I remember that people either laughed out us or they thought we were crazy. No one took us seriously. Now we demonstrate that we can make analysis mainstream, it is far and away a successful story of us. We have seen that our competitors copy that and attempt to emulate that by offering their own design validation tools. But they are still 5 to 7 years behind us. We will continue to innovate in this area and we will continue to stay well ahead.
There are also many analysts using our simulation tools. The core modeling, simulation and meshing technology of our design validation solution is exactly the same as our most sophisticated analysis tools. So, the integrity is there. It really comes down to the user interface and having a presentation layer that respect the user be a someone who use it casually as a design validation tool, but is also powerful enough for the most sophisticated analysis.

Pei: Recently there are some Chinese companies entering 3D CAD market. How do you think about the growth trend of 3D CAD market, are there enough market space of 3D CAD vendors?
Jeff: I think the 3D CAD market is expanding as we expand our product portfolio. I will give you a good example. We have a customer that few years ago you would never think he would become a SolidWorks’ customer. Tom Dixon is a furniture and interior designer based in England who designs all his furniture in SolidWorks. He is using not only SolidWorks, but also another Dassault Systems’ product, called 3DVIA, to communicate his 3D models to his target customers.
Last year, a company planned to build a new night club on the top floor of a new building in Hong Kong. They wanted a very sophisticate club to attract high profile people, so they went to the interior design and decoration market to select bids. Traditionally, in this business the way you present your bid is card copy. You do some nice art sketch, choose some material and stick in the sketch. You typically have a 2D drawing of the floor plan and send your proposal to the construction company. Tom Dixon took a very different approach. He used 3DVIA to create a scene of the night club digitally. He created an avatar, and he populated the scene with all his furniture and sent the link to the buyer. The buyer could go into the website, click on the avatar, and walk through the night club in this 3D digital environment, look up to see the lighting, and see how the light close. There is a legitimate 3D model, all the physics are correct. It is true legitimate 3D environment, has the same integrity provided by engineer. So, the buyer could move the furniture around. There is even an option to pick the different chairs. He could look out to the skyline. It’s is true digital environment with the same lifelike reality. Finally, Tom Dixon won the bid even though he was not the cheapest because the buyer could experience the product.
And that is the long term potential, so this market goes way beyond what we are doing today for engineers and designers. As we bring this product to the market, it opens up whole new market places for us. That’s the real excitement. So I am not too concern about new companies pulling together to develop a 2D/3D CAD. We are way beyond that. If you are a company and you are trying to make your product stand out in the crowd, put in on the Internet is no longer enough. The Internet is so crowd that you need to do something to differentiate yourself from everyone else. So if you can provide a life experience for your potential customers, and actually experience the product, you are going to win that business.

Pei: What’s your view about your PDM business? I know that Enterprise PDM has already got a few customers in China.
Jeff: Enterprise PDM is far away our fastest growing business. We have seen very strong double digits growth of Enterprise PDM in 2009, which is a very difficult year. The growing speed is much stronger than we expected. This product and the ability of our resellers to deploy it is a very successful story. Why is that? No.1, it takes common tools that people use every day; No.2, it’s very easy to deploy, you can be up and running in a couple of days; and finally, it gives people what they want, thus, an easy way to check in and to check out designs, an easy way to share, and an easy way to ensure the propriety of signature authority and security. That’s what they are looking for. So, we are thrilled with the success. What we are finding is that our solution is often chosen by the customers over our competitor’s PLM tools. That is never our intent. We have seen that most companies who thought they need PLM really only need PDM. So they choose Enterprise PDM. We are supervised with the reactions of our competitors that all of a sudden, they are taking Enterprise PDM very seriously. So, Enterprise PDM is a strong success, no one should be surprised by that. The technology that we pick is from a long term value added SolidWorks partner. So we already knew that the product worked well, we knew the team very well, we knew that their culture was consistent with ours. So, it was a very easy acquisition that we did about 4 years ago.
But we also need a long term growth solution to support the sustainable growth of our customers. So, that’s why SolidWorks made a strong commitment with ENOVIA V6 as our long term platform. The beauty of this is that the customers can use Enterprise PDM today and for as long as you need, and they don’t actually have to be forced to make any other kind of decision. And when it’s time for them to move into V6 PLM solution, they can make it very easy for the transaction. It’s easy for them to continue to grow and expand. The beauty of that is the V6 PLM platform is online. So you can expand your reach significantly. You can grow and shrink; you can add features and remove features in a much easier way than with traditional license software. So we are very happy with the results of Enterprise PDM. And so far the market is very happy with our long term strategy. Our customers around the world are excited that we present a long term road map. It’s much more complete than any of our competitors.

