And ladies and gentlemen, please welcome President and CEO, Carl Bass. Good morning, everybody. Let me extend my greetings. Thanks for taking the time to come here this morning. Welcome to the Autodesk Gallery.
Just want to spend a few minutes this morning trying to frame the issues about what we're trying to accomplish. I know people have been for the last few weeks doing a lot of speculating. So we want to get to the heart of it. And then what I wanted to do first was kind of frame the conversation about what we're going to hear today. And what we've been doing is we've been trying to change our business and we've been trying to change the business along 3 different axis, 3 vectors that we're interested in.
The first one is the markets that we're trying to address, the problems of customers we're trying to solve and we really are expanding our markets. The second one is about the technology platforms we work on and the technology business model and to the business model and understandably, people have lots of questions and we're here today to try to answer those questions and explain the rationale for the change in our business model. I think it would be a huge mistake to walk out of here and not recognize the other things that are going on in our business, which I think are really important for driving the change and transformation. If you walked away with only focusing on the business model, I think you will have missed a bunch of what we're trying to accomplish. So whenever you go through one of these changes, there's always lots of questions about what's going about your ability to carry it off.
And one of the things I wanted to make the point is we've been through a number of these transformations before. As you go through the transformations, you learn a bunch about doing it. They're imperfect, but they're not perfectly planned from the beginning. But I would look back in retrospect and say we have been very successful at making these transitions. So if you look back and you see in the business transformation, we went from a business that was all perpetual licenses to one in most recently, our business model changed by the introduction of suites.
And the And most recently, our business model changed by the introduction of suites. And this morning, we'll detail some of those changes. But just to remind people, in all of these axes, we have made significant changes over the years. In the second part is the new we entered the simulation market and the PLM market. Those are new customer segments that we previously didn't address.
And so while we looked at the entire industry, we've chosen those portions of the market that we think are the most attractive, that have the greatest return and that we have the assets that we can best deploy to satisfy our customers. And then the third part of it is, it's also been a platform transformation. If you look back at the long history of the company, the company started running on a host of PC computers and then Unix computers. We went through a big transformation. People forget that, for example, just the introduction of Windows many years ago for many companies was a knothole that many companies didn't get to the other side of.
And so we've gone through that transformation. We're doing the same thing as we move to 3 d and again as we move to a cloud and social and mobile platform. Let me just detail this a little bit for you. So when you look and you go back at the business model, this has been the business model of today, which is one in which subscription is an important part of our business, suites are an increasingly big part of the business and our enterprise licensing and we've talked about the composition of our customers there, how important our large customers are and the way in which they choose to buy from us. What's new and what you'll hear a lot about today are these new forms of subscription.
So one is about product subscription that we were often called and referred to in the market as rentals. It's also the cloud subscription, our SaaS offerings and what we're doing And the third are consumption based models. And we'll go into a lot more detail about this. But they'll all go under the heading maintenance subscription that we already have today. When you look at the market, you can see that the markets that we're in, but just to remind people, when you look at these new markets, construction is now an important market for us.
If you look back historically at the AEC market, when this company started, even though we spoke about AEC, it was really a capital A and a small e and a tiny c. If you look at our business in this industry today, it's almost completely reversed. The construction part of the market is what's driving it. It's the biggest part in terms of revenue. It's the most important driver of change in the industry today.
Same thing with the simulation and analysis market. We entered it in the last few years. We bought a lot of assets. We deployed them differently using new business models on the cloud, and we have now become an important player in simulation. We entered the PLM market about 1.5 years ago and we're doing well in the PLM market.
And I'll talk a little bit more about consumer because people have been interested in what the consumer third thing is the platform. And like I said, we've historically run on a lot of platforms. But and this is one of the really important things I think people need to walk away with today. That in addition to a solid core business, we have built the most advanced, most sophisticated use of cloud and social and mobile technology for engineering and design in the world. Nobody else has built the same platform.
Nobody has the same offerings. Most of most everyone is far behind in terms of their adoption of this. We have believed for many years that this was going to be an incredibly important change in the industry. We invested accordingly. We've been building products.
And so now when you look today, we have this rich combination of and you can see all the there's BIM three 60, Fusion 360, CAN 360, all those 360 products both Amar and Buzz will talk about them and give you more details. But I think it's important to recognize that what we're doing is we're using the introduction of these new platforms as a way to go into new markets and serve customers differently. We think this is incredibly important. So in addition to the business model transformation, which is important and has immediate consequences, it's also important to recognize the new value we're bringing to customers, the new customers we're addressing because of both the platform and the products and services that we're building. So there are 2 other things as we look at subscribers and we won't talk about this much today, but I thought it was important just to give you the background.
We've changed our approach to education over the last couple of years, making it more accessible to students. We have had phenomenal success. We have over 100,000,000 students who now have access and use our software. So we've been building a pool of users who are committed to using our software and a bunch of institutions who have incorporated into their curriculum and are teaching and it is the backbone of the engineering curriculum in many places. It's really important the kind of the optionality we've built with that.
The second place where we've also continued to find customers is in the consumer space. And what we have now built a community of over 150,000,000 consumers who are using our products. Just to put a little financial perspective on this, this year our consumer business will be about $20,000,000 $20,000,000 plus in revenue and probably double that in bookings. So it's a business that we started from scratch, but is growing and growing at a hefty pace. So in addition to our core business, I think it's important as you think of our ability to grow the subscriber base to understand the size of the market in terms of consumers and students that are part of that.
Now when you look at this market, people are often confused about the opportunity we have in terms of the new customers. For the competitors that you can readily identify and the parts of the market that we can address. At a minimum, this is a $20,000,000,000 plus market And we have a fraction of this. So for some people say, you have the lion's share of the market, there's almost no way to come up that calculation that says we have the lion's share of this market. This is a big market and it's growing substantially.
And our ability to enter into new markets and to attack new markets with new products and services means that the total available market has been growing. So what we're really going to talk about today is about getting more growth. And we're going to talk about more growth really from 2 different perspectives. 1 is from increasing the lifetime value of our subscribers and the second is about adding more subscribers. And so the backdrop for this was what I was trying to describe to you is how do we get to more value per customer?
How do we make more attractive offerings? How do we add more services in so that customers pay more and get more value for what we're giving them? And so we can attract new customers, either customers who are non consumers or they're non payers or they come from competitive swap out. All of those are new subscribers. And so most of the presentations of the day are going to surround these ideas.
And it's important to realize just the context for it is just remember that we're really talking about a business model transformation. We're talking about a platform transition and we're talking about Autodesk going into new markets. And so the agenda for today is, 1st, we're going to have Andrew come up and kind of give kind of a meat and potatoes of the business model transformation, speaking specifically about the changes
that are going on in
the subscription program and some of the details about the recurring revenue and the new offerings that will be ratable and giving you an overview programmatically of what we're trying to accomplish. Then the second two parts, Amar is going to talk about the AEC opportunity and talk about the products and why we believe we will continue to capture share and why we believe we're building the right products and services for customers. And then Buzz will do the same thing in manufacturing. And then finally, Mark is going to wrap it all up by trying to bring this together and present the financial model, including both short term guidance and what the long term opportunity is and guidance for that. So with that, what I'd like to do is bring up Andrew and have him discuss the business model transformation.
Thank you, Carl. All right. So my job today to be as concrete as possible about what we're going to do to turn the transformation we're working through into real billing as growth for Autodesk. I'm going to come back consistently to a couple of themes. 1, I'm going to talk a lot about the new value we're creating in the cloud.
It's highly differentiated value. It's value customers are going to want to attach to their current solutions. And I'm also going to come back to how we're changing the business model, both around the cloud, because you have to adjust the business model for the new cloud offerings, but around how we're doing it in the core to really connect the two things and turn these in billings. There's going to be 2 buckets over and over again I'm going to try to give you some confidence and facts around. The first one is, how are we going to get more value from new and existing subscribers?
That's going to be very much around attaching the cloud, very much around new types of models. The other theme I'm going to come to again and again is how are we going to use some of these new business models to bring new subscribers into the Autodesk ecosystem. So what I want to do is start diving a little deep on the first bucket, the more value bucket, so that you can understand some of the opportunities we want to pursue in order to get more value from our existing and our new subscribers. And there's no better way to start than where we ended last year with the move from desktop products to suites. Now those of you who were here last year, you probably remember we were measuring success in this initiative through a couple of key metrics.
We were looking at over a 3 year period, a 20 percent uplift in the ASPs of new seats in mature markets and a 20% uplift in the ASPs in subscription. This is how we were driving the look at some of the metrics in a really solid way. So here is a chart of the ASP trend in mature markets for our products, for the new seats. Now we start in FY 'nine and the reason we start in FY 'nine is that's the year we benchmarked ourselves against internally when we started the Suite journey. It was before the great crash.
It was a solid year where we were able to get solid data. And what you're seeing here is a nice upward trend. We're well on our way within the 3 year window to hit that 20% target. We're very close right now. You see a little dip in FLY12.
That was the year we introduced the Design and Creation family. That dip is completely driven by the introduction promotions we did to prime the pump and get the machine moving. When you look at the subscription trends, you see even something more startling. We've over exceeded our goals around the 20% target in the subscription space. So we've seen solid growth in customer value both from a subscription measurement and a new seat measurement.
And we did all of that by programmatically also driving the growth in the subscriber base simultaneously. We are now we now have a 26% large I know everybody is looking at this chart, looking at the axis, right? We now have a 26% larger subscriber base than we did in FY 'nine, roughly about 1.8 1,000,000 subscribers, right? So if we continue to look at this, you can see the progression in suites on the billings number as well. The mix in billings continually favoring suites more and more and more.
And the last lens I want to look at is on revenue. Now what you see here is Q2 of FY 2011, that was the last year before we had the Design and Creation Suite family and you have Q2 of this fiscal year. There's a couple of things I want to point out to you on this graph. 1, the blue bar for standalone products didn't change significantly from the predesigned suite era to this quarter we're looking at here, which goes a long way to answering a question I get frequently about did you cannibalize your standalone business when you rolled these suites out. The other thing you'll notice is a lot of the growth was driven by the growth in suites, 77% growth in suites quarter over quarter between those two time periods or years over years between those two time periods really driving the growth for the company, which kind of begs the question is, if this is what's happening with the And the real answer there is that our focus on suites, both programmatic, channel, marketing, sales wise left behind some of the non suites buyers.
And those non suites buyers are primarily people that buy AutoCAD LT and a vanilla AutoCAD. So what we've done is we've looked at the programs, we've looked at the focus and we've shifted our demand generation activities and some of our other programs to reignite growth in these applications. These customers were sitting dormant because they were not hearing a buying message that fit what they wanted to do. So we've moved forward on that. You're going to see the effects of that over the next few quarters.
We're already starting to see some of the effects now. But the net I want you to get from the suites initiative is that suites drive increased customer value. They drove it. They're still driving it. We're still going to play this play.
This is a programmatic play. We know how to drive over and over again. And I also want to be clear, we don't do this simply by increasing prices. We do this by delivering real value to the customers. So we're getting value back from the customers by delivering value.
It's a play we know how to run very well and I want to now drill into a couple of areas where we're going to run this play again and again. So the first one I want to talk about is in some of our existing accounts, specifically our enterprise accounts. We've got thousands of these. They're our largest accounts. And the blue bar to the left there is the TAM, the TAM in terms of design and engineering software that is sold into those accounts.
The little teeny green bar is our penetration into that TAM. And 4 years ago, that penetration was significantly smaller. We've actually gotten better at penetrating these accounts and we're actually going to be using the transformation both the value we're creating in the cloud and new models based solely on consumption targeted at these enterprise customers to increase the penetration of that TAM. And these consumption models, which I'll go into in a little bit more specifics, are great tools to driving adjacent application use and displacing competitive solutions, whether those competitive solutions are free or they're paid for or they're currently on maintenance. The other opportunity I want to talk to goes straight to the value you're going to hear about from Amar and Buzz in terms of the applications we're delivering on the cloud platform.
These are powerful tools. They're highly differentiated. Many of them are unique in their markets. There's no other alternative to them. And we're going to go into the broad swath of our current subscriber base and we're going to layer these on top of them.
Most of these only cost a few $100 more a year and customers are going to see the value and we're going to be able to programmatically attach these on the current subscriber base. And it's going to be a big opportunity for increasing customer value with those current subscribers that are going to stay on the current subscription program. As we move forward into getting more value out of new subscribers, I think a lot of you I know because some of you have done the math, Renters are more valuable long term than a perpetual customer paying maintenance. So we're going to do a lot programmatically to focus getting these new subscribers on the rental solutions, which over time we're going to be calling product subscriptions. Also, as you get these customers up and running on our desktop design software, they become targets for layering on the cloud applications.
So there's value we can create by getting them on the rental, then there's value we can create by coming back and layering on the cloud applications. Those are the 3 new buckets we're going to be attacking in order to create more value from all the customers we today, subscribers we have today, which moves on to the other piece of the puzzle, getting more subscribers. And this is going to be all about leveraging the new business models and modifying our existing model to get more subscribers into the Autodesk ecosystem. And what I want to do is pause and talk about, again, Karl alluded to, but I want to be very clear about what we mean by subscribers and then dig into a little bit dig in a little bit about the opportunity we have to bring non subscribers into the Autodesk ecosystem. So first off, let's pause and talk about the types of subscribers we're talking about.
Maintenance subscribers, current buyers of our perpetual desktop software that pay us maintenance every year. They're good subscribers. We want more of them. Product subscribers, otherwise known as rentals, still a subscriber. Cloud subscriber, someone buying 1 of the cloud services, still a subscriber.
This is a subscriber universe I'm going to be talking about and this is the subscriber universe. This is the set of subscription offerings we're going to use to grow our overall subscriber pool. So what are we going to dip into to do that? Why don't we just start with looking at some of our non subscribers in our current desktop space? And I'm going to give you a minute to process this chart because it shows the commercial pool of non subscribers over the last 5 years that are 5 releases back.
5 releases back. And you see the numbers roughly constant at about 2,800,000 over a 5 year period. We have many more non subscribers if you go 6, 7, 8, 9 years back. However, this 5 year back view gives you a very stable picture of what is indisputably an active pool. If we converted just 30% of this pool to subscribers, just 30%, we'd increase our subscriber base by 50%.
And this is a real active pool of users. But this is not the only pool we have access to. We have been creating new pools of users equally as exciting as this pool of users. And let's take a look at one of them. This is a new pool of users, non subscribers, that's also a new breed of non subscribers.
These are the people that use the Auto CAD 360 application, the current free version we have out there in the universe. It's a number of people that have registered since we brought it online. These people are using this application and you can see what it does is it takes us north of 14,000,000 non subscribers, a new breed of non subscribers comfortable with SaaS using SaaS. Even if the overlap was 100% with our desktop non subscribers, we'd still have a huge opportunity. And we know for a fact that the overlap is actually pretty skinny.
So a whole new pool of non subscribers out there convert 7% of that pool, that total pool in FY 'thirteen and you've got a 50% increase in our subscriber base to 7%. But we have one more pool that we've been building aggressively over the last few years. Carl said this year it's going to get upwards of 100,000,000 but you can see what we've been doing as we've driven students to get access and adoption of our desktop tools. In some cases, we're also driving access and adoption of some of our cloud offerings. But we now have a large pool of student users.
So when you at our total pool of non subscribers, just a 1% conversion of that total pool gets us to a 50% increase in our subscriber base. So large untapped opportunity both in the desktop non subscribers, the cloud non subscribers. But there's other types of opportunity we're going to dip into as well. Piracy is still a problem. The new business models are going to help us there.
