Autodesk is dragging the industrial world into the cloud — and showing it the future

The company gambled on the cloud and appears to be winning. Its bigger bets lay ahead.

​A rendering of Autodesk Revit.

Autodesk's software is used by architects, builders and manufacturing companies to design the world's physical infrastructure — like most enterprise software companies, it's in the middle of a shift to the cloud.

Image: Autodesk

Autodesk is probably one of the most important software companies you've likely never heard of. Its tools are behind some of the most vital infrastructure and engineering projects of our time; you just don't see them.

The systems that help build and support your local water treatment plant? That's Autodesk. The software behind the next generation of jet-propulsion technology? That's also Autodesk. Ventilators, cars, high-speed rails, animated films: The list of products and entire industries that rely on Autodesk goes on and on.

It's surprising that the 39-year-old company has remained hyper relevant across the last decade of enterprise software, which has been quick to toss out the old in favor of the latest shiny piece of code. But Autodesk is so critical to the sectors it serves that most burgeoning engineers, architects or general contractors are trained on its programs in college. And in a field where coordination between those different professions is required for many projects, the work mandates a de facto industry standard: that's Autodesk.

Now, in the cloud era, the company is reaching new heights. It invested heavily in that transition well before the bulk of its rivals and own customers, a decision that is reaping dividends now, despite some lingering hesitation among end users about making the jump. It had the largest cash flow in its peer group last year, according to Griffin Securities managing director Jay Vleeschhouwer. That's a key factor investors and analysts weigh when determining the strength of the business.

Driving that growth is a surge in deal size. In the past, analysts say they were surprised to see Autodesk make sales that were a few hundreds of thousands of dollars. Now, it has customers spending upwards of $10 million annually.

"It takes a long time to get good at doing the cloud, and we've been doing it a long time," CEO Andrew Anagnost told Protocol. "Our competitors are just waking up to this and are trying to acquire companies to get more cloud-y, but we have a significant head start."

The company's performance over the years has clearly impressed investors. Since it began trading on the public markets in 1985, Autodesk's shares have grown 3,628%. In the last two years alone, the stock rose 80% — well above the average return for the Nasdaq. But the company has its fair share of competitors: Ansys, PTC, Dassault Systèmes, Procore, Siemens and Bentley Systems, for example, are all fierce rivals that surpass Autodesk's market share in some markets, namely manufacturing. And last year, the company was also confronted with stinging criticism from customers, a rarity in enterprise software, where many of those complaints are rarely aired in public.

But Autodesk has remained not only relevant, but essential to its users because it's focused on being two steps ahead of where its core industries are moving, according to executives, analysts, customers and other industry insiders.

In 2020, for example, Fusion 360, its cloud-based computer-aided design (CAD) platform, was the largest-selling product of its kind by volume, per Vleeschhouwer, surpassing SolidWorks from key rival Dassault. At the same time, sales of Inventor, Autodesk's CAD system for on-premises servers, were down, a signal that the company's cloud-based vision for the sector is beginning to come to fruition.

Autodesk revit Autodesk Revit is a cloud-based CAD application for architects and engineers. Image: Autodesk

It "underscores that Autodesk was early in its peer group to make a commitment to the cloud, make that bet and position its portfolio, its development and infrastructure towards that" said Vleeschhouwer, who has covered the company as an analyst for the past 32 years. "There's a long way to go … but they are committed to that eventuality."

Now, Autodesk is executing on an even longer-term vision to support advanced tech like digital twin technology, prefabrication, simulation and generative design, applications that promise to upend manufacturing, engineering, construction and architecture but are still gaining footholds in the respective industries. Given the nascent stage of many of the next-gen systems, however, there is a lot of runway for competitors to pounce. One way Autodesk is trying to differentiate itself is by pricing newer products like Fusion 360 much lower than rivals, according to industry experts.

"It's definitely not the case that Autodesk is the only game in town," said Baird analyst Joe Vruwink. But the company has taken steps to "democratize access to these next-gen applications and grab as many potential users in the early stages … to not only maintain, but solidify" its leadership status, he added.

Under fire

Despite the pricier deals, a commitment to R&D, numerous acquisitions and an eye to the future, Autodesk has scrambled to keep up with some of its users.

In 2020, 17 architecture firms in the U.K. penned an open letter to Anagnost criticizing Autodesk's rising prices and slow pace of improvements to Revit, its signature application for the industry. The complaints were stinging: The signatories took aim at the instability of Autodesk's cloud platform, the lack of clarity they were given on how the company was using the data it collected on users and a lackluster product roadmap.

"Every day digital design leaders around the world wrestle with software which at its core is twenty years old and incapable of the potential of multi core computing and graphics power designed to process within today's real and virtual workstations," Zaha Hadid Architects, PRP and the other firms wrote. "Project productivity in architectural and engineering practices is hit daily because of the lack of scalability and product performance."

