Alibre CEO Paul Grayson Discusses the New Pricing Structure

The recent decision by Alibre to drop the price of their entry level product Alibre Design Standard from $999 to only $99 generated a wave of reaction throughout the CAD world (see the blog posts by Deelip Menezes, Roopinder Tara, Matt Lombard, and Ralph Grabowski). The decision caught everyone by surprise. Even at a time when the recession is pushing most CAD manufacturers to substantially lower the price of their products with specials and promotions, Alibre's decision is still shocking. My first reaction was not very positive and only after I took some time to analyze the details did I switch to a more positive position. Like many people out there I still have some doubts about the implications of this radical price drop. The main question is if this change will have a positive expanding effect on the market or if it will simply re-orient buyers that were already close to a buying decision. The only person that can help me and Novedge blog readers understand Alibre's decision and evaluate its implications is Alibre CEO Paul Grayson. Here is the interview.

Paul, can you tell us a bit about yourself and your company?

I started Alibre in 1997 after having spent 14 years as the founder and CEO of Micrografx

I started Alibre in 1997 after having spent 14 years as the founder and CEO of Micrografx, a company which went public on the coattails of Microsoft Windows 3.0 in 1990 and reached about $100M in sales and 400 employees before merging with Corel in 2000. Prior to Micrografx, I was a software developer working primarily at manufacturing companies, where I developed a passion for product development and manufacturing.

Alibre has always promoted the idea that its products provide 80% value at 20% of the price. Is this still a valid way to describe your product line?

we provide 100% of the functionality that the vast majority of people need to get their jobs done

Honestly, that is a bit too modest. I think we represent significantly more than 80% of the value for 20% of the cost, especially with the $99 price offer. But more importantly, we provide 100% of the functionality that the vast majority of people need to get their jobs done. We may not have all of the bells and whistles of SolidWorks, Inventor, Pro/Engineer, etc., but our customers tell us that having a simpler, streamlined, easier-to-learn user interface with a complete, but not overbearing set of features, is a real advantage. Our competitors have become overburdened with unnecessary complexity and a multiplicity of ways to do the same operations, which just leads to user confusion, difficulty of learning, and the need for constant retraining.
Can the designer make the model, verify it, detail the drawing, and send it to a manufacturer in a timely and efficient manner with Alibre Design? That’s the question. In an overwhelming percentage, the answer is yes.
We serve the full needs of the vast majority of small and medium sized businesses that design mechanical products. So to answer the question very clearly, if you make cars or enormous, extremely intricate industrial equipment with 10,000 parts, we aren’t for you. If you’re like most companies, we are.

Your recent decision to drop the price of Alibre Standard to only $99 has shocked the entire CAD market (myself included). Can you explain the reason behind this decision, the expected effects, and the implications for the end-users?

Our mission is to make 3D CAD available to everyone that wants or needs it

That’s a lot of big questions in one, so let’s look at them one at a time. We had a healthy internal debate about this strategy. There were concerns about possible cannibalization or creating the perception that we were desperate. It really came down to a passionate desire to enable customers to experience Alibre Design and to take a bold step to increase awareness and adoption.
We have 10’s of thousands of satisfied customers worldwide and an obsession to reach everyone that we can. Our mission is to make 3D CAD available to everyone that wants or needs it. Our previous marketing initiative, Alibre Design Xpress, was very successful in reaching hundreds of thousands of users and motivating many of them to move to our paid products. We know that when customers give our products a chance, they love them. And they recommend them to their associates and colleagues. “Word of Mouth” is our most common lead source and the most effective form of marketing. This offer is all about shaking up the CAD industry, creating controversy, getting the industry talking about us, and most important getting customers to try our product and discover for themselves how great it is. We know that if we do that, we will be richly rewarded, in business and financial success, but even more importantly by the success of our customers in creating innovative products and exciting careers for themselves.

we had the expectation that there are large numbers of serious designers that need a professional CAD system but can’t afford it right now

