David Gennarelli - Director, Investor Relations
Carl Bass - Chief Executive Officer, President and Director
Andrew Anagnost - Senior Vice President of Industry Strategy and Marketing
Amar Hanspal - Senior Vice President of IPG Product Group
Robert L. Kross - Senior Vice President of Design, Lifecycle & Simulation
Mark J. Hawkins - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
Steven M. Blum - Senior Vice President of Worldwide Sales and Services
Jay Vleeschhouwer - Griffin Securities, Inc., Research Division
Daniel T. Cummins - B. Riley Caris, Research Division
Gaurav Kapadia - Soroban Capital Partners LLC
Kash G. Rangan - BofA Merrill Lynch, Research Division
Walter H. Pritchard - Citigroup Inc, Research Division
Sterling P. Auty - JP Morgan Chase & Co, Research Division
Brendan Barnicle - Pacific Crest Securities, Inc., Research Division
Brent Thill - UBS Investment Bank, Research Division
Gregg S. Moskowitz - Cowen and Company, LLC, Research Division
John Byun - UBS Investment Bank, Research Division
Chaitanya Yaramada - Robert W. Baird & Co. Incorporated, Research Division
Autodesk, Inc. (ADSK) Investor Day Conference October 2, 2013 11:30 AM ET
And ladies and gentlemen, please welcome, Director, Investor Relations, David Gennarelli.
All right. Good morning, everybody. There's 2 more seats upfront for anybody who's back there and wants to move way up. So first of all, I want to welcome you to the Autodesk Gallery. I think many of you have been here before. But for those that haven't, see if you can find a couple of minutes to check out the exhibits. They really do a great job of showcasing what our customers do with our software.
And of course, I want to welcome you to our investor day. I know you've been anxiously awaiting the information here, so I hope not to disappoint there.
So we'll get right into it, but a couple of quick housekeeping items. First, there is WiFi in the room. You'll find the instructions on the agenda, at the bottom of the agenda there. And secondly, we have built in one short break at around 9:45. We'll reconvene for 2 more presentations. And after that, we're going to do one large group Q&A session.
So if you can hold your questions till the end, I promise we'll have plenty of time to address all your questions, but we'll hit them at that point. And after that, I certainly welcome you to join the Autodesk management for a casual lunch buffet in the gallery here.
So with that, we'll get things underway. Thank you.
And ladies and gentlemen, please welcome President and CEO, Carl Bass.
Good morning, everybody. Let me extend my greetings. Thanks for taking the time to come here this morning. Welcome to the Autodesk Gallery. Just want to spend a few minutes this morning trying to bring the issues about what we're trying to accomplish. I know people have been, for the last few weeks, doing a lot of speculating, so we want to get to the heart of it. And what I wanted to do first was kind of frame the conversation about what we're going to hear today. And what we've been doing is we've been trying to change our business. And we've been trying to change the business along 3 different axes, 3 vectors that we're interested in.
The first one is the markets that we're trying to address, the problems of customers we're trying to solve. And we really are expanding our markets. The second one is about the technology platforms we work on and the technology platforms we build. And then the third one is about the business model. And while there's been a lot of attention paid to the business model and -- and understandably, people have lots of questions, and we're here today to try to answer those questions and explain the rationale for the change in our business model. I think it would be a huge mistake to walk out of here and not recognize the other things that are going on in our business, which I think are really important for driving the change in transformation. If you walked away with only focusing on the business model, I think you will have missed a bunch of what we're trying to accomplish.
So whenever you go through one of these changes, there's always lots of questions about what's going -- about your ability to carry it off. And one of the things I wanted to make the point is we've been through a number of these transformations before. As you go through the transformations, you learn a bunch about doing it. They're imperfect, but -- they're not perfectly planned from the beginning. But I would look back in retrospect and say we have been very successful at making these transitions.
So if you looked back and you see in the business transformation, we went from a business that was all perpetual licenses to one in which we added subscription. We went to one that served mostly medium and small businesses to one where we had enterprise licensing. And most recently, our business model changed by the introduction of suites. And this morning, we'll detail some of those changes. But just to remind people, in all of these axes, we have made significant changes over the years.
And the second part is the new markets that we're addressing. As we've gone here, we entered the manufacturing market, we created BIM, we went into construction, we entered the simulation market and the PLM market. Those are new customer segments that we previously didn't address. And so while we looked at the entire industry, we've chosen those portions of the market that we think are the most attractive, that had the greatest return, and that we have the assets that we can best deploy to satisfy our customers.
And then the third part of it is it's also been a platform transformation. If you look back at the long history of the company, the company started running on a host of PC computers and then UNIX computers. We went through a big transformation. People forget that, for example, just the introduction of Windows many years ago, where many companies were [ph] in that hole, many companies didn't get to the other side of.
And so we've gone through that transformation. We're doing the same thing as we move to 3 [ph] doing it again, as we move to a cloud and social and mobile platform. Let me just detail this a little bit for you. So when you look and you go back at the business model, this has been the business model of today, which is one in which subscription is an important part of our business. Suites are an increasingly big part of the business, and our enterprise licensing -- and we've talked about the composition of our customers there, how important our large customers are and the way in which they choose to buy from us.
Well, what's new and what you'll hear a lot about today are these new forms of subscription. So one is about product subscription that we -- we're often called and referred to in the market as rentals. It's also the cloud subscription, our SaaS offerings and what we're doing there. And the third are consumption-based models. And we'll go into a lot more detail about this, but -- so all the ones are the heading of subscriptions, and we'll detail each of the different kinds, in addition to the maintenance subscription that we already have today.
When you look at the market, you can see the markets that we're in. But just to remind people, when you look at these new markets, construction is now an important market for us. If you looked back historically at the AEC market, when this company started, even though we spoke about AEC, it was really a capital A and a small E and a tiny C. If you look at our business and the industry today, it's almost completely reversed. The construction part of the market is what's driving it. It's the biggest part in terms of revenue, it's the most important driver of change in the industry today. Same thing with the simulation and analysis market we introduced in the last few years. We bought a lot of assets. We've deployed them differently using new business models on the cloud, and we have now become an important player in simulation.
We entered the PLM market about 1.5 years ago, and we're doing well in the PLM market. And I'll talk a little bit more about consumer, because people have been interested in what the consumer part of our business is.
And the third thing is the platform. And like I said, we've historically run on a lot of platforms, but -- and this is one of the really important things I think people need to walk away with today, that, in addition to a solid core business, we have built the most advanced, most sophisticated use of cloud and social and mobile technology for engineering and design in the world. Nobody else has built the same platform, nobody has the same offerings, most of -- most everyone is far behind in terms of their adoption of this. We have believed for many years that this was going to be an incredibly important change in the industry. We invested accordingly. We've been building products. And so now, when you look today, we have this rich combination of -- and you can see all the -- there's BIM 360, Fusion 360, CAM 360. All those 360 products -- both Amar and Buzz will talk about them, will give you more details. But I think it's important to recognize that what we're doing is we're using the introduction of these new platforms as a way to go into new markets and serve customers differently. We think this is incredibly important. So in addition to the business model transformation, which is important, it has immediate consequences, it's also important to recognize the new value we're bringing to customers, the new customers we're addressing because of both the platform and the products and services that we're building.
So there were 2 other things as we look at subscribers, and we won't talk about this much today. But I thought it was important just to give you the background. We've changed our approach to education over the last couple of years, making it more accessible to students. We have had phenomenal success. We have over 100 million students who now have access and use our software. So we've been building a pool of users who are committed to using our software and a bunch of institutions who have incorporated into their curriculum and are teaching -- and it is the backbone of the engineering curriculum in many places. It's really important being -- kind of the optionality we've built with that.
The second place where we've also continued to find customers is in the consumer space. And what -- we have now built a community of over 150 million consumers who are using our products. Just to put a little financial perspective on this, this year, our consumer business will be about $20 million, $20 million-plus in revenue and probably double that in bookings. So it's a business that we started from scratch but is growing and growing at a hefty pace. So in addition to our core business, I think it's important, as you think of our ability to grow the subscriber base, to understand the size of the market in terms of consumers and students that are part of that.
Now when you look at this market, people are often confused about the opportunity we have in terms of the new customers. If you look at just the available market, confidence conservatively is possible for the competitors that you can readily identify and the parts of the market that we can address. At a minimum, this is a $20 billion-plus market, and we have a fraction of this. So for some people, say, you have the lion's share of the market, there's almost no way to come up with that calculation that's says we have the lion's share of this market. This is a big market, and it's growing substantially. And our ability to enter into new markets and to attack new markets with new products and services means that the total available market has been growing.
So what we're really going to talk about today is about getting more growth, and we're going to talk about more growth really from 2 different perspectives. One is from increasing the lifetime value of our subscribers, and the second is about adding more subscribers. And so the backdrop for this was -- what I was trying to describe to you is how do we get to more value per customer? How do we make more attractive offerings? How do we add more services in so that customers pay more and get more value from what we're giving them? And so we can attract new customers, either customers who are non-consumers or they're non-payers, or they come from competitive swap-out. All of those are new subscribers.
And so most of the presentations of the day are going to surround these ideas, and it's important to realize -- just the context for it is just remember that we're really talking about a business model transformation, we're talking about a platform transition, and we're talking about Autodesk going into new markets.
And so the agenda for today is, first, we're going to have Andrew come up and kind of give kind of a "meat and potatoes" of the business model transformation, speaking specifically about the changes that are going on in the subscription program and some of the details about the recurring revenue and the new offerings that will be ratable and giving you an overview programmatically of what we're trying to accomplish.
And the second 2 parts are -- Amar is going to talk about the AEC opportunity and talk about the products and why we believe we will continue to capture share and why we believe we're building the right products and services for customers. And then Buzz will do the same thing in manufacturing. And then finally, Mark is going to wrap it all up by trying to bring this together and present the financial model, including the short-term guidance and what the long-term opportunity is and guidance for that.
So with that, what I'd like to do is bring up Andrew and have him discuss the business model transformation.
All right. So my job today is to be as concrete as possible about what we're going to do to turn the transformation we're working through into real billings growth for Autodesk. I'm going to come back and [indiscernible] a couple of themes. One, I'm going to talk a lot about the new value we're creating in the cloud, its highly differentiated value. It's value customers are going to want to attach to their current solutions. And I'm also going to come back to how we're changing the business model, both around the cloud, because you have to adjust the business model for the new cloud offerings, but around how we're doing it in the core to really connect the 2 things and turn these into billings.
There's going to be 2 buckets over and over again I'm going to try to give you some confidence and facts around. The first one is, how we're going to get more value from new and existing subscribers. That's going to be very much around attaching the cloud, very much around new types of models. The other scheme I'm going to come to again and again is how are we going to use some of these new business models to bring new subscribers into the Autodesk ecosystem.
So what I want to do is start diving a little deep on the first bucket, the "more value" bucket, so that you can understand some of the opportunities we want to pursue in order to get more value from our existing and our new subscribers. And there's no better way to start than where we ended last year with the move from desktop products to suites.
Now those of you who were here last year, you probably remember we were measuring success in this initiative through a couple of key metrics. We were looking at over a 3-year period a 20% uplift in the ASPs of new seats in mature markets and a 20% uplift in the ASPs in subscription. This is how we were driving the equation that was generating more value from these customers.
So why don't we pause and take a look at how we're doing, how the initiative has gone and look at some of the metrics in a really solid way.
So here's a chart of the ASP trend in mature markets for our products, for the new seats. Now we start in FY '09, and the reason we start in FY '09 is that's the year we benchmarked ourselves against internally when we started the suites journey. It was before The Great Crash. It was a solid year where we were able to get solid data.
And what you're seeing here is a nice upward trend. We're well on our way within the 3-year window to hit that 20% target. We're very close right now. You see a little different in FY '12. That was the year we introduced the design and creation family. That dip is completely driven by the introduction promotions we did to prime the pump and get the machine moving.
When you look at the subscription trends, you see even something more startling. We've overexceeded our goals around the 20% target in the subscription space. So we've seen solid growth in customer value, both from a subscription measurement and a new seat measurement. And we did all of that by programmatically also driving the growth in the subscriber base simultaneously. We are now -- we now have a 26% -- I know everybody is looking at this chart, looking at the axis. Right? We now have a 26% larger subscriber base than we did in FY '09, roughly about 1.8 million subscribers. Right? So if we continue to look at this, you can see the progression in suites on the billings number as well. The mix in billings is continually favoring suites more and more and more.
And the last lens I want to look at is on revenue. Now what you see here is Q2 of FY '11, that was the last year before we had the design and creation suite family, and you have Q2 of this fiscal year. And there's a couple of things I want to point out to on this graph. One, the blue bar for stand-alone products didn't change significantly from the the pre-design suite era to this quarter we're looking at here, which goes a long way to answering a question I get frequently about, "Did you cannibalize your stand-alone business when you rolled these suites out?"
The other thing you'll notice is a lot of the growth was driven by the growth in suites, 77% growth in suites quarter-over-quarter between those 2 time periods, or year over -- years-over-years between those 2 time periods, really driving the growth for the company, which kind of begs the question is, if this is what's happening with the suites program, why isn't the overall performance of the company doing better? Right? Fair question. And the real answer there is that our focus on suites, both programmatic, channel, marketing, sales-wise, left behind some of the non-suites buyers. And those non-suites buyers are primarily people that buy AutoCAD LT and a vanilla AutoCAD. So what we've done is we've looked at the programs, we've looked at the focus and we've shifted our demand-generation activities and some of our other programs to reignite growth in these applications. These customers were sitting dormant because they were not hearing a buying message that fit what they wanted to do. So we've moved forward on that. You're going to see the effects of that over the next few quarters. We're already starting to see some of the effects now.
