One Company Needs to Buy Onshape—Here’s Why

What could be better than putting millions of traditional CAD users and the hottest CAD start-up under one roof?

John McEleney (left) relinquished the CEO position to cofounder Jon Hirschtick last September, in part to attend to his ailing wife. Picture from 2015 article in isicad.ru/isicad.net.

John McEleney (left) relinquished the CEO position to cofounder
Jon Hirschtick last September, in part to attend to his ailing
wife. Picture from 2015 article in isicad.ru/isicad.net.

The biggest deal in mechanical design software is one that still needs to be made. After this deal, we’ll have two companies that understand the future of MCAD, not one. It is a deal that is impossible and certain at the same time. To make it happen, big egos need to be checked, big money will have to be raised—and lightning will need to strike twice in the same spot.

So bold is this deal that no one dares suggest it. However, the need for it is obvious for both parties. Once concluded, it will appear as the only deal that could have been made. We will all wonder why it was not made before.

This deal requires two men who were once united, then parted—to get back together. The deal would unite Onshape, the start-up voted most likely to succeed, with investors betting on John Hirschtick and the French CAD giant, Dassault Systèmes, led by Bernard Charles, who bought Hirschtick’s company once before and thought he was finished with him.

It must be noted that the expectation of an Onshape-Dassault Systèmes deal is based entirely on observations and events, and inferences made by the author on these observations and events. No one at Onshape will admit to entertaining such a thought. As rule, companies do not comment on the possibility of upcoming mergers. Dassault Systèmes was not contacted for this article.

Why This Deal Is Ideal

Dassault Systèmes paid $316 million to buy SolidWorks in 1997, which became the leading professional MCAD software of our time. How much Gallic pride must be swallowed in order for the future of CAD to be purchased once again. And to acknowledge that you had these guys on your team, and then let them walk out the door?

Also, Onshape will have to admit that a browser-based, term-licensed CAD product was just a little ahead of its time, and that users still need rock-solid traditional CAD products.

Dassault Systèmes acquiring Onshape gives the company the best offerings in both worlds—a market-leading, mature CAD product for the mainstream (SolidWorks) and what is a fresh, easily accessible browser-based CAD product. Then Dassault Systèmes would have both solutions under one roof, similar to Autodesk having Inventor and Fusion 360.

Having both products under one roof could change everything.

The Clock Is Ticking …

Last September, John McEleney  emailed all of his employees at Onshape to say that he was giving up being CEO—and his day-to-day leadership of the company—to cofounder John Hirschtick. He shared that his life had gotten a bit more complicated. His wife suffers from myalgic encephalomyelitis (more commonly known as chronic fatigue syndrome). He would be taking over her care, including traveling to experimental treatments at Stanford University Hospital. It was a leadership swap that would give McEleney a bit more “schedule flexibility.”

McEleney also noted that both Hirschtick and himself had unintentionally seen their responsibilities evolve into a co-CEO arrangement. Both had ended up playing the CEO role, which had the potential to create confusion among employees. More recently, over dinner, McEleney made this analogy.

“Imagine you’re at a family barbecue playing volleyball. You think your cousin is going to get the ball, and she thinks you’re going to get the ball—we saw the potential that the ball could fall between us.”

It must be nice to have a Jon Hirschtick to step in when you need a little help. The choice would be welcome to investors and employees alike. After all, Hirschtick had been CEO at SolidWorks, and he is credited with the very idea of a “full cloud” professional MCAD product, the core of Onshape.

But this contrasted when Hirschtick turned over the reins to McEleney before SolidWorks was bought by Dassault
Systèmes. He was content to be on the board of directors and act in a more advisory role to McEleney and McEleney’s successors.

We’d also heard that the VP of Sales and Marketing, Ilya Mirman, had left Onshape months ago. His position remains unfilled.

The company’s website, which had once listed all of its executive positions, had resorted to listing only the founders.

It was beginning to sound like a shake-up. Was trouble brewing at Onshape? 