The interesting thing is that many of our customers start at Standard but almost inevitably end up migrating up the food chain. The majority of our customers use Professional or Expert, which is indicative of the fact that they find real value in moving up as they become more accomplished with the product. We expected to see a lot of individuals and personal users that just want to get the $99 deal, but we thought “why not?” We also had the expectation that there are large numbers of serious designers that need a professional CAD system but can’t afford it right now. These people will want training, maintenance, and will eventually move up to higher-level products when they have the resources and the reason to do so. The promotion has only been running for the 2 days and it has already greatly exceeded our expectations. From the people we’ve talked to we are hearing that our assumption was valid. All we’ve done is remove the prohibitive up-front cost. That’s it.

we’re going to get a lot of instant adoption from serious designers that do not currently have a CAD option for their budget

So the expected effects of this promotion are that we’re going to get a lot of instant adoption from serious designers that do not currently have a CAD option for their budget, that they will be successful with our product, and that they will talk about it. When people try us, they like us, and they stay with us. They will eventually move up our product line (at a very reasonable cost), they will find value in yearly maintenance (also a very reasonable cost), and the end result is that this is not a $99 revenue stream for us.

end-users are [...] getting a heinous deal. Something they will never see again

Some people have claimed this is a bait-and-switch. Well, the bait is $99, no argument there. The “switch”, if we want to play into that terminology, is that we expect those that take advantage of the offer will realize they got a great deal and will voluntarily give us more money in the form of keeping that great deal up to date with maintenance and learning to use it efficiently with training. We don’t feel bad about that, and we aren’t hiding it. The various options to buy with training and maintenance alongside the deal are prominently shown on the promotion page.
The implications for end-users are pretty straightforward. They are getting a heinous deal. Something they will never see again, and that can’t be touched by any competitor offering the tools that we do. Like we said – there are no gimmicks involved. It’s pretty much that simple.

Is this drop in price a limited time special offer or something that will continue even after the new release of 12?

we originally planned for this to be a very short-term offer

We originally planned for this to be a very short-term offer, just long enough for the marketing buzz to build and our channel partners to exploit the surge in demand. However, it is so successful already, that we are considering extending it by a week or two to give people who respond quickly the opportunity to take advantage of it. A key consideration for us is the availability of V12, which is in the final stages or endurance testing. That, at a minimum, puts a book-end on the offer.

Selling and promoting a $99 product requires a completely different approach compared with selling a $900 product. What changes are planned in your processing and marketing strategies?

our marketing strategy for this offer is to get it in front of as many people as possible as quickly as possible

Since this is a one time, temporary promotion, the biggest thing we had to take into account was the processing side of things. Accommodating the amount of inquiries, web traffic, etc. was something we had to prepare for and we’re lucky we did. Sales have taken off.
As far as marketing it – the promotion really speaks for itself. Our marketing strategy for this offer is to get it in front of as many people as possible as quickly as possible. We decided to embrace an Internet centric announcement and promotion model, starting with bloggers and industry insiders such as you, Kenneth Wong, Ralph Grabowski, Matt Lombard, Deelip Menezes, Roopinder Tara, and others. We decided to release the news on our blog first and then just rely on folks like you that are truly passionate about the CAD industry and that watch and report on everything that is happening. We knew the deal is too good not to talk about – in fact it’s unheard of - and as we’ve seen many bloggers and news sites immediately picked it up.

there’s a huge difference between being desperate and being opportunistic

In general this would not be successful in the long run without buy-in from our reseller channel. After a healthy discussion about the pros and cons with many of them, we found that with few exceptions everyone was on board with the idea of a massive influx of new users, even if it is at a very temporary loss in margins. The mid and long term benefits outweigh the short term. We just happen to be in the unique position to be able to do this – none of our competitors can. There’s a huge difference between being desperate and being opportunistic. It’s just that when most vendors are opportunistic, it’s a zero-sum game and the consumer loses. In this case, the consumer wins and so do we.