We know our emerging country piracy rates are somewhere north of 70%. We know our developed piracy rates still stubbornly north of 20%. We see it in the number of trials that seem to go over and over again to the same person. So we know these are real problems some
of these new business models
are going to help us penetrate this piracy problem moving forward and turn these non payers, they're not even non subscribers, they're non payers into paying universe, which brings me to a next very important bucket, especially as we're looking at economic expansion coming out of all the downturns all over the world. It's these new types of buyers. Now these are new companies coming in at the bottom of our market and there are also new types of buyers that we can reach with the new value we're creating with the cloud applications, which buzz in the market and give you a lot more color on. These new companies, a lot of them starting out of the gate are using free solutions. They're using back revs of software.
They're using subpar solutions or tools they borrowed from friends to get up and running. Our new business models are going to let them get into our universe at lower upfront costs and become paying subscribers. And when you see what we're delivering in terms of new value in the cloud, you're going to see how we're going to pull new types of users in the construction ecosystem, in the manufacturing ecosystem into our subscriber universe. The last piece I want to talk about and as you could see the opportunity is pretty broad is this project based space. These are people who need the software for a short burst of time, 3 months and then have these large lags or feast and famine cycles where they don't need the software.
A lot of these users stay on back revs, they bought a rev a few years ago, they milk it, milk it, milk it. They want the latest technology, but you know what, their feast and famine cycle doesn't allow them to get there. Some of them are simply non users. A matter of fact, a lot of them are non users or they're using some subpar free tool to try to get their work done. A lot of them in the M and E space, especially now, a lot of them in construction.
I'll give you some examples later about customers that are becoming subscribers based on just what we've done in the last 3 months. And we even have them in manufacturing, project based users that really need the told you is some of the pools we're going to dip into to fuel that billings growth around more value per subscribers, new and existing and more subscribers. Now what I want to do is give you some more specifics about how we're going to do that and how we're going to use our business model triggers to enable some of that change. And the first thing I want to do is start with our existing business model and how we'll modify it to get more of those non subscribers into the subscriber universe. I think everybody is familiar with this.
It's pretty classical. We even use the disks just to make sure that it's an older business model. They buy standalone products, they buy maintenance and they buy upgrades. Well, you know what, in a year, little over a year, year and a half, they're not going to be able to buy upgrades anymore. This is a logical change.
It's been something we've been conditioning the base to for many years. We've been making it clear that maintenance subscription is the best way to stay current on audited applications. So as of February 1, 2015, they won't be able to purchase an upgrade anymore. So you can imagine this is going to have a pretty significant impact on the sales programs, the marketing programs, the campaigns and things we do next year to encourage customers to move out of that non subscriber pool into that subscriber pool. It gives us a significant event, gives our customers plenty of leeway to assess the implications of them.
And we have lots of levers we can pull with this current maintenance subscription model to get them there. But the good thing is, is we have a lot more levers we can pull because we have the new ways to buy. And I want to take you through the new ways to buy and why some of these new ways to buy are going to be so attractive. 1, of course, is desktop rentals, you know about that. We have lots of levers to pull in terms of customers seeing differentiation between these offerings, the spread between the perpetual price and the rental price, what's in the rental offering versus what's in the perpetual offering.
There's many things we can do to differentiate these offerings and make one offering more attractive than the other. I think cloud services we've been very clear about. These are going to appeal to a lot of people. Some of them some of these offerings are going to appeal to our core design users and they're going to be able to get up and running pretty quickly with them. And another model we haven't talked a lot about is this consumption model.
I alluded to it earlier, but this is an all you can eat model that we serve up to large companies where they have access to the entire portfolio, don't care if it's desktop, don't care if it's cloud and they pay for what they use. It's a powerful model, gives them access to the latest technology and the latest adjacent technology. And when you look at this through a customer lens, it's pretty easy to see what customers appreciate about these various models. Both cloud and rental have the lower upfront cost dynamic. So it costs less to get them.
If you're a company struggling with cash flow, you're able to get in there, get them the model. But you're also able to scale up, scale down and always have access to the latest tools. Remember those buyer types I talked about, the new buyer types, the project buyer types, all of these offerings are going to be attracted to them. Cloud, of course, has the same appeal, but it also solves new and existing workflows in compelling new ways. And you're going to hear about some of those things later, but really, really compelling value created in the cloud.
And the consumption model is very simple. Pay for what you use, measure it, bill it back internally in your enterprise and access the latest tools all the time, all the time. And what I want to do is spend a little time making this strategy, making these tactics real for you. So you can see how it's playing out right now. It's not a fiction.
What it is, is it's something we've been working on for a while and we have real examples of customers we're taking through these cycles and some of the ways we're catching some of these new offerings today. And the place I want to start is with the consumption piece. This is an company for 18 months. And during that journey, a couple of interesting things have happened. 1, their usage has increased 13% and that usage has increased by a couple of critical drivers.
One of them is displacing competitive solutions. This idea of having broad access to the Autodesk portfolio just gravitated people to, well, I'm just going to use this. I have access to it. It's great. I'm going
to use it. Oh, I'm not going
to use this free thing. I'm going to use this other thing. Oh, I have this older release of some competitive product, but I can get the latest release of this Autodesk solution. I'm going to use that instead. The other thing that drove this usage and it's equally important is the increase in usage of an adjacent product.
So these were core design users in this company, but over the period of that 18 months, the uses of adjacent products, specifically simulation in this case, increased by 2.5 times. So a lot of that usage was driven by an increase in usage of the adjacent products. And the customer was happy about this. They paid us more for the flexibility and they also paid us more to get their users access to these technologies, because they like the model. It works for them.
Now at some point, they're going to want to cap out, but we're a long way from having this cap out just in this one account and we're a long way from having this cap out in our enterprise universe. So that's 1, consumptive models. Now let's kind of turn more to our core kind of small and medium business market and give you some examples of medium sized businesses that are doing exactly what we're going to programmatically do over the next few years. So here's an AEC firm. They do all these wonderful workspace designs.
Happy users of Building Design Suite, very happy users of Navisworks for sizing up the construction site issues. They are now very happy users of BIM 360. So they've layered on a cloud based solution, one of these differentiated cloud based solutions onto their desktop world just like I talked about earlier and they're delivering more value to Autodesk because Autodesk delivered more value to them. There's also a great example inside of manufacturing. Here's a manufacturer of industrial centrifuges.
They were very happy building up the product design suite customers, very happy. There's a lot of seats of it. Now they're happy Simulation 360 customers and they actually paid us more than the competition for Simulation 360 because they like the flexibility and powering the power of the offering. It computes in the cloud. They're able to do more.
They're able to understand more and they were willing to pay more to get it, more than they were quoted from a competitor. So another real example of how layering on the cloud onto a current desktop subscriber drives an increase in customer value for the company. But for the rest of that large ecosystem of small and medium sized businesses, we believe we're going to have an offering as popular as AutoCAD to layer across all of them. It's what we call AutoDesk 360 Pro. Amar is going to give you a lot more specifics on this.
It's essentially a collaborative platform that aggregates some tightly integrated core services together, some high value services. But it's only going to cost a few $100 a year and we're going to aggressively attach it to that broader base and supersize them and get more value out of them by delivering more value to them. Which brings me down to the bottom of our market. Small businesses are going to be an engine of new customer acquisition for us and they love the new models. And I'm going to give you some specific real world examples of customers embracing the new models right now and doing the kinds of things you're going to see become commonplace over the next few years.
So here's an example of an environmental consulting firm. They were LT users. They were back rev LT users, 2012 LT users, not current, not paying us money, not a subscription, not interested in paying subscription, not really using LT all that much. They found out about the Inventor LT suite rental. They rolled it out to their entire team.
They're now happy rental customers. Now they're telling us they're going to stay rentals for 6 months. But you know what, once a renter, once they're in, they start keeping it, they see the power of it. They're able now to use LT, Inventor LT they're thinking about using infrastructure design suite if they can hire the right kind of expert to do it. And they're going to look at a rental for that.
So examples, right in our small base of a customer doing this. Here's another great example. Both of these are these are 2 small companies, very small companies, right? This over here is a plumbing contractor and architecture customer. They're both using LT.
1 bought it, doesn't use it that much. 1 is on the trial. Plumbing contractor found out that he's working on a contract that has a BIM mandate. So he's got LT, finds out about the rentals. Now he's an LT customer renting Revit LT Suite so that he can compete more effectively on this project that had Revit models integrated with it.
Great story. Architect starting her own business on an LT trial doing real work. Didn't know that that's actually piracy, happens a lot. But doing real work on LT, Now she's a very happy Revit LT customer because she's got access to the product she was using in a trial mode and the product that she knows out there in the ecosystem doing bigger projects. New customer, totally new to Autodesk.
Now here's an example of another example of a non subscriber. AutoCAD Mechanical back rev user, not paying us any more money sitting on a back rev, now a SIM 360 user, happily paying us more using a cloud attached model here. And there's one more example I want to talk to because I like it. It's not a paying customer, but it's an example of reaching new types of buyers we never would have been able to reach before with new cloud offerings. This is an industrial design customer.
They're using Fusion 360 to do industrial design, probably would have used an application like Rhino previously, but they saw what we're doing. They love it. They're going to become a paying customer someday. I know it. We've acquired this customer net new with the power of the cloud.
And there are many, many, many, many more examples like this. These people are going to be the engine of new customer acquisition as we move forward. Now there's one more pool I want to talk about. I want to be very clear this is an upside pool. None of our models include this pool, but it's an exciting opportunity and we see a lot of potential there.
And it's the student pool that I talked about earlier. Right now, like I said, we provide free access to our desktop products. We also provide access to
a set of cloud services in a
metered way. So what if less than the price of a textbook, they got near unlimited access to visualization, simulation, things these students in the countries where we have these available love, less than the price of a textbook for a year. A lot of these students are going to take that deal and use these applications to do better on their projects, to be more effective in their classes, to get better grades and to learn about where the future is going in the commercial space. And that's a completely untapped opportunity. So I painted a picture of the buckets we're going to attack, how we're going to attack them.
What does it mean to Autodesk? So I want there's a few numbers I want you to take away and I'll summarize them at the end. The first number is, we're going to use all that new value creation, all that new talk more about that. But this is the target. This is what we're driving to.
And we believe all of that opportunity is there. The way we're going to get there is another 20% uplift in the value of our current and new subscribers. And I told you specifically about the tools we're to use. We're going to use a patch of the highly differentiated SaaS applications. We're going to use the rentals for the new subscribers and we're going to use these consumptive based models to increase the value we get out of some of these enterprise accounts.
So 20. The other number I want to talk about is 50%, a 50% increase in our subscriber base, driven primarily by leveraging the price associated with these new models, the rentals, the cloud offerings. We're going to bring a whole new universe of subscribers into the Autodesk ecosystem. So let me net it out for you. Twelvetwentyfifteen, twelvetwentyfifteen, lot of new value being created here, a lot of new value in the cloud, highly differentiated value in the cloud, new solutions that allow us to target new types of buyers, new business models layered on top of our existing portfolio, new business models attached to the new portfolio.
It's going to drive the billings growth of 12%. The customer value increase is going to be driven by layering on the new cloud offerings onto existing subscribers. It's going to be driven by getting new subscribers on rentals. And it's going to be driven by using these consumptive models and enterprise accounts to really increase the value of these accounts over time. Subscriber base is all about using the lower upfront costs, the compelling value in the new applications to bring more people into our ecosystem.
So I've given you lots of examples of how this is going to work. I've shown you that we've credibly done it in the suite scenario and we've got a lot more room than we ever had with Suites with the new models and the new offerings. And with that, what I'd like to do is I'd like to transition over to Amar Hanspal, so he can tell you about all the exciting value we're delivering in the AEC space. Thank you. Right.
Thank you.
Well, thank you Andrew and good morning everyone. I'm here to talk to you about the opportunity that we have in the AEC industry and I'm really excited. Those of you who have been following Autodesk for many years know that the AEC industry has been a key component of our growth over all these years. But I got to tell you, you ain't seen nothing yet. As I firmly believe the best opportunity in the AC industry remains ahead of us.
And to sort of share that story with you, I'm going to sort of really do a quick orientation on the AAC industry, the main trends and challenges we hear from our customers who are in this industry. Talk about sort of what technology enables in terms of addressing some of these challenges in this industry. And then really talk about how cloud services really provide us with a breakout opportunity in the AEC industry. But let's begin by sort of a quick baselining and orientation of what it is that we mean by AEC. You all know that AEC stands for Architecture, Engineering and Construction, but you and I experience it as the built environment around us.
Buildings, roads, bridges, dams, railways, airports, process plants, utilities, it's around us everywhere. You and I rely on it to lead our lives. It's a huge part of the human endeavor. In fact, I saw a study from some Oxford School of Macroeconomics or something important like that that said the economic output of the AEC industry is about $15,000,000,000,000 and it's about, if not the largest, one of the largest employers of people in the world. It's a huge industry.
It's all around us. And all of this work then results in a significant software opportunity. As Carl shared with you, the AEC and ENI or engineering opportunity inside this $20,000,000,000 TAM. It's almost over $10,000,000,000 worth of software. And the reason customers are investing in technology chance to talk to these large companies and small companies, chance to talk to these large companies and small companies, I hear of individual issues, it's sort of a pattern emerges of 3 large issues that you hear over and over again.
The first issue is that the construction industry effectively deals a lot with what you would call waste and productivity issues. In the world of manufacturing, people make many of the same thing. In the world of AEC, they make one thing consisting of many components. And that leads to a lot of complexity and coordination and it leads to things that are by some estimate 30% of the material that shows up on a job site doesn't end up in the building. It ends up in the land fill.
So that's like torching a third of your money on any investment that you make. It's a huge issue for the industry. And they've been trying to address it over all these years adopting techniques like what they would call lean construction, which sort of borrows ideas from the manufacturing industry in driving things like prefab or fabricating components off-site, assembling them on-site, sort of agile planning and things like that. It's a huge effort in the construction industry to address those fundamental issues of waste and productivity. Likewise is the issue of the impact of climate change.
If you think of any building, one of the it is the largest consumer of energy resources in the world are buildings. And then you can think of any large infrastructure project they have significant environmental impacts. So there isn't a project that starts today that doesn't at its core have this idea of sustainable design, right? And so that's another major trend sweeping the industry. And the third one is just given the sheer financial investment required by many of these projects, people have been searching for a better shared risk and reward model in executing these projects.
And you hear the word design build, you hear the word integrated project delivery, you hear public private financing. There's a lot of terms, but it in fact comes down to people finding a way to share risk and rewards as they execute these projects. The 3 if you just synthesize this idea, lean, green and integrated are the 3 big challenges that our customers in the AEC industry want to see addressed going forward. And the good news for us is that it all requires a fundamentally common technology substrate and that substrate is what we would call building information modeling. So building information modeling just to I'm sure many of you are familiar with it, but to just provide a quick refresher on it is the ability to share a single set of coordinated information, which is model based across all of the players in a particular project and have that information be the way in which subsequent deliverables are derived.
So whether that be drawings, that be energy calculations, that be schedules and quantities, all of that is derived from this higher representation, this model, this building information model. And as you know, we kind of pioneered this concept just over a decade ago and our flagship offering for this is something we call Autodesk Revit, which anchors the building design suite. And since its introduction, it's really gone from being a promising concept to really the way buildings everywhere in the world are designed. You can go to sort of any street corner in the world and whether you see the one of the tallest structures in the world, here is a design by a customer called Gensler takes into account not just its interesting shape, but wind forces, structural steel considerations, all of that is done using and all of the coordination issues associated with a building like this, building information modeling. And then you can even see halfway across the world a renovation project being done using BIM.
And so it's I don't think it's an exaggeration today to say that BIM has gone mainstream. It is the way today buildings are designed and delivered. That is the current practice in which all of this vertical infrastructure that you see around you is being designed and delivered. And another sort of piece of evidence of that is, if you look at what owners are specifying now, they're demanding the use of BIM in the design of their buildings. And in fact, governments around the world have started legislating it into policy.
