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What It Will Take to Change the EDA Pricing Model Improvements to the customer-vendor relationship will change the pricing model for EDA tools. by Peter DiDomenico

One thing that strikes me as being extremely ironic about the pricing model for EDA tools is that both sides, vendors and customers, are complaining about it. Customers want much more flexibility, understanding, and sympathy toward their struggle to meet design schedules. Vendors, at least some of them, feel that the current model of combining price plus support contracts doesn't provide enough capital for new product development.

You would think that with both groups complaining about the current model that it would be fairly easy to initiate changes. Unfortunately, the two complaints have nothing to do with each other. Therefore, with no significant common ground, no natural progress will be made toward either perspective. However, I believe changes in pricing approaches that are going to occur will come primarily from fundamental relationship changes between EDA vendors and their customers.

These changes are already beginning to happen in somewhat subtle fashion. Partnering, outsourcing, and design consulting are all manifestations of changes in the conventional vendor-customer roles. These new relationship models will force new pricing formulas to be developed along with them.

I think the current pricing controversy has as much to do with the psychology of the vendor-customer relationship itself, as it does with the actual pricing of products. Both groups, vendors and customers, need to better understand each other. Engineers are open to sharing new techniques only if doing so will assure that schedules are met and that the design tools are able to keep pace with their new methodologies and specifications.

On the other hand, the vendors who complain about product and support revenue not being adequate for new product development don't get a lot of my sympathy. I think the EDA vendors should concentrate more on "R.O.R.&D.," which is return-on-research & development. Perhaps the large EDA companies should treat their development budget like a venture capital fund and require all projects go through the rigors of a start-up trying to justify investment in their company.

So what's going to happen to the pricing model in the EDA industry? I believe the EDA vendors are going to have to offer a variety of pricing options that better correlate with new relationship models and diverse customer situations. I think vendors need to think of pricing in terms of providing value to customers over an extended period of time. Upgrades, bug fixes, and some variable-use features should all be components of the overall pricing formula.

In my opinion, a fixed-lease "contract" with some variable capacity feature--for example, increasing the number of seats for a limited amount of time--is probably the best balanced approach.

All successful businesses must, at times, adapt as a result of various dynamics in their particular industry. As executives in an industry that was founded and developed by innovative thinkers, we need to continue to think "outside the lines" to assure that the we don't lose the creativity that got us here.

Peter DiDomenico was formerly president of Pendulum Design Inc. (Waltham, MA) and is now senior vice-president of Interra Inc. (Sunnyvale, CA).

To voice an opinion on this or any Integrated System Design article, please e-mail your message to michael@asic.com.

integrated system design  August 1996