The episode, while damaging to Autodesk's brand, was also an indicator of just how important its software is to the industry. A typical project involves multiple partners who all need to access the same files. As Autodesk's share of the market has grown, that has effectively locked firms into using the software, given the need for interoperability between project partners. Increasingly, however, teams are using tools outside of Autodesk, prompting the need for easier ways to exchange information between the systems, the U.K. firms wrote.

The company has already been working to address some of those complaints. Launched in 2016, Autodesk Forge removes some of the boundaries that previously existed between different parts of the design, construction and manufacturing lifecycles. Instead of requiring projects to use a single file format, the new system allows customers to instead save them in more than 50 different CAD file formats. That lets construction firms and manufacturers, which typically use a different set of tools, deploy the same Autodesk programs they have in the past and share information more seamlessly between partners.

Also read: How Autodesk's CEO is plotting its post-cloud future

"It understands everyone's data, not just ours. It treats data as a first-class citizen," said Autodesk executive VP Scott Reese. "We've made investments for probably two decades to help [customers] work better with those data types."

Anagnost also swears the company has turned a corner when it comes to the pace of its product roadmap. Revit was always scheduled to get an update, he justified, but fell behind other product refreshes. It's also making a big bet on the future with the $240 million deal to buy Spacemaker, a provider of generative design tools — artificial intelligence-backed tech that helps inform the design process — for the architecture industry. And now, the company is much more diligent about outlining its long-term vision to customers, beyond those spending $10 million or more.

"Some customers don't understand where we are going and why we are doing it," said Anagnost. "We learned a lot about reaching out to a segment of customers that maybe felt invisible to us."

But by Anagnost's own admittance, Autodesk's pace of innovation is going to increase beyond the standard upgrade cycles of the past. That raises the question of how the company, which fell so behind on its Revit improvements, can maintain a faster cadence when the updates are also going to involve more powerful, but increasingly complicated tech.

Yet it can't just be Autodesk changing to accommodate the new reality, argued Anagnost. Instead, there has to be a shift in the mentality of both the company and its users as more of Autodesk's products are moved to the cloud — and with that pivot, the more frequent changes and updates that come along with cloud services.

"The problem is the customers also have to be able to absorb that functionality. And sometimes they can't absorb it because of project cycles," he said. "Frankly, Revit already has continuous delivery. It's just the customers don't update all the time so they tend to grab the big annual release and deploy rather than update as the improvements come out."

A long journey to the middle

Despite the backlash from some customers and increased competition, Autodesk remains at the forefront of the biggest software shifts in the architecture, engineering and construction (AEC) market.

The company bought Revit in 2002, when the concept of building information modeling, or BIM, was just beginning to emerge, but well before there was any viable commercial market. It's since gradually caught on, but analysts still think only 30% of the market has adopted BIM, presenting a major opportunity for Autodesk moving forward.

BIM tech enables users to make 3D models of buildings or structures. While still far from reality, the ultimate goal is for all parties involved in a project to collaborate in real time on a single model that gives a deeply granular view into the structure. It's taken over a decade to get to this point, but Anagnost expects much more rapid acceleration as governments and other entities with financial control over projects mandate its use; the U.K., for example, requires it.

"The BIM transition has been a long journey," said Anagnost. "It's not going to take 10 years to get to the next round."

One of the next rounds Anagnost is referencing is prefabrication, a cornerstone tech for the looming wave of industrialized construction. The concept sounds simple: build components of a building or other structure at an offsite plant and assemble the pieces together onsite like a giant piece of Ikea furniture.

Advocates argue such a system will help reduce waste and increase efficiency in an industry that is famous for doing the exact opposite. Putting it into practice, however, requires tech like BIM, according to Anagnost, because the 3D model "allows you to fully understand how everything fits together."

It's a grandiose vision, one that will require even deeper collaboration between contractors, manufacturers and designers. But that's one reason why Autodesk is so focused on it; its products already touch all those entities.

"The Venn diagram starts to heavily overlap," said Vruwink. "It's the ultimate Autodesk use case."

The digital twin race

While Autodesk is the market leader in AEC, it faces a much tougher battlefield in the manufacturing sector.

The recent wave of digitization has already begun to engulf many of the manual processes of the past century. But the industrial segment is poised for even more disruption, with tech on the horizon that promises to rework traditional procedures entirely. It's why Autodesk, legacy rivals and new quasi-competitors like Microsoft and Nvidia are all making it a focus. (Microsoft released its manufacturing cloud earlier this year.)

One of the most promising and potentially revolutionary applications is artificial intelligence-based generative design. In the past, engineers would build blueprints of products based on their own knowledge of what it should look like. Once those designs are built, they're run through a simulator to figure out if they work and what improvements need to be made.

That tech, however, is limited, and it is unable to say if there are any core problems in the design; it can only try to determine the best outcome based on the information it's given by users. With generative design, the AI algorithms can begin to independently put together initial designs based upon the requirements, like cost, safety, weight and manufacturability, effectively maximizing the end product at the beginning of the process.