Jumping to Conclusions

We called up Hirschtick, who proceeded to tell us that we were worried about nothing. These things happen. “Johnny Mac and I have switched positions before,” he said. “And who knows, he could return to the CEO role. And why are you so interested in our organization, anyway?” he asked. “The real story is the product.”

Hirschtick is pretending that his every move will not be noticed. But as he is taking his original crew from his last success to where no CAD company has gone before—to make professional MCAD work “full cloud” and dirt cheap—bolstered by more funding than any start-up in the history of CAD…. Good luck with not being noticed.

The Onshape founders are the same ones who started SolidWorks in 1993 with a $1.5 million investment. It became the last big thing in CAD. And as gamblers bet on a winning Super Bowl team to repeat, the has money poured in. The company has raised $169 million.

How Much Time Do We Have?

John McEleney and John Hirschtick are both within months of the same age at 55. Both made their fame with SolidWorks and their fortune when the company was acquired by Dassault Systèmes in 1997 for $316 million.

Assuming both got rich on the deal, early retirement must have seemed like a good option. Yet Hirschtick was able to reassemble the entire founding team of SolidWorks to work on his latest venture. Start-ups have come under fire for being too young. What do 20-somethings know about running a company? But here, we had some 50-somethings playing a young man’s game.

It couldn’t have been easy, but Hirschtick must have been super persuasive. I imagine the founders, enjoying life in the Bahamas, or by their pools, in big houses and fast cars, now being asked to launch Onshape, essentially a big CAD experiment. I imagine the conversation something like this: “Jon, I love you, man. You’re a smart guy. We made a lot of money, didn’t we? But back-to-back hits? And what did you say this was, CAD in the browser? Hmm, you have to be connected all the time? And you want to give it away. Where’s the money in that?”

The Results Are Not In

Hirschtick noted that the SaaS (software as a service) subscription model, which Onshape and other successful cloud companies are based on, takes patience to grow. “Every time we sold SolidWorks, we got thousands of dollars up front in license fees. With SaaS you don’t charge any of these upfront license fees. It takes longer to build that stream of revenue but ultimately you have a more profitable and successful business.”

“We’ve built a strong user base very quickly” said Hirschtick. “We are on a very nice trajectory with the number of customers.”

Paying customers? I have to ask. Yes, indeed, he said. But he is not inclined to reveal numbers. “We didn’t reveal numbers at SolidWorks, either.”

Not in the first few years, anyway. But after a few years, when the number of users was impressive, SolidWorks did indeed start bragging about how many users it had. Which only leads us to infer that the number of paid users cannot be enough to impress anyone yet. Nor will Onshape reveal how close the company is to breaking even, so we expect that it has not yet occurred.

“Don’t worry about us,” said Hirschtick, again. “We still have a lot of our investment in the bank. We can go many years, no problem, without going for another round.”

Sell, Sell, Sell

A visit to Onshape headquarters proves that converting users from the free version of Onshape to the paid version has been a high priority. The staff of direct sales people are abuzz with activity. “As business closes, the noise level increases substantially,” said Darren Henry, VP of Product Marketing. “We had to move them to the other side of the floor about a year ago.”

Onshape sells directly to users, eschewing the reseller networks that is common in the CAD industry. “This gives the customers the opportunity to interact directly with the company and for the company to iterate more effectively on their product development strategy,” said McEleney. VP of Sales and Marketing Ilya Mirman had been instrumental in getting an efficient and robust reseller network set up at SolidWorks. But selling directly to users … that’s different. “Ilya did a great job in helping us setting up the marketing infrastructure and setting up a high velocity sales model at Onshape,” said McEleney. “But clearly his passion and center of gravity is marketing.”