And the reason for that is, they all believe that the use of BIM technology is how better buildings are essentially delivered. It's kind of unusual for governments to get involved in specifying a particular technology approach, but they have been because of those issues of lean, green and sort of managing why we have a bright spot in the AEC industry reports that you see from us today. And as great as BIM is and as powerful and pervasive as it is, we're about to take it to the next level with the arrival and the opportunity that inherent connectivity, elastic computing and all these various form factors. And it's a combination of that idea with the central thing that I talked about with BIM as an approach to the design and construction of all this infrastructure that really opens up a whole set of opportunities for us. And probably the best way to explain this to you and to tie it to what Andrew talked about, which is new subscriber growth and more value in existing subscribers is to sort of take you through discipline by discipline.
So let's start in the world of architecture. What does BIM plus cloud enable in the world of architecture? Well, first, it lets us get to users that we may not be serving today. So imagine Revit LTE on a rental, let's just get to a small architecture or a contractor firm that might have found Revit LT not that affordable. Let's go further.
Within an existing firm, we are able to get to different users. Principal architects, you know the guys you read about who sketch their brilliant ideas on napkins or pieces of paper, well now they can go and work with their clients using a tablet and explore their ideas in real time and cloud based services such as energy analysis or wind analysis give them feedback. Cloud gives them the ability to collaborate, cloud gives them the ability to analyze and they're able to be more effective. Similarly, the computational power of the cloud now lets people explore not just form, here's what a stadium might look like and that's actually what you're seeing right now or function, here's how it will connect up. But in this case, they're understanding fabrication, because they're trying to understand well whether their design can actually be made.
And the computational power of the cloud, we can give them solutions and give them options in studying the various kinds of elements that they need to assemble to make their designs come to life. In both the examples that I showed you so far, the underlying form that's been created is BIM compatible. It's not just cool looking graphics that you're seeing on screen. This is actually starting or priming the BIM process really up front in the design process that these firms go through. So new users, new subscribers and value through cloud services.
What about existing users, existing subscribers that may have already started using BIM inside of firm? Well, a cloud service like Autodesk Rendering makes a big difference to them. This is one of those things that is takes them hours to do and it's frequently required as part of their design process, right? They're constantly trying to communicate to city planning or to their client or to somebody else in the firm about the progress of their design and to generate an image and this is a synthetic rendered image not a photograph is something that takes them hours and powerful computers to generate today. And using the cloud, this is done now with Autodesk cloud rendering services in a matter of seconds.
Since we rolled this out, today we are clocking a rendering on our servers every 6 seconds. And this is early days, okay? This is early days of us rolling our cloud services to our existing customers. So you can see that in the world of architecture, we have plenty of opportunity to add services to existing customers as well as find new subscribers within those firms. Now let's look at the world of engineering.
And engineering is a very broad term for the AEC industry, because engineering covers people who design building systems such as air conditioning or plumbing includes engineers that design roads and bridges. It's a very broad term. Again across this segment of the industry BIM being adopted. So the MEP guys are adopting, structural guys are adopting. And so I'd like to actually start by highlighting and that is the world of horizontal infrastructure.
So think about roads, bridges, you've got really large challenging projects. And we've been pioneering the idea of BIM for infrastructure recently through our introduction of a platform called Infraworks. And I want you to think of Infraworks as what Revit did for buildings, Infraworks is doing for the world of civil design. It's really bringing the idea and the concept of model based design in a big democratized way. And again like Revit, we are the only ones doing it really.
And it's addressing some of the key challenges of that industry, sort of the historic software stacks of that industry. So for example, scale where people have previously had to break down projects in smaller mile increments instead of designing it at true scale. Well, Intraworks lets them work at the right scale and not at the limitation of the such as calculating horizontal and vertical alignment or cut and fill or grading analysis. All of that is being done on the cloud. There are rule or procedure based design that it's accessing.
So things that you're putting up there are already code compliant in the right areas around the world. And I
know if you were a
civil engineer in the audience right now, your mouth would be falling open because really is a paradigm shift in that industry. And since we introduced Infoworx, our position in this segment, our competitive position has started changing dramatically. So just a few years ago, we almost had no significant customers from the U. S. Department of Transportation, the guys that design all the highways and roadways around the United States, so maintain them.
But since we introduced and started having conversations about BIM for infrastructure, we've now secured almost 10 of these major DOTs including the one right here in California, which is the largest Department of Transportation. So we are securing competitive displacement. Competitive displacement is new subscribers and it's part of the story that Andrew just shared with you. Not only are we winning new business, our customers tell us that using BIM for infrastructure, they're winning new business. So that example on the left hand side of the light rail transit, that was one of our customers won new business by leading with BIM for infrastructure.
We have this big opportunity in engineering to change our share position, to change our competitive position in the industry, which also is the same story we have in the world of structural engineering, sort of all those large support structures that you see where the combination of structural analysis service that we have built and you can calculate wind loads and static loads as part of your structural design, this really starts to change our competitive position. And it lets us do best, do what we do best, which is to democratize the industry, bring things that were only done at the high end down to the medium size and small businesses around the world that do this kind of work. So again, BIM plus the cloud platform really is letting us secure new subscribers through competitive displacement in the engineering space and add value to existing customers in the space. But I want to touch on construction, because I want to sort of elaborate on what Karl was saying, which is we've gone from big A, little C to big C now. And that is really true in the world of construction.
And originally the whole growth in construction was driven from the fact that construction or contractor companies really started adopting BIM for their work. And that's tied to that idea of lean construction, right? The more you are trying to automate construction and doing prefab, the more model information you need to drive your machines or to figure out how reinforcement or rebar and concrete would work. And there's a lot of investment or steel connection details, lots of things that construction companies have to figure out that has driven their BIM investment. And we've been really trying to help them with this.
And as you saw this morning, we made a major investment by buying assets from a company that had developed advanced steel and advanced concrete capabilities, a company called Greatek. And this is perfect. Again, we will use that democratize structural BIM, if you will, BIM for construction and drive that across a large base of construction companies around the world. But that is not the only opportunity we have in construction. Because if you have driven by any construction project, you know that for every 1 or 2 designers or engineers sitting in the office or maybe even in the trailer, there's at least 10 folks walking around in hard hats, superintendents, people actually pouring stuff, safety inspectors, quality people, trades, the tremendous number of This is a large dispersed and disconnected workforce.
But until the arrival of the cloud, because the cloud, if you will, lets us connect all these individual neurons into a single construction brain, okay? And lets us connect them with critical information, sometimes that's BIM information, sometimes that's just workflow, sort of the automation, things that they would have done on paper, they're now able to do using automated tools, especially using something like a tablet or a mobile phone, which is a very, very practical device for them to walk around and instead of the clipboard start to use on construction sites. And to address that opportunity, we've been busy building a family of products we call BIM 360. Salesforce, the guys who try and share this building with us, they have this concept called the sales cloud or service cloud. Well, think of BIM 360 as the construction cloud.
And that's really what we've been busy building with our individual offerings, Glue, schedule, layout. And I'll just try and explain to you what it is that a construction company can do with BIM 360. Well, for one thing, they can plan. So as design or engineering information changes, the folks sitting out on the job site can understand the impact. They can detect things like clashes.
So if somebody comes up with a new structural design, they can instantly understand whether that interferes with any of the installed equipment or HVAC stuff. That 30% waste I talked about earlier, that from things like those clashes that you see, which oftentimes people only discover when they've actually already ordered the material or are trying to install it on-site. This is worth a lot to a construction company to detect, predict issues well before they are too far committed down the actual work. So they can plan. They can plan even things like schedule, because we've started building out a scheduling tool and our goal here is not to replace their Gantt chart or their critical path stuff.
It's to do their daily work and understand that if the electrical goes in before the plumbing, is that a problem? And you won't believe how often that is. There are lots of little issues where they are planning in this agile short way and they need to understand these what if scenarios as they're planning their construction. This whole connection to the construction job site also lets us get to that last mile. Okay.
The last mile here is what if instead of spray cans and measuring tape, you actually just project the digital model using lasers and hardware from Topcon or Trimble out onto the job site and guide the layout and installation of key things on that particular construction site. This is not that science fiction as it might sound. You just go down here to the southern market to the UCSF Mission Bay Hospital project, you'll see construction crews using digital BIM models to guide the installation of hangers and brackets. So they are saving a tremendous amount of time and errors as they do this. We're doing this through BIM 360.
And then all of those people that I talked about, those safety inspectors, those commissioning folks, all these guys walking around today with clipboards can use a tablet instead to track, do their workflow. They can manage their check off list. They can manage their punch list. They can manage all of the equipment. They can look at what is installed on-site, compare it to the specification that came as part of the design and engineering, make sure that the right things exist.
And if there are any supplier problems, connect back to the field from the field office back into the head office. This is what BIM 360 is enabling. It's enabling a level of automation on the construction job site and process that was not possible before. This is completely green field. This is all new subscribers.
This is all cloud all the time. But how big of a deal is this really to customers? And I think I'd like to share that with you with one anecdote I just heard from our Head of Sales Steve Blum who just got back from a trip to the Southern Hemisphere. We talked to one of our good customers. And this customer has bought Autodesk technology from us before.
They used to spend over the course of 2 years about $50,000 and they just spent over $1,000,000 this year because of BIM 360. The entire investment was done using that, okay? So if you look at the combination of what we're doing with BIM 360 or this Construction Cloud along with BIM for Construction, we are starting to make a significant dent in the opportunity in the construction industry. Since we started focusing on the C in AEC, in the last six quarters, we've secured over $300,000,000 worth of business from construction. Over half of all deals that Autodesk secured over $1,000,000 in that same time were from the construction industry.
And we have all the storied names in construction and this is a great, great story for us in terms of a growth opportunity. And if you want to understand why I'm so bullish on our opportunity in AEC, this is a great story for you all to remember. So let me sort of wrap the AEC piece up. In architecture, we can add value with cloud services. In engineering, we can do a lot of competitive displacement, gain share.
And in construction, we have this greenfield opportunity to secure new subscribers. But the one other opportunity that Andrew touched on and when Buzz talks about what's the opportunities in the world of manufacturing, you hear similar these industries with a very broad based collaboration platform, if you will, called Autodesk 3 60. One way to understand Autodesk 360 is to think of it like social capabilities for projects sort of like Yammer or Jive or even Facebook, if you will, for design and engineering. And just like any of those platforms, all of the people, all of the projects, all of the activity and all of the data that is relevant to the projects that you're working on are found in one place. And why is this critical?
It's because one of our customers once told me said, look today I can find out that my nephew 600 miles away scored a goal in a soccer tournament, but I can't find out if something critical changed on my project. Well, now if something changes, someone changes the design of this hospital, you're alerted that there's a new massing study available. You can use one of those integrated tools that we just talked about to actually examine what that proposed change is, take a look at it. And then based on what you see there, pass that information on to the right person. You might ask the structural engineer to run a new analysis here and say, hey, tell me whether that change in the design means anything and the person will respond.
The updates are visible and relevant to the right set of relevant people. And then you can continue that process. So for example, if construction sequencing needs to change as a result of that, it's all coordinated from one place. It becomes the homepage for your project, sort of the digital backbone for any design or engineering project. That's what we are building with Autodesk 360 is integrated set of tools, services and collaboration that any and every design and engineering project will utilize going forward.
So let me just close out by reminding you of what we talked about in the world of AEC and that is that we pioneered the idea of BIM and we're set to take it to the next level with cloud services in existing accounts, in existing users, existing subscribers. We're set to change our competitive position and we're gaining in the world of engineering
and we have this tremendous opportunity in the world of construction.
Thank you. And I think you've given you such rich information that you now need a break. So we're going to take a 10 minute break and start Dave anything else in terms of logistics? Okay, good. So see you back
here in 10 minutes. Thank you. Ladies and gentlemen, we're going to begin again in just a couple of minutes. Welcome back. Welcome back, ladies and gentlemen.
We're going to begin in just a moment. Thank you. And ladies and gentlemen, please welcome Senior Vice President, Design, Lifecycle and Simulation, Buzz Cross. Good morning, everybody. I'll give you a couple of minutes to settle in.
So good morning. I'm Buzz Cross. I'm responsible for basically what's R and D for our manufacturing products. Got a lot of exciting things to tell you about in the few minutes that I have here. Here's what I want to cover.
I want to talk about the manufacturing market, be sure we're all on the same page about what manufacturers do and what's important to them. I'll talk about some new trends affecting my customers. I want to give you an overview of what's happening with our current products, our desktop products. Lastly, I want to go through our new generation of cloud products, some new exciting things that I think are changing the market and changing our position in the market. So in Manufacturing, we think about 4 different sub segments of the market.
First is the automotive market, a really big segment for us, really specialty design, a big combination of aesthetic requirements and very difficult mechanical requirements, high volumes in this market. Next is the industrial machinery market, really complex, really large machines. Traditionally, this has been our strength. This has been our wheelhouse where we did really well. I think you'll see how we've expanded in some new spaces.
There's the building products manufacturers, another real strength of ours because we do both sides, building design as well as mechanical products that fit into buildings and last of all the consumer products businesses are also an important segment for us. Now the market is a sizable one. It's been said many times a $21,000,000,000 market overall, about 45% of that is the manufacturing market. So a large and really important segment for us. The segments look like this.
Automotive is about $2,750,000,000 Industrial Machinery is about the same size $2,800,000,000 really 2 really large segments. It also reflects the complexity. Those two markets are the biggest. As I said, Industrial Machinery has been our strength to date. I think you'll see through this we've done a lot particularly in automotive to strengthen our our affecting manufacturing companies.
1, there's a lot of time to market pressures. And often in my market, there's this expression of better never than late. If you come out with a consumer product 6 months after your competitor does, there's just no point to do it. So customers have to hit their date. They have to come out on time.
There's huge increased product complexity more than we've ever seen before. And last of all, a lot of requirements are innovation and aesthetics. Things have to look great and they have to be innovative and changing the game. So product requirements have changed a lot for manufacturing. Now that leads to a couple of different things that customers need to do.
1, there's a premium on agility and the use of an all digital going to be able to beat out to market as you're not going to be able to beat out to market as you're not going to be able to beat the market as fast as your competitor. In terms of complexity, there's a greater need for simulation. Customers want to make the part as simple as possible, but above all, they want to know how it's going to behave. I'll talk to you about how we're helping our customers there. And last of all, on innovation and aesthetics, there's just a whole new generation of products needed.
The 21st century CADCAM solutions that haven't really existed before are needed for our customers to handle the complexity, the innovation and the aesthetic requirements. Autodesk I think is really hitting on all 8 cylinders in all three of these areas. And I'll talk to you a little bit about what we're doing about all of this. Now our solution is what we call a digital prototyping solution and the concept is a really good one. The idea is that you can build something that's digital and you can prototype it digitally.
You can know everything about your product before you make it. Now traditionally, that's meant for us design. We did a really good job of designing a product and letting the customer understand its design. One of the changes you've seen from Autodesk recently is we now from the beginning of the process all the way to the back end. This has opened some new areas for us, letting us attack customers we have never attacked and serviced before.
So we're helping customers in new ways, with not just design, but engineering, knowledge workers who use product information, managing data, the whole gambit of concept through producing a product is how we serve and help our customers today. Now, our customers I think are really doing well. This image you see here is a tunnel boring machine. So our customers are designing these sort of really complex systems with our products today. They're solving really complex design challenges.
They're doing multifaceted simulation and they're doing ultra realistic visualizations. So customers can do things today that were impossible just a short time ago and are solving this amazing problems. It's impossible to do these things without sophisticated tools like the Autodesk toolset today. Now, our lead product is the product design suite. Okay.
It's a tool designed for customers that design and simulate products. Its core product is Autodesk Inventor, a 3 d solid modeling tool. Inventor is doing great. We have a very engaged community. We're adding new capabilities.
We're seeing good steady growth. Product design suites growing quite nicely on our system. So that part of the business for mechanical designs doing very well. Okay. Now here's a good example of one of our customers.
