PAS Musings

Where is our iPod?

Patent no. 200,521 was issued to Thomas Edison in 1878 for a phonograph.  For  the first time in history, man was able to record and replay sound. 

About 100 years later, in 1979, Sony introduced the Walkman, a miniature portable cassette tape player, and forever changed the landscape of personal entertainment. 

And just over 20 years after that, Tony Fadell, Steve Jobs and the team at Apple  introduced the iPod, a portable digital media player to contain an entire collection of music and photo albums.  (A fascinating story – click here to read more.)

The automation sector of the process industries parallels the above.

The first industrial automatic controller is believed to have been invented in the 1870’s.  Electromechanical, pneumatic controllers and mainframe computers dominated the process control industry until 1975 when Honeywell introduced the first distributed control system (DCS).   

The greatest return on automation investments have come from advanced process control and the digitization of business work processes.  This has allowed companies to reduce operations staffing by unprecedented amounts.

An unintended consequence of these improvements has been an increasing information load for the remaining operations staff – which is manageable, provided all these new innovations were easy to use when taken all together…

Where the iPod design is beautiful and simple to use, even for disparate media types and sources, automation improvements to the process industry have been much less so.  Layered applications and compartmentalized focus on individual layers has led to a confusion of systems and applications – not always so easy to use for every operator… especially in times of crisis.

What is needed is the breakthrough to consolidate all best-in-class solutions from multiple vendors and technologies in a seamless environment with the goal to make changes and operator use as simple as adding or playing songs on an iPod.

That’s a great vision for our industry to shoot for … as simple as an iPod.  Steve Jobs had it right with his first Mac computer and has it right again!  As an industry, we should be taking note and following his lead.

While I’m proud to say that a number of our R&D investments at PAS are doing the iPod thing – making deployment simpler, reducing or eliminating ongoing maintenance requirements and making it all easier to use.  See my recent APC blog for an example…

But despite the best efforts of industry standard groups and vendors like PAS, there will always be multiple systems & devices with layers of databases & applications. 

And for that there’s Integrity – more to come on that later….

Industry Scorecards

Some time, I ago, I compared the valuations of public companies in our industry to a couple of key software and internet companies.  Click here to read that blog.

That analysis compared valuations – expressed as a multiplier of annual revenue – and showed that the internet companies (Google, Yahoo) had about 2-3x the valuation of software companies (Microsoft, SAP) and about 5-10x the valuation of software/service companies serving the process industries (Intergraph, AspenTech, Matrikon).

Updating the valuation analysis some 6 months later shows little change – the internet boys still rule, and at about the same ratios.

So I cut the data a bit differently to see what I might learn.

Here is a chart showing revenues per employee vs. company valuations (revenue multiple basis).  Clearly, the market rewards those who can do more with less.

In our little group of companies, Google rules the roost with an incredible $1,080,000 of annual revenue per employee.  This works out to a company valuation of almost $18million per employee, dwarfing all others.

So what do we make of all this? 

The market rewards those who do more with less. 

For PAS this means we will continue our drive to increase our revenues per employee – by providing higher value services and software to our customers.  This supports our ongoing quest for increased innovation, supported by our continued higher-than-peer-group investment rate.

As a private company, there is no readily-apparent valuation, so we will continue to monitor our software investment and revenue/employee metrics for our software/service businesses. 

Based on the indicators below we are leading our peer group in investment rate accompanied by a strong per-employee revenue rate, which should only get stronger over time:

                             Investment Rate      Revenue per Employee

PAS                       26%                     $156k

AspenTech              17%                      $180k

Intergraph              10%                      $156k

Matrikon                 17%                      $115k

Scorecards like these are interesting – they are both interesting spectator sport and they also provide management with valuable indicators needed to validate and/or refine their business strategies.

Let’s come back and revisit these from time to time…

Airplane Seating = Customer Satisfaction

Besides my 100,000 mile commute, many of us at PAS regularly travel the world over for our jobs.

One of our finest recently pointed out that a good way past many travel hassles is to “Treat people right and watch what happens”.

Recently, some of our finest were in South Africa on business. The work gave little advance notice and the short notice resulted in really crummy middle seats all the way over, on back-to-back flights of over 9 hours each.  Ouch!

Being 6-foot-9, I felt their pain. But they had a really innovative solution…

One of the guys’ wives had given her husband an ace up his sleeve. Wise as she was, she had sent along a couple of small bags with just the right contents.

When our man arrived at the check-in agent – and after failing at the usual phone-ahead-for-an-aisle-seat – he approached the check-in agent with a smile and said:

"These are my wife's special triple-chocolate brownies. They are for you because you have a tough job dealing with the public all day. And I don't know if you can help me or not, and if you can't that's OK too. But I had to make these flights on really short notice, and they are really long and my seats there and back are terrible. Can you do anything to help me?"

