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ALTIUM ENABLING INNOVATION IN THE AGE OF IOTA Three-Front Strategy for Pursuing Market Leadership in the Electronics Design Software Industry

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1. INTRODUCTION

As it is the case with all new technologies, the Internet of Things (IOT) will go through phases of development before it delivers its

full impact on our lives. A new technology is first discovered through invention while searching for a break-through. Once proven,

a small group of pioneers begin to apply the new technology to improve the quality of existing solutions or to bring about new

solutions for unsolved problems. The early attempts create attention amongst the wider community through media coverage

and social networks. This creates excitement, followed in its wake by a second generation of pioneers. The second generation of

pioneers, buoyed by growing publicity for the new technology are exuberant and set unrealistic expectations in the short-term.

The public gets involved and new consumer products begin to appear. With inflated expectations and media hype the majority

of new products will fall short of expectations. This triggers a new phase of disappointment and retreat. Many second-generation

pioneers give up and go look for the next big thing and the public declares the new technology to be nothing more than hype.

Disillusionment sets in amongst the core believers and a period of searching for answers begins.

We believe the IOT has reached the stage of looking for answers as to why technology break-throughs have not brought

transformation to our lives, whether it is home automation, autonomous cars, artificial intelligence-based personal assistants or

3D printing. They all promise a lot and have under-delivered. This will be the state of play for the remainder of the current decade.

This paper seeks to draw out the importance of increasing the speed of innovation in the age of IOT in relation to the challenges

outlined above. It highlights the need for fundamental change in engineering practices and associated industries in order to

enable innovation. In particular, it highlights:

� Why innovation in the age of IOT must be enabled across the long-tail of technology enthusiasts, mainstream engineering

community and large enterprises;

� Why there is a need for a next generation design platform based on electronics and systems design to speed up the

pace of innovation;

� The significance of indirect monetization for the long-tail segment to bring about and to sustain the democratization of

engineering;

� The commoditization of high-end technology and disintermediation of it to deliver high-end solutions to a multitude of

mainstream engineers; and

� Why the EDA industry must be transformed to separate chip design from board-level and systems design.

2. INNOVATION IN THE AGE OF IOT

The most distinguishing feature of innovation in the age of IOT is the inter-connectedness that permeates all things related to

new products and services. The scope of innovation has widened so dramatically to include everything from sensors and devices

that measure properties of matter and life to systems and processes that connect cities and telecommunication infrastructures.

In between, there is a broad band of technologies that combine to deliver new products and services. All of which, are constantly

subject to the forces of innovation.

Whilst we can trace modern manufacturing back to the industrial revolution, the current context for innovation can be traced back

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to the start of the Web. The Web unleashed three successive waves of innovation that can be categorized as follows:

� Connecting and organizing all repositories of information and knowledge through the process of search and discovery

(1990s with Google delivering the most powerful search engine);

� Capturing and connecting people through interconnected social networks (2000s, with Facebook delivering the most

powerful social network embracing people from all walks of life); and

� Computerizing and connecting everyday objects to the Internet (2010 onwards).

These three waves, people, information and technology or things form three axes of innovation, from which all products and

services must pivot and continually improve upon.

2.1 The productization of new technology

Innovation is a critical phase in the process of productization of technology. The journey of productization begins with exploration.

In this phase, research is dominant and the goal is to come up with a new solution for an unsolved problem or to improve an

existing solution. Once a solution is found, productization requires the process of commercialization until a significant segment of

the population adopt the new solution. In this way, the process of productization can be defined in terms of three distinct phases.

1. Exploration – the search for and the discovery of new technology.

2. Innovation – overcoming obstacles through ingenuity.

3. Adoption – transformation through reaching a tipping point.

Because of the complexity of smart products and the vast amount of innovation required for their development, the speed of

commercialization slows dramatically in the innovation phase and the chances of success are reduced. Widespread adoption of

a new product will come only when, (and if) it reaches a tipping point that overcomes all obstacles and satisfies all expectations

on all fronts of innovation.

