Lots of very smart, very able, very hard-working people trying to understand why things weren't as good as they used to be. A willingness to acknowledge that we can't "party like it's 1999," but not so much to acknowledge that we can't party like it's 1994 either.

For most companies in tech and elsewhere, the bust was a radical wake-up call, forcing dramatic changes to their business. For EDA, the 2000-2002 period was a relatively good time, and many EDA companies saw the failures of the Dot-Coms as a validation of what they were doing. That was a mistake.

In 1999, revenues were $4 billion. Today, revenues are $4 billion, and I offered to bet anyone I talked to at dinner that revenues in 2009 would be $4 billion. The EDA industry is designed for the world that existed in 1994, not the world that exists in 2004.

Profitability is not about value-add, it's about industry structure. There are too many start-ups and not enough consolidation. EDA folks' favorite catechism is "we invest a lot, we innovate a lot, we add a lot of value, so we should get paid a lot." But the reality is there are many too many companies in EDA, and all that competition, combined with a slow-growing, highly concentrated customer base, means slow or no revenue growth.

When Synopsys got started, there were three companies going after the synthesis opportunity, which allowed one dominant player to emerge. Now you have 30 or more players going after the next big thing: DFM.

No one can emerge as a dominant leader with strong profitability. The technology companies who have been able to maintain profitability — Microsoft, Adobe, Cisco, Intel, Oracle — dominate their markets. As long as EDA continues to have low barriers to entry and lots of competitors willing to discount for the incremental order, revenues will be flat and profitability will decline.

EDA has innovated in technology, but not in business models and processes. Basically nothing has changed — same customers, same leaders, same business models, same issues. If you look at successful companies in other sectors and industries over the last five years, you would see a much more dramatic rate of change in adoption of Six Sigma, of process-reengineering, of re-defining supply chains and business models, and of lower distribution costs.

The fundamental value proposition is not as relevant. Today its all about ROI. Who's doing more for design cost reduction, EDA or India? An engineer is in Bangalore makes $15,000/year, a 10X advantage over Silicon Valley. How can his employer spend $30K on a productivity seat?

Who is doing more for die cost reduction, EDA or China? The spot price for a 130nm wafer fabbed in Beijing is anywhere from $1100 to $1400, that's down from a Taiwan $2000 wafer last year.

Sales forces are the death of EDA companies. EDA companies have designed their distribution models around very expensive direct sales forces. But in 2004, there are no new accounts. Most sales people make their numbers selling the same products to the same accounts. That doesn't justify $200,000-$800,000/year salespeople. EDA companies need to radically re-think their sales organizations and quota systems.

The capital structure is wrong. EDA companies don't consume capital, so why are they public? EDA companies expend enormous resources to contort themselves into the expectations of public investors. Lots of great software companies — Quark, SAS, Trilogy — are private, and lots of new funds are emerging to take companies private.

The EDA industry is a great industry, but the 1994 playbook is a loser in 2004 — it's time for the same innovative thinking that brought the industry to its current level to take it to the next. It is time to Think out of the bun. The EDA industry needs to figure out how to move upstream into ICs or downstream into manufacturing.

Paul Lippe worked at Synopsys from 1992-1999, where he managed legal, business development and corporate marketing. After leaving Synopsys, he became CEO of a Stanford-based e-learning company, which was sold to WoltersKluwer. Paul is now developing a new company, Qulas (Quality Automated Legal Systems), aiming to make legal practice better, faster and cheaper. He can be reached at paull@qulas.com.