Type-type-type-click-click-click.

And, better than any amount of telephoning or in-person whining and complaining, our man gets all aisle and exit row seating for all 4 nine-hour flights there and back!

Now that’s service!

We've all seen travelers berate the gate agent when things don’t go our way, and (gasp!), maybe we’ve even been that traveler on certain occasions.

But it helps to smile and be nice – try that the next time you fly and see what happens!  And, for those really long flights, remember the brownies!!

It’s like that at PAS too – from sales to projects and customer care to executive management – it is our objective to treat our customers just like we want to be treated by the gate agent – with care, respect and the best that we can offer.

It makes for a happy customer and a good day.

So smile at someone today. 

A Sales VP and Newsletter too!!

What a day!

First the acceptance and announcement of Matrikon’s very finest as our VP of Sales, and then the release of the PAS newsletter by the marketing machine!

These things are going to have a significant impact.  Especially since we were able to achieve a growth rate of 39% in 2005 – with no marketing and a more limited sales force.

This place is now on a bonafide roll and the entire PAS team is ready to rock!!

My October decision to join in the fun looks better than ever… stay tuned to watch the action!

Finally - Website Progress!

Holey moley!  Would you check that out – the PAS website finally has a new look to it.

Amazing what can happen when you crank up the marketing machine!

No more to write about that – just click here to go have a look.

The Sweet Spot

Just like an athlete knows the “sweet spot” of his/her equipment, software vendors like PAS know the advantage of a “suite spot” for their software products.

Think of the tennis racquet. 

Every racquet has three different sweet spots, but in a general sense, the sweet spot is the area of the string bed that produces the best combination of feel and power. The most powerful spot on the string bed is that with the greatest coefficient of restitution. Tennis racquet research is serious business – for both vendors and academic researchers alike.

Back to software…

The vendors in our industry know their “sweet spot” too – as the most powerful combination of software functions with the greatest coefficient of customer-interest-to-software-purchase.  It might not be studied quite as thoroughly as the tennis racquet, but it is one of the fundamental principles of our four P’s of marketing.

In this case, I mean the “P” for “Packaging”.

In the context of the software suite, software packaging refers to the bundling together of multiple software functions, programs or options into a single market offering.

Although any vendor can offer various functions, programs or options at a single price to the customer, the advantage clearly lies with the vendor who has actually built the various functions and options into a single coherent software program from the ground up.

Like “plug ‘n play” is a huge advantage to the consumer of PC peripherals, so are pre-integrated software functions.

This seems obvious, but not all customers understand this to be true.

By definition, an integrated software suite means a lower life-cycle cost to the customer. 

Imagine if I buy the best-in-breed control loop performance tool from one vendor, a best-in-breed alarm management solution from another, and a best-in-breed control system configuration tool from another…  I may think I am getting the true “best” solution at the “lowest” cost today, but shortly after purchase I would begin to see:

• Additional staff training costs for each vendor’s interface (with an accompanying lower efficiency)

• Additional integration costs between modules (assuming the different vendors I selected even keep their systems current to the underlying infrastructure at or around the same time!)

• Missed benefits as the various functions are made available with additional interoperability functions by new developments down the road (and if you thought integrating today's functions was a challenge, just try aligning various vendor roadmaps so everything keeps working together!)

Over the years I’ve seen it happen time and again – a customer gets so focused on comparing the features and functions of all the elements that they want to buy today that they completely forget to look ahead… at life-cycle costs, staff efficiencies, new benefits from product evolution, and their own future business needs.

It is pretty common knowledge among vendors that astute customers make their purchase decisions looking at three key elements:

1)     features and functions available today

2)     integration & interoperability of the required features and functions

3)     software investment in BOTH of the above by the vendor

The real sweet spot is not the “sweet deal” of today, but the “suite strategy” for tomorrow.

Cobbling together “best-in-breed” is not the best solution after all.... and that’s why we at PAS make such great investments in getting it right from the ground up.

We’re far from perfect, but we sure have a great start in our AMO-Rt product as a suite of applications resident in our PlantState Suite infrastructure.

Software Pricing – the Rogue Vendor

Last time, I wrote about how rational economics dictate how vendors should set software pricing.

Now, let’s look at how rogue vendors screw up the market for both customers and  vendors when they “dump” software on the market at prices far below what rational economics dictate.

Low prices may seem like a good thing for customers, but irrational actions by rogue software vendors are generally bad news.

Software prices that are too low end up leaving customers with software that has little or no future, simply because the vendor does not receive an ongoing revenue stream to support continued reinvestment. 

Although it might not be immediately obvious, there are plenty of war stories where customers thought they were getting a deal only to find out that their short-term decision came back to bite them even just 2-3 years down the road.  The upgrades, the enhancements, or operating system support they needed just did not materialize, and in many cases, the customer ended up repurchasing the more stable solution that they originally deemed too expensive.