Pei: Recently, DS released a brand new 2D CAD software named DraftSight. Please analyze the background of DraftSight and the value for DS and for your customers.
Jeff: It was a fascinating project. I was almost 4 years ago that I sat down with our founder Jon Hirschtick and a couple of members of our product management team. Our DWGseries(Including DWGgateway, DWGviewer and DWGeditor) was very popular. But quite frankly, it wasn’t a world-class platform for building DWG designs. It was a way to make it easier for people to add, update and save DWG drawings without having to pay a lot of license fees for compliance. It served for purpose, but we need a more robust and legitimate 2D platform. Our customers were asking for it. They expected us to solve all of their design challenges and not just 3D. We were also getting lots of complaints from our customers that they were continuing to have to pay license fees to other 2D vendors just for continuing to open 2D files and use them. They were getting no value for that at all. It was the same 2D CAD as 5 years ago or even 15 years ago, but the vendors kept showing that they were demanding more and more payments. They were very frustrated because that money that they had to spend for compliance was the money they could not spend for innovating the design tools. They can’t innovate with 2D. They can’t bring higher quality products to market in less time with 2D. They innovate with 3D. But the budget was been sacrificed for compliances reasons. And so our customers were literally pounding on the table demanding a solution from us. So, I sat down with our founder John Hirschtick and the other members of engineering design team 4 years ago and decided to build a better solution. The solution needs to be a robust, legitimate, DWG-based product that is powerful, high performing, speedy and integrity. And it could automatically open to all the partners’ products. But we want to take a different approach to this. I felt that the traditional licensing model for 2D CAD was no longer valid or legitimate for 2D products. 2D is a commodity. The opportunity to differentiate on 2D is done. So why should customers have to pay a significant premium for a commodity product that doesn’t help them win new customers. There is no good reason for that. So we took a view that instead of just offering a free product, we should offer a much better customer experience. We took 2D but we brought a whole new level of customers’ experience that’s never been available before.
The best market that we learnt from was the open sources market. If you study the open source model, it’s been around for over 21 years now. It goes back to 1989 with the early shipments of LINUX and UNIX. The whole market of open source is open, free and available source code in a large community. Open sources is runaway success. There are more copies of LINUX and UNIX out there than anything else. There are more copies of MySQL than SQL Server by a factor of 10. That’s because the community wants to buy and use that kind of software. So we learnt from that. When we built DraftSight, it was with this focus on the community. It wasn’t just another free 2D product. It was an obsession on having a much richer customer experience.
We worked very slowly and carefully with our partners, GraeBert, a Germen CAD company. We signed that agreement years ago. I respect the team of GraeBert, it is a very high quality engineering team. They built a world-class 2D product. It’s fresh new code with high performance. We know that because we started to test is four years ago with some of our most demanding customer. Over and over again they gave us the feedback that this was the best 2D CAD they ever see. So, we knew we have the right product and right relationship. Then it was a matter to present the right customer experience, and the right customer experience is online. It gives customers to examine, test, validate, download and license the product easily. It’s for their convenience, without any disruption and cost. It also opens them to the whole community. On the online community, it is totally transparent. The customers’ satisfactions data with the downloading experience are public. The ability to share and communicate ideas is out there. It is a public social community. We are going to add a lot more features to that community over the next 3-4 months. So the community owns the product. This is a completely different way to use software. It’s exactly the way customers want to use software, ease of use, download and registration to be part of the community, and they can collaborate with each other on that community. We will keep on track and publish the top 10 using enhancement and people can vote on that. No other company does that. The community will decide what the enhancement would be, not the vendors or someone else. That’s the key aspect of the open source community. But one thing we will not do though, is to publish the source code, because it’s been very clear that our customers want to trust the integrity of the source code. This is backed by SolidWorks and Dassault Systems.
The other beautiful feature of this is that if the customers want support, they can buy a support license and they can do it themselves online without calling anyone or going through any process. Now our resellers are available to help them with this, and we are encouraging our resellers to offer those support. But again, it is all about convenience, and respecting to our customers to do their business by the way they want to do.
We’ve already signed several very large support deals with big companies. We will publish the news in the coming months. The support prices are extremely competitive when you look at the TCO, the convenience, and the social community aspects. There is nothing like it on the market. This is the way 2D CAD should be done. So, it is a very, very powerful message.
Another amazing aspect of open source model is that the engineers make the decisions based on the decisions what other engineers are dealing. They don’t respond well to traditional forms of advertising by vendors. They make the decisions based on what the community is doing. So, we think that focus on the community is more powerful. Without any advertising and PR investment, we’ve already seen over 50,000 downloads of DraftSight. So, it’s far and away the most rapidly adopted new tool in CAD area globally.
We’ve put this through the same QA process, as well as Dassault Systems. This is not just the SolidWorks’ product, but also Dassault Systems’ product. They were offering to the entire market. So it’s follow the same QA protocol that we use for all Dassault Systems’ products. By the way, we will be shipping a Mac OS X version before the end of September.

