Insights

Industrial software is playing an increasing role in manufacturing digitisation in recent years. In an increasingly competitive environment, customers are prioritising investments in digital transformation to improve operational efficiencies and to speed up new product development. One of our businesses, Dassault Systemes, is at the forefront of customer’s digitisation efforts.

Dassault is a dominant player in the product life cycle management (PLM) software market. It has an estimated 30%+ market share in the PLM software market with particular strength on the design side. PLM serves as the product information backbone for companies with Computer-aided design (CAD) tools enabling the product design and documentation process. Company’s software play an integral part in the design and production of mission critical and complex parts in a wide swath of industries. Dassault’s dominance is reflected in the fact that nearly 90% of all aircrafts and 80% of all autos, globally, are made via Dassault’s software.

There are three factors that, in our assessment, make Dassault Systemes a great business.

Captive customer base. For customers, the decision to choose Dassault as a software provider is a long term partnership where they make a 20 year plus decision. Once implemented, these solutions become highly embedded in the customer’s product development processes. This makes the choice an extremely important one for the customer and the one that results in a captive customer base for Dassault.

Extremely high switching costs. Company’s products are associated with extremely high switching costs as employees need to be retrained, business processes need to be redesigned and migrated, and business disruptions have to be suffered. The learning curve associated with these complicated products is high with users (mostly specialized engineers) requiring extended period of training on using these solutions.

Further, these solutions are integrated not only with customer’s processes but also with its entire supply chain of manufacturers who are even larger consumers of PLM software. This makes the decision to switch a highly improbable one. Renewal rates in excess of 95% are indicative of the stickiness of company’s solutions.

Leading innovator. Dassault has the best overall offering within PLM and is a technology leader in the space. Research and development is conducted in close cooperation with customers to develop industry leading products. Company spends top-dollars on R&D in the industry with R&D personnel accounting for nearly 40% of the company’s headcount. The resultant outcome is the company continuing to gain share within the market.