But the net I want you to get from the suites initiative is that suites drive increased customer value. They drove it, they're still driving it, we're still going to play this play. This is a programmatic play we know how to drive over and over again. And I also want to be clear, we don't do this simply by increasing prices. We do this by delivering real value to the customers. So we're getting value back from the customers by delivering value. It's a play we know how to run very well, and I want to now drill into a couple of areas where we're going to run this play again and again.
So the first one I want to talk about is in some of our existing accounts, specifically our enterprise accounts. We've got thousands of these. They're our largest accounts. And the blue bar to the left there is the TAM, the TAM in terms of design and engineering software that is sold into those accounts. The little teeny green bar is our penetration into that TAM. And 4 years ago, that penetration was significantly smaller. We've actually gotten better at penetrating these accounts, and we're actually going to be using the transformation, both the value we're creating in the cloud and new models based solely on consumption targeted at these enterprise customers to increase the penetration into that TAM. And these consumption models, which I'll go into in a little bit more specifics, are great tools at driving adjacent application use and displacing competitive solutions, whether those competitive solutions are free or they're paid for, or they're currently on maintenance.
The other opportunity I want to talk to goes straight to the value you're going to hear about from Amar and Buzz in terms of the applications we're delivering on the cloud platform. These are powerful tools. They're highly differentiated, many of them are unique in their market. There's no other alternative to them, and we're going to go into the broad swath of our current subscriber base, and we're going to layer these on top of them. Most of these only cost a few hundred dollars more a year, and customers are going to see the value. And we're going to be able to programmatically attach these on to the current subscriber base. And it's going to be a big opportunity for increasing customer value with those current subscribers that are going to say on the current subscription program.
As we move forward into getting more value out of new subscribers, I think a lot of you -- I know because some of you have done the math, renters are more valuable long term than a perpetual customer paying maintenance. So we're going to do a lot programmatically to focus getting these new subscribers on the rental solutions, which over time, we're going to be calling product subscriptions. Also as you get these customers up and running on our desktop design software, they become targets for layering on the cloud application. So there's value we can create by getting them on the rental, then there's value we can create by coming back and layering on the cloud applications. Those are the 3 new buckets we're going to be attacking in order to create more value from all the customers we have today -- subscribers we have today.
Which moves on to the other piece of the puzzle, getting more subscribers. And this is going to be all about leveraging the new business model and modifying our existing model to get more subscribers into the Autodesk ecosystem. And what I want to do is pause and talk about, again, Carl alluded to it, I want to be very clear what we mean by subscribers, and then dig into a little bit -- dig in a little bit about the opportunity we have to bring nonsubscribers into the Autodesk ecosystem.
So first off, let's pause and talk about the types of subscribers we're talking about. Maintenance subscribers. Current buyers of our perpetual desktop software that pay us maintenance every year. They're good subscribers. We want more of them. Product subscribers, otherwise known as rentals; still a subscriber. Cloud subscriber, someone buying one of the cloud services; still a subscriber. This is a subscriber universe I'm going to be talking about, and this is a subscriber universe -- this is the set of subscription offerings we're going to use to grow our overall subscriber pool.
So what are we going to dip into to do that? Why don't we just start with looking at some of our nonsubscribers in our current desktop space? And I'm going to give you a minute to process this chart because it shows the commercial pool of nonsubscribers over the last 5 years that are 5 releases back, 5 releases back. And you see the numbers roughly constant at about 2.8 million over a 5-year period. We have many more nonsubscribers if you go 6, 7, 8, 9 years back. However, this 5-year back view gives you a very stable picture of what is indisputably an active pool. If we converted just 30% of this pool of subscribers, 30%, we'd increase our subscriber base by 50%. And this is a real active pool of users.
But this is not the only pool we have access to. We have been creating new pools of users actively over the last 3 years, and they're equally as exciting as this pool of users. And let's take a look at one of them. This is a new pool of users, nonsubscribers, that's also a new breed of nonsubscribers. These are the people that use the AutoCAD 360 application, the current free version we have out there in the universe. There's a number of people that have registered since we brought it online. These people are using this application. And you can see what it does is it takes us north of 14 million nonsubscribers, a new breed of nonsubscribers comfortable with SaaS using SaaS. Even if the overlap was 100% with our desktop nonsubscribers, we'd still have a huge opportunity. And we know for a fact that the overlap is actually pretty skinny. So a whole new pool of nonsubscribers out there. Convert 7% of that pool, that total pool in FY '13, and you've got a 50% increase in our subscriber base to 7%.
But we have one more pool that we've been building aggressively over the last few years. Carl said, this year is going to get upwards of $100 million. But you can see what we've been doing as we've driven students to get access and adoption of our desktop tools. In some cases, we're also driving access and adoption of some of our cloud offering. But we now have a large pool of student users. So when you look at our total pool of nonsubscribers, just a 1% conversion of that total pool gets us to a 50% increase in our subscriber base. So large untapped opportunity both in the desktop nonsubscribers, the cloud nonsubscribers and the student nonsubscribers.
But there's other types of opportunity we're going to dip into as well. Piracy is still a problem. The new business models are going to help us there. We know our emerging country's piracy rate is somewhere north of 70%. We know our developed piracy rates are still stubbornly north of 20%. We see it in the number of trials. That seem to go over and over again to the same person. So we know these are real problems, and some of these new business models are going to help us penetrate this piracy problem moving forward and turn these non-payers -- they're not even nonsubscribers, they're non-payers, into our paying universe.
Which brings me to a next very important bucket, especially if we're looking at economic expansion coming out of all the downturn all over the world. It's these new types of buyers. Now these are new companies coming in at the bottom of our market, and there are also new types of buyers that we can reach with the new value we're creating with the cloud application, which Buzz and Amar can give you a lot more color on. These new companies, a lot of them starting out of the gate are using free solution; they're using back-revs as a software; they're using subpar solutions or tools they borrowed from friends to get up and running. Our new business models are going to let them get into our universe at lower upfront costs and become paying subscribers. And when you see what we're delivering in terms of new value in the cloud, you're going to see how we're going to pull new types of users in the construction ecosystem, in the manufacturing ecosystem into our subscriber universe.
The last piece I want to talk about, and as you could see, the opportunity is pretty broad, is this project-based space. These are people who need the software for short bursts of time, 3 months, and then have these large lags or feast and famine cycles, where they don't need the software. A lot of these users stay on back-revs. They bought a rev a few years ago, they milk it, milk it, milk it. They want the latest technology. But you know what? Their feast and famine cycle doesn't allow them to get there. Some of them are simply nonusers. As a matter of fact, a lot of them are nonusers, or they're using some subpar free tools to try to get their work done. A lot of them are in the M&E space, especially now. A lot of them in construction. I'll give you some examples later about customers that are becoming subscribers based on just what we've done in the last 3 months. And we even have them manufacturing project-based users that really need the software for bursts of time, not for long periods of time.
So what I just told you is some of the pools we're going to dip into to fuel that billings growth around more value per subscribers, new and existing, and more subscribers. Now what I want to do is give you some more specifics about how we're going to do that and how we're going to use our business model triggers to enable some of that change. And the first thing I want to do is start with our existing business model and how we'll modify it to get more of those nonsubscribers into the subscriber universe.
I think everybody is familiar with this. Pretty classical. We even use a disk just to make sure that it's an older business model. They buy stand-alone products, they buy maintenance and they buy upgrades. Well, you know what? In a year, a little over 1.5 years, they're not going to be able to buy upgrades anymore. There's a logical change. It's been something we've been conditioning the base to for many years. We've been making it clear that maintenance subscription is the best way to stay current in order [ph] this application. So as of February 1, 2015, they won't be able to purchase an upgrade anymore.
So you can imagine this is going to have a pretty significant impact on the sales programs, the marketing programs, the campaigns and things we do next year to encourage customers to move out of that nonsubscriber pool into that subscriber pool, gives us a significant event, gives our customers plenty of leeway to asses the implications to them. And we have lots of leverage we can pull with this current maintenance subscription model to get them there.
But the good thing is we have a lot more levers we can pull because we have the new ways to buy. And I want to take you through the new ways to buy and why some of these new ways to buy are going to be so attractive. One, of course, is desktop rentals. You know about that. We have lots of levers to pull in terms of customers seeing differentiation between these offerings, the spread between the perpetual price and the rental price; what's in the rental offering versus what's in the perpetual offering. There's many things we can do to differentiate these offerings and make one offering more attractive than the other. I think cloud services, we've been very clear about. These are going to appeal to a lot of people. Some of them -- some of these offerings are going to appeal to our core design users, and they're going to be able to get up and running pretty quickly with them.
And another model we haven't talked a lot about is this consumption model. I alluded to it earlier, but this is an all-you-can-eat model that we serve up to large companies where they have access to the entire portfolio, don't care if it's desktop, don't care if it's cloud and they pay for what they use. The powerful model gives them access to the latest technology and the latest adjacent technology. And when you look at this through a customer lens, it's pretty easy to see what customers appreciate about these various models. Both cloud and rental have the lower upfront cost dynamics. So it costs less to get them. If you're a company struggling with cash flow, you're able to get in there, get them the model. But you're also able to scale up, scale down and always have access to the latest tools. Remember those buyer types I talked about, the new buyer types, the project buyer types, all of these offerings are going to be attractive to them.
Cloud, of course, have the same appeal, but they also solve new and existing workflows in compelling new ways, and you're going to hear about some of those things later, but really, really compelling value created in the cloud. And the consumption model is very simple. Pay for what you use, measure it, bill it back internally in your enterprise and access the latest tools all the time, all the time.
And what I want to do is spend a little time making this strategy, making these tactics real for you so you can see how it's playing out right now. It's not a fiction. What it is, is it's something we've been working on for a while, and we have real examples of customers we're taking through these cycles and some of the ways we're attacking some of these new offerings today.
And the place I want to start is with the consumption piece. This is an example of a global manufacturer of automotive parts. They have been on a consumptive journey with us for 18 months, right? And during that journey, a couple of interesting things have happened. One, their usage have increased 13%, and that usage have increased by a couple of critical drivers. One of them is displacing competitive solutions. This idea of having broad access to the audience portfolio just gravitated people to, what? I'm just going to use this. I have access to it. It's great, I'm going to use it. Oh, I'm not going to use this free thing, I'm going to use this other thing. Oh, I have this older release of some competitive products, but I can get the latest release of this Autodesk solution. I'm going to use that instead.
The other thing that drove this usage, and it's equally important, is the increasing usage of an adjacent product. So these were core design uses [ph] in this company, but over the period of that 18 months, the users of adjacent products, specifically simulation in this case, increased by 2.5x. So a lot of that usage was driven by an increase in usage of the adjacent products. And the customer was happy about this. They paid us more for the flexibility, and they also paid us more to get their users' access to these technologies because they like the model. It works for them. Now at some point, they're going to want it to cop out, but we're a long way from having this cop out just in this one account, and we're a long way from having this cop out in our enterprise universe. So that's one, consumptive models.
Now let's kind of turn more to our core kind of small and medium business market and give you some examples of medium-sized businesses that are doing exactly what we're going to programmatically do over the next few years. So here is an AEC firm. They do all these wonderful workspace designs. Happy users of Building Design Suites. Very happy users of Navisworks for sizing up the construction site issues. They are now very happy users of BIM 360. So they layered on a cloud-based solution, one of these differentiated cloud-based solutions, onto their desktop world, just like I talked about earlier, and they're delivering more value to Autodesk because Autodesk delivered more value to them.
There's also a great example inside of manufacturing. Here is a manufacturer of industrial centrifuges. They were very happy building a Product Design Suite customers, very happy. Modest suite [ph] today. Now they're happy Simulation 360 customers, and they actually paid us more than the competition for Simulation 360 because they like the flexibility and power of the offering. It computes in the cloud, they're able to do more, they're able to understand more and they were willing to pay more to get it, more than they were quoted from a competitor. So another real example of how layering on the cloud onto a current desktop subscriber drives an increase in customer value for the company.
But for the rest of that large ecosystem of small and medium-sized businesses, we believe we're going to have an offering as popular as AutoCAD to layer across all of them. It's what we call Autodesk 360 Pro. Amar is going to give you a lot more specifics on this. It's essentially a collaborative platform that aggregates some tightly integrated core services together, some high-value services. But it's only going to cost a few hundred dollars a year, and we're going to aggressively attach it to that broader base and supersize them and get more value out of them by delivering more value to them.
Which brings me down to the bottom of our market. Small businesses are going to be an engine of new customer acquisition for us, and they love the new models. Now let me give you some specific real-world examples of customers embracing the new models right now, and doing the kinds of things you're going to see become commonplace over the new few years.
