Onshape – the CAD Revolution Ahead of Its Time
How could it be? We were certain that Onshape was the chosen one, the one that would lead engineers to the promised land of design, to a single source of truth in the cloud. Onshape was the next CAD revolution. After a generation of CAD that had chained us to our desks and cost us a king’s ransom, we would break our chains of oppression.
Wise men (the media, bear with me) visited the little town of Cambridge, Mass., when the chosen one was born. Onshape seemed to glow by its own light—or was it the light from its hallowed founders, the same ones who led the last revolution?
We watched as Onshape grew by leaps and bounds, getting stronger every month, learning new skills, making new friends. The ruling kings of CAD looked on, jealous of the attention devoted to this upstart, yet dismissed Onshape as posing no threat.
Then came the earth shaking news: the Onshape family had been bought by one of the kings of CAD, and was to be moved to a shiny castle across town, where it would live with the others the king had bought—and share a room with Prince Creo, the sole heir to the CAD throne after absorbing firstborn Pro/ENGINEER and eating ME/10 and ME/30, bought from HP.
Onshape had been plotting Creo’s defeat— and a new world order—but that would no longer be an option.
Play nice with Creo, says the king.
And so, the next CAD revolution is paused.
Hey, Where is Everybody?
After the main shock, the Onshape being sold there is an aftershock. After seven years of evangelizing and sermons on the hill under the cloud, our revolution only ever attracted 5,000 wealthy followers (paying customers).
Such a light turnout of wealthy followers could never support a revolution. It must have occurred to the leader that it was better to find a wealthy kingdom he could count on to carry forth his revolutionary principles, if not the revolution itself. Keep hope alive. No sense in making martyrs. One day, there will be a design application, unbound, under the cloud, for everyone. The world is just not ready yet.
A Wringing of the Hands Ensues
Onshape seemed to have everything going for it. It was thoroughly modern. Users could free themselves from their workstations with a lithe but potent CAD application that ran on the cloud using nothing more than a browser. It was the first new CAD code in a generation that was not trying to duplicate another CAD application. It was freely dispensed when the other merchants charged thousands of dollars. It was capable of running on computers and tablets that cost a couple of hundred dollars. You didn’t need a download, you just signed up for it. For nothing—or next to nothing—you could get your hands on a professional-grade CAD program.
Being thoroughly modern, Onshape delivered unexpected joys. We didn’t need a PDM program to help us organize our CAD data. All the ills of CAD use that PDM cured, Onshape overcame naturally. Its database structure (instead of files) in the cloud provided us with the “single source of truth,” the right version of the design. And we could all work on it at the same time.
Why Pay When It’s Free?
But with just 5,000 paying customers, Onshape had barely made a dent in the market. We don’t know if that was the number of paying customers with active accounts when it was sold or the total sum of anyone who had ever paid, even for a single month.
By comparison, the last revolution in CAD by SOLIDWORKS had won over 200,000 paying customers after seven years.
“We have tens of thousands of users for the free version,” said Hirschtick at the announcement.
Never before had a Parasolid-based CAD program been free, so tens of thousands of users jumped at the chance to receive it. But since the free version did everything the premium versions did, there was little incentive for users to upgrade to premium versions. But each free Onshape download would come at a price. Siemens Software, which licenses Parasolid, like military selling bullets to its enemy, would have to be paid.
The free version is only for those in education (students or their teachers) and makers and hobbyists—although proof of status is not strictly required.
No doubt, the free version was freely given away to invite usage and create a large population of users from which many would be coaxed into paying for the premium version. It is a common tactic used by software producers these days. But to only have 5,000 paid users after seven years must have been a crushing disappointment.
Out of Cash?
Did licensing fees, paying for cloud resources for non-paying users, an all-American team of developers, jacked-up rent from being located near the most desirable universities, and other cost factors finally do Onshape in?
A couple of years ago, Jon Hirschtick, Onshape founder and CEO, told engineering.com that his company needed 10,000 paying users of Onshape Professional to break even, though many more users had signed up for the free version.
