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