This is a very industrial machine, but the customer makes great efforts to make this thing look aesthetically pleasing to the point that they'll use really good visualization tools as well to show their customers how they design. So the aesthetic requirements even on heavy industrial sorts of products have become strong, severe and important. Customers pay attention to those things and they go to a lot of executive review. They pay a lot of attention and put a lot of energy into these things. Our tools really help customers do those things today.
Okay. The other interesting part of our business is the Factory Design Suite. Now Factory Design Suite is not for design engineers, it's for manufacturing engineers. The whole other department that helps you design a process to make a these new sorts of users benefit from 3 d models to range and optimize their factory. So this is one great new source of revenue for us.
It lets us leverage many of our traditional tools in a new way to solve new problems. Now the other interesting new market for us, an area we started to see significant growth is automotive. Now historically, we've done really well at the beginning of the process where you're doing the creative design work. Now there's 4 segments where you're doing sketch, concept, design and Class A modeling. Customers, what they try to do is they try to improve the efficiency of that whole process.
So their automotive customers are trying to squeeze this process to make the whole cycle time shorter. They also are trying to creativity. So Autodesk's strength and leadership in the automotive has been in this section here. We've always had fantastic sketching tools that all the autos use to conceptualize and build their latest new ideas for their concept tools. They also use our tools to do things like interiors.
The interior is becoming increasingly important in your ability to sell the car. Now we have a couple of different strengths, our visualization, our design tools, but also our plastics ability. Important thing for all automotive is to make their cars more fuel efficient, lighter. The way you make cars lighter is you take steel out, you put plastics and composites in. We have fantastic capabilities in helping our customers build really good designs on plastics because of our mold flow product, world leader in things like plastic design, critical for interiors.
Okay. Also Class A modeling is really a new area for us. We're seeing a lot of growth in the Class A business, displacing seeing competitors here. Where they used to use us for the front end only, we're now starting to extend that into the Class surfacing portion of the automotive design process. So we've seen some very large customers start to shift their process based on this.
And I'll give you a couple of stories about that. The 4th area is visualization. We have a world class visualization tool named vRad. Our visualization is really one of our strong wheelhouses for automotive in particular. We do a fantastic job.
Image like this is a pure digital image. It's often better than real. We no longer talk about photorealistic. We talk about better than real. Because what customers are trying to do is they try to get an emotion, a feel for this You want this thing to feel fast.
You want it to have a sexy feel. You can do that digitally better than you can do physically. So, our customers use these tools to visualize and review their designs. They also use those assets to do other things, to promote and sell their cars. Now I got a little car story for you here.
This is an Aston Martin. This is the Aston Martin 177, okay? It costs 1 point £7,000,000 to buy one of these things, £1,700,000 okay? They only made 77 of them, okay? The really interesting part of the story and by the way it's hard to imagine something more beautiful than that.
I mean this thing is just a beautiful car. But the great thing about the story is that Aston was able to sell 75% of their cars digitally before they made one car. They were able to use Autodesk images to sell these to customers. So think about this, customers spent £1,700,000 based on digital image, 75% of those. So it's a pretty phenomenal success and it's a great use of the tools to really understand the design and make something that has this emotional powerful feel.
Now Aston Martin is a 1st class company all the way around. If you go to their factory, this is the image of the factory, it is like a showroom. It is immaculate, okay? So 1st class from Aston Martin, they do things like when they sew the interior, one seam stress handles each car because you don't want to have a difference in stitching style between the front seats, the back seats, the dashboard. Everything has to look uniform and simply gorgeous.
When they finish their cars, Aston spends more time finishing a car than most cars take to build the entire car. Okay. So they pay huge attention to quality and detail. So the great thing Aston Martin is standardized on Autodesk. From the top to bottom through Class A, they use the Autodesk stack.
In fact, we've done some press reviews with the automotive companies and asked them, Martin, where they talk about how they've done it. So they do concept work, they do executive review, they do Class A modeling, they do visualization with Autodesk. We're really making some great strides in the automotive companies. And it's because of these design tools, it's also because of tools like our plastic tools, our factory tools that are helping these automotive customers get a competitive edge. Now another really good example is VW Audi.
So we've made a lot of progress with VW. This image is generated by our V RED visualization tool. They're using our visualization tool to do their executive reviews of their cars. They're also starting to convert their Class A modeling tools from the old system to our system. And just because they feel they can get more throughput, they can do a better job with it.
So a whole new set of customers with the automotive companies, a whole new set of prospects that we're starting to generate and new types of revenue in business. So it's not just a couple cases I gave you. Every automotive company in the world uses the Autodesk tools. 100% of them are using their tools at least parts of the process, always early, always the conceptual design process. We're starting to push that further and further into the cycle and making good progress for virtually every company you name.
There's just a few of the logos here. It's not just automotive. I know I talked about automotive a lot, but the other markets are even bigger for us and are continuing to grow, whether it's consumer product companies, food packaging companies, industrial products. I think we're seeing really good success with a large array of customers who are doing really well with our software. So what I would say and kind of in summary about the beginning all the things that they want to do in one integrated package.
We're also wanting new types of users, things like factory design suites. Let's us get to the manufacturing engineer rather than just the design engineer, a very attractive proposal for both us and our customer. And last of all, serving new markets. Auto is a new example of places we're starting to extend our reach in the automotive segment to get new types of users in a new industry. Now that's a little bit it's not quite looking backwards, it's sort of looking to today, okay?
So looking to the immediate future is this whole idea of reimagining digital manufacturing. As I said, a lot of pressures on customers to innovate, do a new aesthetic design, to do things in brand new ways. So we have reimagined talk to you about some of these things. So traditionally, this has been our market, the CAD industrial design market. We now have a solution that extends to all 4 major disciplines for manufacturers, CAE with our analysis tools, PLM with our PLM 360 tool and we're about to do something.
We've shipped an inventor based product for CAM already, okay? Now in this environment, we have produced a whole new set of cloud tools. Fusion 360, the first ever tool designed to do CADCAM and industrial design on the cloud. I said CADCAM. It's industrial design and CAD on the cloud.
So cloud based design. Okay. Same thing with our SIM 360 tool. It does CAE on the cloud, PLM 360, it does PLM on the cloud and you'll see later in the very near future, CAM 360, we'll do CAM on the cloud. So this really helps customers in fundamental new ways.
To do things in the cloud isn't just moving a process from a desktop to a cloud. The whole process and what we deliver for customers is very different. It very much attracts some born in the cloud customers who just think about the problem differently. So Autodesk has a definitive lead in that not talking about this as a future. These are things we have today, customers are actively using today, and we're starting to see a lot of buildup of excitement about these things.
Now let me go through each one of these things and talk about them. So first thing I want to talk about is Fusion 360. Fusion 360 really is reimagined CAD on the cloud. So with it, it's very dynamic. You can do industrial designs like this guitar for example.
With it, it's not as numeric as it used to be. If you want to change a design, you grab it and pull it. You can see how you can really easily change the design. I talked about the need for aesthetics. Fusion is perfect for those things because you can conceptualize and change so well.
It is mixed industrial design and mechanical design, So you can do early concept work and real detailed mechanical work, all together in one package. There's no separation. It's as if we took Inventor and Alias together, put them in one product and put it on the cloud. Okay. So we think this is a revolutionary approach that customers have been really latched onto.
We have a large user base using that right now. Okay. Now it's also as I said reimagined CAD for the cloud. So it's not just a geometric modeling package. It includes an environment that works the way customers think about a cloud package work.
For example, a gallery. With it you can share your design ideas. This is the way 21st century designers work. For them, they collaborate on the cloud. They don't necessarily all get together in an office.
They collaborate through the web. So that's built right into our tools. Even things like YouTube and Twitter connected right into it, so you can communicate really easy. Learning tools built right into it. So these are the sorts of things that make this thing collaborate much better and lets you extend outside the old world of just geometry into a very modern 21st century feel for a new generation of cab products.
Fusion 360 is revolutionary in the way it approaches these sorts of things. Now I'll give you an example of our gallery. These are some of the things customers have modeled. They vary from things like a customer has modeled a drop of water hitting the glass, the splash effect that you see. 747, sneakers, robots, watches, all sorts of things being modeled today.
Some very conceptual, some very theoretical, some hard mechanical design, an automotive brake for example in here. So customers are doing a wide variety of work with Fusion, not just mechanical, not just industrial, but the meetup between the 2. And they're sharing these things. It's the new world is I want to let the world kind of know what I do. I want to have other ideas about these things.
All those things are built into fusion. So revolutionary, not just from the CAD CAE side, but the web use as well. Now the same thing is true with simulation. We felt we need to do simulation in a new way. So SIM360 really helps people who analyze how designs work.
It's deeply integrated with the Fusion environment. So there's no separation from your design tool and your simulation tool. You can very easily do things like change the diameter of this bar, okay? You can also very easily analyze all these things at the same time. So another really good example of how we use the web to do simulation in a new way.
Now in this case, it's the high performance compute of the cloud, so that we can analyze 100 different variants of these headphones rather than just one. So easy to operate, easy to get lots of different designs, has the same sort of integration and collaboration tool that Fusion has. So we're able to attack this part of the market in some very new ways to help customers analyze things very analyze things. So we have simulation tools for all sorts of different segments of the market, plastic parts with Mold Flow that we're a leading solution. We have awesome fluid flow tools and fluids have become a commonplace.
They are now mainstream. People are using them for used to only be done for ship hulls and NASA used to do it, but now people do it for valves and also to common parts. So it's being done everywhere. Composite design, we're seeing more and more composite works. We have a dedicated tool like that, things like Pipe Flow.
So Sim360 would be the vast any kind of simulation that's commonly done, we approach and handle very well. Do it as I said, we do it on the web. We've also made it a really good tool for designers. So here's an example of a common problem, a drop test. So drop test used to take a day or so to set up.
We can now do it with one click. Our assumption is you're doing the drop test on earth, okay? So we know what earth gravity is like. So it will do hundreds of analyses to come up as a single answer, but the setup is very easy. As long as you have a model and you want to analyze it on earth, we can do one input.
We'll analyze whole test for you. So what it does for you is a designer can now conduct these really sophisticated analysis to understand how they're going to work. I mean how important is for a cell phone user know is the phone going to break when I drop it on a concrete floor or not. So it makes a big difference. And designers can understand that early in the process and doesn't have to be offloaded to a specialist analysis team.
So Sim360, we think really changes the game in how designers work. Now last year, we also announced the PLM product. Our PLM product is doing really well. We're capturing many customers. We have more than 10,000 users today.
It has lots of advantages. Biggest advantage is its ease of simple matter of customizing the solution to fit to exactly what you're going to do. So times of bringing this thing up are dramatically less than others. Customers have used it to deploy customers have deployed it to solve problems that they feel it would take too long or too difficult to get their current PLM systems to solve. So PLM 360 has a deployment advantage, a huge price advantage as well.
We think it's another good example of revolutionizing the industry by using the cloud to do things that haven't been done before. A good example of a customer is Dware. Dware makes supercomputers, dollars 10,000,000 computers. They really only sell to NASA and Google today, okay? These guys are 21st century users.
They think about things in a modern way. They needed a PLM system for the to manage their complex designs and make sure all their employees could have access to their data. To them, it was just a start and a beginning that I need to find a cloud based solution that does this. They didn't even understand why would anyone go anywhere else to try anything else. So they found our product as the right fast easy way to do it.
So just as cloud nature by itself is what attracted Dware to this company. So what we're seeing is a lot of modern aggressive companies are very attracted to these sorts of things. Again, the next generation in search of users. So PLM360, we're really happy about that. The newest thing is CAM.
So CAM has changed a lot. Now the world of NC machining used to be a dark dingy factory, okay? It's now become mainstream. It's done everywhere. If you go to TechShop, if you see Pier 9, if you track the maker movement, movement, these sorts of things have gone beyond the mainstream to the average individual.
This photograph is Carl teaching a bunch of young girls about NC machining. This is the 5 axis mill that Carl is demonstrating for them. This sort of thing is a common thing. NC really has started to go mainstream because of this democratization of happening in the manufacturing market. So this market is ready to be used by different sorts of individuals.
So dentist offices typically have an NC machine in them today to mill replacement teeth. So cyclophanes have got to be so important. People do those things on-site now. So big changes in this market is product running in Inventor. So we've had a product out in the market for quite a few months already that works with some other solutions, an inventor based solution now as well.
Now we're also working to get this to the cloud. Very soon this will be out there available for users on the cloud as well. Just like CAM just like FEA or simulation, the high speed availability of the cloud helps users a lot, Okay. Sometimes toolpaths take 40, 50 hours to generate. High speed machining and the cloud will let you do those things in minutes.
So we think it's a big changer for this market. And for Autodesk, a whole new set of users, someone we did not have a solution for, someone we didn't offer products for and didn't drive revenue from. The material there. So Autodesk now has 2 different ideas here. 1, many new types of customers, not just the designer, not just the industrial designer more.
The analyst, the CAE, the knowledge worker that works on product with our PLM solution and the manufacturing team, manufacturing engineering that work on our CAM product. And we have the first to market products on the cloud with Fusion 360, the first ever production solution for CAD with SIM360, the first production solution for CAE PLM360, the first ever cloud based solution for PLM and CAM 360 will be the 1st cloud solution for CAM as well. So we're in a position of leadership here having first mover advantage in this portion of the market and the ability to attract very new but adjacent users. So in manufacturing, a big market or well established market, Autodesk is in the challenger position. We have some tremendous new assets that will let us change where we are, let us serve customers in new ways, new types of users that we haven't had a chance to drive revenue from in the past and new technology that we think really revolutionizes.
In automotive, we're making huge steps. Every automotive uses our products at the front end and are starting to extend what we do today into new areas. In consumer products, our desktop products are doing really well. We have a new offering also that customers when they're ready for the cloud, will be ready before they are and have a great solution available now. So new products, new customers, new markets and first in the cloud position.
Thanks much everybody. Thank you, Buzz. My presentation is around driving transformation and also driving shareholder value. So it's a pleasure to see all of you. I welcome you back to the gallery.
Let's jump into it. My agenda, I want to talk about the financial objectives. There's 4 key ones I want to call out. I also want to review some key financial attributes that we typically make sure that people understand around Autodesk. And so we'll call those out as well.
We'll talk about capital allocation, which some of you have already spoken to me about just in over a cup of coffee. And that's near and dear to all of us. And so I'm looking forward to diving into that. We'll get into the meat of the matter here if you will in terms of the business model transformation, talk about the business outlook and then also talk about the long term goals quantitatively. So that's my intention and so let's press on.
And so when you look at the financial objectives, there's 4 key pillars if you will for us and we just want to make sure to set the table correctly on this. The first mission that you've heard throughout today is around the acceleration of billings and revenue growth. We think we have a great opportunity in front of us. I think you've heard throughout starting with Carl and all the way right up to me now about this opportunity and the pathway, the very margins. Absolutely committed to continuing to drive our operating margins to a higher level long term notwithstanding the business model transformation experience that we'll talk about.
The third thing that I want to put on the agenda that we haven't talked a lot before about is this notion that we want to continue to increase our percent of recurring revenue as well as our percent of ratable revenue over time and there's a good reason for that. It improves financial predictability. It improves the ability to be flexible with customers on how they want to consume as opposed to trying to spend all of our time gearing a deal and the structure and the nature of the offering to recognize upfront revenue. So we want to unshackle our go to market team by continuing to go to a model that's a more flexible model. And I think you guys get that.
That ground has been well in the secular space of software. And so we're pressing on with that. And that translates into more growth. And we want to optimize the capital structure. You'll see tangible actions.
We said some things that we were going to do at our last IR Day. I'm looking forward to reporting back to you quantitatively what we've actually done since that time. So those are the objectives. The next aspect on the agenda that I said I would cover has to do with the attributes around the company financially that I think it's important to understand and just to make sure everybody's level set before we go into the transformation. The first thing is market viewpoint, number 1.