Pei: Traditionally, the customers of SolidWorks are SMBs. But some large enterprises like Shanghai-electric are also using SolidWorks as a main design tools. Does it mean SolidWorks will pay more and more attention on large enterprises?
Jeff: We have great relationship with many large customers. I think that people will surprise that how many large accounts we have in the large enterprises. But it doesn’t mean we are going to compromise our channel strategy. Our channel model works very well, and it is the MBA case of the industry. It can also work in the large enterprises. Typically in large enterprises, the buyers want to have a personal relationship with software manufacturer, so we can accommodate that, but we still provide fulfillment and local support through the reseller community.

Pei: As I know, in Dassault’s strategy, CATIA is for enterprise-level applications, SolidWorks is just for design. But now SolidWorks has more and more functions, including simulation, PDM, etc. Will there be any conflictions in the future?
Jeff: I don’t see any conflict anywhere in the future, because when we continue add functionality to our products, CATIA is continuing to add functionality to its product also. In fact, CATIA is a system based on design tool. It respects the complexity of building a system. A car is a system, and it’s not a collection of CAD design parts any more. There are so much electronics, so much computing power in a motor vehicle. The handshaking of control system and mechanical system is never being more important for airplane industry, transportation industry, car, complex ship, and for any complex systems where there has to be a tight relationship between hardware and control system. So, we don’t see any overlap of the product positioning SolidWorks and CATIA in the near future. Sometimes, the conflict happens on the market, because our channels represent the products properly based on the customers’ needs, but not the products.

Pei: Right now, there are already about 60 partners of SolidWorks in China. How do you feel about the ecosystem about SolidWorks in China?
Jeff: It’s a good start. I’m happy with this but I will never be satisfied. When I first visit to China as SolidWorks executive 7 years ago, I made my commitment on behalf of the entire company to invest heavily in the Chinese market. Our customers like us, and we have many very loyal customers. We were enjoying great growth by any measure at that time. But we needed to take it to a new stage of growth. It required investment of the local leadership, and building more partnerships with resellers, and it required more investment in technologies to support the Chinese market. So, the results reflect our great progress in China, but I will be never satisfied.
CK Goh: We are able to serve large accounts like Shanghai-Electric through our channel partners now. That’s really the result of our investment in recent years. Our customers are happy with our VARs. So, I think our ecosystem is very healthy, because we have not deviated with our business fundamental and our business model. We have built great confidence and the trust between SolidWorks and our VARs. This trust will put us forward much faster. Now, we are not in the process of recruiting many VARs, but we are in the processes refining what we have, and provide right vision to our ecosystem to let them understand where we are heading over the next 3-5 years. We want our VARs to respond to that vision and take control of the destiny, so that we could improve the customer satisfaction and get more large account like Shanghai-Electric. With the confidence and trust of our VARs, I’m very optimistic with Chinese market and our business model.

Pei: There are some different views about the trend of China economy. So, do you optimistic with the growth of the Chinese 3D market?
Jeff: If I wasn’t optimistic with the market, I wouldn’t be here and we wouldn’t be making investment in China. I don’t worry about the long term healthy prospects of the economy. What I care is whether we have the right business model to sustain us through the highs and lows of the economic development. In fact, we have the best business model in the market. The best evidence is what we have gone through for the last 18 months. 18 months ago, we started to see this market start to suffer the global recession. No one has been spared. Our customers in all segments around the world have been impacted by this recession. But if you look at how we sustained us to through it, you will conclude that it is really a miracle. First, our resellers did not fail because of the economy. But all of our competitors lost resellers, and even some large resellers of them could not avoid bankruptcy because the model couldn’t sustain them through the down times. Second, we did not lay off one employee anywhere in the world because of the recession. Third, we have continued to grow the market share, and our profit has grown. Our profit margin went up in the last year which is the worst recession that we have seen since 1930s. All these happened due to our business model. The model is based on the strong subscription business, a very healthy relationship with our resellers, and a very strong economic business model for our resellers. And it’s based on continuing to innovate, to listen to customers and give them what they want in good times and in bad. One of our competitors laid off employee more than the total employee we have.
We are still the only CAD vendor that discloses our seats sales each quarter. Our competitors are stop doing that because of the market share. Our revenue is just under $400 million in the last fiscal year, and our operating margin was over 38%. In the market place, the operating margin in the last year was below 20% for our competitors.

