On-demand PLM: Five questions with Arena Solutions CEO Craig Livingston
Craig Livingston was named CEO of on-demand PLM vendor Arena Solutions in January of this year. He replaced Michael Topolovac, an Arena co-founder who remains on the company’s board of directors. Before joining Arena, Livingston served as VP and general manager of the small and medium size enterprise solutions division of Agile Software, a PLM vendor that was acquired by Oracle Corp. last year. Shortly after joining Arena, Livingston spoke about Arena, Oracle, and on-demand versus on-premise PLM solutions with Manufacturing Business Technology Executive Editor Sidney Hill.
Hill: What do you see as the primary differences between Agile Software, which now is part of Oracle, and Arena Solutions?
Livingston: At Agile, we competed squarely against Arena. Both companies had great products, and we both were experiencing growth, which shows that there is a solid market for PLM solutions. What Arena has done—more so than any other vendor—is educate the market to see that there are solutions that can address their problems at an affordable price. The major difference between Oracle and Arena is that Oracle only targets large enterprises. When they bought Agile, they kept the Agile Enterprise product. That is a good product, particularly for companies that have Oracle applications installed. Oracle will make a lot of money on PLM, just not in the middle market.
Hill: So who do you compete with in the middle market?
Livingston: We really don’t have any competition in the middle market when you talk about true PLM solutions. Some CAD companies will say they do PLM but they really don’t. They may have a product data management (PDM) solution that offers some vaulting capabilities. I guess that could qualify under a loose definition of PLM. SAP says it has a small business focus with its PLM solution, but I defy you to find five small to midsize companies anywhere in the world that are using SAP’s PLM solution.
Hill: What unique value proposition does Arena offer small and medium size companies?
Livingston: These smaller companies have the same challenges as large enterprises, which include pressure to get products to market quickly and managing outsourcing relationships. What they don’t have are the same resources to address these problems that larger companies have. Anything that a small company does in terms of choosing, implementing, or maintaining IT solutions takes away from the core part of their business. They also need to be faster and more nimble than their larger competitors. They have to concentrate on being innovative and getting products out the door rather than evaluating and implementing PLM solutions. That’s why the on-demand model appeals to them. It gives them instant access to the solutions they need at an affordable price. Until recently, implementing PLM required a large financial investment—in the neighborhood of $300,000 to $400,000 just for the software—and several thousand dollars more for implementation services. The on-demand model should eliminate any barriers for any company that wants to adopt PLM.
Hill: Now that you are with Arena, what arguments can you offer in favor of the on-demand model that you couldn’t offer when you were at Agile?
Livingston: I loved to hear objections to the on-demand model when I was at Agile. Agile offered an on-demand option—but it was sort of a fake on-demand solution. We offered subscription pricing, but what we offered was an instance of the solution that could only serve a limited number of customers . . . Most objections to the on-demand model center on security. Customers will say, “This is my intellectual property. How can I just put it up on the Web with a bunch of other people’s data, or what happens if the big earthquake hits?”y measures, including co-location of data centers. My first day on the job at Arena, the power went out in the entire [San Francisco] Bay Area. We couldn’t do any work here at Arena headquarters [in Foster City, Calif.], but our customers’ access to their data was not interrupted for oneminute.
Hill: Some industry analysts still question the viability of the on-demand model on grounds that the subscription pricing model may not generate a strong enough revenue stream for vendors to fund their operations over the long-term. Even a company like Salesforce.com, which sort of started this SaaS revolution with its on-demand CRM offering, has yet to turn a profit. Can a profitable business be built around the on-demand software model?
Livingston: The subscription model can make it difficult to build revenue and profits quickly. An on-premise solution typically sells for about four times as much as on-demand solution. And all of the revenue from that on-demand solution comes in immediately. As an on-demand vendor, you could be expending the same acquisition costs as an on-premise competitor while only taking in 25 percent of the revenue. But you are developing an annuity base, and once that base grows large enough you have a steady revenue stream. Arena’s revenue grew more than 40 percent last year, and we could be profitable today. All we would have to do is scale back spending on things like research & development, and not focus on growth.
At Agile, 50 percent of our R&D budget went to sustaining engineering, which is fixing bugs and issuing patches for previous versions of the product. We typically were supporting three past versions—in addition to the current version—of the product because not all customers were in a position to upgrade whenever a new release was issued. In the on-demand model, all customers can upgrade as soon as a new release is issued because all they do is access that new release over the Web. Those extra sustaining engineering costs are not in the budget. So, once you build a big enough customer base, you shouldn’t have trouble being profitable.