But you can also slice it internationally and say that it's very diversified from a geographic standpoint. And without beyond any measure, we're a truly global company with over 70% of our revenue coming from outside the United States. So we are truly a global company. We get the benefit of that diversification. Another attribute that I think is important and it builds on some of the earlier discussions today, we're not new to business model transformations and transitions.
10 years ago, we started something called subscription maintenance. And you can see today in FY twenty thirteen, it's rapidly approaching $1,000,000,000 in revenue per year. Quite a dynamic and it's continuing to grow. Now going forward, you certainly heard that with our cloud offerings and with our rental offerings, you're going to see that number continue to grow even more so. And so it's a very important attribute to our business today.
This is all recurring revenue as well. It's going to grow even more so going forward. When we talk about the balance sheet, strategically, we know how important that is both operationally and strategically to have a sound balance sheet. A couple of things that I would call out to you that I look at. Certainly, we have a strong growth in our deferred revenue and I'll show you numerically what we're doing there.
And again, the beautiful part about deferred revenue is it's revenue waiting to happen. And that's going to be an important metric to watch going forward. We'll talk about metrics to watch going forward. That's one of them. But certainly a strong growth in deferred revenue over the years.
A healthy DSO, I pay attention to that. I'm sure a lot of you do because I think that's a key part of an efficient cash conversion cycle. And we certainly you can see with the results even in Q2 that that looks like it's in good shape. A robust cash generation, we'll give you numerics around that. That's a very good part of our model and the financial attributes you should be aware of.
Certainly, sufficient cash balance, we'll give you math on that. And then the last point I do want to call out to you is around channel inventory. Historically, for years years, we've said 4 weeks is that's fine, 2 weeks is kind of low, 4 to 2 weeks is kind of the range for channel inventory. About 4 years ago or so, we were at 4 weeks. Today, we're at roughly 1 week.
If you think about the impact of taking that to 1 week, that's a very good attribute. It's very tight and it's something that you should just be aware of. So deferred revenue growth, I told you I'd give you a little bit more detail on this. You can see how this is growing again toward again pointing toward $1,000,000,000 and again growing certainly last year 16% and this year 7% for the first half. If you look at our robust cash generation, you can see I'll show you a couple of metrics here.
Certainly, 1 of 17% growth and half 1 of FY 2014 is strong cash generation. I think if you look at the metric I think is most important around cash though is around our cash flow margin. And that kind of speaks for itself just in terms of the fact that that is significant. If you then push on to sufficient cash and investments, we've got about $2,400,000,000 About 75% of that is internationally offshore. Shouldn't shock you, right?
I said over 70% of our business is international. Makes sense. It kind of maps together. But in fact, we have the sufficient cash to do what we need to do and the currencies we need to do it in. And so that's a good fact pattern.
We talked about at the last IR day, this notion that we would appropriately use debt, okay? That was prior to the fact that we did a debt IPO, which happened less than a year ago now. We raised $750,000,000 Looking back, it was great, great timing. And I think you can see that and all the details are public record. The other thing that we accomplished was to get investment grade rating for the first time, just getting a rating for the first time as a company.
We're very pleased with this. This is important to us. It gives us flexibility for the future. And so I think that's another good attribute that we just want to make sure everybody is square on. Talk about optimizing the capital structure.
M and A, we have used to fortify our growth and accelerate our transformations. And I want to show you some detail on that that you may not have seen that will give you a sense of perspective. That's the first choice being very select and discerning. And typically it's been small tuck in M and A that we've used as part of our company to accelerate our transformation over the years. I gave you some more detail.
The second thing as I called out is we were going to go and do a bit of a policy change for years years we covered dilution only. We announced at the IR Day that we cover more than dilution. I'll show you the math. And then, the appropriate use of debt, of course, we have demonstrated that and we'll continue to do so. So, M and A, I want you to see this perspective over the years.
In the early days, we had AutoCAD, right? Well, I don't know if you're aware of this or not aware of this, but one of the M and As that we did in the early days was a company called Interact, which was core part of AutoCAD. We bought a company called Generic, which was a core part of LT. And so from the very beginning, we used M and A to push our forward in addition to all that we're doing internally. Autodesk 2.0 talked about the industries and it talked about the verticals.
And if those that attract this company for a long time and there's some of you that attract it for a long, long time, you know how company for a long time and there's some of you that have attracted for a long, long time, you know how important that was to the growth and taking the company to the next level. In fact, when you look at the M and A, we did small tuck in acquisitions largely and that became very important to us over time. They planted seeds that would help us later. For example, in this list, let me just call out Revit, for example. Almost no revenue, technology, ready to go.
We work it in and now look at what that's blossomed into as we continue to grow our business. So let's go to the future or today and to the future. We've looked at accelerating the move into the cloud and those that are tracking our M and A will notice that we've made some very select M and A. Like for example, Buzz talked about PLM. We did the PLM, some of the core technology to start our PLM business.
Amar talked about a lot of the different products in our Autodesk 360 and some of the social capability in there from a company called Context. We are doing this with small tuck in acquisitions that have helped us move the ball forward. And so, it is a use of our capital and will continue to be. Looking at our share count, if we look at the number of shares outstanding, we said that they would come down. You can see the math again accomplished.
And it won't be a perfectly linear every quarter kind of thing, but just expect us to continue to operate with the intention that we have. So there you have it. That's some of the financial attributes we've covered. We've talked about the financial objectives. That's clear and optimization of the capital.
I want to go down into now the meat of the matter, which is the business model transformation. You saw this slide earlier in the presentation around the growth. I don't need to rehash all the different aspects of this, but we know there's new offerings. We have unmatched cloud capabilities in the world, full stop. It's exciting to hear Buzz and Amar talk about that.
You can see it tangibly and we're building that. You heard from Andrew about our rental offerings that have gone pervasive here. And so those are new offerings that are going to help us. So we'll go all the way through this, but it has an impact on our financials. And so let me talk about a couple of things that I think are important for you to see.
The first thing to see is when you're driving this transformation basically, there's a transmission where the percent of a recurring revenue is going to start going way up. And so let me just set this slide up. For example, this is the percent of recurring revenue of our total revenue of the company, okay? And time, so in 2,008 as a reference point, about 20, what, 8% of our revenue was recurring that was largely subscription maintenance. You get to 2013, it's about 40%.
We got it. We're pointing out towards 70% in FY 2018. I've just given you the data points 20132018. I understand you want all the data points in between. That's a different topic.
I want to make sure you're very, very clear that we're driving recurring revenue aggressively. And what does that mean? Recurring revenue, we'll talk about what it means. We know what it is and in our particular business today with the offerings, it is cloud rental and maintenance subscription. We know it's financially attractive.
It's very attractive because it's a largely ratable model. We don't worry about spending time and losing cycles by having our sales team try to configure selling something upfront with a license to get revenue recognized. We try to sell what the customer needs and let them consume and interact with us on a sticky basis, on a continuous basis. And so, we know that this is an attractive model. It's well proven that ground has been well plowed in our secular space.
We also know that it's more predictive. When you have the preponderance of your revenue starting to come from your balance sheet over time as you build up your deferred revenue, it's a very attractive model. Now keep in mind, we're getting the cash upfront, the deferred revenue and it ratably recognizes and amortizes. So I know you guys get that as well. It enables flexibility and growth basically.
And you just go back to a number of examples that we have with customers, they want to consume. We got to get the barriers out of the way to allow them to consume even more. And I think Andrew touched on that a bit. So, there's another thing that I want to be very clear on and this is a point that's important to understand. In addition to the percent recurring going up, okay, the other point that I want to make is the percent that is non recurring is going to be increasingly ratable, right?
So, if the percent recurring is already ratable, the part that's not ratable is going to become more ratable as soon as possible. And so historically, these non recurring revenues have been recognized upfront due to the attributes and the way the configuration and the deal has been put together and what's been offered. In the future, you can expect from us that non recurrings become more ratable over time and when as soon as possible. And there's that's clear. And why I think it's very, very clear.
Imagine Autodesk pulling in with all continuing to get more and more focus on a totally ratable model. Think about the clarity in terms of the communication with this community. Think about the clarity internally. Think about the go to market clarity where nobody is getting in the way of a deal because they're worried about upfront revenue recognition versus supersizing a deal to actually get more growth for the the going to continue to communicate quantitatively what that means to people. So then, let's focus on the transition.
What should you focus on? I've talked to a number of you and they say, hey Mark, tell me the metrics I should look at as you guys go through a transition and a transformation. I'm telling you and these are the ones. Billings and you heard Andrew talk about 12% CAGR for billings growth. This is I just want to make sure it was explicitly clear with what he said.
It's all billings growth, okay, 12% CAGR and billings growth. The second thing that I'm telling you is that we need to look and track over time subscribers. You saw very clearly our view of subscribers and you know from that standpoint, I just want to also clarify one number and this is important for you guys that have models. It's 1,900,000 existing on the subscriber list today, not 1.8, just want to clarify that. But you're going to see that going forward and you saw a huge opportunity that Andrew talked about.
Deferred revenue, we know that's important because if you increase ratability, the actual money goes to the balance sheet to deferred revenue before it ratably comes off. And then cash flow of course. And so those are the metrics. And I want to be very clear on those. Obviously, we look at other things.
That's a given. These are ones I want you to point to really look at as well. Transition impact. Again, this is well plowed ground. We know when you're taking largely upfront and going more to a ratable model, whether it's due to the recurring growth revenue because of our cloud offerings or our rental offerings or whether it's due to something that could be a little bit more lumpy like actually moving our non reoccurring revenue to a ratable model, you know the effect it will have on revenue operating margin and EPS.
It's been clear in the marketplace. We will also have that effect. And as we get up to those things, we will continue to post you on what you should expect as we're working through those transitions. So let's go to Q4, which I think is a great example and is illustrative and I want to be really clear on that. You heard Andrew talk about a global automotive manufacturer who began to get on a consumption base, we call it a token based consumption based offering.
And what happened? And this is not the only example. Basically, it supersizes the deal, because it takes away the barriers and less people consume. And so that super size is a good thing. So we have a very specific number of enterprise customers, a very specific deal list in Q4, it approximates about $50,000,000 roughly that we are going to move to an consumption enterprise base in Q4, okay?
And so what that means is what it means is we're going to put that revenue largely in the balance sheet. So when you saw guidance, it would have been $50,000,000 higher in the absence of us making that decision. But we know that making that decision is going to drive billings growth for the long term. We know that that's going to be a better model for our customers. We know it's a better model in the marketplace and we're going to the future and this is one example of that.
So, the long term impact is more growth. The short term impact is less revenue. We get it. We get the transition impacts. And so there's an example of it.
So you got the intention of recurring revenue is going up. The non recurring revenue is going to be increasingly ratable. We're going to have a more ratable model in total. I think it will be an easier message for all of you and also with our go to market teams. So for Q3, we reiterated and as that message already went out, you guys get that.
And for Q4, you can see the numbers that we have. You could add approximately 50 $1,000,000 above that compared to what we're going to push to the balance sheet as we close these deals and get these guys on consumption based supersizing type deals. So we're excited to be taking that step. Okay. Now I have a couple of other things that I want to cover and one of them is I just want to really kind of bring it all the way home and then we'll talk about another series of numerics.
Our opportunity is clear as we keep growing our business. And the opportunity is a double digit growth opportunity. It's not hard to imagine when you've heard everybody talk today with all the different things and the pathways, the very specific pathways that are happening today. You look at $21,000,000,000 TAM today, you look at all the opportunities you heard of best in class offerings, no doubt. First to the market with cloud, there is nobody in the world that can say that like we can.
This is not vaporware, this is realware, this is out there, we're at the beginning of the beginning and we've been working on this for years. And you've heard and seen firsthand some exciting discussions from both Buzz and Amar about our offerings. And we'll continue to grow our core and further penetrate an expanding TAM. These are opportunities this is the opportunity for us when you think about us with the best model that's a more attractive financial model is quite a prize that I think we aspire to. So, when we come down, let's see here some numerics that you're going to want to see for sure.
And again, I clarified 12% billing growth CAGR all the way up through FY 2018. That is the plan. 20% increase in customer value, you heard that very clearly. 50% increase in subscribers. You heard all the different ways that we're going to do that.
I'm saying 70% recurring revenue by FY 2018 and that's separate from the next bullet that we're going to significantly increase our percent of ratable and I'm saying we're taking non ratable stuff and taking it ratable, you can see that that number is going to we're going to get to a much more singular model and it will be more familiar with some of the even born in the cloud companies that you deal with in terms of the financial models that you're dealing with and the kind of things that people are focused on. The last point last two points, 30% plus non GAAP operating margin that is absolutely our intention. Obviously, there's an effect we have to work through with the transition. Everybody gets the transition metrics and impact, but unequivocally that's what we're driving toward and that's an 2018 we're going to be posting above and beyond that and we see that definitely an opportunity and it's definitely part of our plan. The last point I want to also reiterate, maintaining our investment grade rating is important.
It gives us all kinds of flexibility strategically. We will continue to do that and that will be important to us for the future as well. So those are the what I would call the long term financial goals. I know that there's thousands of questions I'm sure that you guys have. The good news is I have an esteemed group that's going to come join me and we'll get into that.
So without further ado, we'll just welcome everybody in and just give us a second to transition and we'll get on with the rest of the discussion. So much of what you've talked about in terms of your compound growth expectations have to do with volume. So I'd like to compare how you're thinking of your future business volume terms versus where you were. So for example, under the prior model, you would typically be shipping roughly $500,000 or more new commercial licenses across your technical software businesses, including LT, but not including M and E? And one part of the question is, in light of everything that Buzz and Amar and everyone else talked about in terms of your increased addressable markets and share gain and so forth, how would you think in terms of equivalent volume of licenses going forward compared to what you had been doing previously, if our numbers are right?
Also for Mark, could you reconcile that 1,900,000 subscriber number versus your last reported active maintenance base number of 3,160,000 which is probably higher about a year and a half later? Could you reconcile those two numbers? And then just one last follow-up. Doug, why don't you want me to start with the Yes. Why don't you start there?
And by the way, just before we do, let me just make sure I introduce, in addition to the people who presented this morning, Steve Blum has joined us. He's in the middle there. Steve runs our worldwide sales and operations. And so he'll join and be able to certainly answer questions on the go to market side. But why don't you start?
Sure. The difference is actually very straightforward. We're talking about commercial seats. And so that is the difference. We have education as well.
So commercial is what we're focused on. Okay? I think in general many of our numbers over the years we've tried to break out education. For this exercise we thought it was particularly important, particularly as people start doing kind of calculations like averages. Imagine.
Imagine. In general, on the question of volume, what we've said is we think the volume will go up and we think it will go up substantially. We're not giving guidance about units. We never do. I don't think that's going to change in the short term.
We may as we work our way through the transition give more guidance around what's going on with subscribers and the subscriber base. But just stay tuned. But we think given the factors that you mentioned, things we talked about this morning, the volume should go up. Just a quick follow-up on the upgrades. You're terminating that, which I think is essentially the correct thing to do, although it's a relatively business.
What do you think the future equivalent revenue would be if you convert $150,000,000 to $200,000,000 of upgrades revenue into future lifetime value of a subscriber? I mean for each one of them it's more. I mean the question is how many convert? And it's going to be really hard to get at because that base plus the ones that Andrew kind of detailed, the 5 years or less active, but non subscribers as we convert that. Each one we know will be more we'll give you more details.
We can actually track it and we'll be able to report out on it as we go forward. But we're not going to share projections at this point. Thank you. I'm not allowed to pick it. It looks like he's a picker.
Thank you. Dan Cummins, B. Riley. A question on the non maintenance or non subscriber base of 2,800,000 seats. It's been for some time.
Could you talk about how the ASP has been trending for that group? That's the first part of the question. 2nd part is, it would appear that your attach rate your commercial attach rate on new customers coming into the business has been quite high. So how do you approach these 2 groups going forward in terms of increasing subscriber performance? Thanks.