Pei: Right now there are some vendors in the Chinese 3D CAD market cut down their prices of 3D CAD. What’s your comment and what’s your competing strategy?
Jeff: Vendors do not own the pricing, but the market place owns the pricing. It decides what the value of a good or service is. The price is based on the value that customers could see. If you look at our selling price, it has been incredibly stable. It actually has gone up 1% in the last 12 months. We report our average selling price as part of Dassault Systems’ financial statements every quarter, and this is something that our competitors don’t do. So, we are very transparent. Our competitors had to discount more and more.
We will continue to put more and more in our products to make sure the value is there. We haven’t changed our price since SolidWorks 95, but the product is a thousand times better, and we will continue to innovate and keep the price through the innovation.
CK: We want a proper competition that respects each other. We don’t want a ridiculous competition that kills the market and customers. We don’t want to give big discounts by sacrificing the customer satisfaction. Besides the product, good quality of service and long term partnership is really important for the customer. For example, Shanghai-Electronic wants a long term strategic partnership with us. So, how could a vendor really provide value for the customer with a ridiculous discount price? We are very clear about what the customers really need. So, we will continue to help our customer to innovate through our better product and more professional service, instead of joining the pricing battle.
Jeff: It’s not about the price and product. It’s about the ability of our customers to get the job done. I was in Swissland this summer visiting one of our customers who make luxury watches. The price starts from $30,000. How can they justify that? It’s because the quality and the customers’ experience are extraordinary. They couldn’t do it without SolidWorks. They would never debate to price the product. All the debate is about our ability to continue to innovate, so that they can make the best product in the market. We also have many customers making commodity products, so it is doesn’t matter what they make. The customers are trying to differentiate themselves and give their customers better products at the best possible price. They need the tool to support their engineers and designers to do that. That’s our obsession. SolidWorks 2011 is another great example. 92% of the enhancement and improvement in SolidWorks 2011 are user-driven enhancement. When you listen to your customers, when you are transparent and when you give them what they ask for, they respond you kindly.

Pei: Is there any change with the corporate culture of SolidWorks as a subsidiary of Dassault Systems in recent years?
Jeff: The SolidWorks’ culture doesn’t change. A company builds the culture based on what the goals are and stay true with that culture. So we have continued to stay true to the culture of SolidWorks. It’s why we have been successfully and why we have sustained ourselves through this difficult economic time period, that’s why we are at the best position for great growth, why our resellers have the position for great growth and success, and why our customers stay with SolidWorks.
What is changing is our relationship with Dassault Systems. I always feel very strongly that we should have a tighter partnership with Dassault Systems for the good of our customers. I worked very hard with Mr. Bernard Charles and DS’ executive team to make that happen. Every time I visit DS or meet with DS people, I’m struck by how much we have in common, our common desires to help customers succeed. But I’m also impressed with the quality of the technology. There is a lot of innovation there, and I want to make sure that the innovation is shared with our customers also. We shouldn’t be excluded from that. There are things we do very well that no one else does. We want to share that with DS, so that DS can offer that to their customers.
We want to make it easier for products to work together. One common complaint that I get from our large customers is why your products didn’t play well together, so, we commit to make that happen. We will be shipping products in the coming years that will take the best of all technologies and put them together, so they will works better together. It’s a very natural step for us to take and could make perfect sense for ourselves and for our customers. If we can take the best of Dassault Systems’ and SolidWorks’ product family and put them together, nobody can beat us. That’s my desire. This is not about who owns who and who makes decisions. This is about taking the best and solving customers’ problems.

