Intel only needs one copy

It is obvious that companies make money in EDA only if they sell enough software. One rule of thumb is that EDA companies thrive if each salesperson brings in $2M per year, and they don’t if they only bring in less.

But enough software really means enough hours of use of the software. For a large EDA company, most of the money comes from a relatively small number of large customers, and they optimize their use of licenses in server farms, sharing licenses world-wide and so on.

But enough hours of use of software in turn really means that either the software must run for a long time (like place and route or RET decoration) or else that customer engineers must sit in front of it for a long time (like a layout editor).

Other tools suffer from what I call the “Intel only needs one copy” problem. They have a hard time building license demand naturally. This is less of a problem in a startup, who are quite happy in the early days to sell one copy to everyone, but to get a good growth trajectory it is necessary to build on the beach-head of those first licenses and proliferate widely into at least some of the accounts.

If license demand isn’t built naturally then it becomes necessary to attempt to do unnatural things like try and charge per tapeout, or try and license on a per-named-user basis, or try and charge a royalty. These are all possible but at the very least the sales cycle will stretch out for a startup, and it will run out of cash, or for a large company it becomes too complex to include a weirdly licensed tool into a large contract (which, incidentally, is also one reason that OEM deals never work in EDA).

This is one of the big challenges of the ESL market. The tools are only needed occasionally, don’t run for a very long time and don’t require users to run them interactively for long periods.

Bottom line: it is really hard to sell a tool with an unexpected business model, which for EDA means some sort of floating license for a period of time. A nice analogy is the restaurant business. When you go to a restaurant you expect to pay depending on what dishes you order. That’s how restaurants work. But in fact most of a restaurant’s costs are fixed: the rent, the employees’ salaries, utilities, advertising. So rationally a restaurant might charge by the minute no matter what you eat. That changes things a bit (caviar is cheap, that espresso after dinner is really expensive) but even so I suspect you’d have a hard time running a business that way. It’s just not what the customers expect.

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