So the ASP trends for that base don't vary from the core ASP trends that we have for the rest of the base. They just buy less frequently. Obviously, they're part of the a lot of that base is in the upgrade camp, but a lot of it is in the buy a new seat every few years camp as well. So the ASPs don't vary much from the rest of the base. I have to confess I didn't understand the second part of the question around subscribers.
Could you I haven't actually done the math off the charts, but it would appear that you've had actually a very high attach rate on new business in recent years. What is that level of attach? And is there actually room to drive it higher? Yes. I mean, we haven't given you details.
I think it's reasonably high. But I think when you look at both at our attach and renewal rate, there is certainly room to go on attach rate to drive it higher. And again, it's driven a little bit by mix. Certain products have much higher attach rates than others. So I think there's opportunity in some of the lower performing attach rates.
Same thing on the renewal rates. I think we've done well, but we have there's still room to improve on our renewal rates. I think we have a fair amount to go. We know that the theoretical maximum is not 100%, because we report seats not firms. And so while we have about 100% renewal rate on firms, we have less on seats.
And we don't know where that is, but we still think there's improvement there that can be done as well. Maybe some tactical questions. In terms of when a customer that's not on subscription that $2,800,000 if they do want to get on to subscription, just what's the mechanism for them getting on to subscription? Do they have to pay back, sort of get current on the most current version, then they start paying subscription? If you could just walk us through that?
And question number 2 was on the $50,000,000 that we're kicking out of next quarter. Does that $50,000,000 is that mostly in the bucket of going to ratable but non recurring? Or is that $50,000,000 does that include stuff that's going to be ratable? So why don't you take the first one and you can take the second one? Yes.
So the way they become subscribers is they get current and they attach. And we run lots of programs to do that. And obviously with the news that we announced today, we're going to be running a lot of programs associated with that. That's exactly how they get up there. And then as far as the consumption based opportunity, in this particular case that will be non recurring, that will be ratable.
Yes, that's correct. Hi. It's Ross MacMillan from Jefferies. Two questions, 1 short term and 1 longer term. On the short term that £50,000,000 just want to be clear, when you convert those deals, are those multi year?
So is that €50,000,000 deferred actually for beyond 1 year of billings? Does it include a multi year element so that in other words the crypto quote on revenue wouldn't have been the full 50,000,000, it would have been a part of that? And then second, we haven't heard much about churn in the existing subscription maintenance base. Could you talk to that, give us any parameters about kind of roughly where we are and what you think you could do to reduce churn over time? Thanks.
So maybe Steve and I can tag team on the €50,000,000 So the $50,000,000 just to be clear are a series of very specific enterprise customers, very specific ones that we're going to get on a consumption based model basically. And these deals, again this is $50,000,000 think about it this way. Think about them being in the forecast is $50,000,000 where there's a big chunk that would have been revenue upfront and that was part of the $50,000,000 and there would be some that would be recognized over time naturally if they had licenses and subscription. But the upfront revenue recognition portion would have been in Q4 would have been $50,000,000 Okay. Now it's going to be in those deals so just to give you Ross kind of a specific example, just imagine it was one customer.
Imagine it was a 3 year deal and imagine let's say $40,000,000 was or $30,000,000 was a license and $20,000,000 was subscription. You can do different math. In this particular case, if it was one customer, it's $50,000,000 of upfront revenue recognition and all the other stuff would have naturally gone to the balance sheet anyhow. We're taking $50,000,000 that would have been upfront and pushing it out. Yes.
So what we try to do is we try to do the math for you on the $50,000,000 so you didn't have to guess at it. Exactly. So we've filtered it out. There are some multiyear deals in there, but we've already taken into account what would have been recognized in the Q4. Exactly.
So you didn't have to ask us a lot of questions if we had to give you vague answers and try to meet in the middle. Yes. I think they're all going to be multiyear deals. The $50,000,000 is the amount of revenue we would have recognized upfront if we didn't change the business model. The total value of the deals will be larger than that $50,000,000 dollars So that's what we're trying to be really Hopefully, it'd be dead, dead horse.
Yes. Then he asked about churn rates. Churn rates. Where we're at. So we don't talk about where we're at right now.
But I can talk about some of the things we're doing moving forward. We're going to be changing the way we engage with customers. Right now, we kind of have an event driven engagement with customers around renewals where they attach, we come back and ask them to renew later. We're going to be moving to a much more of a continuous engagement kind of model with our customers. Obviously, that move to the cloud precipitates that, but the move to rentals also precipitates it.
So the 2 together, we're looking at our systems, our approaches, our go to market processes to just basically be more continuously engaged to customers. And that's going to have a significant impact over time on churn rates. Yes. I think the other thing that we can see is there are a number of places on a product basis, on a geo basis, particular demographics of the customer that are weaker than the others and those are the ones to focus on. And so I think we have some opportunity in individual areas and we put programs together specifically targeted to places where we don't see the same level of attachment renewal that we do in the other businesses.
Hi, guys. Gaurav Kapadia from Sorbonne Capital. I thought you guys did a great job laying out the expansion of the total market opportunity, the increased revenue per customer. The incrementality of the revenue that you're articulating leaving the transition period aside. At the end of the transition period, be the margin be somewhat to substantially in excess of 30?
Yes. So the one thing that we didn't do is we didn't model so none of the assumptions that we showed today assume a shift in channel mix. Should there be a shift in channel mix? That would be considerably higher. But this is all independent.
It's around the programmatic changes we've made and what we control as opposed to anything to do with the mix of channel partners. Right. And even just the because you spent so much R and D dollars expanding the product offering that the incremental dollar sales should have again very high incremental margins. Shouldn't one think that say relative to our discussions a year ago that the end state margin even leaving channel shift to slide should be somewhat to substantially higher. So the point that Go ahead, Mark.
I just would say the key thing I would say is when we said 30 up and over that. But I certainly register your point for sure. Karl, I don't know if that's No, that's fine. Hi, Kash Rangan, former mechanical engineer, former honor to see you sitting in the back here. Nice job playing out your presentation.
I had a question on how to model your business. We look at Adobe who paved the path as you said Mark. It's fairly tight of parameters. You know what they're shooting for in terms of number of subs. You know what the pricing is.
You know what the retention rate is. In your case, there seems to be a lot of subscription offerings with varying price points. We don't know where we're starting from and what we're shooting for in terms of the goalpost. So can you help us put a little bit more of rigid parameters on how to drive a model that can help us understand what the end goal looks like more concretely? And also secondly, how do you think about the execution of Autodesk has been a relatively simpler company in the past, but you've got license products, subscription products, execution becomes a little bit more complicated.
How are you putting your heads around that? Thank you very much. So, let me start and if anybody wants to jump in, we certainly can. But Kash, I think the key parameters that we're laying out, for example, are the 12% CAGR and billings growth over time. This is not around guidance for next year, for example.
You're going to get some much more specific parameters that you're going to be able to track each time. Certainly in that case, we're going to be outline a number of different things that will help reinforce the transformation that we're going through and I think it will be very specific. Today you've got clear information on how to model Q3 and Q4. We're going to come up to FY 2015. So, certainly, you're going to get a lot more there.
But hopefully, the parameters and the metrics that we're calling out are very specific for you to look at. You should expect to get me to be reporting more actual information on some of that, those key metrics so you can track the success as well. But stay tuned. We're I think the FY 2015 guidance will be very informative. You've got a little bit of runway right now.
So Karl, I don't
know if you'd add to that. No.
The only thing I would add is, I mean, I would just reiterate what Mark said. Any long term model you build, I would make sure that it triangulates with the 12, the 20 and the 50. I think that's a good basis to look at. We'll provide more short term guidance in between the 2. I think you can draw the curve in there.
And the operating margin, of course, is the other angle that you could pop in there and then you got a good view of where we're going. Yes. And we've already hit on a couple of things. There are a bunch of things that we're more than willing to tell you what's in the model and what's not included in the model. We already hit on a couple of those.
So there are some variables that are not accounted for. And so you can think through that dynamic as well. Right here. Walter Pritchard from Citi. Just one quick follow-up on Jade's question around the numbers.
So you talked about the $1,900,000 I think subs. You mentioned you have $3,000,000 that aren't. If you go back to kind of 2,008 disclosures, so current numbers imply about 40% penetration of the base on maintenance subscription. You go back to 2,008, that disclosure I understand there's some education and other things in there, but that was about 37% penetration on subs, which it strikes me has been very successful with maintenance over the last 5 years and the numbers suggest haven't seen the attached. So just wanted to clarify that.
And then for Carl, a lot of these tailwinds that we saw in the core business up on stage around BIM and around there's lots of great things going on in this market. And your business for the last 12 months you haven't seen a lot of growth. And I'm wondering and you've talked about renewing the focus on seen a lot of growth. And I'm wondering, you've talked about renewing the focus on marketing around the AutoCAD base, which is a pretty mature base, but maybe that helps a bit. I'm just trying to get a sense of in the core ex the SaaS and cloud and so forth, what's really changing that drives a different growth rate in the next 3 years there versus what we've seen?
Because it seems like the stuff has been there. Yes. So in terms of some of the drivers? Yes. No, no, no.
Why don't you take the first part? Just the numbers. Okay. So in terms of the actual going back to 2,008, I think again, we don't reveal exactly the attach or the renewal. I agree with the point Carl made that they're high, but there's lots there is definitely room for there's definitely room for progress to improve on both of those.
But very specifically in your question, the thing I want to normalize Walter and make sure is make sure that I understand education versus non education, make sure I'm doing an apples to apples on the calculation you're doing. That's the only thing. And Dave, I don't know if you want to follow-up with that, But that would be the one reaction I have on that. Yes. So I think we kind of have outlined, I think our attention that we placed on moving people to suites.
And before that it was on subscriptions. I think it took a little bit away from the AutoCAD and the AutoCAD LT business. What we've seen is a direct result of marketing investment in AutoCAD and LT drives more business. We probably had moved to one side of the boat a little bit too far. The rest of the things that we talked about and that's why I thought it was important to spend some time this morning reminding you of these other drivers what's going on with digital prototyping, what's going on with BIM, some of the new markets.
Those businesses have been doing really quite well. And you can see it in the suites growth on the product line, the aggregate suites growth where most of those products are sold. So in addition to the first thing is continuing to grow the core AutoCAD and LT base. And I think the second thing you're going to see is an acceleration of growth and the numbers becoming more meaningful in some of our new cloud based businesses. Mark, when we've seen subscription transitions in software historically, there's a ramp down in terms of revenue as you get the migration to that ratable recognition.
It typically takes either a short period of time like maybe a quarter or maybe a little bit longer. When you look at what you're instituting, do you have a sense or feel for when we see the bottom of the revenue? And then the add on to that is we typically then see as you get to a large recurring revenue that nice smooth growth up and to the right. Is that going to be mainly predicated on what you do to drive the non recurring to a Radvo model? And maybe just give us some sense of how you're going to do that?
Sure, Sterling. I guess a couple points here. One is, and you obviously you track a lot of the software industry. What I see, I don't see a quarter. I see transition that they're making.
So that I'm not sure which ones that you're referring to, but
I see it as not
Right, right, right. Right. So I think you'll get a better sense of the shape for the FY 2015 guidance for us. Karl, I don't know if you want to share anything else. No.
I think you'll see the low point in FY 2015. I think the time to go down and up not the full transition is probably closer to 6 quarters, maybe 5 or 6 quarters is where we've seen the model. There's still a couple of moving parts and to be fair in our disclosure, there are a couple of moving parts, not only about what we choose to do, but in order to get the proper accounting for it. So highly impacted by the accounting of these things, but I think the timeframe I kind of laid out is kind of the right one to think about. Originally, 3 Jerry Dodson, There were recently 3 pieces of news that came out that show you're at a challenging time.
I'd like to know how you integrate what we've discovered with what you've said today. And 1, of course, is that you're laying off a lot of people. And number 2, you're closing facilities. 3, that the earnings are not meeting expectations before. So how does all this integrate in this difficult period here with what you the presentation you just made today.
Sure. So let me just let me start. So the disclosure probably created more confusion than shed light. It's less than 100 people who are affected. If you want to look at our workforce, our workforce is over 7,000 people.
If you include temporaries and interns, contingent workers, it's probably close to 2,000 more. So you're talking about 9,000 people and about 90 were affected. So I probably won't start with the hypothesis you started with. The second part of that is most of the restructuring in this case was about go to market activities to try last several years is opportunities have grown in parts of the world and they've shrunk in others. Let me make that more specific.
For example, it's no surprise to anybody who's read the news that Southern Europe doesn't have the economy that it did 3 years ago, 5 years ago, 10 years ago and certainly doesn't have the growth prospects. So for us to have too many people in Southern Europe and not enough in Central or Northern Europe or in developing economies or some of the other places doing great would just be a misuse of our resources. Majority of this restructuring we just announced was done to accomplish that. The second thing, the closing of facilities will be almost equally trivial. It may be 1 or 2.
One of the things that happens in a company like ours in which we acquire a number of smaller companies, it is not uncommon for us to find ourselves with multiple facilities in the same city or in the same area. And it makes absolutely no sense for us to keep multiple facilities open. There's an economy of scale that comes by combining it and it I wouldn't take the same implication from that that you did. The earnings, I think our earnings have been strong. Mark talked about the cash generation and the earnings.
Some of the earnings that we're talking about in the next quarter are a result of the accounting changes. But the earnings I mean, maybe we should just step back a second on the earnings and look at this as the earnings are going to move at a pure arithmetic with the move to more ratable revenue. As you get more ratable revenue and you recognize it over a different time frame, your earnings move along with that. So expectations were set under our previous model business model. As that model earnings power actually grows over time even if that doesn't align perfectly with expectations that people had under the previous business model.
Hi. It's Brendan Barnacle from Civic Crest. I have one for Mark and one for Steve. Mark, when you talk about the non recurring and making that ratable, is that just through the usage model? Or do you envision doing something where maybe you'd attach a deliverable since you could move all that over that was non recurring and make it ratable?
So, yes, 2 things there, Brendan. One is that the recurring is clean just in the sense that it will grow smoothly with the growth and the cloud offerings and the rental offerings in addition to the maintenance subscription. You get that part. The other side of it is in terms of offerings that we have that are non recurring, everything else basically if configure a deal in such a way where, for example, you add different things to it, it actually can change the treatment of it to actually make that fit the appropriate be appropriately counted as ratable as opposed to upfront. And so that those are things that will happen over time.
Yes. Okay. Yes. And Steve on the go to market strategy as you look think about distribution when you do these big usage deals I imagine you guys are doing that direct. Do you see fundamentally sort of a shift towards more of the direct as we've sort of seen over the years?
And how do you plan on kind of getting the channel up to speed on all the changes that you're making? Yes. So we see it as a mixture. We do more of our named account business direct, but our partners actually are involved as well. Many of these companies are very large companies.
The support requirements in order to help drive adoption are critical to the success of driving consumption. So our partners actually play a role. There is more of our business going direct in that space, but our partners are also involved in many cases as well. And in different parts of the world, they play bigger smaller role depending upon the resource requirements to drive adoption and consumption. Steve, it's Mattel, UBS.
I just had a quick follow-up to Brendan's question on the channel. Where do you think they're at in terms of their understanding, the willingness to move? It's a change in their behavior. So where would you state if you had to rank on a 1 to 10 where they're at? Yes.
So And being the furthest along, how do you So this change, you're inferring a much bigger change to partners' requirements than perhaps they're actually seeing in real life. We're still having them lead with our perpetual licenses with subscription attached. That's something they've been doing very well for quite some time. That's the predominant model that they're taking to market and will continue to take to market. We're doing a lot of the heavy lifting with our new cloud offerings.
These are new offerings and we want to be very heavily engaged with our customers to make sure we get it right. We are bringing some of those partners along in key spaces to help participate in that process. Over time, they'll play different types of roles in those areas. But with any new offering, we want to actually do a lot of that heavy lifting and getting that close engagement process with our customers upfront. So Does that make them nervous?