Pei: Right now, more and more software vendors integrate SNS application inside the software as a tool to collaborate, and also used SNS as a marketing tool. What’s your view about SNS application in both areas?
Jeff: You can’t have a community based on technology. Vendors don’t create communities. Communities create communities. Communities are the results of the passion that the user base has for the product, for its relationship with its vendor and for its relationship with one another. Our job is to facilitate that, to make it easier and to make it more open and transparent.
So, it’s vital for us to be open and transparent, and consistently listen to the customers and respect for them, and build the right platform that customer will choose it for social networking. Again, just as we could not make the price, we could not build the community.
The other thing should be very careful about the community is, there is no room for lying. There is total transparency. So the customer should have to look at the DNA of a company whether it has the passion and loyal user base that loves what they do, loves sharing ideas and really respect the customers and facilitate the community.
The best example I can give you is SolidWorks World. If you want to know what community is like, go to SolidWorks World. We open the door at 8:15 and people run to the front to get the best seats. Why is that? It’s because the community is already there. Now we are doing thing to facilitate the technology to make it easier. But vendors cannot create communities.
The SolidWorks’ user group is the key driver for SolidWorks World. Everything we do is resulted the SolidWorks’ user group. We have almost 180 user groups around the world. That’s about 3 to 10 times the number of user groups that our competitors have.

Pei: Please introduce the background of SolidWorks’ sustainable design solutions.
Jeff: This was the decision we made about 3 years ago to build the sustainability product. This is a case of giving customers what they need. The best companies give customers what they need, instead of what they want. The only way you can give your customers what they need is to a real understanding of their business and their requirements, and you should you build the technologies based on that. SolidWorks Sustainability is a perfect example. We have done our research with customers around the world, studying what they are doing, understanding their challenges and then building that into a tool. So it is not because people want sustainability, but because they need that solution.

Pei: How about SolidWorks Sustainability and 3DVIA composer business growing in China?
CK: To align with the corporate strategy to promote 3DVIA, the first thing we need to do in China is to get the relevant people in place. So we have some internal assignment to get the people focus on this product. For the whole last year, we were in the process of training our channel partners about this product. So this year we have seen the benefits. Now our challenge is to quickly ramp up our sales force in the front line to make sure that we are always top about 3DVIA to all of our customers and our prospects. So, we are very positive, and the 3DVIA business is on track.
For sustainability, I think a lot of customers need it, so we need to create the awareness of our solution. Now we are discussing a lot about the green design. We will gradually let our customers to really understand the idea of sustainability. Now, we are still in the market education process.
Jeff: It has to be easy to use and respect the design process. That’s what we got with SolidWorks Sustainability. It’s not just a tool, but its is imbedded in the product. Everybody who buys a copy of SolidWorks 2011 gets the sustainability tool with it. It’s integrated as a part of the design process. It is also extremely to use. It’s backed by a very powerful decision making technology and massive database of the impacts of the environment, including harvesting, mining, manufacturing, shipping, using, and the disposal at the end of product life. But the users don’t have to worry about that. We want to make the complex simple.

Pei: The environmental problems are severe in China. What support can SolidWorks offer to solve these problems?
Jeff: One of the functions of SolidWorks Sustainability LCA (Life Cycle Assessment) is water eutrophication. It can show the impact of your designs on the water usage to determine whether you are wasting water when you manufacture product, whether you are also polluting the water by the material you choose to design. This function is very easy to use. Literally, when you design a product, you will evolve in the sustainability tool. The tool knows the material property that you have chosen, and the math of the material, so it knows how much you use to make the product. It also knows whether you will weld, mold, bend and stamp to make it. It has massive amount of intelligence. So, you can just push a button and it will tell you the impact in the environment, the energy usage, the water eutrophication and air acidification, etc. With this information, the designer could pick a substitute material, and the software could very quickly tell the designer whether the substitute material is better to environment or worse by four pie charts and bar charts.
What’s really cool is the tool to find similar. The tool knows how the material could be used, so it could give suggestions to designers about the alternative material that is more respect the environment. It will still keep the same user experience, so that it will not impact the quality of design. The tool could create a sustainability report automatically in PDF or WORD format. So, the designer could attach the report to the decision maker inside the company, or the engineer consulting firm could attach it in their proposal to help them win the business. So, the customer could use the report in their marketing of publicity materials.
This tool is very easy to use, so if every engineer in China use this tool, it could have massive impact with environment protection.

Picture of Pei Huang with Jeff Ray, CK Goh and CC Chan (From left to right)

Picture of Pei Huang with Jeff Ray, CK Goh and CC Chan (From left to right)

Editor: Sophie Shi ss@e-works.net.cn

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