We have to do the math. Ten thousand users paying the going rate for Onshape Professional (then $1500 annually) is $15 million a year in revenue. If all 5,000 current paying customers were paying that price, the company would be producing an annual revenue of $7.5 million, meaning Onshape would be losing $7.5 million a year.
With $169 million in the bank from all of its investors and estimating constant costs since its inception, Onshape would not have run out of cash for another 15 years.
Too Much for PTC?
PTC got a great deal, despite the negotiating prowess of Hirschtick, said Heppelmann.
PTC paid $470 million net for Onshape—its costliest acquisition ever. While that pales in comparison to Siemens’s $4.5 billion acquisition of Mentor Graphics, it’s in the ballpark of Dassault Systèmes $316 million acquisition of SOLIDWORKS and is much less than the $133 million that Autodesk paid for Revit in 2002, to name a few CAD acquisitions. All but Mentor Graphics involved companies that were acquired with lots of cash but had few paying customers.
Asked to explain such decisions, often to a skeptical board of directors, CEOs can justify paying a lot for a company because of its future potential, as in, “We’re getting a rocket on a launchpad.” Or, as in PTC’s case, how much time and money they are saving by not having to build similar technology in house.
“It would have cost us a lot more than $470 million to create a cloud-based CAD program like Onshape,” said Heppelmann.
Was it a good investment for Onshape’s investors? In tech deals, investors hope to make 5 to 10 times their original investment.
Let’s say Hirschtick and the cofounders kept 20 percent of the equity in Onshape. This is total conjecture. We have no way of knowing the actual figures, but industry analysts maintain 10 to 20 percent of a company is all the equity founders get to keep in a well-funded company with outside investors. For ease, let’s say that all of the money was invested up-front. So, after seven years, the investors received 80 percent, $376 million for a $169 million investment. A simple return on investment is 122 percent. This equates to an annual return of just over 12 percent every year—a respectable yield for a hedge fund, perhaps, but nothing like what investors have benefited from in other high-profile acquisitions. Venture capitalists consider a minimum of 25 percent ARR a minimum success criterion. They dream of billion-dollar deals that garner far more, for example, Sequoia Capitol’s $60 million in WhatsApp that made them $3 billion when it was sold to Facebook.
Why PTC? Who Else?
Who saw PTC coming? If anyone was going to buy Onshape, it should have been Dassault Systèmes1. But according to a CAD insider, Bernard Charlès, CEO of Dassault Systèmes, was incensed that Hirschtick would have had the gall (or is it Gaul?) to start a new CAD company after making Hirschtick rich by buying his last one. Charlès ordered SOLIDWORKS R&D to crush the startup with an “Onshape killer.” The “killer,” dubbed xDesign, emerged at SolidWorks World in 2016, was spotted at the same event two years later, then lost in a dizzying sequence of name changes last year. While xDesign’s impact is not known, its continuation speaks to Dassault Systèmes’ commitment to competing against Onshape. Acquiring Onshape would have been out of the question.
Autodesk seems to be humming along with its own web-based CAD program Fusion 360, apparently in no real hurry. Whenever its massive user base is ready to go to online CAD, Autodesk will be ready with Fusion 360. There would be no reason for the company to acquire a parallel, and according to Autodesk, inferior2, product.
Siemens was probably fine getting revenue from Onshape without the risk of investing in cloud-based technology that may have been too far ahead of its largely enterprise-based users.
Among the major CAD players, that leaves PTC. However, as late as April 2018, PTC downplayed CAD on the cloud3. The company offered no clue that it was considering a browser-based CAD program and gave every sign of also being content with Creo. PTC had been on a 20-year drift into emerging technologies peripheral to its CAD core with forays into technical publication, AR, IoT, a math program and more.
Now, after the first CAD acquisition in its existence, PTC calls SaaS, or software as a service, its “third growth engine” behind IoT and AR. CAD software as a service is growing at 35 percent a year into 20 percent of the market in 5 years, said Heppelmann, citing a McKinsey study.