"It's a very, very powerful tool. It eliminates a lot of time consumption on designing intricate shapes," said Mark Montgomery, a principal engineer at Goodyear Tire and Rubber Company.

Some manufacturing companies are also studying digital twins, tech that enables virtual replicas of an object. It's far from common, but the promise is similar to BIM; advocates say the tech will encourage more real-time collaboration between partners on a simulated version of the project.

It's "not a new idea. But in terms of the technology backdrop actually being ready to facilitate the ambition of a digital twin, having the cloud resources available to keep a digital model current and updatable in real time, having real-time edge compute to see into real-life digital models — all of that is coming together," said Vruwink.

While digital twins will require foundational aspects, like Autodesk's design and engineering software, the application is unique in that it's going to be difficult for any one vendor to offer a full-service tool, particularly given the blend of software and hardware needed. Digital twins require a model of the object, augmented reality tech to virtualize it, a system to display the digital twin itself (like HoloLens from Microsoft), the large amount of compute necessary to run it and the data storage needed to support it.

Autodesk, along with its rivals, is trying to own as much of the space as it can. PTC, for example, acquired ioxp in 2020 and Waypoint Labs in 2018, among other AR-focused deals. And Bentley Systems, which is focused on infrastructure architecture, bought Seequent in March and acquired INRO in April.

Autodesk is choosing to develop many of these tools internally. The company, for example, is gearing up to release Tandem, its own digital twin platform, to the public. And Autodesk is tapping into its history in the media and entertainment industry as a driver for future R&D.

"You see a lot of competitors making a lot of noise about AR/VR. Well, we're the original AR/VR company," said Anagnost. "We have a lot of technology in the company that targets some of these areas that you are going to see us continue to invest in."

But even AR and CAD combined are still a small portion of the overall system. That's why industry experts expect to see more partnerships between providers, a trend that is already underway. Microsoft, for example, has launched initiatives with Johnson Controls and Telstra, along with Autodesk rivals Ansys and Bentley Systems.

Another rendering of a building using Autodesk Revit.Image: Autodesk

But the cloud mega-provider, which listed manufacturing as one of its highest-priority industries to target, faces competition from perennial rival AWS, as well as IBM and others. Google Cloud has also made manufacturing a focus. So it's easy to see how the competitive landscape could quickly heat up.

"The notion that a digital twin is one thing is naive. A digital twin is going to pull data from different places and there will be different partners participating in it," said Anagnost. "We're definitely going to be partnering with people who have their own competing capabilities. And that's OK."

Autodesk has a deep relationship with Amazon; the bulk of its applications run on AWS. That hasn't been an impediment to a deeper initiative with Microsoft, according to Anagnost; it just hasn't happened yet.

"We definitely look towards Microsoft as a vertical leader in providing digital twin infrastructure," he said. "I could see us partnering robustly with both of those companies — AWS and Microsoft — to get the customers what they need."

'Back to the future'

For many years, Autodesk's infrastructure products were a key part of its business. It used to have a unit called the "Infrastructure Solutions Business" that the company eventually folded into the AEC umbrella. Now, it's renewing its focus on the sector.

Over the past several years, Autodesk has made multiple deals to bolster its presence in this space, such as the $1 billion purchase of Innovyze and agreements to buy tech assets from providers such as Bestech Systems Limited and Savoy Computing Services.

"This is something of a 'back to the future' idea" for Autodesk, said Vleeschhouwer. "It's always been an important part of Autodesk's business," he added, but now it's "substantially larger than it was prior to it no longer being reported."

For Autodesk, the key is picking its future bets wisely. And with the launch of its construction cloud in 2019, the company has been able to rethink how it views the end market in some sectors, including choosing industries where BIM can improve inefficiency processes in a significant way. Its decision to double down on water infrastructure via the Innovyze purchase, according to Anagnost, is an acknowledgement that "clean drinking water is still a challenge in places you wouldn't expect it to be," which will drive investment in those facilities.

But "we're not going everywhere in infrastructure," he said. "There's a lot of infrastructure we stayed away from. We didn't go into electric infrastructure even though that's hot."

Still, the entry into water infrastructure, along with its existing focus on road and rail, means that Autodesk, which has long served as the tech foundation for some of the world's most critical projects, will continue to play a leading role as the U.S. contemplates significant infrastructure investments.

And if the recent heat wave in the Pacific Northwest is any indicator, along with recent scandals like the Flint water crisis, there is an imperative to rethink not only the infrastructure itself, but the process behind its development and construction. That's why Anagnost is so confident in Autodesk's future bets.

There's a grand ambition "to digitize a set of industries that badly need it. We're hoping governments and institutions get behind us," he said. "We could build a lot more sustainably in the world if we just figure out how to make all these technologies tightly integrated."

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