So here is an example of an environmental consulting firm. They were LT users. They were back-rev LT users, 2012 LT users. Not current, not paying us money, not a subscription, not interested in paying subscription, not really using LT all that much. They found out about the Inventor LT Suite rental. They rolled it out to their entire team. They're now happy rental customers. Now they're telling us they're going to stay renters for 6 months. But you know what? Once they're renters, once they're in, they start keeping it, they see the power of it, they are able now to use LT, Inventor LT, and they're thinking about using Infrastructure Design Suite if they can hire the right kind of expert to do it, and they're going to look at a rental for that. So example, right in our small base of a customer doing this.
Here's another great example. Both of these -- these are 2 small companies, very small companies, all right? This over here is a plumbing contractor and an architecture customer. They're both using LT. One bought it, doesn't use it that much; one is on the trial. Plumbing contractor founds out that he's working on a contract that has a BIM mandate. So he's got LT, finds out about the rental. Now he's an LT customer, renting Revit suite so that he can compete more effectively on this project that had Revit models integrated with it. Great story.
Architect starting his own business. On an LT trial, doing real work. Didn't know that that's actually piracy. It happens a lot. But doing real work on LT, gets to the end of her trial, gets a message, why don't you try a rental suite. Now she's a very happy Revit LT customer because she's got access to the product she was using in the trial mode and the product that she knows out there in the ecosystem doing bigger projects. New customer, total new to Autodesk.
Now here is an example of -- another example of a nonsubscriber. AutoCAD mechanical, back-rev user. Not paying us any more money, sitting on the back rev, now a SIM 360 user. Happily paying us more using a cloud attach model here.
And there's one more example I want to talk to because I like it. It's not a paying customer, but it's an example of reaching new types of buyers we never would have been able to reach before with new cloud offering. This is an industrial design customer. They're using Fusion 360 to do industrial design. Probably would've used an application like Rhino previously, but they saw what we're doing. They love it. They're going to become a paying customer someday. I know it. We've acquired this customer net new with the power of the cloud. And there are many, many, many, more examples like this. These people are going to be the engine of new customer acquisition as we move forward.
Now there's one more pool I want to talk about. I want to be very clear, this is an upside pool. None of our model's included this pool. But it's an exciting opportunity and we see a lot of potential there. And it's the student pool that I talked about earlier. Right now, like I said, we provide free access to our desktop products. We also provide access to a set of cloud services in a metered way.
So what is less than the price of a textbook? They got near unlimited access to visualization, simulation. Some of these students in the countries where we have these available love, less than the price of a textbook for a year. A lot of these students are going to take that deal and use these applications to be better on their projects, to be more effective in their classes, to get better grades and to learn about where the future is going in the commercial space, and that's a completely untapped opportunity.
So I painted a picture of the buckets we're going to attack, how we're going to attack them, what does it mean to Autodesk. So I want -- there's a few numbers I want you to take away and I'll summarize them at the end. The first number is, we're going to use all that new value creation, all that new opportunity to drive a 12% billings CAGR between FY '14 and '18. We're specifically talking about billings, we're specifically talking about subscribers. Mark will talk more about that. But this is the target, this is what we're driving to, and we believe all of that opportunity is there.
The way we're going to get there is another 20% uplift in the value of our current and new subscribers, and I told you specifically about the tools we're going to use. We're going to use attach of the highly differentiated SaaS applications, we're going to use the rentals for the new subscribers and we're going to use these consumptive-based models to increase the value we get out of some of these enterprise accounts, so 20%, 20%.
The other number I wanted to talk about is 50%, a 50% increase in our subscriber base, driven primarily by leveraging the price points associated with these new models, the rentals, the cloud offerings. We're going to bring a whole new universe of subscribers into the Autodesk ecosystem.
So let me net it out for you. 12%, 20%, 50% -- 12%, 20%, 50%. A lot of new value being created here. A lot of new value in the cloud. Highly differentiated value in the cloud. New solutions that allow us to target new types of buyers. New business models layered on top of our existing portfolio. New business models attached to the new portfolio. It's going to drive the billings growth to 12%. The customer value increase is going to be driven by layering on the new cloud offerings under the existing subscribers. It's going to be driven by getting new subscribers on rentals, and it's going to be driven by using this consumptive model in enterprise accounts to really increase the value of these accounts over time. Subscriber base is all about using the lower upfront costs, the compelling value in a new application to bring more people into our ecosystem. So I've given you lots of examples of how this is going to work, I've shown you that we've credibly done it in the suite scenario and we've got a lot more room than we ever had with suites with the new models and the new offerings.
And with that, what I'd like to do is I'd like to transition over to Amar Hanspal, so he can tell you about all the exciting value we're delivering in the AEC space. Thank you.
All right. Thank you. Well, thank you, Andrew, and good morning, everyone. I'm here to talk to you about the opportunity that we have in the AEC industry, and I'm really excited. Those of you who have been following Autodesk for many years know that the AEC industry has been a key component of our growth over all these years. But I got to tell you, you ain't seen nothing yet because I firmly believe the best opportunity in the AEC industry remains ahead of us.
So to sort of share that story with you, I'm going to sort of really do a quick orientation on the AEC industry; the main trends and challenges we hear from our customers who are in this industry; talk about sort of what technology enables in terms of addressing some of these challenges in this industry; and then really talk about how cloud services really provide us with a breakout opportunity in the AEC industry.
So let's begin by sort of a quick baselining and orientation of what it is that we mean by AEC. You all know that AEC stands for Architecture, Engineering and Construction, but you and I experience it as the built environment around us. Buildings, roads, bridges, dams, railways, airports, process plants, utilities, it's around us everywhere. You and I rely on it to lead our lives. It's a huge part of the human endeavor.
In fact, I saw a study from some Oxford School of Macroeconomics or something important like that, that said, the economic output of the AEC industry is about $15 trillion. That's about -- it's not the largest, one of the largest employers of people in the world. It's a huge industry, it's all around us. And all of this work can result in a significant software opportunity. As Carl shared with you, the AEC and ENI, or engineering opportunity inside this $20 billion dam, it's almost over $10 billion worth of software. And the reason customers are investing in technology really ties to the challenges they see across all of that work that they do for the planet. I go around the world and have a chance to talk to these large companies and small companies' year [ph] of individual issues, sort of a patent emerges of 3 large issues that you hear over and over again.
The first issue is that the construction industry effectively deals a lot with what you would call waste and productivity issues. In the world of manufacturing, people make many of the same thing. In the world of AEC, they make one thing consisting of many components. And that leads to a lot of complexity and coordination, and it leads to things that are -- by some estimate, 30% of the material that shows up on a job site doesn't end up in the building; it ends up in the landfill. That's like torching 1/3 of your money on any investment that you make. It's a huge issue for the industry, and they've been trying to address it over all these years, adopting techniques like what they would call lean construction, which sort of borrows ideas from the manufacturing industry, driving things like prefab or fabricating components offsite, assembling them on-site, sort of agile planning and things like that. It's a huge effort in the construction industry to address those fundamental issues of waste and productivity.
Likewise is the issue of the impact of climate change. If you think of any building, one of the -- it is the largest consumer of energy resources in the world are building. And then you can think of any large infrastructure project, they have significant environmental impacts. So there isn't a project that starts today that doesn't at its core have this idea of sustainable design, right? And so that's another major trend sweeping the industry.
And the third one is just given the sheer financial investment required by many of these projects, people have been searching for a better shared risk and reward model in executing these projects. And you'll hear the word, design build. You'll hear the word, integrated project delivery. You'll hear public private financing. There's a lot of terms, but it in fact comes down to people finding a way to share risk and reward as they execute these projects.
The 3 -- to synthesize this idea, lean, green and integrated are the 3 big challenges that our customers in the AEC industry want to see addressed going forward.
And the good news for us is that it all requires a fundamentally common technology substrate. And that substrate is what we would call Building Information Modeling.
So Building Information Modeling, just to -- I'm sure many of you are familiar with it. But to just provide a quick refresher on it is the ability to share a single set of coordinated information, which is model-based, across all of the players in a particular project and have that information be the way in which our subsequent deliverables are derived. So whether that be drawings, that be energy calculations, that be schedules and quantities, all of that is derived from this higher representation, this model, this building information model.
And as you know, we kind of pioneered this concept just over a decade ago. And our flagship offering for this is something we call Autodesk Revit, which anchors the Building Design Suite. And since its introduction, it's really gone from being a promising concept to really the way buildings everywhere in the world are designed. You can go to sort of any 3 corner in the world, and whether you see the tall -- one of the tallest structures in the world, and here is a design by a customer called Gensler takes into account not just its interesting shape but wind forces, structural steamed considerations. All of that is done using Building Information Modeling.
So whether you're looking at that or you're walking down a street in New York and you're watching a hospital come online and all of the coordination issues associated with a building like this, of a ventilation, microclimate, all of those things are designed, coordinated and delivered using Building Information Modeling. And then you can even see halfway across the world as renovation projects being done using BIM.
And so I don't think it's an exaggeration today to say that BIM has gone mainstream. It is the way today buildings are designed and delivered. That is the current practice in which all of this vertical infrastructure that you see around you is being designed and delivered.
And another sort of piece of evidence of that is if you look at what owners are specifying now, they are demanding the use of BIM in the design of their buildings. And in fact, governments around the world have started legislating it into policy. And the reason for that is they all believe that the use of BIM technology is how better buildings are essentially delivered. It's kind of unusual for governments to get involved in specifying a particular technology approach, but they have been because of those issues of lean, green and sort of managing the risk and reward around the world.
So we're really seeing BIM become a really powerful concept in the industry. We're in a great place. It's why we have a bright spot in the AEC industry, reports that you see from us today. And as great as BIM is, and as powerful and pervasive as it is, we're about to take it to the next level with the arrival and the opportunity that the cloud platform creates.
Cloud brings with it inherent connectivity, elastic computing and all these various form factors. And it's a combination of that idea with the central thing that I talked about with BIM as an approach to the design and construction of all this infrastructure that really opens up a whole set of opportunities for us.
And probably the best way to explain this to you, and to tie it to what Andrew talked about, which is new subscriber growth and more value in existing subscribers, is to sort of take you through discipline by discipline.
So let's start in the world of architecture. What does BIM plus cloud enable in the world of architecture? Well, first, it lets us get to users that we may not be serving today. So imagine Revit LT on a rental. Let's just get you a small architecture or a contractor firm that might have found Revit LT not that affordable.
Let's go further. Within an existing firm, we're able to get to different users. Principal architecture, you know the guys you read about, who sketch their brilliant ideas on napkins or pieces of paper, well, now they can go and work with their clients using a tablet and explore their ideas in realtime and cloud-based services such as energy analysis or wind analysis give them feedback. Cloud gives them the ability to collaborate. Cloud gives them the ability to analyze. And they're able to be more effective.
Similarly, the computational power of the cloud now lets people explore not just form. Now here's what a stadium might look like, and that's actually what you're seeing right now, or function, how -- here's how it will connect up. But in this case, they're understanding fabrication because they're trying to understand whether their design can actually be made. And the computational power of the cloud, we can give them solutions and give them options in studying the various kinds of elements that they need to assemble to make their designs come to life.
In both the examples that I showed you so far, the underlying form that's been created is BIM compatible. It's not just cool-looking graphics that you're seeing on screen. This is actually starting or priming the BIM process really upfront in the design process that these firms go through, the new users, new subscribers and value to cloud services.
What about existing users, existing subscribers that may have already started using BIM inside a firm? Well, a cloud service like Autodesk rendering makes a big difference to them. This is one of those things that takes them hours to do. And it's frequently required as part of their design process, right? They're constantly trying to communicate through city planning or through their client or through somebody else in the firm about the progress of their design and to generate an image, and this is a synthetic rendered image, not a photograph. It's something that takes them hours and powerful computers to generate today.
And using the cloud, this is done now with Autodesk cloud rendering services in a matter of seconds. Since we rolled it out, today we are clocking, rendering on our servers every 6 seconds. And this is early days, okay? This is early days of us rolling our cloud services to our existing customers.
Today, you can see that in the world of architecture, we have plenty of opportunity to add services to existing customers, as well as find new subscribers within those firms.
Now let's look at the world of engineering. And the engineering is a very broad term for the AEC industry because engineering covers people who design building systems such as air conditioning or plumbing or electrical and fire sprinklers. It includes people who are designing large structural support systems with skyscrapers and bridges. And it includes engineers that design roads and bridges. It's a very broad term.
And again, across this segment of the industry, BIM is being adopted. So the MEP guys are adopting. Structural guys are adopting. And so I'd like to actually start by highlighting someone that -- or a segment that has traditionally not been a very big part of model-based designs. And that is the world of horizontal infrastructure. So think about roads, bridges. You've got really large challenging projects. And we've been pioneering the idea of BIM for infrastructure recently through our introduction of a platform called InfraWorks.
Now I want you to think of InfraWorks as what Revit did for buildings, InfraWorks is doing for the world of civil design. It's really bringing the idea and the concept of model-based design in a big democratized way. And again, like Revit, we are the only ones doing it really. And it's addressing some of the key challenges of that industry, sort of the historic software facts of that industry. So for example, scale, where people have previously had to break down projects in smaller mild increments instead of designing it at true scale. Well, InfraWorks lets them work at the right scale and not at the limitation of the computer.
It accesses cloud-based services. So as you design, not only does it look real, but it's accessing optimization services such as calculating horizontal and vertical alignment or cut-and-fill or grading analysis. All of that is being done on the cloud. They're a rule of procedure-based design that is accessing. So things that you're putting up there are already code-compliant in the right areas around the world.
