Users are fed up with legacy 3D and CAD software
Many architects and engineers are frustrated with outdated software. Don’t believe me? Well just spend 5 minutes on Reddit or the-site-formerly-known-as-Twitter and you can validate my claim yourself. Archis and engineers have been venting their frustration online for the last decade-plus, and their complaints are loud and clear.
Let’s start with a laundry list of users’ main gripes about legacy 3D/CAD software from Reddit and Twitter:
Among all the gripes and grievances, three core issues repeat
1. Old tech stacks can’t keep up: Legacy CAD software relies on old technology. This means they can’t easily shift to newer technologies, for example rendering in browser. New software offers better access, collaboration, and flexibility. But many old CAD tools can’t make that shift because of their outdated foundation.
2. Closed-off systems foster lock-in and block modern features: Many legacy 3D/CAD software have a “walled garden” approach. They keep their systems closed off. This makes sharing data tough and blocks collaboration.
3. Vendors love “squeezing the customer” and practice bad treatment: Many users don’t like exploding license models from vendors using their market power, and feel they don’t get their money’s worth. They feel trapped, forced to stick with one software because of high training costs or compatibility issues. Feeling forced into upgrades and dealing with poor customer service doesn’t help.
One root cause: The high minimum feature set required to offer a viable alternative to legacy 3D/CAD software
The first principle of these core issues is that there have been very few viable alternatives to legacy software.
For one, because users need a lot of features to actually find value in a general or specialty 3D/CAD tool.
And because of that, they require thousands of hours of practice to master each tool.
That created lock-in and made developing a fully functional alternative software extremely costly, both in terms of engineering hours as well as distribution.
The culprit is that the minimum feature set is very high.
In the past, it could easily take 10 years or more to develop a viable tool that matches the minimum feature set required to compete with an incumbent 3D or CAD software. And then, when you had it, you still needed to distribute it and convince locked-in users who had thousands of practice hours to switch over to your tool and start anew.
You were more likely to go bankrupt than being successful in competing with a legacy 3D/CAD software.
So… what’s different now?
What’s different now: Browser-based, concurrent, multiplayer and AI-embedded overtakes the legacy stack
In recent years, the rapid evolution of several newer technologies have converged to allow a new software to not only build viable alternative for the 3D design stack, but actually overtake the legacy tools and provide far superior feature sets. This was already proven in 2D with a new wave of design software like Figma or Canva, and started in the wider mCAD space with terrific new software such as nTop. And now those technologies are breaking their way into 3D and CAD for all other sectors, including the architecture, engineering and construction (AEC) space long dominated by shitty incumbent software.
Consider these big six:
These six technologies provided founders and software developers a compelling “why now” to win against shitty legacy 3D/CAD software, not only by matching but actually by outperforming on the feature set as well as the UI/UX.
The original tech capabilities of incumbent 3D/CAD software firms do not translate into this new stack
Now, to update your legacy software architecture to incorporate these modern technologies is a monumental task.
In the simpler world of 2D, Adobe has taken more than 15 years to develop a browser-based version of Adobe Photoshop. While the browser Photoshop still has not all of the legacy desktop’s features. All the while Figma has built a rivalling toolsuite to compete with Adobe’s prototyping tools, resulting in Adobe tendering a $20B acquisition offer to take over Figma. And this is in 2D, which neither has to cover the complexity of 3D nor a true CAD.
So, to transform your legacy 3D/CAD tool into a modern architecture is a massive, massive undertaking even for an organization who has the best software developers at their disposal. I cannot think of any of the world’s best founders who would say “you know what, instead of building from scratch, let’s take this 30 year old tool and revamp its architecture because that’s going to be faster and better”. No one ever said that.
And the incumbent software firms do not have the leading tech talent in their crews for browser-based, cloud, concurrency, new database architectures and AI. They just don’t.
Even the world’s best software teams would never try to move legacy desktop 3D software into a new architecture, and the incumbent do not have the best software teams.
Meaning: For the first time ever, the incumbent 3D/CAD software firms lost their unfair advantage, and are now at a disadvantage.
This time, it’s different. It’s game-on.
Just ask the investors financing technology, and follow the money.
In all years combined up until 2018, there was a total of just $4.5 Billion venture financing for technology in the AEC-related sector, which includes CAD-tech investments.
In the five years since 2018, this financing has exploded to $30 Billion total. More than 6x of the historic cumulative funding available to challenger firms in 3D/CAD.
So, up until 2018, incumbent CAD-tech software firms often did not have to deal with challenger firms becoming big, because at some point, they found it hard to raise new funding to fuel their product development to reach the minimum feature set and distribute.
Now, challenger CAD-tech firms find an abundance of high-quality venture funding available to them to build a top-notch modern CAD software. And it’s game-on for the incumbent.
More than just game-on, venture funding acts as a self-reinforcing cycle. More funding attracts more funding, as evidenced by the accelerating VC funding over the last few years. That is because more funding attracts founders who previously tasted success elsewhere, attracts more funding, creates better firms and products, attracts more funding, and so on.