It really is a story of “you get what you pay for”.

It’s much better – for both customers and vendors – to reject rogue pricing and stay with established vendors that have a track record of reinvestment and innovation. 

At PAS, we place a very high value on reinvestment and innovation.  In 2005, over 40% of software license revenues were reinvested into product enhancement – which is good for PAS and the customer.  And our 39% growth in 2005 shows that to be the case.

PAS is not alone in the software markets it serves – there are other companies delivering software for alarm management, advanced control, etc. – other companies that also set software pricing to support reinvestment and innovation.

However, there are also companies in our market space with little regard (or understanding?) of the economics of software pricing.  Their belief that software licenses are “free money” do a disservice to customer value, vendor needs and their own intelligence.

How is a software vendor to react?  There are three important steps to take, but  no sure-fire conclusion.  These are:

1)     educate the market – customers need to know that unusually low software prices generally spell trouble for the future – driving down innovation and long-term value (especially when the rogue vendor finally figures out software economics and decides to abruptly abandon the market)

2)     keep on investing – although it’s tough, the good guys need to keep investing in what made them successful in the first place – the innovations that rogue copycats are generally incapable of producing

3)     re-package and re-price – of the four P’s of marketing, the good guys need to work these as best they can, allowing them to deliver a low-end product or part of a product suite at or close to rogue pricing and recover the value through higher-level, higher-value product add-ons that the copycat rogue can’t really deliver

Doing the right thing always pays – for both vendors and customers.

Long live rational software pricing!   And for the rogue vendors – we all know who you are and we’ll be watching you!

Software Pricing = Rational Economics

Ever stop to think about how companies in our markets set software pricing?

Rational economics would dictate that companies set software prices based on fact.  Software prices need to be low enough to meet the customer’s demand for a certain rate of return, and high enough to support continued investment in the product by the vendor. 

Software pricing is therefore normally set at rational levels that satisfy both parties.  And, in most markets (especially relatively small ones like ours), the benchmark price for a particular software application is pretty well known to both customers and vendors. 

And market forces help keep it that way – at least as long as all the players are rational….

For example, if any one vendor sets their price too high, customers just stop buying and look to other sources. 

And, even if a vendor can support high pricing because of a first-to-market status or other advantage, other vendors will eventually see the opportunity and introduce “copycat” software to bring the leader’s prices back down to more rational levels.

Even the copycat vendor can’t bring prices too low, or they end up not being able to raise enough for product reinvestment and support.  In these cases, market forces eventually drive the too-low-priced copycat out of the market.  After all, nobody wants to buy software with no future.

So in a rational market, there ends up being a natural balance to software pricing.  Which is good for both customers and vendors alike.

Rational pricing is good for customers because it gives them software with a future.  It is good for market leaders because they can continue their reinvestments into new product innovations, which help them retain market leadership.  And it even helps the copycats as they work to proliferate base functionalities desired by customers who see less value in the higher-value software suites from the leader. 

So we have good news all around.

But the party ends when any one software vendor decides to price software at levels too far below market values. 

Just remember that you always get what you pay for – my next blog will dig into the problem of rogue vendors who think that software licenses are “free money” because of their irrational belief that the incremental cost of software is just the CD (or the download website).

Stay tuned…

PSS and the Four P's

The marketing machine continues to creak forward – check out the latest press release on Plant State Suite v5.0.

This release is an interesting reflection on where PAS was with respect to marketing and how we are finally catching on…

Plant State Suite – or PSS as it is more affectionately known – has been developed over the years as the framework to unify and enhance our alarm management applications (also recently re-launched).  As such, it gave great advantage to our Alarm Management products versus the competition – after all, having the richest set of functionality all in a single package is an attractive value proposition – both to the customer and to PAS.

But, without any real emphasis on marketing (remember, our marketing machine was pretty much in mothballs), no outsiders were really aware of what PSS actually contained – or even what our Alarm Management solution was really called!

Sure, word of mouth powered our 39% growth in 2005, and customers ended up with more than they may have bargained for in an Alarm Management solution – including a full Event Historian to log all process events, an OPC Server for data transfer from any system, and more. 

Nice give-aways, but bad marketing.

The four P’s of product marketing dictate that one pays attention to product packaging, pricing, positioning and promotion – none of which we did well, if at all (ouch!).

So now we’re finally getting busy on targeting the application of the 4 P’s of product marketing to our world. 

As I see it, it’s never too late to correct any mistake, and in this case, even more customers can now be aware of what they’re really getting.  This is good too as it levels the playing field for comparing our (richer) solution set to that of the others.

Now as long as we don’t get too carried away on too much too fast with the 4 P’s so that we confuse everyone along the way, things should just get better for us all.

Stay tuned, and later I’ll share where PSS is going.