The most successful companies in vertical markets pair product innovation with go-to-market disruption. In this series we explore that marriage, how companies many have never heard of came to dominate their markets, and how they scaled with distinct tactics. These history lessons inform what we look for when investing in vertical markets at Scale Venture Partners, and hopefully provide blueprints for the next generation of vertical market winners.
Company name: Autodesk
Founder: John Walker
Year founded: 1982
Company vertical: Architecture, engineering, & construction (AEC) + Manufacturing
Market dominance: Design and make software
What do they actually do: Autodesk provides design and make software for three major categories: architecture/engineering/construction (AEC), manufacturing, and media & entertainment (M&E). While Autodesk has over 100 distinct products, its most well-known products are AutoCAD, Revit, Maya, 3ds Max, and Fusion 360. AutoCAD is the most popular Computer Aided Design software in the world, allowing professionals to design and model the real world in 2D and 3D. Revit expands upon CAD modeling, adding building information modeling (BIM), which is data related to drawings required throughout a project’s lifecycle. Maya and 3ds Max are leading software for 3D animation and visual effects, and Fusion 360 integrates CAD, CAM, and CAE for product design. The AEC vertical represents +50% of Autodesk revenue.
Product innovation: While some vertical giants operated quietly for years, Autodesk was a break-out success from the start introducing the first CAD software program for the personal computer in 1982. Historically, CAD software was only available on mainframes which limited the potential audience of users. This new accessibility of the product made technical drafting affordable for even small architecture and engineering firms. Autodesk’s native file format, the DWG drawing file, became the de facto standard for CAD data exchange in the AEC industry due to its early market leadership. With Autodesk dominating in user numbers, nearly every competitor was forced to support DWG for interoperability, reinforcing AutoCAD’s position as the “basic currency of design” in 2D CAD. Additionally, Autodesk fostered education and training on AutoCAD, ensuring that generations of architects and engineers learned the software in school and entered the workforce expecting to use it, a similar strategy to what has been done in the legal markets.
Autodesk also used acquisitions as a cornerstone strategy to expand features and functionality. It is estimated that the company has done over 60 acquisitions in its lifetime, or almost 1.5 acquisitions per year. Its most important acquisition was Revit in 2002. The AEC industry’s focus shifted from 2D drafting toward 3D modeling and BIM in the 2000s, and Autodesk was acutely responsive to this transition.
Several factors propelled Revit to industry-standard status in 3D BIM. Autodesk’s marketing and existing customer base gave Revit wide exposure, and bundling Revit in the Autodesk AEC software suites encouraged firms already using AutoCAD or other Autodesk tools to adopt it. Revit also benefited from integration and interoperability: for instance, firms could import legacy 2D AutoCAD drawings into Revit.
Autodesk has been an astute observer of large trends in the vertical markets it dominates. Starting with the availability of the personal computer, to subsequent shifts to 3D modeling, and broader suites in AEC and manufacturing, Autodesk has innovated and acquired in advance of these trends to capture the growth.
Scaling magic moment: Ironically, Autodesk is an exceptional example of “the tortoise wins the race” demonstrating +40 years of continual compounding. Through much of its history, the company grew +15% per year, with some volatility related to construction booms, and a few key areas of one to two year explosive growth periods. But it should be observed, that the real magic moment is less one period, and rather continued product innovation and acquisition to fuel growth over multiple periods (whereas many of our other stories have a two to four year period of explosive growth).
No doubt the first special period in the company’s growth is the late 80s through the early 90s. During this period Autodesk showed sequential periods of +50% growth as personal computer availability exploded, and Autodesk through its DWG standard became the industry de facto tool as many AEC professionals came “online” with their first CAD purchase.
The second fascinating growth moment was in 2004 through 2006, when annual growth rates re-accelerated to +30% while the company was already at $1B in annual revenue scale. This was the acquisition and subsequent marketing of Revit. It shows the power of an established brand and sales machine, when a new product can be introduced where there is industry demand. Achieving this type of growth re-acceleration at scale is quite exceptional.
Where are they now: Autodesk generates over $6B in annual revenue and is still growing +10% annually, with a number of new initiatives and continued acquisitions to land the next “big thing.” At a +$60B enterprise value, Autodesk is not only one of the largest vertical software providers in the world, but one of the largest software companies in the world. Reports suggest that over 200M users have used Autodesk products, and almost 5M people use their products monthly.