There are no -- if you were a civil engineer in the audience right now, your mouth would be falling open because this really is a paradigm shift in that industry.
And since we introduced InfraWorks, our position in this segment, our competitive position has started changing dramatically. So just a few years ago, we almost had no significant customers from the U.S. Department of Transportation, the guys that designed all the highways and roadways around the United States or maintained them. But since we introduced and started having conversations about BIM for infrastructure, we've now secured almost 10 of these native DOTs, including the one right here in California, which is the largest department of transportation. So we are securing competitive displacement. Competitive displacement is a new subscriber and part of the story that Andrew just shared with you.
Not only are we winning new business, our customers tell us that using BIM for infrastructure, they're winning new business. So that example on the left-hand side of the light-rail transit, that was one of our customers, one new business by leading with BIM for infrastructure. We have this big opportunity in engineering to change our shared position, to change our competitive position in the industry, which also is the same story we have in the world of structural engineering. So all those nod-support structures that you see with a combination of something like Revit structure and then cloud-based analysis, such as the structural analysis service that we have built, and it can calculate wind loads and static loads as part of your structural design. This really starts to change our competitive position. And it lets us do best, do what we do best, which is to democratize the industry, bring things that were only done at the high end down to the medium-sized and small businesses around the world that do this kind of work.
So again, BIM plus the cloud platform really is letting us secure new subscribers to competitive displacement in the engineering space and add value to existing customers in the space.
But I want to touch on construction because I want to sort of elaborate on what Carl was saying, which is we've gone from big A, middle C to big C now. And that is really true in the world of construction. And originally, the whole group in construction was driven from the fact that construction or contractor companies really started adopting BIM for their work. And that's tied to that ideal lean construction, right? The more you are trying to automate construction and doing prefab, the more model-based information you need to drive your machines or to figure out how reinforcement or rebar and concrete would work. And there's a lot of investment or steel connection, details, lots of things that construction companies have to figure out that has driven their BIM investment.
And we've been really trying to help them with this. And as you saw this morning, we made a major investment by buying assets from a company that had developed advanced steel and advanced concrete capabilities, a company called Graitec. And this is perfect. Again, we will use that democratized structural BIM, if you will, BIM for construction, and drive that across a large, large base of construction companies around the world.
But that is not the only opportunity we have in construction. And if you have driven by any construction project, you know that for every 1 or 2 designers or engineers sitting in the office or maybe even in the trailer, there's at least 10 folks walking around in hardhats, superintendents, people asking boring stuff, safety inspectors, quality people, trade. It's a tremendous number of people. So this is a large disbursed and disconnected workforce.
But until the arrival of the cloud, because the cloud, if you will, lets us connect all these individual neurons into a single construction brain, okay, and lets us connect them with critical information. Sometimes, that's BIM information. Sometimes, that's just workflow in sort of the automation, things that they would've done on paper. They are now able to do using automated tools, especially using something like a tablet or a mobile phone, which is a very, very practical device for them to walk around and instead of the clipboard, start to use on construction sites.
And to address that opportunity, we've been busy building a family of products we called BIM 360. Salesforce, the guys who's trying to share this building with us, they have this concept called the sales cloud or service cloud. Well, think of BIM 360 as the construction cloud. And that's really what we've been busy building with our individual offerings, tools, schedule, layouts. And I'm just trying to explain to you what it is that a construction company can do with BIM 360.
Well, for one thing, they can plan. So as design or engineering information changes, the folks sitting out on a job site can understand the impact. They can detect things like clashes. So if somebody comes up with a new structural design, they can instantly understand whether that interferes with any of the installed equipment or HVAC stuff.
You know that 30% waste that I talked about earlier? That comes from things like those clashes that you see, which oftentimes people only discover when they have actually already ordered the material or are trying to install it on site. This is worth a lot to a construction company, to detect, predict issues, eliminate issues well before they are too far committed down the actual work.
So they can plan. They can plan even things like schedules because we've started building out a scheduling tool. And our goal here is not to replace their Gantt chart or their critical path stuff. It's to do their daily work and understand that if the electrical goes in before the plumbing, is that a problem. And you won't believe how often that is. There's a -- lots of little issues where they're planning in this agile short way and they need to understand these what-if scenarios as they're planning the construction.
This whole connection to the construction job site also lets us get to that last mile. Okay, the last mile here is what if instead of spray cans and measuring tape, you actually just project the digital model using lasers and hardware from Dotgone [ph] or Trimble out onto their job sites and guide the layout and installation of key things on that particular construction site. This is not that science fiction as it might sound. If you just go down here to this southern market, to the UCSF Mission Bay Hospital project, you'll see construction crews using digital BIM models to guide the installation of hangars and brackets. So they are saving a tremendous amount of time and errors as they do this. We're doing this through BIM 360.
And then all of those people that I talked about, those safety inspectors, those commissioning folks, all these guys walking around today with clipboards can use a tablet instead to track, do their workflow. They can manage their checkoff list. They can manage their punch list. They can manage all of the equipment. They can look at what is installed on-site, compare it to the specification that came as part of the design and engineering, make sure that the right things exist. And if there are any supplier problems, connect back from the field office back into the head office.
This is what BIM 360 is enabling. It's enabling a level of automation on the construction job site and process that was not possible before. This is completely greenfield. This is all new subscribers. This is all cloud all the time.
But how big of a deal is this really to customers? And I think I'd like to share that with you with one anecdote I just heard from our Head of Sales, Steve Blum, who just got back from a trip to the Southern Hemisphere, where he talked to one of our good customers. And this customer has bought Autodesk technology from us before. They used to spend, over the course of 2 years, about $50,000. And they just spent over $1 million this year because of BIM 360. The entire investment was done using that, okay?
So if you look at the combination of what we're doing with BIM 360 or this construction cloud along with BIM for construction, we are starting to make a significant dent in the opportunity in the construction industry. Since we started focusing on the C in AEC in the last 6 quarters, we've secured over $300 million worth of business from construction. Over half of all deals that Autodesk secured over $1 million in that same time was from the construction industry. And we have all the story, names in construction. And this is a great, great story for us in terms of a growth opportunity. And if you want to understand why I'm so bullish on our opportunity in AEC, this is a great story for you all to remember.
So let me sort of wrap the AEC piece up. In architecture, we can add value with cloud services. In engineering, we can do a lot of competitive displacement, gain share. And in construction, we have this greenfield opportunity to secure new subscribers.
But the one other opportunity that Andrew touched on, and when Buzz talks about what's the opportunity is in the world of manufacturing, you'll hear similar discrete opportunities. Our one opportunity is to tie together all of the various players in both of these industries with a very broad-based collaboration platform, if you will, called Autodesk 360.
So one way to understand Autodesk 360 is to think of it like social capabilities for projects, sort of like Yammer or Jive or even Facebook, if you will, for design and engineering. And just like any of those platforms, all of the people, all of the projects, all of the activity and all of the data that is relevant to the projects that you're working on are found in one place.
And why is this critical? It's because one of our customers once told me, said, "Look, today, I can find out that my nephew 600 miles away scored a goal in a soccer tournament. But I can't find out if something critical changed on my project." Well, now if something changes, someone changes the design of this hospital, you're alerted that there's a new massing study available. You can use one of those integrated tools that we just talked about to actually examine what that proposed change is, take a look at it. And then based on what you see there, pass that information on to the right person. You might ask a structural engineer to run a new analysis here and say, "Hey, tell me whether that change in the design means anything." And the person will respond, "The updates are visible and relevant to the right set of relevant people. And then you can continue that process. And so for example, a construction sequencing needs to change as a result of that, it's all coordinated from one place. It becomes the home page for your project sort of a digital backbone for any design or engineering project.
And that's what we're building with Autodesk 360 and its integrated set of tools, services and collaboration that any and every design and engineering project will utilize going forward.
So let me just close out by reminding you of what we talked about in the world of AEC. And that is that we find the idea of BIM, and we are set to take it to the next level with cloud services in existing accounts, in existing users, existing subscribers. We're set to change our competitive position. We're gaining in the world of engineering. And we have this tremendous opportunity in the world of construction. Thank you.
And I think we've given you such rich information that you now need a break. So we're going to take a 10-minute break and start -- do you have anything else in terms of logistics? Okay, good. So see you back here in 10 minutes. Thank you.
And ladies and gentlemen, please welcome Senior Vice President, Design, Life Cycle and Simulation, Buzz Kross.
Robert L. Kross
Good morning, everybody. I'll give you a couple of minutes to settle in. So good morning. I'm Buzz Kross. I'm responsible for basically what's R&D for our manufacturing products.
Got a lot of exciting things to tell you about in the few minutes that I have here. Here's what I want to cover. I want to talk about the manufacturing market, be sure we're all on the same page about what manufacturers do and what's important to them. I'll talk about some new trends affecting my customers. I want to give you an overview of what's happening with our current products, our desktop products. Lastly, I want to go to our new generation of cloud products, some new exciting things that I think are changing the market and changing our position in the market.
So in manufacturing, we think about 4 different subsegments of the market versus the automotive market, a really big segment for us, really, especially design, a big combination of the static requirements and various difficult mechanical requirements, high volume in this market. Next is the industrial machinery market, really complex, really large machines. Traditionally, this has been our strength. This has been our wheelhouse where we did really well. I think you'll see how we've expanded in these new spaces. There's the building products' manufacturers, another real strength of ours because we do both sides, building design, as well as mechanical products that fit into buildings. And last of all, the consumer products businesses are also an important segment for us.
Now the market is a sizable one. It's been said many times, a $21 billion market overall, about 45% of that is the manufacturing market, so a large and really important segment for us. The segment look like this: automotive is about $2.75 billion; industrial machinery is about the same size, $2.8 billion, really, the 2 really large segments. It also reflects the complexity. Those 2 markets are the biggest. As I said, industrial machinery has been our strength to date. I think you'll see through this, we've done a lot, particularly in automotive, to strengthen our position and drive considerable new revenue there.
Now in terms of trends, I see 3 things that are affecting manufacturing companies. One, there's a lot of time to market pressures. And often in my market, there's this expression of better never than late. If you come out with a consumer product 6 months after your competitor does, there's just no point to do it. So customers have to hit their date. They have to come out on time. There's huge increased product complexity more than we've ever seen before. And last of all, a lot of requirements are innovation and in aesthetics. Things have to look great and they have to be innovative in changing the game. So product requirements have changed a lot for manufacturing.
Now that leads a couple different things the customers need to do. One, there's a premium on agility and the use of an all-digital process. If you have manual processes or gaps in your digital process, you're in a lot of trouble. You're not going to be able to beat out the market as -- you're are not going to be able to beat the market as fast as your competitor. In terms of complexity, there's a greater need for simulation. Customers want to make this part as simple as possible. But above all, they want to know how it's going to behave. I'll talk to you about how we're helping our customers there. And last of all, on innovation and aesthetics, there's just a whole new generation of products needed. The 21st century CAD counselors, they haven't really existed before, are needed for our customers to handle the complexity, the innovation and the aesthetic requirements. Autodesk, I think, is really hitting on all 8 cylinders in all 3 of these areas, and I'll talk to you about -- a little bit about what we're doing about all of this.
Now our solution is what we call the Digital Prototyping solution, and the concept is a really good one. The idea is that you can build something that's digital and you can prototype it digitally. You can know everything about your product before you make it. Now traditionally, that's meant, for us, design. We did a really good job of designing our product and letting the customer understand this design. One of the changes you've seen from us recently is we now do everything. We do from the beginning of the process, all the way to the back end. This has opened some new areas for us. We have attacked customers we have never attacked and serviced before. So we're helping customers in new ways with not just design, but in manufacturing, engineering, knowledge work, because they use product information, managing data, the whole gambit of concept through producing new product is how we serve and help our customers today.
Now our customers, I think, are really doing well. This image you see here is a tunnel-boring machine. So our customers are designed to sort of really complex systems with our products today. They're solving really complex design challenges. They're doing multifaceted simulation, and they're doing all sort of realistic visualizations. So customers can use them today that were impossible just a short time ago and are solving these amazing problems. It's impossible to do these things without sophisticated tools like the Autodesk toolset today.
Now our lead product is a Product Design Suite. Okay, it's a tool designed for customers that design and simulate products. It's core product is Autodesk Inventor, a 3D solid modeling tool. Inventor is doing great. We have a very engaged community. We're adding new capabilities. We're seeing good steady growth. Product Design Suite's growing quite nicely. [indiscernible] so. That part of the business for mechanical design's doing very well.
Okay. Now here's a good example of one of our customers. This is a very industrial machine. But the customer makes great efforts to make this thing look aesthetically pleasing, to the point that they'll use really good visualization tools as well to show their customers how they design. So the aesthetic requirements, even on heavy industrial sorts of products, have become strong, severe and important. Customers pay attention to those things and they go to a lot of executive review. They pay a lot of attention, put a lot of energy in these things. Our tools really help customers do those things today.
Okay. The other interesting part of our business is the Factory Design Suite. Now Factory Design Suite is not for design engineers. It's for manufacturing engineers, a whole other department that helps you design your process to make a product, a new revenue source for us. We really did not get revenue from manufacturing engineers in the past. Factory Design Suite lets these new sort of users benefit from 3D models to range and optimize their factory. So this is one great new source of revenue for us. It lets us leverage many of our traditional tools in a new way to solve new problems.