Our partners get nervous on anything. What does that make sense? Yes. Our partners get nervous no matter what. They do see opportunities.
Be involved at all, that would be a real problem. We used to just throw it over to them and they had to assume all the costs associated with bringing new things to market. We've learned from that process. It doesn't always work so well. So we have to hold them back a bit.
That makes them nervous. But we tell them where we're heading and we show them the opportunities and then we actually bring them along and train them. We usually will bring them into the process with us, so that they are engaged together with us so that they learn how to do it then on their own. So but we've also been signaling to them that they should be building services around these different offerings and things like that. And our best partners are focusing on building out that service capability, so they can help drive adoption in the long term.
Just to clarify. And let me just one thing and then ask a question. Our partners have been nervous and I tried to outline a little bit history of the changes we've made in the business over the years. I can't remember a single one of those and I can remember dozens in addition to those changes that I outlined this morning in which our partners have been nervous. So even things like for example the move to subscription was met with a huge amount of skepticism about it being good for their business.
I would say now looking back, many of our partners would not have even made it through 2,009 if it hadn't been for subscription, but it started out the same way. Our movement to verticals was met with skepticism. The move to suites was met with a fair amount of skepticism. So our partners are heavily invested in our business. As explained to some people this morning that more so than other channels, our channel partners for the most part, particularly our traditional VARs rely on us much more heavily than someone else.
They don't carry a dozen different CAD products. They don't carry a they are really tied to our business. And so they're very aware of how important is that the changes we make support their business. And anything we do that changes causes some degree of alarm. We're also really aware that the success of our business has to do with the success of the partners.
So we see changes taking place with our partners. So for example, I would continue to imagine a trend that we've seen for a while, where we have fewer partner companies, yet more partner feet on the street selling. So some amount of consolidation that's been going on in parts of world. I think we'll see trends like that continue through this, but I don't see dramatic shifts in direction. And just to be clear, the shifts of the cloud, you don't need any additional capital expenditures to get you up.
You're going to utilize Amazon? Is that the view? Our CapEx, I think you're asking about that. Historically, as you know, it's been around 3 ish percent of revenue plus or minus a little bit. I don't see that as a huge change right now for the foreseeable future.
Yes. I mean, just to get it on the record. I don't see Amazon as necessarily we use Amazon today for some of our services. For some, it's appropriate. I don't think long term that's it.
But we don't see to reiterate what Mark said, I don't see CapEx changing a lot. Hi, it's Greg Moskowitz from Cowen. Mark, first of all, just wanted to ask you with regard to the consumption model. So one clarification, you've outlined I think about again $50,000,000 of a delta in Q4. Are these all customers that volunteered for the consumption model?
Did you approach them and they were receptive to it? And then also geographically speaking, does that map roughly speaking pretty closely to your geo revenue split? Sure. So, in fact, I can I'll plug Steve in. But these are a very specific set of enterprise customers, you're exactly right, Greg.
And I'll let you talk about the geography of it. And I think you're totally clear that there's if we didn't make this change, it would be $50,000,000 of additional recognized revenue today in Q4 rather, excuse me. So with that noted, I'm going to turn to Steve briefly to add a little bit of additional color to the nature of your question. Well, I mean, in the first part of your question, just to be clear, our customers are pulling us here. We're actually driving them value they want.
These are our named accounts. We've been engaged with them. We have active campaigns. Many of them have worked with us in the past. They've been requesting new ways of acquiring and really using our software.
So we're basically accommodating the needs and the voice of the customer with these model changes, which is what's really exciting about it overall. And these are established opportunities that we've had. So from a geographical mix perspective, whatever you've been modeling, you should continue to model. Yes. Wood, Just one piece of color.
We've worked historically to be able to recognize revenue upfront and customers would desire this licensing model more than anything we provided. Yes. We've been holding back. This is actually meeting their needs. Okay.
That's great. And just a follow-up for Mark. Are you anticipating any Q4 revenue effects from customers embracing your cloud rental offerings? Thanks. Yes.
What we're anticipating is factored into the guidance that we've given, Greg. So there will be some effect, But what's in there is encompassed in the guidance we've given. And we will see the adoption rate and it may change. But right now we factored in some. And should it be faster or it'll go down or should it be slow it'll move the other direction.
Yes. Sterling Auty from JPMorgan again. Mark, you talked about the 26% cash flow margins. How should we think about that out in FY 2018 given the operating margin guidance of 30% plus? Well, I think that the way I look at this is if we keep if you think about the CapEx answer that I just gave in terms of 3% -ish from that standpoint to the degree that that doesn't change a lot and we are making more money, I think the cash flow margin will potentially go up.
We're not guiding that at this stage, but I think there's a reasonable cause that that could go up assuming that we had operating margins at a higher level.
And then I
want to circle all the way back to my earlier question in terms
of you've given us billings guide
of the 12% CAGR. How should we then kind of wrap our around what that might mean the reported revenue would look like in FY 2018 in terms of relative to peak? I know you're not going to give us a specific number. I'm just saying as we layer this in, are we well above the 2,009 peak revenue, somewhat in line? Just give us some framework.
Well, a couple of things, Sterling. I think I can help on that. Is that when you look all the way out to 2018, you start to see revenue and billings growth converge. The difference is that when you're going through a transition, right, you start to see billings growing faster than revenue because you're pushing things to the balance sheet until you walk through the transition, right? So, if you think about revenue growth on a CAGR over a longer period of time, it starts to match your billings growth over that kind of a long period of time assuming that you're all the way through the transition.
So, I hope that helps, number 1. Number 2, in terms of peak revenue, the only thing I would say to you is look at where we're at today and think about the correlation I said between revenue and billings growth and you can start to extrapolate where we'll be in FY 2018 based on that CAGR. Okay? I hope that answers exactly just what you're looking for. Hey, Mark, just a quick one for you on R and D spend.
You given us sort of a business model breakout at the 30%. But if I look at your R and D spend at 24%, 25% ish, you're fairly aggressive on the M and A side, not big numbers, but buying lots of projects and turning them into products arguably additional R and D spend on the M and A side. You're quite a bit above your industry average if I look across the software space and even companies like Adobe. Could you help us understand why that's so high? And are there pieces that with the transition to the cloud, does that go higher or lower?
Or is this sort of the steady state with the R and D spend? Well, a couple things I would say. One is that everything is going to scale when you get to 30% plus operating margin. So everybody is going to get more productive over time and R and D would be no exception, number 1. Number 2, in terms of the kind of M and A that we spend per year, and if you look at it over, let's say, the last 5 years, we look at it very carefully as a percent of free cash flow.
And then we benchmark it against all the compares in our industry and all the compares within our immediate competitive set. We're very much on track with that. I mean, the percent of free cash flow that's dedicated is right in the zone. So, I would say what's different, Walter, is we do more small ones and other people do more big ones. But dollar wise, the free cash flow percentage, I guess, would be important to call out.
I don't see really different, I think very much in the norm. I think the third point when you look at R and D and I'd certainly welcome Karl's additional comment on this, but one considering direct letter or anything like that, but just roughly. And so when you think about that model and you compare our R and D dollars, keep in mind we're giving contra away for the portion that's indirect, right? And if you have something that's 85% direct and 15% contra, they don't have a lot of end user spend that's higher compared to like we do. Now think about both the R and D dollars being fixed in the same circumstance.
If you look at our R and D dollars as a percent of end user spend, you get a completely different view of where we're at. Now obviously, we look at both, but product and technology and being a leader like we are is important to fund. It will scale as we go to 30% plus. But I think these are factors that give it a bit more of a holistic view. But Carl?
Yes. I think if you really want to understand the spin, I think Mark's right as the operating margins go up across the board you'll see improving efficiency. I think to triangulate and benchmark more accurately, I think one of the things that really helps us to do it against end user spend. So if you made the denominator in our case, end user spend, and I'm not talking about services and everything else, but about $4,000,000,000 that's directly spent on our product. I think you come out with a slightly different conclusion where that I think a bigger haircut is probably in order in sales and marketing than in R and D.
I mean, because we incur almost the entire R and D for the $4,000,000,000 in end user spend. When you add in the amount that our channel partners get back and you add in our sales and marketing spend, that's much higher. Most of the channel, of course, is some kind of go to market activity. So I think you come out with a slightly different picture in terms of where we could be more efficient. Certainly, it's a fairer comparison when you benchmark direct and indirect companies against each other.
Okay. We're doing a round trip here. So in terms of the subscriber growth, the 50% of that equation, how should we think about it in terms of today? The vast majority of them, obviously, are maintenance customers or what we call maintenance customers. Can you give us any indication?
Is there any significant portion of cloud subscribers in there today? And then on a going forward basis, how should we think about the growth of how much of that comes from cloud subscribers versus maintenance based growth versus rental? I have 2 follow ups. So I would say today there is not substantial I mean they're growing quickly, but small relative to the overall base in terms of other subscribers, people who use the cloud. We're not going to give guidance specifically on the proportion.
But in the out years, we anticipate that that part of the business is growing much more quickly and that more of the growth in the number of subscribers certainly happens on the cloud side than it does on the maintenance subscription. So I mean it shifts over time. And if you just run any models and you look at this and you assume a small base now and over a 5 year period, you can see the shift pretty clearly what happens there. Got it. The other thing that will be true is that not all subscribers will be equal.
And one of the things that's going to be a little bit hard is I don't think we're going to have a great representative kind of average subscriber. They will range across the board from a subscriber who may be a PLM user paying us $25 or $35 a month to someone who's paying the equivalent value of let's say rentals. Rentals. Okay. And then on the rental question, can we think about those rental customers as durable subscribers meaning, I mean at some point they're going to do the math and say, hey listen, if I'm to use this more than 2 years, I might as well go to a professional license and attach maintenance, right?
So should we think of those guys as will somebody be paying annual rental for 3 to 4 years? Or eventually when they find the utility of the product they're going to switch into something that economically is more attractive over a 3 to 5 year period? I think the all the evidence about customer buying behavior is that they don't do necessarily the long time. I mean and whether you look at cable companies, gym members, I mean I can give you endless examples in both personal and corporate environments in which people often make short term decisions. Short term their interests are definitely served in the long term by a different decision than they make.
I also think Andrew pointed out a number of cases where it makes less sense. So there are those project based users. There are people who are cash flow constrained. There are a number of reasons that motivate it. It's not a lack of understanding of the math that does it.
There's other things that affect their decision. Uncertainty of their business environment and requirement for that, peak demand to make sure that that's valuable enough, so that people want to pay for that. And to make sure that that's valuable enough so that people want to pay for that. Got it. And then one question for Mark.
You mentioned that you want to push as much of your revenue to at least a ratable recognition if not recurring to ratable. Thus far, we're talking about $50,000,000 which is a select group of customers with this token program and whatnot. Should we expect more shoes to drop, if you will, as we go forward? Is that there's going to be other buckets of what's today upfront perpetual revenue going to at least to a ratable model? Time?
I think you should. I think over time our intention is to move more ratable over time. And we would like to move to ratable as fast as possible. Yeah. We think one of the things that question before about internal operations.
It will help us internally as well as I think it will help our external constituencies to have less of a mixed model. And so I won't want you to walk away and say the accounting is driving this. But I think the more clarity we can provide and the simpler in which we don't have conflicting metrics deferred revenue going up, recognized revenue going in. The more we can be straightforward about that and as clear as possible, I think it will help us run the business in a more streamlined fashion. So we would like to.
And I shoes to drop is probably the right way to think about it and that it does happen in some kind of quanta. Okay. And you want to rip the band aid off as quickly as possible? As soon as possible. The mechanical engineer back again.
By the way, you're one of those mechanical engineers who doesn't pay and maybe 25 years back, there was no piracy. That floppy disc one of them. So anyway, maybe a question for Steve. What are you seeing with respect to the government shutdown since you're an October quarter company? You don't have to hustle whatnot.
But any thoughts you have on procurement cycles? And how you maybe as it relates to implications for other software companies, how do you what are you seeing in that vertical, especially in the last few days? And another question was keep going back to the rental versus the license and Keith asked something here. Why would you not just lower the price of the rental even more aggressively like Adobe did? They started off at $120 a month.
They brought it down to 30 dollars -thirty 5 dollars So that way you would get less churn, but more of
a solid uptick as you build this business up to a large business.
Okay. So I'll answer the first part of the question. I can't really comment on what's happened in the last 2 days. It's hard to judge changes in that shorter window of time. I will say that federal government has been slower based upon the sequester and just some budgets tightening up and that's not something that's happened this week.
It's been out in the marketplace. It's nothing that hasn't been built into our expectations already. But certainly the federal S. Specifically has been different than what we've seen in the past. It doesn't seem to be impacting state and local and things like that, but federal U.
S. Certainly is having a different dynamic this quarter than what we've seen in prior Q3, which was the fiscal year end. Yes. I would not be bullish about companies that have a large proportion of U. S.
Government business very specifically. And unlike other times, one of the things we didn't see is a big spending rush. Usually like with the budget, when people know the money is going to freeze, there's often a rush of that money out the door. I think there was a little bit of it, but not enough got out the door. No.
In fact, I think the sequester more than the shutdown was slowing things down. The shutdown just ended up being a halt, but we saw this dynamic being very different to Karl's point. That year end fiscal year end spend rush didn't occur.
And it was Yes.
And I'll answer the other question. So you remember in my presentation, I talked about 2 dimensions, the separation between the perpetual price and the rental price and then the value differentiation between the two offerings. Obviously, over time, we're going to be looking at that separation critically. Right now, we think we're in the right place given what we know, what we want to learn in terms of the separation between the perpetual price and the rental price. That could change over time, but we feel like we're in the right place.
The other knob we're going to be pulling is the differentiation between the offerings, what's available with the rental versus what's available with the perpetual purchase. Those things will evolve over time too. So all of this will evolve as we learn more and get some more momentum. Thanks. Keith has taught me how to ask 3 questions.
You don't need any help. No, exactly. First question for Amar and for Buzz. Your comments about the greater breadth of your functionality and you and Buzz talked about share gain in automotive for instance. It brings up the following question, which is how do you think about the possible ability to gain share from or recapture, so to say, the large amount of maintenance revenues that your principal competitors have.
For example, if you look at DS, PTC and others, their combined maintenance revenue is somewhere between $2,500,000,000 and ProE for example. Do you think about that at all in terms of anything you're doing here in terms of being able to induce share gain through your pricing model coupled with your tools? And then a couple of follow ups for the others. I certainly think about that. Example is factory model.
There are our competitors have very expensive, very complex, very high maintenance fee factory design products. So we see in every case, we are either adjacent or displacing one of those old tools. So I think it's not only that they're expensive, they're really old and they're not being developed as aggressively. So I think that's a significant opportunity. And that's in fact, just one example, I think there's many of them like this.
One of the things that's attractive about that space. It's really the cloud that really enabled and emboldened us to do it. We felt we had a new way to help those customers with a different sort of solution as well. Yes. I think when you look at entrenched competitors Jay, it's hard to make a frontal attack unless you see some difference in the environment.
In this case, the two things that are there are this technology platform transition and a business model transition. I mean, it's very hard to go into 20 year customers and just be incrementally better, marginally cheaper. That is not a compelling reason. If you can be better, less expensive and differentiated, it's a huge opportunity. So we think about exactly what you pointed out all the time as an opportunity to go after those.
And if you looked at almost everything in our portfolio that ends with 360, you could find opportunities there. You could map it against the competitive set and see what customers are doing today and why we think what we're offering. It will be perceived to be more valuable. I think the business model of consumption really supports that as well. It makes it easy for people to trial.
So analysis, data others in their PLM and maintenance business. We think the cost of procuring PLM, the cost of deploying PLM, cost of maintaining PLM is out of whack. It is no different than what we've seen in a lot of other markets, what we've seen in ERP or CRM or HR and you can map the old to the new. The old people who provide that in the new, by the way PLM is identical to that. And so we've looked at that as a great opportunity to quickly.
