Daniel Nenni has a thought provoking first post on his new blog “The Mathematics of EDA.” He suggests that many EDA markets segments are “winner take all” in the manner of a poker pot, and that DAC is in need of reform to continue to be a good deal for larger EDA companies.  He offers two proposals: ban large booths and segregate the show floor by market segments. The first could be achieved unilaterally by the vendors themselves;  the second is worth more consideration but it may be hard to discern, much less agree on, the emerging segments.

Fundamentally a trade show is a stag hunt (see “cultivating a community” for more on this paradigm)  It’s an effort by a collection of firms to create a larger shared opportunity that even when divided yields them a larger benefit than if they prospected separately. Any one hunter or set of hunters can defect from the larger hunt and either hunt on their own or form a smaller hunting party, but if they would have been better off with a smaller share of a larger pie, at some point they will return (for example, a slimmed down Cadence is re-committing to DAC).

I think it’s important to remember that EDA suppliers normally have little market power: the top 25 or so  customers are larger than any of the EDA firms, and once you leave the top 10 EDA firms the bottom 97% are smaller than probably 90% of the buyers (by total spend not firm count). There are many multi-billion dollar semiconductor and system houses (there many multi-billion dollar divisions: e.g. does TI Europe always follow TI US?) and at the moment Synopsys is the only true one billion dollar EDA firm (Mentor and Cadence can be included if we allow for rounding up).

Unlike a poker pot, few EDA markets are winner take all. At a minimum it’s at least high-low game with two winners and there is typically room for at least one if not two other players. There are some exceptions (e.g. license management) but because the customers want to differentiate they are normally willing to support two or four vendors in a segment.

Trade shows are a fantastic deal for startups.
You can put your entire team in a booth (in shifts if it’s a multi-day show) and talk to many real prospects for as long as they will listen. This does not mean I believe that DAC is by any means perfect the way that it is (e.g. see “Seven Tips for Encouraging Bloggers to Write About A Conference“), just that trade shows are inherently valuable for startups, and startups will be a part of Design Automation until they repeal Moore’s Law.

Dan talks about events like SNUG, CDN Live, and Music competing against DAC, it’s true to some extent but these shows are limited in what they can ultimately accomplish. They are great events for customers and they allow larger vendors to have real user groups with real dialog. But they don’t allow the major firms to engage non-customers, either in existing or new segments. And while customer intimacy enables evolutionary innovation, non-customers are where important changes and disruptive innovation often start.

It’s also important in the leading edge of Design Automation for early customers to meet the vendor team and form a direct impression of their credibility and trustworthiness. One of the largest risks a firm faces in working with a startup is how the startup will perform when things go wrong. Nothing new ever works. In fact, because major EDA customers are often seeking maximum differentiation from each other, they want to engage before the tools are fully baked so that they can start down the learning curve and be prepared to take full advantage when they do work.

This is not an excuse for poor quality tools, but a property of emerging technologies and early markets. Smart customers double buffer: they run two or three toolsets or versions in parallel to shield themselves from both shortfalls in capability in mature tools and anticipated errors in new tools. This is actually an argument for more complex shared configuration management (with automated rollback embedded in the delivery/upgrade process) of tool versions, libraries, and IP blocks between various parties in the capability delivery chain than it is for SaaS. Because major EDA customers are seeking differentiation, they want their own custom flow from unique configurations of off the shelf software.

Net net, even if the top six EDA firms pull out, DAC will continue: there will still be 300 smaller firms with an amazing collection of new tools left. That’s a big enough draw to attract decision makers from many if not most of the major and mid-tier customers. 300 or so startups and small firms each paying 5-10K for a booth generates enough money to fund a decent show–50 firms paying 5K would–and certainly an innovative one.

And EDA customers will continue to require innovative tools that allow them to differentiate from their competitors. Few customers will bet all future designs on one company–even if it’s Synopsys–and even if one firm does, it’s competitors lose nothing by at least evaluating, if not spending enough to keep one or two competitors alive in each segment.