We Were Having Such a Good Time Once

The SolidWorks founders, now Onshape founders, are objects of worship among CAD insiders and investors. While at SolidWorks, Hirschtick and McEleney were adored by users, resellers, third-party vendors, the press…. Who wouldn’t like them? They were clear and confident in their mission, and their care and concern about the product and the users came across in every interaction—from their annual user meetings (where McEleney is legend for roaring onstage on an Orange County chopper) to every user they ever met face to face. They were the quintessential one-of-the- guys, engineers and users. How many CEOs have been certified in the use of their company’s product? McEleney had earning the vaunted CSWP (Certified SolidWorks Professional status). And not to be unappreciated, they were all American. They had a special relationship with their users, perhaps unequaled in the history of CAD. But when the founders left, it was like the father going off to build a new life, leaving the kids under the care of a string of foster parents—the last one being obviously foreign. Users strain to understand
them…something about “le Experience?”

Now, as Onshape asks SolidWorks users to come and see what it has cooked up, I imagine that my Dad left me while I was growing up, then showed up years later and asked me to move in with him. I’d have to think about it.

The Onshape Dilemma

Onshape has found itself in an unexpected position. It wasn’t enough for the founder to reunite the old SolidWorks founders, announce his new whereabouts, and have every user drop what they were doing and rush to follow him.

Onshape is going forward on its own. Hirschtick is adamant about the benefits of a “full cloud” offering. He draws big crowds because he is granted an audience that respects who he was. But even with the enviable pedigree of Hirschtick, McEleney and the other founders, it’s got to be a tough sell for CAD customers. CAD users have shown a remarkable tenacity, digging in to keep perpetual licensing, to fight the cloud, to keep using the software that took them years to master, and so on.

Hirschtick is convinced that the cloud and the Internet is the better way for CAD, that it’s what they need, even if they don’t know it. “CAD is the only type of software that is still sold by perpetual license and is desktop based,” he said with all the conviction—and frustration—of a genius, someone who has clearly analyzed the problem, found a solution, but is unable to convince everyone immediately of the truth.

While it appears that the investors are only too happy to bet on Hirschtick, the users are proving to be more difficult. Onshape continues to be an experiment for which we can’t (as yet) see results. We don’t know how many have signed up with their credit cards.

Why Did We Make SolidWorks so Good?

Clearly, Onshape to be considered successful means widespread acceptance of Onshape as a professional mechanical design tool. The founders have seized on the advantages that the Internet and cloud offer, leapfrogging desktop-bound CAD in terms of mobility, cost and accessibility.
It would it be unfair to expect a young product have all the bells and whistles
of CAD products that have had decades to mature.

“We’re fighting our own success,” said Hirschtick, who for the first time admits how difficult it has been trying to dislodge users from a very well-established SolidWorks. With millions of users worldwide, SolidWorks, more than any other MCAD application, has become the mechanical design standard.
It is taught in nearly every school, churning out more trained graduates than those who are trained in any other MCAD software. 

Uniting to Fight the Common Enemy

While Hirschtick mentions SolidWorks as the main competitor, it may be Autodesk that constitutes more of a threat to his company—while at the same time, offering a model for its salvation.

Autodesk’s Fusion 360 was a browser-based MCAD product before Onshape managed to steal the spotlight.

Autodesk’s big advantage over both Onshape and SolidWorks is that it houses viable competitors to both products under one roof. The biggest group of users are the millions of traditional CAD users for AutoCAD and Inventor. A smaller—but growing—group are the Fusion 360 users. Some have come over from the AutoCAD and Inventor, while some are new to CAD. More are coming.

Autodesk has big plans for Fusion 360, and is rapidly improving it. Inventor? Not so much. Many in the traditional CAD community have caught FOMA, the fear of missing out. There’s a party going on in the next room, and they maybe ought to get over there before it’s too late.

Autodesk can afford to be patient, and wait for its users to join the party. Invitations have gone out. Should its traditional CAD users not become Fusion 360 users this year, maybe they will next year. The fear of missing out will only spread and get worse because Fusion 360 keeps getting better. In the meantime, Autodesk still collects revenue from both groups.

