Investing in the Technical Applications Market: Key Market Characteristics

Defining the Market: There are a number of factors that make this market an exciting area for investors, but before we discuss those factors we should set the foundation for that discussion by defining the scope and the size of ‘The Technical Applications Market.’

Scope

The term ‘technical applications’ covers the wide range of applications used by engineers and designers across all of the manufacturing industries, architecture, construction, utilities and other sectors where computer-based design aids provide valuable if not essential capabilities. It’s certainly an acronym-rich market. The range of applications includes CAD, CAM, CAE and PLM in manufacturing industries; BIM and MEP in in architecture, technical and construction (AEC); and GIS for geospatial applications. There are also the applications such as visual effects (VFX) used by creative professionals for industrial and other design tasks. In addition, with the trend towards ‘smart devices,’ the scope of technical applications must be extended to include ‘new’ areas, notably the tools used for software and semiconductor development.

Size

The ‘core’ technical applications market, including that for tools for lifecycle management of embedded software, is around $20 billion. Figure 1 below shows the year-on-year growth of the market worldwide since 2006. The downturn in 2009 following the 2008 crash is clear, but since then the market has returned to consistent growth, although that growth has varied slightly by region – Figure 2 shows growth since 2008 by geography and Figure 3 growth since 2008 by application segment.

Figure 1 – Technical Applications Market, Worldwide Growth

Figure 1 – Technical Applications Market Growth by Geography

Figure 2 – Technical Applications Market Growth by Application Segment

Why is the Technical Applications Market a Good Investment Opportunity?

From an investment point of view, there are two major factors that make the technical software market attractive – growth and exit opportunity. A key attribute of technical applications that drives continued market growth is that there is a strong case for adoption irrespective of the circumstances of the user organization, since the benefits range from reduced costs and streamlined product development processes to better designs, the ability handle more complex products and integrated product lifecycle management.

In addition, the market continues to grow in scope as technical applications are adopted in ever increasing areas of activity. In manufacturing industries, from their origins in the product design and development phases of a product’s life, technical applications are being exploited right across the product lifecycle, supporting new ways of providing after-sale maintenance and support and closing the loop between innovation and field use. With the increasing use of smart networks for managing production and even in the design and development phases, they are being used to support new collaborative approaches and processes. In the architecture, engineering and construction (AEC) industries, the growing use of building information management (BIM) to integrate not only design but also facility operation across its lifetime is generating numerous new application and integration technology opportunities.

This market dynamism, together with the nature and structure of the technical software market means that for the right businesses there are excellent exit opportunities. The major players now primarily seek competitive advantage by breadth of integrated solution portfolio than by focused product capabilities; the sheer range and number of the applications required to achieve this makes it impossible for them to develop everything in-house. Consequently, the recent history of the market has featured a string of strategic technology acquisitions by the dominant companies.

Assessing Potential Technical Applications Investment Opportunities

While the technical applications market offers great opportunities for investors, identifying and analyzing those opportunities requires a high level of rigor. The technical applications market is very complex; it spans almost all parts of the world, covers a huge number of industries and includes a huge number of products for a wide range of activities. Like most markets, it has its mature areas, where growth is modest but steady and entry is difficult, its growth ‘hot spots’ and its white spaces. Most companies in the technical applications space have a number of products, several target industries and multiple geographic markets. Furthermore, many customers have made substantial investments in their technical applications infrastructure, with well-established incumbent product sets supporting their product development workflows.

This combination of market complexity and maturity means that evaluating investment opportunities is a multi-dimensional task, requiring many perspectives. Alongside the analysis of a company’s financial position and the capabilities and experience of the leadership team, assessment of its future prospects requires careful consideration of its technology in the context of market trends and competitor capabilities, as well as a host of other factors including: market size, penetration and growth outlook for each of the industries; regions and segments to be addressed; channels to market; pricing and licensing models.

The starting point for evaluating investment opportunities must therefore be a comprehensive ‘market landscape’ that brings together all of the relevant factors that must be considered for the area of the market into which the opportunity falls. The market landscape should therefore cover:

• Overall market structure;
• The business models adopted for the chosen market sector;
• Trends in both of these areas;
• Commercial frameworks in the sector – pricing, licensing etc.; and
• Quantitative market information – size and predicted growth for the segment(s) of interest.

Such a market landscape can be ‘tuned’ according the stage of the investment analysis – for example, if a specific target company has been identified, the attributes of that target company and profiles of likely competitors can be incorporated into the picture.

About the Author

Tony Christian is Director for the industry analyst and market consulting firm Cambashi (www.cambashi.com). He has a wide-ranging experience in engineering, manufacturing, energy and IT. His early career was in technical R&D roles, after which he moved into computer-aided engineering. His subsequent roles included divisional head of the IT subsidiary of a major international engineering and construction company and leadership of teams developing and implementing state of the art manufacturing control systems at British Aerospace. More recently, Tony was a director of the UK Consulting and Systems Integration Division of Computer Sciences Corporation (CSC), leading a consulting and systems practice for manufacturing industries, and then Services and Technology Director at AVEVA Group plc where he was responsible for all product development and the company’s worldwide consulting and managed services business.

Tony has a BSc degree (Mechanical Engineering) and MSc degree (Engineering Acoustics, Noise and Vibration) from the University of Nottingham.