2.2 The cycle of innovation

In the process of productization, a newly conceived product will go through cycles of innovation consisting of three distinct phases:

1. Ideation phase - creation of a new design;

2. Realization phase - realization and manufacturing; and

3. Utilization phase - adoption and real-life experience by a segment of the population.

This cycle is repeated as many times as necessary until a tipping point is reached for widespread adoption.


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2.3 The three-fronts of innovation

The nature of innovation cycle in the process of productization varies across the spectrum of organizations from small start-ups

to large multi-national enterprises. Broadly speaking, this spectrum can be divided into three segments. These include:

� The long-tail of technology enthusiasts – novel designs carried out by multi-skilled engineers;

� Mainstream engineering community – moderate to high-level complexity products designed by specialist engineers; and

� Large enterprises – large scale customers and engineering teams that use major software platforms business wide.

Innovation in the long-tail is supported and encouraged by the democratization of engineering. Many young enthusiasts without

formal engineering backgrounds are involved in a process of innovation known as the Makers’ Movement at whose heart is

sharing of information and collaboration.

Innovation in the mainstream engineering community is mostly driven by productivity gains and adoption of new and enhanced

methodologies.

At the high-end, innovation is driven by improved data management and process improvement through transformation and

deregulation of legacy enterprise solutions and practices.

All of these fronts uniquely contribute to the process of innovation in the age of IOT. Whilst each has distinct characteristics, each

benefits from the other through adoption of new learning and practices that are discovered along each front.

3. INCREASING THE SPEED OF INNOVATION

Any company irrespective of its size or its available resources has a finite window of opportunity to successfully productize new

technologies. Seldom is the very first prototype of a product ready for ‘prime time.’ Most attempts fail to produce a product that

is ready for ‘prime time’ and the mission more often than not is aborted at this stage. Amongst the few that get off the ground,

widespread adoption is not immediate and requires rapid innovation to overcome a multitude of causes of slow adoption. It is in

this context, that the speed of innovation matters the most. A slow cycle of innovation can have serious consequences in terms

of any hope for adoption.

It is well known to innovators that the speed of innovation is of the essence. The pressure to bring speed to innovation often results

in short cuts being taken that prove costly and set back the process of adoption; sometimes, so much so that it is irreversible. In

this way, the journey of productization of a new technology can be analogous to the well-known game of ‘snakes and ladders.’

In this analogy, the starting point of the productization journey after successful exploration is equivalent to the starting position on

the board of a ‘snakes and ladders’ game. Widespread adoption of a new product is equivalent to reaching the finish of the game.

Every roll of the dice is equivalent to an attempt to put a version of the product out. The snakes are the shortcomings lurking

in the old methodologies used in the creation of the new product and the ladders are the new methodology break-throughs

discovered by early pioneers.

In the early days, the board is full of snakes and hardly any ladders and the prize for a successful productization is very high. As

the technology matures, new methodologies are developed and good practices are shared. The number of snakes decreases and

the number of ladders will rise. This process continues until the game is no longer a challenge, at which time the productization

process becomes commoditised.


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3.1 Outdated engineering practices are impeding the pace of innovation

The current model for tool integration is old and is based on “tool-chains”. System-level tools, such as Product Lifecycle Management

(PLM), offer a low level of productivity and a diminishing return in the development of complex products. In particular, PLM has

not adequately addressed the product development needs of High-Tech Electronics. In the High-tech and electronic industry,

PLM fails to provide a way to manage multi-disciplinary Bill of Materials (BOM) and changes. PLM tools are not well integrated with

electronic design tools, which leads to poor BOM management.

The proliferation of electronics and the importance of safety in modern products are causing a shift of focus to system-level

engineering and data management in electronic design. Intense focus on chip design within the EDA industry has stifled advances

in data management and in process development of system-level design.