Like family members living in one house, the users are not without their grumblings and loud fights. They threatened to move out with AutoCAD R13, a near disaster, but then, maybe after finding that it was a cold world out there, they decided to stay. When the hordes born of IntelliCAD offered AutoCAD knockoffs at a fraction of the price, the users stayed put, comfortable where they were. Right now, they are grumbling about being forced to switch to subscription licensing. But they are probably not going to go anywhere.

Wean at All Costs

The concept of patiently weaning their user base from old to new software has worked effectively in several areas and eras. Inventor was rolled out to mechanical CAD users, who were mostly using AutoCAD and Mechanical Desktop. Although Inventor was initially lacking compared to SolidWorks, Autodesk kept at it, adding to it with each release. In the meantime, it was halting development to Mechanical Desktop. It was a slow transition, taking years, during which time, no doubt, Autodesk lost a few users to SolidWorks. However, most of SolidWorks’ success came at the expense of enterprise MCAD systems, like PTC’s Pro/ENGINEER, running on UNIX, not Windows, and cost an arm and a leg.

On the AEC side of the house, Autodesk was able to wean users from making floor plans and 3D models in AutoCAD and its Architectural Desktop. During the 80s and 90s, most architects were using AutoCAD as Autodesk tried everything to convert them to Architectural Desktop, which was, like Mechanical Desktop, built on old AutoCAD code. The acquisition of Revit gave Autodesk a thoroughly modern, state-of-the-art BIM product. BIM was the hottest thing in AEC at the time. Competitors, like Graphisoft, which already had BIM products, were desperate to lure away Autodesk users. But Autodesk users stayed loyal. At some point, many saw the advantages of doing BIM with Revit, and were assured that they would be staying in the Autodesk family, that their drawings, their business, their reputation, would be in safe hands. It wasn’t perceived to be as big a risk as switching to CAD from a different company.

Autodesk is the envy of every CAD company, with a lock on the biggest base of professional CAD users in the world. It can continue to draw from this pool of users, as it has done successfully a number of times: 2D to 3D, general CAD to verticalized applications, and is set to do again with term-licensed CAD and cheap PLM. If, and when, its users tire of being bound to their desks, trust the cloud more, want to do design on their iPads, realize that spreadsheet can’t manage their data and processes, they can sign up for their latest generation of software. Users can stay with a company they know has been around (almost 35 years) and will be around, a company that understands them—or is at least worried about jolting them and losing them.

A bold new start-up, even Onshape, insisting to the world that it has a better way, without assurance and patience, without an answer for the worst-case fears, that a carefully built business will not come to a standstill because it can’t handle legacy products, become useless when the Internet crashes—a fear that you are going it alone, investing in a young company—while no one else is. Who wants to face the cold world outside, and give up the comfortable and familiar? What will happen to your investment when the start-up runs out of capital, cannot sustain itself on its customers, and there you are, having converted your entire company into using its products?

Catching the Others Napping

Dassault Systèmes, by acquiring Onshape, would catch the other big CAD vendors napping. Neither has emerged with a professional, modern (Internet based, term licensed) CAD program.

PTC acquisitions lately have  not been about strengthening its CAD core as much as broadening its base of users by acquiring non-CAD applications. PTC’s last CAD acquisition was CoCreate in 2007, which gave the company a midrange CAD program. Non-CAD applications include a PLM company, a math solver, a tech docs company, and lately an augmented reality company…too name a few. 

Siemens, while owning Solid Edge, chooses to be most interested in its enterprise products, which are centered on NX and Teamcenter. Ignoring the midrange and its order-of-magnitude more users seems to be the company’s routine, as if small and medium businesses are of no consequence. It’s all about big auto, the Fortune 500, Boeing or Airbus. Siemens, being itself one of the world’s biggest companies, is not likely to place much regard on companies that it sees as tiny and insignificant.

How Much?

The cost of the Onshape acquisition by Dassault Systèmes has factors that make it hard to predict. We can try to bracket between two significant acquisitions: the $316 million for SolidWorks in 1997 at the lower end and the $4.5 billion Siemens just paid for Mentor Graphics at the higher end.

But the cost of reason overcoming ego? Priceless.