Now the other interesting new market for us, an area we start to see significant growth is Automotive. Now historically, we've done really well at the beginning of the process, where you're doing the creative design work. Now there's 4 segments where you're doing sketch, concept, design and class A modeling. Customers, what they try to do is they try to improve the efficiency of that whole process. So their automotive customers are trying to squeeze this process to make the whole cycle time shorter. They also are trying to get 10x new ideas in the top of the funnel. So they want much more early creativity. So Autodesk's strength and leadership in the automotive has been in this section here.
We've always had fantastic sketching tools that all the autos use to conceptualize and build their latest new ideas for their concept tools. They also use our tools to do things like interiors. Okay. Interiors becoming increasingly important in your [indiscernible] of a car. Now we have a couple of different strengths, our regionalization, our design tools, but also our plastics ability. Important things for all automotive companies is to make their cars more fuel efficient, lighter. The way you make cars lighter is you take steel out and you put plastics and composite in. We have fantastic capabilities in helping our customers build really good designs on a plastic because of our Moldflow product, world leader in things like plastic design, critical for interiors.
Okay. Also, class A modeling is really a new area for us. We're seeing a lot of growth in the class A business, displacing competitors here. Where they used to use us for the front end only, we're now starting to extend that into the class A technical surfacing, portion of the automotive design process. So you've seen some very large customers start to shift their process based on this, and I'll give you a couple of stories about that.
The fourth area is visualization. We have a world-class visualization tool named VRED. Our visualization is really one of our strong wheelhouses for automotive, in particular. We do a fantastic job. Image like this is a pure digital image. It's often better than real. And we're no longer talk about photorealistic. We talk about better than real, because what customer is trying to do is they try to get in emotions, a feel for this car. You want this thing to feel fast. You want it to have a sexy feel. You can do that digitally better than you can do physically. So our customer use this tool to visualize and review their designs. They also use those assets to do other things, to promote and sell their cars.
And I've got a little car story for you here. This is an Aston Martin. This is Aston Martin One-77, okay. It cost GBP 1.7 million to buy one of these things, GBP 1.7 million, okay. They only made 77 of them, okay. The really interesting part of the story -- and by the way, it's hard to imagine something more beautiful than that. I mean, this thing is just a beautiful car. But the great thing about the story is Aston was able to sell 75% of their cars digitally before they made one car because they were able to use Autodesk images to sell these cars to customers. So think about it, this customer spent GBP 1.7 million based on digital image, 75% of those. So it's a pretty phenomenal success, and it's a great use of the tools to really understand the design and make something that has this emotional, powerful feel.
Now Aston Martin is a first class company all the way around. If you go to their factory, this is an image of their factory, it is like a showroom. It is immaculate, okay, so first class Aston Martin. They do things like when they sold the interior, one seamstress handle each car because you don't want to have a difference in stitching style between the front seat, the back seats, the dashboard. Everything has to look uniform and simply gorgeous. When they finish their cars, Aston spends more time finishing the car than most cars take to build the entire car, okay. So they pay huge attention to quality and detail.
So the great thing, Aston Martin is standardized on Autodesk. From the top to bottom through class A, they used the Autodesk stack. In fact, we've done some press reviews with the automotive companies and Aston Martin where they talked about how they've done it. So they do concept work. They do executive review. They do class A modeling. They do visualization with Autodesk. We're really making some great strides in the automotive companies. And it's because these design tools, it's also because of tools like our plastic tools, our factory tools that are helping this automotive customers get a competitive edge.
Now another really good example is VW, Audi. So we've made a lot of progress with VW. This image is generated by our VRED visualization tool. They're using our visualization tool to do all their executive reviews of their cars. They're all starting to convert their class A modeling tools from the old system to our system. And this because they feel they can get more throughput, they can do a better job with it. So a whole new set of customers with the automotive company, a whole new set of prospects that we're starting to generate and new types of revenue and business.
So it's not just a couple of cases I gave you. Every automotive company in the world uses the Autodesk tools. They -- 100% of them are using our tools, at least parts of their process, always early, always the conceptual design process. We're starting to push that further and further into the cycle and making good progress for virtually every company you name. This is a few of the logos here. It's not just automotive, I know I talked about automotive a lot, but the other markets are even bigger for us and are continuing to grow, whether they're consumer product companies, food packaging companies, industrial products. I think we're seeing really good success with a large array of customers who are doing really well with our software.
So what I would say, and kind of in summary about the beginning, is we've seen a lot of strength in our traditional markets. Product Design Suite, highly competitive, the suite really serves customers well, does all those things that they want to do in one integrated package. We're also winning new types of users, things like Factory Design Suites. It let's us get to the manufacturing engineer rather than just the design engineer, a very attractive proposal for both us and our customer. And last of all, serving new markets. Auto is a new example of places we're starting to extend our reach into automotive segment to get new types of users in a new industry.
Now that's a little bit -- it's not quite looking back, but it's sort of looking to today, okay. So looking to the immediate future is this whole idea of reimagining digital manufacturing. As I said, a lot of pressures on customers to innovate, new aesthetic design, to do things in brand-new ways. So we have reimagined the manufacturing based on the cloud. So we have tremendous tools out there for the cloud today and are continuing to do more and more. I want to talk to you about some of these things.
So traditionally, this has been our market. The CAD industrial design market. We now have a solution that extends to all 4 major disciplines for manufacturers: CAE with our analysis tools, PLM with our PLM 360 tool. And we're about to do something. We've shift in inventor-based product for CAM already, okay.
Now in this environment, we have produced a whole new set of cloud tools. Fusion 360, the first-ever tool designed to do CAD/CAM and industrial design on the cloud -- sorry, I said CAD/CAM. It's industrial design and CAD on the cloud, so cloud-based design, okay. Same thing with our SIM 360 tool. It does CAE on the cloud. PLM 360, it does PLM on the cloud. And you'll see later in the very near future, CAM 360, the new CAM on the cloud. So this really helps customers in fundamental new ways. To do things in the cloud isn't just moving a process from a desktop to a cloud. Our -- the whole process and what we deliver for customers is very different. It very much attracts -- and born in the cloud customers, they just think about the problem differently. So Autodesk has a definitive lead, in that we're not talking about this is the future. These are things we have today, customers are actively using today and we're starting to see a lot of buildup and excitement about these things.
Now let me go through each one of these things and talk about them. So first thing I want to talk about is Fusion 360. Fusion 360 really is reimagined CAM -- CAD in the cloud. So with this, it's very dynamic. You can do industrial designs, like this guitar, for example. With it, it's not as numeric as you see. If you want to change a design, you grab it and pull it. You can see how you can really easily change the design. I talked about the need for aesthetics, Fusion is perfect for those things because you can conceptualize and change so well. It is mixed industrial design and mechanical design. So you can do early concept work and real detail mechanical work, altogether in one package. There's no separation. It's as if we took Inventor and Alias together, put them in one product and put it on the cloud, okay. So we think this is a revolutionary approach that customers have been -- and really less time to. We have a large user base using that right now.
Okay. Now it's also, as I said, reimagined CAD for the cloud. So it's not just a geometric modeling package. It includes an environment that works the way customers think about a cloud package work. For example, a gallery, with it, you can share your design ideas. This is the way 21st century designers work. For them, they collaborate on the cloud. They don't necessarily all get together in an office. They collaborate through the web. So that's built by -- into our tools. Even sites like YouTube and Twitter connects right into it, so you can communicate really. Learning tools built right into it. So these are the sort things that make this thing collaborate much better and lets you extend outside the overall of just geometry into a very modern 21st century feel for a new generation of CAD products. Fusion 360 is revolutionary in the way it approaches these sorts of things.
Now I'd give you an example of our gallery. These are some of the things customers have modeled. They vary from things like customer model the drop of water in a glass, the splash effect that you see 747, sneakers, robots, watches, all sorts of things being modeled today, some very conceptual, some very theoretical, some hard mechanical design, automotive brake, for example, in there. So customers doing a wide variety of work with Fusion, not just mechanical, not just industrial, but the make -- the meet up between the 2. And they're sharing these things. It's -- the new world is I want to let the world kind of know what I do. I want to have other ideas about these things. All those things are built in the Fusion, so revolutionary not just from the CAD, CAE side, but the web use as well.
Now the same thing is true in simulation. We felt we need to do simulation in a new way. So SIM 360 really helps people who analyze how designs work. It's deeply integrated with the Fusion environment. So there's no separation from your design tool and your simulation tool. You can very easily do things like change the diameters of this bar, okay. You can also very easily analyze all these things at the same time, so another really good example of how we use the web to do simulation in their way. Now in this case, it's a high-performance compute of the cloud so that we can analyze 100 different variants of these headphones rather than just one, so easy to operate, easy to get lots of different designs, have the same sort of integration collaboration tool that Fusion has. So we're able to attack this part of the market in some very new ways to help customers analyze things very differently.
Now it's not just about new tools though. A lot of it's also about who analyzes things. So we have simulation tools for all sorts of different segments of the market, plastic parts, the Moldflow, the [indiscernible] solution. We have awesome fluid flow tools. And fluids have become commonplace. They are now mainstream. People are using them for -- used to only be done for ship hauls and NASA used to do it, but now people do it for valves and also to common parts. So it's being done everywhere. Composite design, we're seeing more and more composites. Of course, we have dedicated tool like that, things like pipe flow. So SIM 360 will do the vast -- any kind of simulation that's commonly done. We approach and handle very well. We do it -- as I said, we're do it on the web.
We've also made a really good tool for designers. So here's an example of a common problem like drop test. So drop test used to take a day or so to set up. We can now do it with one click. Our assumption is you're doing the drop test on earth, okay, so we know what earth gravity's like. So it'll do hundreds of analyses to come up with a single answer, but the setup is very easy. Long as you have a model and you want to analyze it on earth, we can do one input. We'll analyze the full test for you. So what it does for you is the designer can now conduct this really sophisticated analysis to understand how they're going to work. I mean, how important is for a cell phone user to know is the phone going to break when I drop it on a concrete floor or not? So it makes a big difference. And designers can understand that early in the process and doesn't have to be offloaded to a specialist analysis team. So SIM 360, we think, really changes the game in how designers work.
Now last year, we also announced the PLM product. Our PLM product's doing really well. We're capturing many customers. We have more than 10,000 users today. It has lots of advantages. Biggest advantage is its ease of deployment. Because it's a cloud-based solution, you don't have to deploy servers, you don't have to manage your own network. It is really a simple matter of customizing the solution to fit, do exactly what you're going to do. So times of bringing this thing up are dramatically less than others. Customers have used it to deploy, and further to deploy, it's to solve problems that they feel will take too long or too difficult to get their current PLM system to solve. So PLM 360 has the deployment advantage, a huge price advantage as well. We think it's another good example of revolutionizing the industry by using the cloud to do things that haven't been done before.
Okay. And a good example of a customer is Dware. Dware makes supercomputers, $10 million computers. They really only sell to NASA and Google today, okay. These guys are 21st century users. They think about things in a modern way. They needed the PLM system for -- to manage their complex designs and make sure all their employees could have access to their data. To them, I -- maybe just a start and the beginning, but I need to find a cloud-based solution that does this. They didn't even understand why would anyone go anywhere else to try anything else. So they found our product as the right, fast, easy way to do it. So just as cloud nature, by itself, is what attracted Dware to this company. So what we're seeing is a lot of modern, aggressive companies are very attracted to these sorts of things, again the next-generation sets of users. So PLM 360, we're really happy about that.
The newest thing is CAM. So CAM has changed a lot. Now the world of NC machining used to be a dark MG factory, okay. It's now become mainstream. It's done everywhere. If you go to TechShop, if you see PURENINE, if you track the Maker Movement, these sorts of things have gone beyond the mainstream to the average individual. This photograph is Carl teaching a bunch of young girls about NC machining. This is a 5-axis mill that Carl's demonstrating for them. This sort of thing is a common thing. NC really has started to go mainstream because of -- it's democratization of happening in the manufacturing market. So this market is ready to be used by different sorts of individuals, okay. So DNIS offices typically have an NC machine in them today to mill replacement piece, okay. So cycle times have gotten to be so important, people do those things on site now. So big changes in this market is driving lots of new change.
So we decided to get into this market. We have -- here's an example of our high-speed machining works, product running an Inventor. So we have a product out in the market for quite a few months already that works with some other solutions and Inventor-based solution now as well. Now we're also working to get this to the cloud. Very soon, this will be out there available for users on the cloud as well. Just like CAM, just like FEA or simulations, the high-speed availability of the cloud helps users a lot, okay. Sometimes, tool pass take 40, 50 hours to generate. High-speed machining and the cloud will let you do those things in minutes. So we think it's a big changer for this market, and for Autodesk, a whole new set of users, someone we did not have a solution for, someone we didn't offer products for and didn't drive revenue from.
A material there. So Autodesk now has 2 different ideas here. One, many new types of customers, not just the designer, not just the industrial designing more. The analysts with CAE, the knowledge worker that works in product with our PLM solution and the manufacturing team, manufacturing engineering that work in our CAM product. And we have the first to market products on the cloud, the Fusion 360, the first-ever production solution for CAD; with SIM 360, the first production solution for CAE; PLM 360, the first-ever cloud-based solution for PLM; and CAM 360 will be the first cloud solution for CAM as well. So we're in a position of leadership here, having first-mover advantage in this portion of the market and the ability to attract very new but adjacent users.