It's getting more and more difficult to find excuses to justify the purchase of a 2D CAD system or to postpone the switch to a 3D system. Despite that the 2D CAD market seems to be immortal. What's your take on this topic?

in this industry, customers are later adopters, they have come to depend on their 2D products to get the job done

In my opinion, this is due to a “generational” shift that is in the process of occurring. Mechanical engineers and product designers can be very conservative. At Micrografx, our customers were all early adopters, eager to adopt new technology (like Microsoft Windows and Graphic User Interfaces). In this industry, customers are later adopters, they have come to depend on their 2D products to get the job done and they are not willing to take any perceived risk with a major product change.
These products are truly mission-critical to them. Combine that with the conservative nature of the users, the extensive experience and skills that they have mastered and you have a real barrier to change that will likely only be overcome as new people come into the market. In addition, 2D users have learned to “think” in 2D. They can look at a 2D drawing and visualize what it looks like in 3D. This is a unique talent, almost like mastery of a foreign language. Which means that asking a 2D user to switch to 3D is sort of like asking you to learn French after a lifetime of speaking English. But, when you realize all your competition speaks French, you become more compelled to learn it. It isn’t a question of if, but of when.

If the recession and outsourcing are reducing the market size for CAD systems what should be done to sustain the innovation and evolution of CAD technologies?

the CAD industry needs to move into the modern age and embrace volume-oriented business models

The prevailing sales and marketing philosophy in the CAD industry has been to sell fewer and fewer seats for more and more money. Basically it is a zero-sum game where the big guys are all trying to knock each other out with aggressive direct sales forces and predatory sales practices. It is all about getting large accounts to switch while making them pay exorbitant prices to cover an inefficient business model.
Unfortunately, this has also had the impact of restricting the availability of very important design productivity tools to only those in the financial position to afford it. Many smaller companies and individuals are left out. The recession is changing all of that. Companies and business managers have become frugal and tight cost management is a necessity of survival. This situation is expected to last for years, even if the economy has started to turn upward.
The CAD industry needs to move into the modern age and embrace volume-oriented business models that reach an increasing set of customers as software and hardware prices ride the technology curve. First and foremost they need to realize this isn’t about exclusivity, it’s about ubiquity. Imagine how many more people stand to benefit, how many great products and great companies could be created, if the tools and technology for 3D design and manufacturing were affordable and broadly available.

I would like to thank Paul for taking the time to answer my questions. If you have any questions for Paul or for Novedge, please leave a comment below and we will be glad to answer.

Franco Folini

Alibre 11 Design Overview Alibre products are available from Novedge

Comments

[matt lombard]

Wow, this is interesting. Who would have thought to interview the source of the news rather than to just speculate?!?

I like some of what Mr. Grayson has to say and am skeptical about some of it. It's good to hear that there was a conversation with all the parties involved before they did this, and it's good to hear that they didn't do it out of desperation, maybe to be able to make payroll this month (but if that had been the cause, I don't expect they would own up to it publicly).

He says "it's about ubiquity". I think this reflects his own business, but he's trying to convince us that his competitors should also live by the same rule. I disagree that it "should" be about ubiquity for everyone. Ubiquity in the CAD market would mean that everybody has a mediocre tool that isn't very powerful. Not everybody needs a mediocre tool, but I agree that maybe most people do. Some users do need that exclusivity.

He makes a great point about all the bells and whistles. Are the bells and whistles really that valuable? Do they really even work as advertised? I believe there is an entire class of users out there who have paid $4k+ for software and pay $1300/yr to maintain it who actually need just what Paul is selling.

Alibre is today what SolidWorks was in 1995 - a stripped down, simple modeler that makes drawings with most of the functionality you need. The argument that simpler software is easier to use has been getting some play lately with various people talking about simple interface. But there is no way for something like SolidWorks to have a simple interface, it is a behemoth! In all of the feature competition between SW, SE and IV, each company has forgotten their roots, and simplicity was at the head of the list of features. Simplicity is how SW beat Pro/E.