It's a dramatic I mean I can't emphasize how different it is than the year or the year a half and the tens of 1,000,000 of dollars that people used to spend to do that. So we think something like the PLM360 product is really disruptive. And then we're getting it not only into medium sized customers, we're getting it to large customers on the department level where people can try it out. And Jay that consumption example I gave you, that usage growth and the dollars that came back to Autodesk those came out of those LT is your largest product by new volume and in terms of cumulative base, at least historically. Earlier this year, the company talked somewhat unusually about LTs possibly being one of your growth drivers this year, which unfortunately has turned out not to LTEs possibly being one of your growth drivers this year, which unfortunately has turned out not to be.
But for the long term, how do you think about converting that very large base or upselling that very large base of LTE into higher end products with more recurrence? And then lastly, at the meeting last year, you talked about an inclination towards industry solutions, coupling ad hoc configurable products with consulting services. I don't think we talked about that very much today, but how are you thinking about the Industry Solutions orientation? So first, let me answer the LC question. So there was a long perception for a while that LT customers don't buy anything else.
We've certainly overcome that expectation. We're already showing that LT customers can and do LTE customers can and do buy other things. It's just a matter of talking to them. The typical LTE buyer tends to be a smaller business, so it's kind of a bimodal business. It's a large chunk in enterprises, but then there's this large pool of smaller businesses.
They tend to have different buying patterns, different needs. So we've proven we can upsell them. They also tend to be less attached on subscription than the rest of the base. So one of the things you're going to see us do pretty strongly as we look at that LT acquisition engine, we're going to be looking at some of these new business models and using that as a compelling dialogue with some of these customers. And I gave you some examples during my presentation to say, hey, you know what, you should be using the right tool and here's a way for you to get to the right tool.
And that's a way for us to begin having a recurring relationship with some of these customers that are less likely to have a recurring relationship with Autodesk. So we're going to put a lot of energy into that and using these new models to enhance and expand that LT price point, because in many ways, LT is more of a price point than it is a product, right? And that's one of the things we're going to be doing. On the Industry Solutions side, I mean, you see us doing that in selective areas. So the automotive discussion we had earlier, we're being very deliberate there.
We're continuing on that. You see us being very deliberate in infrastructure and construction in particular ways. And we'll do that in those places where it makes sense. But you'll also see us flex product solution and product marketing muscle in the places that make sense well. Well, then to add, because we didn't talk about it much today, but our consulting business is focused on those industry specific solutions.
So our global service team does work very closely with the sales teams on helping to put workflows together and wrap around complete solutions. And it's helping actually to drive consumption with our largest customers. So it's an integral part of the strategy overall. Hi. This is John Guyan from UBS.
I had two questions. One, how are you addressing the opportunity in 3 d printing? And then second, related to the channel, could you give us an idea of what portion is today enabled to sell the cloud products and the rental products? Yes. So let me start with the 3 d printing and then maybe Steve or Andrew you want to take the other one.
I mean the best thing about 3 d printing is you can only print something that you have a 3 d model of. And that sometimes lost on people. Most of the 3 d printing business these days is around a business that's built around the consumables. And it certainly is a good business. I mean, I don't know if you guys have looked at that business closely, but people are selling consumables for 100 or 200 times the price of the commodity material.
I don't know about you, but I like being in any business in which you could do that. So the 3 d printing business is a very lucrative business today, but it is ripe for disruption. Our angle on it is, in order to do this 3 d printing, you need the 3 d models. And what we're seeing is from manufacturing, construction, in media and entertainment, our customers build 3 d models and want them 3 d printed. We're also doing some amount research in 3 d printing that you'll hear more about later next year in terms of research on material science and some other improvements to 3 d printing that we did.
But let's wait till next year for that. And on the cloud and rental models relative to the channel, we talk about them separately, because they're really two different things. Start with rentals first. So rentals are basically a different way of acquiring our perpetual licenses, our suites. We've made those available to all of our partners.
We just rolled it out a couple of weeks ago. They can sell quarterly and annual subscriptions. And we've educated them how to have that financial discussion with customers to help them navigate through what's the right business model for them. So partners are turned on now ready to go with our rentals. As I mentioned in one of the earlier questions, from a cloud offering perspective, since these are newer offerings, we focus more on specializations and where our partners have actually invested in real resources, feet on the street, technical resources that will be able to help drive customer adoption.
So that's a more deliberate approach. We're working with just specific partners that are investing in that basically growing that business with us. So we don't make that wide open. We basically ask our partners to specialize, to add resources, to get trained and then go through an early process working closely with us. So we're doing a lot of that heavy lifting ourselves and our own resources both sales and technical wise to make sure that the cloud offerings are getting to the right customers.
Thank you. Cindy Hsiao with Cermi, also a mechanical engineer. Actually, you have to sell any CAD for HP. Currently covering the 3 d printer makers. And when I talk to them, one of the things they say is that a lot of the design software out there now doesn't really have the capability to design for 3 d printing.
In other words, it assumes that you're still constrained by the class manufacturing techniques and doesn't allow you to take advantage of the 3 d printing. If you could comment upon that, I'd appreciate it.
Yes. I take this one. It's because sure, Des. We spent a lot of time on that problem. Part of it's true.
I think there are some shapes you can make on a 3 d printer you can't make any other way. Okay. So and it's a very unique material. It's strong in one direction, very weak in another because it's layered. So you have to design things very differently.
So I would say 95% of
the things that are made
on 3 d printers, our software can any of our 3 d software can do perfectly. Okay. There's the 5%. I think we need to do some innovative new work. We are working on those things today.
Now we have done all the right things to connect to 3 d printers. Can simulate those things. We can do things like toppling sort of programs. So we can add bracing and those sorts of things that let you print. So we've gone a lot further than most of the printing companies are aware of.
But I think we do have some innovative new work to do too. Yes. I would add I think this often happens when you see industries converging. I think the 3 d printer companies, some specifically are kind of shooting at the tail. They identify something that's a minor weakness and they go shooting at the tail.
And 2 years later, they come out and realize that everybody else has recognized the same thing. So I think in the 3 d printing market, what you're seeing is a move from just using them to prototypes to being used for real production. And in that same way, we're seeing the same thing going on with composites. Buzz talked about the analysis of composites. It turns out the design of composites have a little bit of the same problems that lot of the stuff that people are doing with design don't anticipate both the new materials and the new processes used to do it.
And there's definitely some things that we can do to aid it. So for example, we kind of joke about people making black aluminum. Black aluminum to us is carbon fiber where you take an aluminum part and you by the way, that shows what a funny group we are. We joke about these things. But carbon if you just take an aluminum part with all the ways that you would have manufactured it before and just do it in a composite like carbon fiber, you probably don't get the optimum design.
And so it's less that the tools are not capable of it. It's as much that the designers need to think about how they design these products differently given that the processes and the materials are going to be different.
And if I can follow-up, you talked about you have to have a model to print and one of the things we're seeing is 3 d scanner technology improving. Jay Leno talked about his MakerBot just introduced a low end one earlier this week. Any comment on how much you think 3 d printing will be done from a model that might be built in software such as AutoCAD versus how much of that could be things that are scanned? And I know you've got a scanner in the gallery here as well.
Yes. So one of the things to talk about is we actually have the leading technology for actually processing the information that comes from scanners as well as we have the ability and we demonstrated out here in the gallery of taking photographs or video and turning that into 3 d models. So we actually I think the scanners, particularly like the one you saw from the MakerBot guys, at this scale, it's a great solution. You still find even after you scan in order to be able to print, there's often some post processing. But we think an important new workflow is capturing reality.
And so whether that comes from photographs or video or laser scans or LiDAR scans, we think that's really important. We have both a product that we aim at consumers called 123D Catch, plus we have a product called ReCap for reality capture that actually allows people to do that. I actually think it's important for both 3 d printing. We also think it's really important for a workflow in which people's initial starting point is not a blank screen, but you capture something that already exists and you modify it slightly and then you print or manufacture it in some other way. So we think there are a lot of important workflows that are going to start with objects already there rather than starting with a blank screen in a traditional CAD program.
And we think it's really important and really promising.
And one more question. If you look at Autodesk and I'm going back in time, I'm not as current as I'd like to be. Autodesk was always sort of the inexpensive everyman solution competing against say to sell or parametric or something. How much of your opportunity now do you think is being disruptive with capabilities that a more expensive solution has versus creating new solutions?
I think that's a good question. I think historically, we have always been on the disruptive side of trying to democratize or bring to volume things that have existed before. I still think at our heart, the core DNA of the company is doing that. In doing that and looking to where problems are with customers, I think we've probably stepped over the line quite a bit in terms of being the leader. So when you look at things like reality capture, 3 d scanning or when you look at what we've done on cloud and mobile, I think more so now, we see this as being appropriate for our broader swath of people before even our traditional competitors have made it available to the really high priced.
So I think it's a mixture. I talked about it in PLM. PLM and CAM and some of those other things, I would say, is more traditional disruption in which we go in and we take something that was done in an older, more expensive way and make it more available. I think some of the other things that we're doing are actually where we're breaking new ground and that's a slightly different position for us.
Thank you very much.
You're welcome.
Chetan Yamada from Baird. Question on the outlook. You said 12% CAGR over a 4 year period, 14% to 18%. And then also you said 20% increase in customer value. So is it fair to read that as being roughly less than half of the growth coming from existing customers and roughly a little bit more than half coming from new customers.
That's a fair way of looking at it roughly. I mean, the numbers kind of play out that way. I mean, not some of the customers in the existing base are going to be we're getting more value from and then we're going to be getting more I mean, that's a reasonable way of looking at it. Does it break out precisely that way?
It's also non subscribers turning into subscribers like your AutoCAD 360 example, right? Exactly.
But I think that I think for everybody, if you're doing your homework, copy from her paper.
And then a question on the increase in subscription base. You said 50% increase over by FY 2018. If you could rank for us what the contribution to that is going to be from cloud versus rental versus maintenance subscription? Thank you.
We're not going to break that out. But what I can tell you though is in terms of our new customer acquisition programs, we're definitely going to be turning the focus and the preference engine towards the new offerings and towards the cloud, towards the rental offerings. So over time, you're going to see a fairly dramatic shift over those years in terms of our new customer acquisition to these other types of offerings. How that plays out in the mix long term, we don't have guidance on. But you can see where we're heading.
Great. Thank you very much.
Anyone else? We have a few more minutes. It was interesting when you discussed about how you try to increase the value from a customer. Of course, essentially it's good for the company to make you more money. Have you found any resistance to say, hey, I don't want to pay extra for this?
And what do you do in that situation? I mean, how do you talk about value? What in terms of pricing, it seems like it's a very important dynamic of your plan going forward. And I'd like to hear from whoever appropriate what you do in this situation. So let me start with the big one and maybe Steve can hear.
So the first thing I'd say is absolutely we subscription. I mean on suites, my apology. On suites, we believe it brought more value to the customers and more value to the Autodesk. It was a win win for both of us. I think in aggregate that has turned out to be true.
Many customers have chosen to buy our suites and they get more value, but individuals have chosen to stay with individual solutions. In that case, one of the things that we've done and you'll see this all through this is, one of the things we have not done is the more draconian measures. For example, when we introduced suites, we could have eliminated individual products. We chose not to do that. When we introduced rentals, we didn't get rid of perpetual license.
We could have done that. So we continue to give our customers a choice about what they want to do. The flip side of it is we also try to incent behavior through various pricing, packaging, promotions and other policies.
Be Can I just add one more
thing about value to what Karl was saying
is that, I mean, many times the customers pay us because they're taking money from somewhere else? It isn't like we're just increasing costs on their side, it's that they're spending money either with a competitor or on paper based workflows and it's there that we are creating value and getting rewarded for. So many of the cloud based services we're talking about is really replacing something they would have spent money elsewhere and turning that into value they would reward us for.
Yes. I mean, I wouldn't think of how we get more from a customer by selling them the exact same thing and just charging them more. We're bringing new solutions that help them solve problems in different ways. Amar used an example in his presentation from some discussions I had when I was traveling last week where a customer is dramatically changing their go to market, winning more business by leveraging a solution of ours that they didn't have before. And so one of the things I find as I'm talking with customers, customers of Autodesk use our software and our cloud services to drive their businesses.
We're on the front end of their business. They're using our tools to actually win business to compete in their marketplaces. And if we can help them win more, if we can give them a competitive advantage in their space, they're happy to spend more with us. So we're not trying to just get the same thing and sell it for more money. We're offering more value and we're extracting more value in return.
It's a good win win. Yes. Let me just try to bring it back to like for example when we showed those TAM slides in the beginning it totaled up to $21,000,000,000 What we're counting in there to reinforce the Marsh point is mostly revenue that's going to competitors. Jay brought it up in his question. People who have these big maintenance bases which there's a lot of revenue going to maintenance.
Many of our offerings are trying to serve customers who are either over served and paying too much for what they're already getting. This is a large part of what we see being the additional subscribers, us providing better services at lower cost to our customers. And to the person who asked before, that's been I think really the history of what we've tried to do as a company is provide more for less, make it easier to use, easier to deploy, easier to maintain. Okay. Can you think of an example of doing something like that?
Let's say someone has a higher and more expensive product and you're giving in something that says more recently priced, but essentially does the same thing. So that seems to be sort of the previous discussion. Can you give an example of how that might happen? Yes, sure. I mean like so for example, let's use the PLM example.
So typically PLM are deployed inside companies. They will dollars 1,000,000 is a reasonable amount to pay in a year. It might cost $10,000,000 for implementation. It will be wise distributed between all the people in the manufacturing company. We come in with a different model.
And the way to probably think about what we do with PLM is totally analogous to let's say what Salesforce did with Siebel, what NetSuite's doing or Workday with PeopleSoft. PeopleSoft. Those are the same kind of things. The change in what people expect in terms of the productivity and efficiency they get from IT tools is going up. Every company is having the same discussion of how do I do more with less that we were having before and we provide them opportunities.
So the PLM one in which they would have had an otherwise much more expensive and probably risky deployment, we simplify that by giving them easy access. Same thing with our design tools. We believe our design tools so for example, we think Inventor at $5,000 does a much better job for the vast majority of customers than something that might be priced at $10,000 or $15,000 or $20,000 And if you look back, this is a classic disruption if you look at like the literature from someone like Christiansen. What ends up happening is our competitors to some degree have ignored many of these customers and have focused on other areas. And they just enjoy profit that comes from milking their customer base.
We come in, we continue to invest in it and we build better products for them. And we're proud to do it. And so when we go in, it is really not a sense of how do we get more from the customers. It's really a sense of how do we make them more efficient, more productive, how do we make them win more business. And thank you very much.
You're welcome. Is it too simplistic to think about that 20% upsell in terms of the existing customers by just taking the subscription revenue last quarter divided by the $1,900,000 you get about $5.23 of annual contribution per sub and think about that growing 20% over that forecast period. Is that too simplistic? Are there factors that need to be thought of to layer on top of that? Well, I mean, it's probably simplistic in terms of the mechanics of how it will actually happen.
I mean, I think I was pretty clear about the ways when you look at that existing sub base, how we're going to layer on some of these SaaS applications and how we're going to layer on the consumption models. You can see roughly that some of those offerings when you look at them on an annualized basis, they come out being on average 20%, thirty percent of the cost of a maintenance contract in the year. So you can see the additive effect. You can do the math from there. But I do think it's important to recognize that there will be a distribution amongst our subscription customers in the amount that they pay per year.
And for somebody who is getting $10 a month worth of value, that's a fine customer. Someone who's getting $1,000 a month, that's also a fine customer. Thank you all for coming. I think there's a little bit of lunch being served and the executive teams are going to stay around and happy to interact. And if you have any more questions, happy to