So in manufacturing, a big market or well-established market, Autodesk is in a challenger position. We have some tremendous new assets that will let us change where we are, let us serve customers in new ways, new types of users that we haven't had a chance to drive revenue from in the past and new technology that, we think, we have really revolutionizes. In automotive, we're making huge steps. We -- every automotive company uses our product at the front end and are starting to extend what we do today into new areas. In consumer products, our desktop products are doing really well. We have a new offering, also to customers, when they're ready for the cloud. We will be ready before they are and have a great solution available now, so new products, new customers, new markets and first from the cloud position.
Thanks much, everybody.
Mark J. Hawkins
Thank you, Buzz. My presentation is around driving transformation and also driving shareholder value. So it's a pleasure to see all of you. I welcome you back to the gallery.
Let's jump into it. My agenda, I want to talk about the financial objectives. Now there's 4 key ones I want to call out. I also want to review some key financial attributes that we typically make sure that people understand around Autodesk, and so we'll call those out as well. We'll talk about capital allocation, which some of you have already spoken to me about just in -- over a cup of coffee. And it's near and dear to all of us, and so I'm looking forward to diving into that. We'll get into the meat of the matter here, if you will, in terms of the business model transformation, talk about the business outlook and then also talk about the long-term goals quantitatively. So that's my intention, and so let's press on.
And so when you look at the financial objectives, there's 4 key pillars, if you will, for us, and we just want to make sure to set the table correctly on this. The first mention that you've heard throughout today is around the acceleration of billings and revenue growth. We think we have a great opportunity in front of us. I think you've heard throughout, starting with Carl and all the way right up to me now, about this opportunity and the pathway, the very tangible pathway to get there.
The second pillar is around expanding our operating margins. I wanted you to know that we are absolutely committed to continuing to drive our operating margins to a higher level long term, notwithstanding the business model transformation experience that we'll talk about.
The third thing that I want to put on the agenda that we haven't talked a lot before about is this notion that we want to continue to increase our percent of recurring revenue, as well as our percent of ratable revenue over time, and there's a good reason for that. It improves financial predictability. It improves the ability to be flexible with customers on how they want to consume as opposed to trying to spend all of our time gearing the deal and the structure and the nature of the offering to recognize upfront revenue. So we want to unshackle our go-to-market team by continuing to go to a model that's a more flexible model, and I think you guys get that. That ground has been well plowed in the secular space of software, and so we're pressing on with that. And that translates into more growth.
Then we want to optimize the capital structure. You'll see tangible actions. We said some things that we were going to do at our last IR day. I'm looking forward to reporting back to you quantitatively what we've actually done since that time. So those are the objectives.
The next aspect on the agenda that I said I would cover has to do with the attributes around the company financially that I think is important to understand and just to make sure everybody's level set before we go into the transformation. The first thing is the diversification of our revenue. It's obvious when you look at a chart like this, very diversified from a business unit market viewpoint, number one. But you can also slice it internationally and say that it's very diversified from a geographic standpoint. And without -- beyond any measure, we're a truly global company with over 70% of our revenue coming from outside the United States. So we are truly a global company. We get the benefit of that diversification.
Another attribute that I think is important, and it builds on some of the earlier discussions today, we're not new to business model transformations and transitions. 10 years ago, we started something called subscription maintenance, and you can see today in FY '13 it's rapidly approaching $1 billion in revenue per year. Quite a dynamic, and it's continuing to grow. Now going forward, you've certainly heard that with our cloud offerings and with our rental offerings, you're going to see that number continue to grow even more so. And so it's a very important attribute to our business today. This is all recurring revenue as well. It's going to grow even more so going forward.
When we talk about the balance sheet, strategically we know how important that is, both operationally and strategically, to have a sound balance sheet. A couple of things that I will call out to you that I look at.
Certainly, we have a strong growth in our deferred revenue, and I'll show you numerically what we're doing there. And again, the beautiful part about deferred revenue is it's revenue waiting to happen, and that's going to be an important metric to watch going forward. We'll talk about metrics to watch going forward. That's one of them. But certainly, a strong growth in deferred revenue over the years.
A healthy DSO. I pay attention to that. I'm sure a lot of you do because I think that's a key part of an efficient cash conversion cycle. And we certainly -- you can see with the results even in Q2 that, that looks like it's in good shape.
A robust cash generation. We'll give you numerics around that. That's a very good part of our model. And in the financial attributes you should aware of, certainly sufficient cash balance. We'll give you math on that.
And then the last point I do want to call out to you is around channel inventory. Historically, for years and years, we've said, "4 weeks is -- that's fine. Two weeks is kind of low. 4 to 2 weeks is kind of the range for channel inventory." About 4 years ago or so, we were at 4 weeks. Today, at -- we're at roughly one week. If you think about the impact we've taken that to 1 week, that's a very good attribute. It's very tight, and it's something you should just be aware of.
So deferred revenue growth. I told you I'll give you a little bit more detail on this. You can see how this is growing again towards -- again, pointing towards $1 billion and again growing certainly last year 16% and this year 7% for the first half.
If you look at our robust cash generation, you can see -- I'll show you a couple of metrics here. Certainly, one of 17% growth in half 1 of FY '14 is strong cash generation. I think if you look at -- the metric, I think, that's most important around cash, though, is around our cash flow margin. And that kind of speaks for itself just in terms of the fact that, that is significant.
If you then push on to sufficient cash and investments, we've got about $2.4 billion. About 75% of that is internationally, offshore. It shouldn't shock you, right? I said over 70% of our business is international. Makes sense, it kind of maps together. But in fact, we have the sufficient cash to do what we need to do and the currency that we need to do it in. And so that's a good fact pattern.
We talked about in the last IR day that -- this notion that we would appropriately use debt. Okay, that was prior to the fact that we did a debt IPO, which happened less than a year ago now. We raised $750 million. Looking back, it was great, great timing. And I think you can see that, and all the details are a public record.
The other thing that we accomplished was to get investment-grade rating for the first time, just getting a rating for the first time as a company. We're very pleased with this. This is important to us. It gives us flexibility for the future. And so I think that's another good attribute that we just want to make sure everybody is square on.
Talk about optimizing the capital structure. M&A, we have used to fortify our growth and accelerate our transformations. And I want to show you some detail on that, that you may not have seen that will give you a sense of perspective. That's the first choice at -- being very select and discerning. And typically, it's been small tuck-in M&A that we've used as part of our company to accelerate our transformation over the years, I'll give you some more detail.
The second thing, as I called out, is we were going to go and -- to do a bit of a policy change. For years and years, we covered dilution only. We announced at the IR Day that we cover more than dilution. I'll show you the math. And then the appropriate use of debt, of course we have demonstrated that and will continue to do so.
So M&A. I want you to see this perspective over the years. In the early days, we had AutoCAD, right? Well, I don't know if you're aware of this or not aware of this, but one of the M&As that we did in the early days was a company called Interact [ph], which was a core part of AutoCAD. We bought a company called Generic, which was a core part of LT. And so from the very beginning, we used M&A to push ourself forward, in addition to all that we're doing internally.
Autodesk 2.0. I talked about the industries, and I talked about the verticals. And if -- those that have tracked this company for a long time and there are some of you that have tracked it for a long, long time, you know how important that was to the growth and in taking the company to the next level. In fact, when you look at the M&A, we get small tuck-in acquisitions largely, and that became very important to us over time. They planted seeds that they would help us later. For example, in this list, let me just call out Revit, for example. Almost no revenue, technology. Ready to go. We worked it in, and now look at what that's blossomed into as we've continued to grow our business.
So let's go to the future, or today and to the future. We've looked at accelerating the move into the cloud. And those that are tracking our M&A will notice that we've made some very select M&A. Like, for example, Buzz talked about PLM. We did the PLM, some of the core technology to start our PLM business. Amar talked about a lot of the different products, our Autodesk 360 and some of the social capability in there from a company called Context [ph]. We are doing this with small, tuck-in acquisitions that have helped us move the ball forward. And so it is a good use of our capital and will continue to be.
Looking at our share count. If we look at the number of shares outstanding, we said that they would come down. You can see the math again accomplished. And it won't be a perfectly linear every quarter kind of thing, but just expect us to continue to operate with the intention that we have.
So there you have it. that's some of the financial attributes we've covered. You've talked -- we've talked about the financial objectives, that's clear, and optimization of the capital.
I want to go down into now the meat of the matter, which is the business model transformation. You saw this slide earlier in the presentation around the growth. I don't need to rehash all the different aspects of this, but we know there's new offerings. We have unmatched cloud capabilities in the world, full stop. I -- it's exciting to hear both Buzz and Amar talk about that. You can see it tangibly, and we're building that. You heard from Andrew about our rental offerings that have gone pervasive here. And so those are new offerings that are going to help us. So we'll go all the way through this. But it has an impact on our financials. And so, let me talk about a couple of things that I think are important for you to see.
The first thing to see is when you're driving this transformation basically, there's a transition where the percent of our recurring revenue is going to start going way up. And so me just set this slide up.
For example, this is the percent of recurring revenue of our total revenue of the company, okay, and time. So in 2008, as a reference point, about what, 28% of our revenue was recurring. That was largely subscription maintenance. You get to 2013, it's about 40%, we got it. We're pointing out towards 70% in FY '18. I've just given you the data points, '13 and '18. I understand you want all the data points in between. That's a different topic.
I want to make sure you're very, very clear that we're driving recurring revenue aggressively. And what does that mean? Recurring revenue, we'll talk about what it means. We know what it is. In our particular business today with the offerings, it is cloud, rental and maintenance subscription. We know it's financially attractive. It's very attractive because it's a largely ratable model. We don't worry about spending time and losing cycles by having our sales team trying to configure selling something upfront with a license to get revenue recognized. We try to sell what the customer needs and let them consume and interact with us on a sticky basis, on a continuous basis.
And so we know that this is an attractive model. It's well proven and that ground has been well plowed in our secular space. We also know that it's more predictive. When you have the preponderance of your revenues starting to come from your balance sheet, over time, as you build up your deferred revenue, it's a very attractive model.
Now keep in mind we're getting the cash up front, the deferred revenue, and it ratably recognizes and amortizes. So we -- I know you guys get that as well. It enables flexibility and growth basically.
And you just go back to a number of examples that we have with customers. They want to consume. We've got to get the barriers out of the way to allow them to consume even more, and I think Andrew touched on that a bit.
So there's another thing that I want to be very clear on, and this is a point that's important to understand. In addition to the percent recurring going up, okay, just the other point that I want to make is the percent that is non-recurring, it's going to be increasingly ratable, right? So if the percent recurring is already ratable, the part that's not ratable is going to become more ratable as soon as possible. And so historically, these nonrecurring revenues have been recognized up front due to the attributes and the way the configuration in the deals have been put together and what's been offered. In the future, you can expect from us that the nonrecurrings become more ratable over time. And when? As soon as possible. And there's -- we'll -- that's clear. And why? I think it's very, very clear. Imagine Autodesk pulling in -- with all -- continuing to get more and more focused on a totally ratable model. Think about the clarity in terms of the communication with this community. Think about the clarity internally. Think about the go-to-market clarity where nobody is getting in the way of a deal because they're worried about upfront revenue recognition versus super-sizing a deal to actually get more growth for the company. And so these are things that I just want to make sure people capture. And as we continue to progress, we're going to continue to communicate quantitatively what that means to people.
So then, let's focus on the transition. What should you focus on? I talked to a number of you and they say, "Hey, Mark, tell me the metrics I should look at as you guys go through a transition and a transformation." I'm telling you, and these little ones. Billings. And you heard Andrew talk about 12% CAGR for billings growth. This is -- I just want to make sure it was explicitly clear with what he said. It's all billings growth, okay? 12% CAGR in billings growth.
The second thing that I'm telling you is that we need to look in fact, over time, subscribers. You saw very clearly our view of subscribers, and you know -- from that standpoint, I just want to also clarify one number. This is important for you guys that have our models. It's 1.9 million existing on the subscriber listed, not $1.8 million. I just want to clarify that. But you're going to see that going forward. And you a huge opportunity that Andrew talked about.
Deferred revenue. We know that's important because if you increase ratability, the actual money goes to the balance sheet, to deferred revenue, before it ratably comes off.
And then cash flow, of course.
And so that -- those are the metrics. And I want to be very clear on those. Obviously, we look at other things. That's a given. These are ones I want you to point to, to really look at as well.
Transition impact. Again, this is well-plowed ground. We know when you're taking largely up front and going more to a ratable model, whether it's due to the recurring growth revenue because of our cloud offerings or our rental offerings or whether it's due to something that could be a more -- a little bit more lumpy like actually moving our non-reoccurring revenue to a ratable model, you know the effect it'll have on revenue, operating margin and EPS. It's been clear in the marketplace. We will also have that effect. And as we get up to those things, we will continue to post view on what you should expect as we're working through those transitions.
So let's go to Q4, which I think is a great example and is illustrative. And I want to be really clear on that. You'll hear -- you heard Andrew talk about a global automotive manufacturer who began to get on a consumption base. They call it a token-based, consumption-based offering. And what happened? And this is not the only example. So basically, it's super-sizes a deal, because it takes away the barriers and lets people consume. And so that super-size is a good thing.