The next point I don't really get is attracting 2D users. Are 2D users still 2D users because of price? AutoCAD still sells for $4k, and even LT sells for about the same price as Alibre (not sure on that one), so it doesn't seem to me that price is really the issue for 2D users. I would be very interested after this stunt is over to see who actually bought the $99 software. People attracted by price will be independent mechanical design contractors. $99 is something they can pull off today. $4000 isn't.

[klaus middendorf]

I think this is also a trend that was introduced by google giving away their 'sketchup' for free. They created a huge hype on 3d-CAD. << Yes I definitely call this CAD. We can be sure that microsoft is going to follow this with 'truespace'* or whatever they will 'rename' it.* 'caligari-truespace' has lately been aquired by microsoft and is anticipated to be their 'contestant' for what sketchup is for 'Google Earth' at present. Now you think 'sketchup' and 'truespace' are not at all CAD-tools - don't you?.
Well - some weeks ago 'Autodesys', the makers of 'form-Z'
introduced 'bonzai3d' (www.bonzai3d.com), which can definitely be considered to be a successor to 'sketchup' because of its ability to handle nurbs and much more too. The tolerances of these products may not as yet be good enough for 'machining-parts' but they certainly already are for architectural work, interior design, woodworksand even plastic parts for rapid-prototyping machines and the like for the time beeing.
I'm sure that for example microsoft is cooking on something
quite similar. When you observe the evolution of products in this
field you will realize that (as mr. grayson too stated) products have become more and more elaborate and expensive with every single release. The goal of simplicity had to be sacrificed to the needs of marketing and the growing demands of the bigger companies, cause the latter use to buy into many seats/licenses. This turned ot to be a major obsticle when it comes to merchandising CAD-systems to midrange and small companies or one man shows. Only the big players can afford those systems with their additional yearly costs for subscriptions and maintenance and have their employees properly educated for every new release.
Now this market is mainly satisfied and decision-makers in big companies won't switch to another system, knowing that their present system will have the supposedly 'brandnew' features in a matter of month's too.
I completely agree with matt lombard (former comment) that independent contractors from both the design and the mechanical engineering fraction will be attracted by this offer. On the one hand these people can't afford to play around and put too much time into trial and error, however once convinced of a product these people are the ones who spread 'the word of mouth' which mr. grayson identifies as the main force when it comes to decision-making. You are converting these 'customers' into missionaries. So IMHO well done Mr. Grayson :)
I'm a one man show too and once I feel there's a new star rising, for me personally the main challenge is evaluation.
I guess every system has its strength and its allways good to have a bunch of systems available for compatibility testing on im-/exports when you are working as a contractor.
For this reason lots of us had the free of charge version 'Alibre Express' on their machines. You could use it as an imorter/exporter for ACIS/STEP and IGES files and even use the analysis/healing functinonality.
I'm very sure, that the vast majority of these 'Alibre express'-users will now think about buying in for this 'nice price'. I by the way wonder though, how you will calm down the ones who bought say three month ago and who now might feel the blues or worse :)

Anyway - I think its the best way of marketing to give entry-versions of even big systems away for free. Sometimes it takes much longer then the 30 or so days you are granted to evaluate such systems properly and that would definitely make a big change.
Your new customers will be very thankfull for this generosity, which after all creates a very
positive emotional attitude towards Alibre as a company.