The current level of integration between electronic CAD (ECAD) and mechanical CAD (MCAD) falls short of the demands of smart

connected products. In the past, the MCAD-ECAD intersection was a simple collaboration problem… but to design a smart,

modern product, where function and form must fit like hand and glove, the two sides must work seamlessly together. ECAD

and MCAD tools must communicate natively and operate at the same level of abstraction so as to enable the orchestration of

multidisciplinary processes in the design of high-tech products.

Current engineering practices for electronic design fall short in their ability to fully support innovation in the age of IOT. Design

tools are expected to coalesce and to operate at a higher level of abstraction in their support of the next generation of intelligent

products.

In order to increase the speed of innovation, all processes and objects associated with the creation of a smart product must

be modeled and digitalized. This applies to the ideation, realization and the utilization phases in an innovation cycle. A system

based on traditional product lifecycle management is a natural platform for the realization of this objective. Currently, there are

numerous discontinuities across various fronts because electronic design and manufacturing are not being well integrated with

MCAD and not natively supported by PLM systems.

The support for, and the tight integration of, electronic design tools and the associated manufacturing processes and methodologies

with MCAD and PLM systems is the next most natural step in the evolution of engineering methodology for the support of smart

products.

3.2 Next generation design platform centered around electronics and systems design

Despite decades of development, design tools remain algorithmically rich but semantically poor. They capture and manipulate

design content without attending to the underlying design intent. In other words, they are good at understanding the “what” but

not the “why” of the design. This is mostly because all CAD tools started out as drafting tools. The goal for a drafting tool is to

produce a drawing rather than capture the purpose of the design.

From a human perspective, today’s design tools appear not very intelligent. They seem to be capable of making “simple” mistakes

that a human designer would easily avoid. Today’s design tools are like powerful intellectual hammers that are good at delivering

impact but do not discriminate the target from the surrounding objects; all responsibility is left with the designer to ensure the

right target is hit by the tool.


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To support innovation in the age of IOT, design tools to develop and control smart products need to go beyond what has been

considered for CAD tools. Future electronic design tools will need a human level of intelligence, or a shift from algorithmic power

to artificial intelligence. The specific characteristics required of smart design tools to create smart products must be to:

� Learn from experience – analytics related to the performance of the smart product must inform the design tools in the

next iteration;

� Detect errors before they occur – design tools must detect errors before they occur through advanced analysis and

simulation;

� Be easy to use through higher abstraction – design tools must be systems aware and interact with engineers at

increasingly higher levels of abstraction;

� Undertake modern day search – design tools must have modern day search capabilities to look into the vast body of

knowledge and data gathered from the field to gain insight;

� Be context aware – design tools cannot operate in isolation. They must always be aware of the context of the product

and its purpose, ‘the why’; and

� Collaborate – design tools must have superior capabilities in design re-use through collaboration and sharing.

3.3 Enabling innovation in the long-tail market segment through supporting and sustaining the democratization of engineering

With the rise of IOT, there is a transformation in the pursuit of innovation and engineering. The Web generation or the millennials

who are driving innovation at the grass roots level are impacting everyday lives. For example, transformative products and services

such as Facebook and Twitter would not have come into existence without the power of innovation that comes from this growing

segment. This group has broken away from the traditional approach to engineering. Whereas in the past, an engineer needed

to have a major in mathematics, new age engineers need little knowledge of mathematics to solve engineering problems. This

theme pervades all aspects of engineering and challenges the traditional approach to becoming an engineer.

It is not a secret that traditionally graduates from engineering courses took a long time before they were capable of creating real

world products or solving real world problems. This severely hampers the pace of innovation in the age of IOT. The current crop

of engineers, focus on solving real world problems from day one and learn whatever is needed along the way. New Age engineers

are results orientated and have little attraction for processes and practices.