So we have a very specific number of enterprise customers, a very specific deal list in Q4. It approximates about $50 million, roughly, that we are going to move to a consumption enterprise space in Q4. Okay? And so what that means is what it means, is we're going to put that revenue largely in the balance sheet so when you saw our guidance, it would have been $50 million higher in the absence of us making that decision. But we know that making that decision is going to drive billings growth for the long term. We know that, that's going to be a better model for our customers. We know it's a better model in the marketplace, and we're going to the future and this is one example of that.
So the long-term impact is more growth. The short-term impact is less revenue. We get it. We get the transition impacts. And so there's an example of it.
So you got the intention. Recurring revenues going up. The nonrecurring revenue is going to be increasingly ratable. We're going to have a more ratable model in total. I think it'll be an easier message for all of you and also with our go-to-market teams.
So for Q3, we reiterated. And as that message already went out, you guys get that. And for Q4, you can see the numbers that we have. You can add approximately $50 million above that and compare it to what we're going to push to the balance sheet as we close these deals and get these guys on consumption-based, super-sizing-type deals. So we're excited to be taking that step.
Okay. Now I have a couple of things that I want to cover, and one of them is I just want to really kind of bring it all the way home and then we'll talk about another series of numerics.
Our opportunity is clear as we keep growing our business. And the opportunity is a double-digit growth opportunity. It's not hard to imagine when you've heard everybody talk today with all the different things and the pathways, the very specific pathways that are happening today. You look at a $21 billion TAM today, you look at all the opportunities you heard of best-in-class offerings, no doubt. First to the market with cloud. There's nobody in the world that can say that like we can. This is not vaporware. This is real ware. This is out there. We're at the beginning of the beginning, and we've been working on this for years. And you've heard and seen firsthand some exciting discussions from both Buzz and Amar about our offerings. And continue to grow our core and further penetrate and expand in TAM. These are opportunities -- this is the opportunity for us when you think about us 3 years from now, and I think people get that. Winning in the cloud, winning with the best model that's a more attractive financial model is quite a price that I think we aspire to.
So when we come down, let's hear some numerics that you're going to want to see for sure. And again, I clarified, 12% billing growth CAGR all the way up through FY '18. That is the plan. 20% increase in customer value, you heard that very clearly. 50% increase in subscribers. You heard all the different ways that we're going to do that. I'm saying 70% recurring revenue by FY '18. And that's separate from the next bullet that we're going to significantly increase our percent of ratability even beyond what's in the recurring. And so if the recurring is naturally ratable, and I'm saying we're taking nonratable stuff and taking it ratable, you can see that, that number is going to -- we're going to get to a much more singular model, and it'll be more familiar with some of the -- even born-in-the-cloud companies that you deal with in terms of the financial models that you're dealing with and the kind of things that people are focused on.
The last point, last 2 points, 30%-plus non-GAAP operating margin, that is absolutely our intention. Obviously, there's an effect we have to work through with the transition. Everybody gets the transition metrics and impact. But unequivocally, that's what we're driving toward, and that's -- in '18, we're going to be posting above and beyond that. And we see that there's definitely an opportunity and it's definitely part of our plan.
The last point I want also reiterate: maintaining our investment-grade rating is important. It gives us all kinds of flexibility strategically. We will continue to do that, and that'll be important to us for the future as well.
So those are the what I would call the long-term financial goals. I know that there's thousands of questions I'm sure that you guys have. The good news is I have an esteemed group that's going to come and join me, and we'll get into that. So without further ado, we'll just welcome everybody in. And just give us a second to transition, and we'll get in with the -- get on with the rest of the discussion. So okay.
Oh, it's Jay.
Jay Vleeschhouwer - Griffin Securities, Inc., Research Division
Jay Vleeschhouwer. So much of what you've talked about in terms of your content growth expectations have to do with volumes. So I'd like to compare how you were thinking of your future business in volume terms versus where you were. So, for example, under the prior model, you would typically be shipping roughly 0.5 million or more new commercial licenses across your technical software businesses, including LT but not including M&E. And one part of the question is, in light of everything that Buzz and Amar and everyone else talked about in terms of your increased addressable markets and share gain and so forth, how would you think in terms of equivalent volume of licenses going forward compared to what you have been doing previously, if my numbers are right? Also for Mark, could you reconcile that 1.9 million subscriber number versus your last reported active maintenance base number of 3.16 million, which is probably higher about 1.5 years later? Could you reconcile those 2 numbers? And then just one last follow-up.
Mark J. Hawkins
Carl, why -- do you want me to start with the...
Yes, why don't we start there? And by the way, just before we do, let me just make sure I introduce -- in addition to the people who've presented this morning, Steve Blum has joined us who's in the middle there. Steve runs our worldwide sales and operations. And so he'll join and be able to certainly answer questions as we go to market side. But why don't you start?
Mark J. Hawkins
Quite a number. Sure. The difference is actually very straightforward. We're talking about commercial seats. And so that is the difference. And we have education as well. So commercial is where we're focused on, okay?
I think, in general, many of our numbers over the years, we've tried to break out education. As we looked through this exercise, we thought it was particularly important, particularly as people started doing kind of calculations like averages. It really, really threw us off, and the mix of that really affects our numbers, as you can imagine.
Mark J. Hawkins
In general, on the question of volume, what we've said is we think the volume will go up and we think it will go up substantially. We're not giving guidance about units. We never do. I don't think that's going to change in the short term. We may -- as we work our way through the transition, we'll get more guidance around what's going on with subscribers and with the subscriber base. But just stay tuned. Stay tuned. But we think, given the factors that you mentioned, the things we talked about this morning, the volume should go up.
Jay Vleeschhouwer - Griffin Securities, Inc., Research Division
Just a quick follow-up on the upgrade. You're terminating that, which I think is essentially the correct thing to do, although it's a relatively small business. What do you think the future equivalent revenue would be if you convert $150 million to $200 million of upgrades revenue into future lifetime value of a subscriber?
I mean, for each one of them, it's more. I mean, the question is how many convert. It's going to be really hard to get at because that base, plus the ones that Andrew kind of detailed, the 5 years or less active but non-subscribers, if you convert that, then each one we know will be more. We'll give you more details. We can actually track it, and we'll be able to report out on this as we go forward. But we're not going to share projections at this point. I'm not allowed to pick. It looks like [indiscernible].
Daniel T. Cummins - B. Riley Caris, Research Division
Dan Cummins, B. Riley. A question on the non-maintenance or non-subscriber base of 2.8 million seats. That's been flat for some time. Could you talk about how the ASP has been trending for that group? That's the first part of the question. Second part is, it would appear that your attach rate, your commercial attach rate, on new customers coming into the business has been quite high. So how do you approach these 2 groups going forward in terms of increasing subscriber performance?
So the ASP trends for that base don't vary from the core ASP trends that we have for the rest of the base. They just buy less frequently. Obviously, there are -- the -- part of the -- a lot of that base is in the upgrade camp, but a lot of it is in the "buy a new seat every few years" camp as well. So the ASPs don't vary much from the rest of the best. I have to because I didn't understand the second part of the question around subscribers. Could you -- I haven't actually done the math.
Daniel T. Cummins - B. Riley Caris, Research Division
Off the charts, but it would appear that you've had actually a very high attach rate on new business in recent years. What is that level of attach? And is there extra room to drive it higher?
Yes, I mean, we haven't given any details. I think its reasonably high. But I think it's -- I think when you look both at our attach and renewal rate, there's certainly room to go on attach rate to drive it higher. And again, it's driven a little bit by mix. Certain products have much higher attach rates than others. So I think there's opportunity in some of the lower performing attach rates. Same thing on the renewal rates. I think we've done well, but we -- there's still room to improve on our renewal rates. I think we have a fair amount to go. We know that the theoretical maximum is not 100% because we've put seeds in our firms. And so while we have about 100% renewal rate on firms, we have less on seats. And we don't know where that is, but we still think there's improvement there that can be done as well.
Maybe some tactical questions. In terms of when a customer that's in that -- that's not on subscription, that 2.8 million, if they do want to get on subscription, just what's been the mechanism for them getting on to a subscription? Would they have to pay back? Sort of get current on -- what's current version, then they start paying subscription? Can you just walk us through that? And question number two was on the $50 million that we're kicking out to the next quarter, does that $50 million -- is that mostly in the bucket of going to ratable but non-recurring? Or is that $50 million, does that include stuff that's going to be ratable?
So why don't you take the first question one? And you didn't take the second, Mark.
Yes, so the way they become subscribers is they get current and they attach. And we run lots of programs to do that. And obviously, with the news that we announced today, we're going to be running a lot of program associated with that. That's exactly how they get up there.
Mark J. Hawkins
And then as far as the consumption-based opportunity, in this particular case, that will be non-recurring. That will be ratable. Yes, that's correct.
It's Ross MacMillan from Jefferies. Two questions. One short-term and one longer term. On the short term, that $50 million, I just want to be clear. When you convert those deals, are those multiyears? So is that $50 million deferred actually for beyond 1-year billings? Does it include the multiyear element so that -- in other words, the quid pro quo on revenue wouldn't have been in the full $50 million? It would have been a part of that? And then second, we haven't heard much about churn in the existing subscription maintenance base. Could you talk to that? Give us any parameters about kind of roughly where we are and what do you think you could do to reduce churn over time?
Mark J. Hawkins
So maybe Steve and I can tag team on the $50 million. So the $50 million, just to be clear, are a series of very specific enterprise customers, very specific ones that we're going to get on a consumption-based model, basically. And these deals, again this is $50 million. Think about it this way. Think about them being in the forecast, this $50 million, where there's a big chunk that would have been revenue up front, and that was part of the $50 million. And there would be some that would be recognized over time naturally if they had licenses and subscription. But there'd upfront revenue recognition portion. It would have been in Q4, would have been $50 million, okay? Now it's going to be -- and those deals -- so just to give you, Ross, kind of a specific example, just imagine it was 1 customer. Imagine it was a 3-year deal. And imagine, let's say, $40 million was -- or $30 million was a license and $20 million was subscription. You would -- you can do different math. In this particular case, if it was 1 customer, it's $50 million of upfront revenue recognition, and all of the other stuff would have naturally gone to the balance sheet anyhow. We're taking $50 million that would have been up front and pushing it out, so.
Yes, so what we try to do is we try to do the math for you on the $50 million.
Mark J. Hawkins
So you don't have to guess.
Mark J. Hawkins
So we felt -- put it out. There are some multiyear deals in there, but we've already taken to account what would have been recognized in the fourth quarter so you didn't have to ask us a lot of questions and we have to give you vague answers and -- to try to move in the middle.
Mark J. Hawkins
Exactly, exactly. Yes. Exactly.
Steven M. Blum
Because they would have -- they're all going to be multiyear deals. The $50 million is the amount of revenue we would have recognized up front if we didn't change the business model.
Mark J. Hawkins
Steven M. Blum
The total value of the deals will be larger than that $50 million.
Mark J. Hawkins
Steven M. Blum
So that's our -- we're trying to be really.
So -- if we beat that dead horse.
Mark J. Hawkins
Then he asked about churn rates.
Mark J. Hawkins
Where we're at. So we don't talk about where we're at right now. But I can talk about some of the things we're doing moving forward. We're going to be changing the way we engage with customers. Right now, we kind of have an event through that engagement with customers around renewals where they attach, we come back and ask them to renew later. We're going to be moving to much more of a continuous engagement kind of model with our customers. Obviously, that move to the cloud precipitates that. But the move to rentals also precipitates this. So the 2 together, we're looking at our systems, our approaches, our go-to-market processes. So just basically, we more continuously engage with customers. And that's going to have a significant impact over time on churn rates.
Yes, I think the other thing that we can see is there are a number of places on a product basis, on a geo basis, particularly demographics of the customer, that are weaker than the others, and those are the ones to focus on. And so I think we have some opportunity in the individual areas. And we've put programs together specifically targeted to places where we don't see the same level of attach or renewal that we do in the other business.
Mark J. Hawkins
Gaurav Kapadia - Soroban Capital Partners LLC
Gaurav Kapadia from Soroban Capital. I thought you guys did a great job laying out the expansion of the total market opportunity, the increased revenue per customer. The one thing I'm having a little bit trouble getting my head around is, given the high incrementality of the revenue that you're articulating, leaving the transition period aside, at the end of the transition period, because you're increasing the market size, increasing growth, and ultimately, more of the business is coming direct, shouldn't the margin be somewhat substantially in excess of 30%?
Yes, so the one thing that we didn't do is we didn't model. So none of the assumptions that we showed today assume a shift in channel mix. Should there be a shift in channel mix, that would be considerably higher. But this is all independent, it's around the programmatic changes we've made and what we control as opposed to anything to do with the mix of channel partners.
Gaurav Kapadia - Soroban Capital Partners LLC
Right. And even just the -- because you spend so much R&D dollars expanding the product offering, that the incremental dollar sales should have, again, very high incremental margins. Shouldn't one think that they all fit to our discussions a year ago that the end state [ph] margin, even leaving channel shift aside, should be somewhat substantially higher.
Mark J. Hawkins
So the point that -- go ahead.
Go ahead, Mark.
