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CEO Carl Bass Leads Autodesk into the Cloud
After restructuring and eliminating perpetual licenses, the longtime Autodesk CEO must keep his software company innovating.
The first time Carl Bass worked at Autodesk, he never imagined he would run the design software company, and he certainly never thought he would end up taking over from the CEO who fired him. The New York native had spent more than a decade studying mathematics and working in wood shops near Ithaca, where he graduated from Cornell University in 1983. After graduation there wasnt much to do amid the gorges apart from studying or teaching, so Bass and a friend launched Ithaca Software, which helped commercialize the HOOPS 3D Graphics System developed at Cornell. Part of the first wave of technology start-ups relocating to the Bay Area, Bass moved Ithaca Software to California in search of financing, and San Rafaelbased Autodesk acquired the small company in 1993.
Bass stayed on for two years as chief architect of AutoCAD, Autodesks flagship 2-D and 3-D computer-aided design and drafting software. He butted heads with then-CEO Carol Bartz and was fired in 1995. After a few months, however, others at Autodesk decided they needed Basss expertise for a new project, so they asked him to return. He stayed for four more years, until 1999, when the excitement of once again leading a start-up pulled him away to launch Buzzsaw, an online construction project management service.
Autodesk also saw promise in that company and acquired Buzzsaw in 2001. Since then Bass has served as Autodesks executive vice president and chief strategy officer, senior executive vice president of the design solutions group, chief operating officer, interim chief financial officer and, since Bartzs departure in 2006, CEO.
At the time of the CEO transition, some board members, investors and analysts were wary of having Bass at the helm. But the $15 billion company has grown steadily over the past decade, during which the CEO has been tasked with steering a software giant smoothly into the era of the cloud.
To that end, Autodesk announced a restructuring plan in February that Bass, 59, hoped would help with the transition to the cloud as well as a shift from selling perpetual licenses to an annual subscription model. Autodesks stock sank 15 percent, to $42.64 per share, on the news of the plan, which included layoffs of about 10 percent of the companys workforce.
The changes seem to be working. Autodesks results for the quarter ended July 31 beat expectations, with a less-than-expected drop in revenue of 10 percent, which was related to the ongoing restructuring. The company reported a near-doubling of total subscriptions from the first quarter, including a record volume of subscriptions for software suites. Customers also purchased more perpetual licenses than expected as they took advantage of the final availability of that product. Investors responded by pushing the stock price up by more than 8 percent, to a ten-year high of $69.02 per share on Friday. Analysts raised their price targets for the company as it boosted its own guidance.
The next major milestone will be shifting more of Autodesks products to the cloud.
If youve been around the tech industry as long as I have, youve no doubt seen the carnage of companies that fail to innovate and keep a competitive advantage, Bass said during the August 25 earnings call. Autodesk has been the leader in design and engineering software for over 30 years, and were positioning ourselves to lead the next generation of this kind of software.
Bass recently spoke with Associate Editor Kaitlin Ugolik to discuss how his background in start-ups is influencing his strategy for moving Autodesk forward.
Institutional Investor: You took a unique route to the C-suite that has involved a few different experiences with Autodesk. Can you talk about the journey?
Bass: It took me ten years to get an undergraduate degree. I went and learned how to build houses, designed and built sailboats. I worked in winters building things and in summers rafting and kayaking on rivers. It was a lot of fun, but I went back to school because it turned out that if you dropped out, if you didnt go back in five years, you had to reapply, so I thought Id better get my degree. During a summer job I met my eventual co-founder of Ithaca Software, which was originally called Flying Moose Systems and Graphics.
At first, we commercialized research from the university with the universitys research partners. There was work being done at the time on prosthetic devices and hip-joint replacements, and what we did was take that work and commercialize it for Johnson & Johnson. There was work on oil detection, analysis of large data sets to predict where to find oil, and we commercialized that for Schlumberger. We did some work for some government agencies in predicting earthquakes. Over a few years we grew the company to maybe 20 or 30 people, and we realized that we were trying to run a consulting company we werent actually doing what we originally set out to do.
At that point, we built a computer graphics product that was something we had worked on intermittently with a lot of the consulting work we did, and we commercialized it. We sold it to companies involved in things like entertainment, making movies, the fledgling computer games industry, as well as people doing scientific and engineering things. Thats how I got introduced to all of the computer-aided design companies, like Autodesk. In 1990 we moved to California because we were looking to raise money, and in 1993 Autodesk approached us about an acquisition. When I started my first company, I wasnt even sure I knew who Autodesk was. We were a bunch of young folks, and Autodesk was just getting started as a company at the same time that Ithaca Software started. When we sold it to them, we learned along the way.