New Age engineers, who are mostly the millennials, are not accustomed to pay for intangibles and have a sense of entitlement for

what they regard as a part of public infrastructure and this makes the long-tail segment of the market challenging for traditional

approaches for selling engineering tools. Most leading providers of engineering software tools, do not derive significant revenue

from this segment of the market which inevitably results in no or reduced investment and non-entry or the eventual withdrawal

from this market.

What is most critical to enable innovation in this segment is innovation in the business model for monetization. A successful

business model for monetization has to focus on the commercial beneficiaries rather than the user of engineering tools.

3.4 Enabling innovation in the mainstream market segment through the commoditization of high-end technology and disintermediation

Innovation in the mainstream engineering community requires access to advanced solutions that are tried and tested and that

can be deployed effectively for a multitude of purposes, often novel, with efficiency and integrity. Mainstream engineers are

solution centric in that they are asked to solve complex problems, en masse, in a commoditized way with considerably lower

budgets than would be available to solve complex problems in a customized way.


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Economy of scale is critical for the mainstream. Advanced solutions must be easily and quickly communicated to mainstream

engineers and subsequently deployed with efficiency and repeatability. Economy of scale will come through a systematic way

of communicating and selling complex engineering tools and solutions to mainstream engineers through a highly systematized

direct sales force, where disintermediation (or removing the middle man) will be fundamental.

4. IMPLICATIONS AND OPPORTUNITIES FOR THE EDA INDUSTRY

The sweeping forces set in motion by the wide-scale adoption of the IOT is reaching an inflection point with profound implications

and opportunities for the Electronic Design Automation (EDA) industry. Engineering software in general and, ECAD in particular,

must step forward to enable and to underwrite the success of transformative processes that have already begun and must

succeed within the multitude of industries.

The rise of smart products has provided great impetus for the reinvigoration of many existing and mature industries as well as the

development of new technologies. Electronics is at the heart of smart products and no industry has greater potential than the

EDA industry to contribute to the unfolding of a new connected world and the development of IOT.

While the EDA industry has been instrumental in supporting and accelerating the rise of intelligent products in chip design, it has

been underwhelming and slow when it comes to board level and systems design. Altium considers system design to be at the

heart of interconnectivity and IOT and the increased activities of non-EDA engineering software companies in relation to the IOT is

a strong indication that the EDA industry has been slow to respond adequately to the systems needs of an increasingly connected

world.

4.1 Transformation of the EDA industry through the separation of business practices associated with chip design from board and systems

There are two diametrically opposing forces at play within the EDA industry. Whereas, on one hand the semiconductor industry is

consolidating and the number of players reducing, board and systems level electronics is proliferating into virtually all industries.

This creates a challenge for the current EDA industry where large incumbents have encumbered legacy solutions and have their

board and systems business shackled to their chip design business. A good example of this is Mentor Graphics, which has been

the leading provider of engineering software tools for the electronics industry for decades providing chip level design solutions

as well as a range of products for board and systems electronics design. Despite the rise of IOT and the pre-imminence of

electronics, Mentor Graphics has been trading at a discount compared to its peers. In our opinion, this is directly related to

Mentor’s business practices and the forces pulling the chip design market and the board and systems level design market away

from each other.

The board and systems part of EDA is gravitating toward product design and realization companies, such as Siemens and Dassault

Systems, whereas the chip design of the EDA is becoming highly specialized and insular. The board and system portion of the

EDA industry is highly sought after in the age of IOT by product design and realization companies in order to bring end-to-end

solutions for their customers whilst the chip design portion is fully engaged by high end consumer and product companies, such

as Apple and Samsung.

4.2 Partnership by EDA players and engagement with the wider engineering software industry is essential

The highly vertical nature of the EDA industry requires a strategy for partnership that is akin to that of Switzerland and its policies

in relation to world powers in the twentieth century. To use the analogy in the context of IOT, the super-powers such as Siemens,

Dassault Systems, PTC and the like are providers of engineering software platforms for modern products and are expected to

provide comprehensive solutions in which support for electronics is an integral part of their main offering and platform.