This is the new phase of 3D and CAD technology we have entered, and which the incumbents never had to deal with in times before.
Customers are actively looking to diversify their stack
Customers have realized this new dawn, too.
While in past decades, many AE firms, construction companies, and manufacturers often had felt at the mercy of their CAD software providers, they are realizing that viable alternatives are maturing fast and becoming available.
Beyond that: Spend a day and talk to the practitioners in these customers, and all over the place, you will hear variations of the following:
These are all quotes by IT practitioners in firms heavily using 3D and CAD software in AEC. If you are from the space, I bet these sounds very familiar to you and your teams.
This current development is extra relevant because historically, legacy 3D/CAD vendors have not lived off of their superior products. They have lived off of a very strong distribution advantage. But as their customers actively seek modern software, and seek to diversify and reduce their “addiction” to the original vendors, the legacy distribution advantage is in the process of eroding in front of our eyes.
Every legacy 3D tool will face a challenger
3D users are dependent on a stack combination of general purpose CAD tools coupled with highly specific software (and even down to ultra-specific plugins and scripts).
Consider just these 5 selected use case examples from the life of a designer in a an AE firm:
For each of the workflows, the world is full of general and specialist 3D/CAD software.
And that is the point: these workflows are proven and repeatable. Users are actively looking for better solutions. When they are presented with better software, there is no explanation or convincing needed. The only thing they need to understand is how is the challenger tool better.
And that is why every 3D legacy tool will be facing a better challenger software. Because the markets are proven.
New collaborative functionalities get unlocked, driving distribution network effects
In going down this path, all modern challenger software are natively building collaboration functionality, versioning, automation.
That is relevant not only because it provides superior value – and gives the challengers the “right-to-play” and “how-to-win” against the entrenched legacy software. To my points above.
No.
All of these new features are also relevant because they foster network effects among users.
And those network effects create new forms of distribution that legacy tools are unable to capture equally.
Assume that the software spend per architect/engineer will double due to workforce shortage
Now, I could end sharing my thesis with you all here. Like most people reading this, you probably feel like there is ample argumentation above already why legacy 3D/CAD tools are in for a rough ride.
Let’s pile on.
It’s no secret that the world is facing a severe shortage of skilled workforce. There are 1.6M architects in the world today. How many do you think will retire in the next years? Do your math. Beyond that, just peek into some archi-techie communities like this one and you will very quickly see an avalanche of practicing architects leaving their architecture jobs to active switch careers into tech, product and UI/UX design.
It will be tougher and tougher for AE firms to keep their workforce even stable, let alone grow it.
But what is entirely controllable for these companies is what software they implement. Software doesn’t complain, software doesn’t want vacation, software doesn’t move on to join your competitor with your knowledge. Software is there to serve your business.
If a fictitious AE firm of 1’000 FTE today does the same revenue with 900 FTE tomorrow, they have just saved themselves a ballpark $5-10M of personnel cost. Now, how do you do the same revenue with less people?
You guessed correct: Better 3D and CAD software.
Those $5-10M are the additional software budget freed up by the irreversible trend that our skilled workforce is shrinking. First principle.
If that AE firm had a software budget of $10M today (i.e. €10K per FTE), it will have $15-20M tomorrow (i.e. $17K-$22K per FTE).
The software spend per FTE in the businesses using 3D and CAD software will double due to the irreversible skilled workforce shortage. And the major portion of that rise in software budget will not get captured by the incumbents – because firms are too dependent on them in the first place already – but by the modern challenger software.
And all of a sudden, the typical strategy of “cheap M&A” and “sunsetting” is not flying anymore
How often have you heard people from the 3D and CAD sectors say something like: “Great software goes to {xyz} to die.” Me: Very often.
I don’t expect to hear this a lot anymore.
Because when we now piece all of these first principles and trends together, we can summarize as follows:
Which means: The decade-old strategy of buying challenger software cheap and early will not fly anymore. Incumbents can still get a deal on poor challenger 3D/CAD software. But those who grow fast and raise money fast to truly challenge the status quo and capture market share from a rising software budget from alienated customers – they are not going to be on the market until they created …
… New category-defining 3D and CAD market leaders
It is clear as day to me, as a challenger to the status quo in the 3D and CAD world myself, that for all these reasons any unprepared or over-confident CAD incumbents are in for a rude awakening. A time is obviously coming in which new market leaders for the best collaborative, open and highly automated 3D and CAD tools have conquered this fast growing market.
That is why we at Foundamental have chosen to partner with the founders of several outstanding challengers re-tooling the design stack for engineers, architects and designers, such as Snaptrude, Speckle, Rayon, Calctree, Mattoboard, Stylib or Ordinary Objects.
And we remain excited to deploy much more capital to challenge the status quo, and help ambitious teams create legendary firms in the design stack of the future.