You were only at Autodesk for a couple of years that first go-round, correct? What happened?
I agreed to stay for two years, and after two years I got fired. Through a really long story, I ended up taking six months off and coming back, then worked there for three or four more years. I realized I really just liked what was involved in doing smaller companies. I liked how quickly you could do things, how much control you had over stuff. I wanted to do another start-up, so thats what I went off and did in 1999 with Buzzsaw. Start-ups have the ability to be really nimble and agile and get a lot of stuff done, but the ability to impact the market is somewhat limited. After two years it got caught in the downdraft, in the busting of the dot-com bubble. We got both sides of it. We raised a ridiculous amount of money at a ridiculous valuation in 1999, and at the end of 2001 we couldnt raise a nickel.
How does your background in start-ups influence the way you run Autodesk?
Being Autodesk CEO is really different. When its a start-up, the control you have is very direct, very immediate and very everyday. By the time you get to companies the size of Autodesk, the scale of problems changes completely. We have 8,000 or 9,000 employees in 100 different countries and 10,000 or 15,000 partners, so everything you do in terms of control is very indirect. To mix metaphors, its like the difference between a sports car and a big ocean liner or a battleship. In a sports car you feel every bump. If you move your finger an inch, the car veers dramatically. On a big ocean liner, you turn the wheel and ten minutes later maybe youre going in a slightly different direction. In a start-up theres five of you sitting around a table and you blurt something out and it happens. If I went around blurting now, it would just confuse the hell out of people. The trade-off is being able to have an impact. People say they want a big company to be more like a start-up, but I think thats a little bit of a false promise. Youre not going to have a company of 10,000 or 50,000 or 100,000 people that acts like a company of 50 people. Having gone through that growth stage, even as you go from five to 50 people, some of the things that worked with five dont even work with 50. Every attempt any company has made to do that has proven that to be true. You can simulate it, make cultures that move more quickly and kind of mimic some attributes, but they will never be the same thing, no more than a fish is going to be a gorilla. Theyre just different animals. But you can try to emulate some of the best characteristics. I sometimes try to copy the attributes of Ithaca when we stayed small purposely, but I never confuse myself that a company of this size is a start-up.
How has Autodesk responded to the evolution of design and engineering technology?
The two biggest changes have been the cloud and all of its glory, and everything mobile. Mobile has made a second desktop for every one of our customers, whether theyre on a factory floor, tarmac or construction site. People can now do what they were doing with computing wherever they happen to be. Thats a dramatic change. And with the cloud you have the ability to have a virtually infinite amount of computing to solve complex engineering problems. Those are game changers.
Generally speaking, our products are purpose-built for something, but many people have taken the tools and done things we never imagined with them. In some ways, thats partially whats led to our success, that the tools have been more broadly applicable than the things we explicitly designed them for. The people who use our tools are engineers, architects, designers and artists, from the smallest companies in the world, like a one-person machine shop, to the largest construction, manufacturing, aerospace and automotive companies. Many companies concentrate on either enterprise or what they call consumer businesses, and we have attributes of both. The biggest companies are about 30 percent of our business, about 40 percent are small and medium businesses, and about 30 percent are five people or less, so its a huge mix.
How have innovations like 3-D printing changed your industry?
Our interest in this is primarily around the software used to create 3-D models that people print. A 3-D printer is no good without a 3-D model. I think industrial 3-D printing is going to have huge economic consequences. The consumer is much less important 3-D printing for students and things like that, its interesting as an educational tool, but I think it has been way overhyped in the consumer space and underappreciated in the technical space. I think in the next three to five years we are going to continue to see a lot of really interesting stuff driven by new and better machines and materials, not just plastics but materials reinforced with fibers. Metal 3-D printing with multiple-material printers, a combination of 3-D printing along with traditional [computer numerical control] manufacturing are going to be a big deal in the next couple of years.
I think the challenge for the 3D Systems and Stratasys of the world is not to become the early-market victims. I think the market is going to be vastly larger than it is today, but its unclear whether those are the companies that are going to drive it. Im on the board of HP, but in general companies like them, and the start-ups entering the market some of the German companies have done a lot of good work in metal 3-D printing might be the companies that take off with it. I wouldnt rule out some of the industrial giants entering the space as well.
What are the primary challenges currently facing Autodesks business?
There are two challenges were wrestling with right now. The first is going through a big business-model transition as we move away from perpetual licenses to a totally subscription-based business. We are now only selling subscription licenses, after more than 30 years of perpetual. That whole transition is a huge challenge. The second thing is our belief that all software is going to end up in the cloud. Making the transition from being a company that sells products primarily on desktop to one that will sell things exclusively on the cloud is the second challenge.