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Contrary to what is expected, there is a low level of willingness within the EDA industry to partner with product lifecycle management

and mechanical CAD companies that are leading providers of a product design platform. While in the 1980s and 1990s the school

of thought followed Andy Grove’s mantra that only the paranoid survive, resulting in uninspired partnerships, in the age of IOT

those who can partner successfully are the ones who thrive. Altium has shown its capability and willingness to partner and is

leading the charge within the EDA industry in this regard.

4.3 Selling high-tech capability to mainstream engineers efficiently

The evolution of the reseller model in the engineering software industry in general, and the EDA industry in particular, started in

the 1980s and grew throughout the 1990s by providing value-added services, such as training and integration services. By the

mid-2000s the development of software technology outpaced the ability of the resellers to keep up and subsequently resulted

in the resellers reaching capacity in terms revenue growth. In some way, this is similar to the way that personal computers were

promoted and sold through third party outlets. By the time that mobile devices and smart phones came about, these outlets had

reached their capacity and companies such as Apple decided that in order to connect and to meet the demands they needed to

sell direct. Apple shops are a good example of disintermediation in the age of IOT.

Altium is amongst few, if not the only EDA company, that has invested in its direct sales capability and has grown in revenue. The

systematization of sales and its globalization through a repeatable and scalable methodology is central to Altium’s success and

bid for market leadership.

4.4 Creative monetization for delivery of high-tech to new age engineers in the long-tail

The critical success factor to enable innovation in the long-tail is the method of monetization.

Whereas indirect monetization is common in the media industry through advertising, it is a rare phenomena in other industries,

including the engineering software industry. In order to support and to sustain innovation in the long-tail segment of the

engineering software market, indirect monetization must be pursued creatively.

In the EDA industry, the supply chain of electronic parts provides an avenue for the pursuit of indirect monetization. The electronic

component manufacturers generate $647 billion in revenue globally. The top 50 electronic component distributors generate

revenue of $90 billion. This is many times greater than the size of the engineering software industry, as a whole. Connecting

engineers to the supply chain has been a focus of Altium’s acquisition of Octopart, a world-leading electronic component search

company with a seller-pays monetization model, similar to Google. Octopart’s indirect monetization approach is critical for

enabling innovation in the long-tail in the age of IOT.

Altium will leverage Octopart’s method of monetization to other engineering tools in the low-end, to support and sustain

innovation in the long-tail segment of the market. Octomyze is an initiative that extends Octopart’s indirect monetization to other

engineering software products and services beyond Octopart’s search and services.

4.5 Building the next generation product design platform centered around electronics and systems design solutions

The forces of transformation unleashed by IOT create an opportunity for the next generation product design platform based on

electronics and systems design. This platform will target thousands of organizations in which electronics plays a critical part in

their product and service offering.


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Commoditization of smart product design, realization and utilization is a natural next step in the evolution of the engineering

software industry. Altium is well positioned within the EDA industry to assemble and to deliver a next generation platform

consistent with electronic CAD business ready product lifecycle management with mechanical CAD capability for the mainstream

engineering community.

5. CONCLUSION

Speeding up the pace innovation in the age of IOT is the singular challenge for all engineering software companies. The magnitude

of change that is sweeping through traditional and high-tech industries demands a fundamental change in the way that innovation

is pursued. It is critical that innovation is enabled at all levels within the market, including the high-end, the mainstream and the

long-tail. The EDA industry is critically positioned to make a unique contribution. The separation of chip design from board and

systems electronic practices, the ability to partner with broader engineering software companies, as well as the ability to make

advanced solutions accessible to the mainstream engineering community combined with indirect monetization to support and to

sustain the long-tail of the new age engineers is fundamental to enable innovation and to capitalise on opportunities in the age

of IOT.


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