[tell_the_truth_or_shut_up]

mr. grayson just doesn't seem to get that it's not about price. They might as well have offered it for $9.99 or 99 cents, it doesn't really matter.

does anyone really believe that if "hundreds of thousands" of people used their free product and could never be enticed to buy with the multitude of half off, 2 for 1, 3 for 2, free this, half that, 2 of those and a free bag of chips offers, that now they will jump in droves to buy?

give us all a break.

mr. grayson should start by respecting the market, telling the truth and focusing on building a better product, rather than wasting time on another scheme.

but no, he tells us how "lucky" he is that he invested so much in building out his backend order processing system to accommodate the massive volume.

as Lincoln once said, you can fool some of the people some of the time, and some of the people all of the time...I guess it is these two groups who will buy.

good for them.

unfortunately for alibre, that number is small.

and when you lose money on every sale you don't make it up in volume.

this company has been about selling something sub-par and then hoping people will put up with it until they decide to make it better. this is what micrografx was too. that may have worked in the early 80s although even then mgfx was mediocre at best.

alibre burned through a massive amount of cash trying to build something no one wanted and now are peddling what's left, barely subsisting, and crowing about how well they are doing. No one offers something that was selling for $1000 for a tenth of that, if they are doing well.

so back to reality...

for anyone to really use a cad system they have to commit their time and effort and believe that it will pay off. this is the cost we're talking about, not $99, not $999, and not $4,000.

this is why solidworks continues to lead at a dramatically higher price. is your next design project and your business worth $99 or worth a few thousand?

i've heard it said that using price is the resort of the lazy marketer. alibre has not been able to convince people that the product is worth risking their time on, but now that it's only $99 they will?

maybe they should have used the shamwow/slap chop guy to sell this on tv, and right after the gratey cheese grater, they could throw in alibre: zuchini, martini, bikini, alibre!

That picture of grayson in the post tells it all, he's laughing at you.

my advice is to get back to work and don't gawk at the train wreck.

[klaus middendorf]

quote: - i've heard it said that using price is the resort of the lazy marketer -

Well - the stock market is all based on rumors and fake... Marketing is about tricking and tempting people mostly...Nobody seems to care about it really.

If we take a closer look at what Mr. Grayson is offering, we will realize that it is just about that.

Buy into Alibre standard for $99 ...and you will find yourself NOT beeing eligable for the update to version 12 of alibre. You can however buy this option for $ 398...!..which itself still is only a limited offer.

After all its just a marketing thing trying to generate
some cash out of those people who previously used the free 'alibre express' as a convinient free of charge file-converting tool or viewer and nothing else.*
(They recently disabled the import/export features for STEP,IGES,SAT of the free versions of 'alibre express'
via online downgrade.)

If then however you are playing around with the idea to buy a license of alibre and take a close look at what 'club' you will join, you will stumble upon the new
features of |alibre professional/expert|...'push/pull'-technology OFCOURSE :) ..they call it 'direct editing'.

And the update(eligable)-price from 'alibre-standard' (we remember its (!) $398) to 'alibre-professional' is about $ 700...still quite reasonable compared to 'SpaceClaim'??? No its not! Its not comparable anyway.
But thats the intention behind it.

What are PTC, Dasault, siemens and autodesk planning
for their 'flagships'? They are all working on solutions that have 'direct modelling' on board or
are developing products like 'CoCreate' to get there.

They have to convince their present customers that
the 'old' solid-modelling with history-tree and 'direct modelling' is no contradiction and can be joined and work together in one piece of software.

The introduction of 'Alibre standard' for $ 99 is
coincidently taking place with the launch of a new
and very smart web-presence of alibre, which incidentally introduces 'direct modelling' (for 'alibre professional/expert' as if it has always been an inherent capability of 'Alibre'.

I think this offer is supposed to do a double-trick.
It generates money on a $ 99 base and it introduces
the new 'direct modelling' feature and more in a very smart manner. My respect Mr. Grayson :)
Start with a 'bomb' and harvest ALL* the attention
with a kind of 'understatement'-attitude.
*everybody in the CAD-industry will comment and react on this and guess who's advantage it will be.

quote: - That picture of grayson in the post tells it all, he's laughing at you. -
I would definitely smile as well, if I'd have had the idea of launching a 'smart-bomb' like that :)

Whatsoever - Alibre Standard for $ 99 still is a generous offer, even if you only consider it as a fee for using it as a converter and even if you won't be
eligable for any update.