Mark J. Hawkins
I just would say the -- the key thing I would say is when we said 30%, it has a plus sign on it. So I think what would be powerful is to come up and over the 30%, and then we can have another discussion on that. But I think we need to get up and over that. But I certainly register your point, for sure. Carl, I don't know if...
No, that's fine.
Mark J. Hawkins
Kash G. Rangan - BofA Merrill Lynch, Research Division
Kash Rangan, former mechanical engineer, former auto distributor [ph] sitting in the back here. Nice job laying out your presentation. I had a question on how to model your business. If you look at Adobe, who paved the path, as you said, Mark, it's a fairly tight set of parameters. You know what they're shooting for in terms of number of subs, you know what the pricing is, you know what the retention rate is. In your case, there seems to be a lot of different subscription offerings with varying price points. We don't know where we're starting from and what we're shooting for in terms of the goalpost. So can you help us put a little bit more of rigid parameters on how to drive a model that can help us understand what the end goal looks like more concretely? And also, secondly, how do you think about the execution [indiscernible] relatively simpler company in the past but you've got licensed products, subscription products, execution becomes a little bit more complicated, how you're putting your heads around that?
Mark J. Hawkins
So let me start, and if anybody wants to jump in, they certainly can. But Kash, I think the key parameters that we're laying out, for example, the 12% CAGR and billings growth over time, this is not around guidance for next year, for example. You're going to get some much more specific parameters that you're going to be able to track each time, where we -- certainly, in that case, we're going to be outlining a number of different things that will help reinforce the transformation that we're going through, and I think it will be very specific. Today, you've got clear information on how to model Q3 and Q4. We're going to come up to FY '15, so certainly, you're going to get a lot more there. But hopefully, the parameters and the metrics that we're calling out are very specific for you to look at. You should expect to get me to be reporting more actual information on some of that, those key metrics, so you can track the success as well. But stay tuned. We're -- I think FY '15 guidance will be very informative. You've got a little bit of runway right now. So Carl, I don't know if you'd add to that.
The only thing I would add is -- I mean, I would just reiterate what Mark said. Any long-term model you build, I would make sure that it triangulates with the 12, the 20 and the 50. I think that's a good basis to look at. We'll provide more short-term guidance in between the 2. I think you can draw the curve in there.
Mark J. Hawkins
And the operating margin, of course, is the other angle that you could pop in there, and then you've got a good view of where we're going.
Yes. And we've already hit on a couple of things. There are a bunch of things that we're more than willing to tell you what's in the model and what's not included in the model. We already hit on a couple of those. So there are some variables that are not accounted for, and so you can think through that dynamic as well.
Mark J. Hawkins
Walter H. Pritchard - Citigroup Inc, Research Division
Walter Pritchard from Citi. Just 1 quick follow-up on Jay's question around the numbers. So you talked about the 1.9 million, I think, subs. You mentioned you have 3 million in art [ph]. If you go back to kind of 2008 disclosures, so current numbers imply about 40% penetration of the baseline maintenance subscription. If you go back to '08, those -- that disclosure understands there's education and other things in there, but that was about 37% penetration on subs, which, it strikes me, has been very successful with maintenance over the last 5 years and the number suggests haven't seen any attach go out [ph]. So I just wanted to clarify that. And then for Carl, why do these tailwinds that we saw in the core business up on stage around BIM and around -- there's lots of great things going on in this market. And your business -- for the last 12 months, you haven't seen a lot of growth. And I'm wondering -- and you've talked about renewing the focus on marketing around the AutoCAD base, which is a premature base, but maybe that helps a bit. I'm just trying to get a sense of in the core, x the SaaS and cloud and so forth, what's really changing those different growth rates in the next 3 years there versus what we've seen because it seems like the stuff has been there?
Yes. So in terms of some of the drivers? No, no, no, why don't you take the first part, just the numbers?
Mark J. Hawkins
Okay. So in terms of the actual -- going back to 2008, I think, again, we don't reveal exactly the attach or the renewal. I agree with the point Carl made that they're high, but there's lots -- there is definitely room for -- there's definitely room for progress to improve on both of those. But very specifically in your question, the thing I want to normalize, Walter, and make sure is making sure that I understand education versus noneducation, to make sure I'm doing an apples-to-apples on the calculation you're doing. That's the only thing. And Dave, I don't know if you want to follow up with that, but that would be the 1 reaction I have on that. So...
Yes. So I think we kind of outlined, I think, our attention that we placed on moving people to suites. And before that, it was on subscription. I think it took a little bit away from the AutoCAD and the AutoCAD LT business. What we've seen is a direct result of marketing investment in AutoCAD and LT drives more business. We probably had moved to one side of the boat a little bit too far. The rest of the things that we talked about, and that's why I thought it was important to spend some time this morning reminding you of these other drivers, what's going on with digital prototyping, what's going on with BIM, some of the new markets, those businesses have been doing really quite well. And you can see it in the suites growth on the product line, the aggregate suites growth where most of those products are sold. So in addition to -- the first thing is continuing to grow the core AutoCAD and LT base. And I think the second thing you're going to see is an acceleration of growth and the numbers becoming more meaningful in some of our new cloud-based businesses.
Sterling P. Auty - JP Morgan Chase & Co, Research Division
Mark, when we've seen subscription transitions and software historically, there's a ramp-down in terms of revenue as you hit the migration to that ratable recognition. It typically takes either a short period of time, like maybe a quarter, or maybe a little bit longer. When you look at what you're instituting, do you have a sense or feel for when we see the bottom of the revenue? And then the add-on to that is we typically then see, as you get to a larger recurring revenue, that nice, smooth growth up into the right. Is that going to be mainly predicated on what you do to drive the nonrecurring to a ratable model? And maybe just give us some sense of how you're going to do that.
Mark J. Hawkins
Sure, Sterling. I guess a couple of points here. One is -- and you -- obviously, you track a lot of the software industry. What I see, I don't see a quarter, I see like really, really highly regarded companies where it could be a year or a couple of years even in terms of the transition that they're making. So that -- I'm not sure which ones that you're referring to, but I see it as...
Mark J. Hawkins
Right. Yes. So I think you'll get a better sense of the shape for the FY '15 guidance for us. Carl, I don't know if you want to share anything else.
No, I think the single low point in FY '15, I think the times go down and up, not at full transition. It's probably closer to 6 quarters. Maybe 5 or 6 quarters is where we've seen the model. There's still a couple of moving parts. And to be fair in our disclosure, there are a couple of moving parts not only about what we choose to do but in order to get the proper accounting for it. So highly impacted by the accounting of these things, but I think the time frame I kind of laid out, it's kind of the right one to think about.
Originally, 3 -- Jerry Dodson, Parnassus Investments. Originally, 3 pieces of news that came out showed you had a challenging time. I'd like to know how you integrate what we've discovered with what you've said today. And one, of course, is that you're laying off all the people; and number two, you're closing facilities; three, that the earnings are not meeting the expectations before. So how does all this integrate in this difficult period here with what you -- the presentation you just made today?
Sure. So let me just -- let me start. So the disclosure, our 8-K revenue restructuring, probably created more confusion than shed light. It's about -- it's less than 100 people who are affected. If you want to look at our workforce, our workforce is over 7,000 people. If you include temporaries and interns, contingent workers, it's probably close to 2,000 more. So you're talking about 9,000 people, and about 90 were affected. So I probably wouldn't start with the hypothesis you started with. The second part of that is most of the restructuring in this case was about go-to-market activities to try to make sure you have the right people in the right places. One of the things that's happened over the last several years is opportunities have grown in parts of the world and they've shrunk in others. Let me make that more specific. For example, it's no surprise to anybody who's read the news that southern Europe doesn't have the economy that it did 3 years ago, 5 years ago, 10 years ago and certainly doesn't have the growth prospects. So for us to have too many people in southern Europe and not enough in central and northern Europe or in developing economies or some of the other places doing great would just be a misuse of our resources. So we've tried to make sure that we've aligned where we have people selling and marketing our products with where the opportunity is. And the vast, vast majority of this restructuring we just announced was done to accomplish that. The second thing, the closing of facilities will be almost equally trivial. It may be 1 or 2. One of the things that's happened in the company like ours, in which we acquire a number of smaller companies, it is not uncommon for us to find ourselves with multiple facilities in the same city or in the same area. And it makes absolutely no sense for us to keep multiple facilities open. There's an economy of scale that comes by combining it, and it actually makes for a better environment to the people who work for Autodesk to be in larger facilities. So combining facilities is another one. So I would just say I wouldn't take the same implication from that, that you did.
The earnings? I think our earnings have been strong. Mark talked about the cash generation and the earnings. Some of the earnings that we're talking about in the next quarter are a result of the accounting changes. But the earnings -- I mean, maybe we should just step back a second on the earnings and look at this as the earnings are going to move at a pure arithmetic with the move to more ratable revenue. As you get more ratable revenue and you recognize it over a different time frame, your earnings move along with that. So expectations were set under our previous model -- business model. As that model changes, the earnings will change. What we tried to outline this morning is the fact that we believe that our earnings power actually grows over time, even if that doesn't align perfectly with expectations that people have under the previous business model.
Brendan Barnicle - Pacific Crest Securities, Inc., Research Division
Brendan Barnicle from Pacific Crest. One for Mark and one for Steve. Mark, when you talk about the nonrecurring and making that all ratable, is that shift through the usage model? Or do you envision doing something where maybe you'd attach a deliverable so that you could move all that over, that was nonrecurring and make it ratable?
Mark J. Hawkins
So -- yes, 2 things there, Brendan. One is that the recurring is clean, just in the sense that it will grow smoothly with the growth and the cloud offerings and the rental offerings, in addition to the maintenance subscription. You get that part. The other side of it is in terms of offerings that we have that are nonrecurring, everything else, basically, if you configure a deal in such a way where, for example, you add different things to it, it actually can change the treatment of it to actually make that fit the appropriate -- be appropriately accounted as ratable as opposed to upfront. And so that -- those are things that will happen over time. Okay?
Brendan Barnicle - Pacific Crest Securities, Inc., Research Division
Yes. And Steve, on the go-to-market strategy, if you look -- think about distribution, when you do [indiscernible] that you should steal, I imagine you guys are doing that direct, do you see fundamentally sort of a shift towards more of a direct as you've sort of seen over the years? And how do you plan on kind of getting the channel up to speed on all the changes that you're making?
Steven M. Blum
Yes. So we see it as a mixture. We do more of our named account business direct, but our partners actually are involved as well. Many of these companies are very large companies. The support requirements in order to help drive adoption are critical to the success of driving consumption. So our partners actually play a role. They deliver services, they do many other things with us. So we bring them along, we help them actually participate in the overall sales strategy, the adoption strategy and providing a great customer experience. So there is more of our business going direct in that space, but our partners are also involved in many cases as well. And in different parts of the world, they play bigger, smaller, depending upon the resource requirement to drive adoption and consumption.
Brent Thill - UBS Investment Bank, Research Division
It's Brent Thill at UBS. I just have a quick follow-up to Brendan's question on that. On the channel, where do you think they're at in terms of their understanding, their willingness to move, as a change in their behavior? So where would you state, if you had to rank kind of 1 to 10 where they're at, [indiscernible] further along, how do you...
Steven M. Blum
So this change -- you're inferring a much bigger change to our partner's requirements than perhaps they're actually seeing in real life. We're still having them lead with our perpetual licenses, with subscription attached. That's something they've been doing very well for quite some time. That's the predominant model that they're taking the market and will continue to take the market. We're doing a lot of the heavy lifting with our new cloud offering. These are new offerings, and we want to be very heavily engaged with our customers to make sure we get it right. We are bringing some of those partners along in key spaces to help participate in that process. Over time, they'll play different types of roles in those areas. But with any new offering, we want to actually do a lot of that heavy lifting and getting that closed engagement process with our customers upfront. So...
Brent Thill - UBS Investment Bank, Research Division
Doesn't that make them nervous?
Steven M. Blum
Our partners get nervous on anything. Our partners get nervous no matter what. They do see opportunities. So if anything, we have to hold them back, right? They want to get involved in everything from the very beginning. I view that as a positive. If they didn't want to be involved at all, that would be a real problem. We used to just throw it over to them, and they had to assume all the costs associated with bringing new things to the market. We've learned from that process. It doesn't always work so well. So we have to hold them back a bit. That makes them nervous. But we tell them where we're heading, and we show them the opportunities. And then we actually bring them along and train them. Usually, we'll bring them into the process with us so that they are engaged together with us, so that they learn how to do it then on their own. So -- but we've also been signaling to them that they should be building services around these different offerings and things like that. And our best partners are focusing on building out that service capability so they can help drive adoption in the long term, just to clarify.
Let me -- just one thing [indiscernible] ask a question. Our partners have been nervous. And I try to outline a little bit the history of the changes we've made in the business over the years. I can't remember a single one of those, and I can remember dozens in addition to those changes that I outlined this morning, in which our partners have been nervous. So even things like, for example, the move to subscription was met with a huge amount of skepticism about it being good for their business. I would say now, looking back, many of our partners would not have even made it through 2009 if it hadn't been for subscription, but it started out the same way. Our movement to verticals was met with skepticism. The move to suites was met with a fair amount of skepticism. So our partners are heavily invested in our business, as explained to some people this morning, and more so than other channels. Our channel partners for the most part, particularly our traditional VARs, rely on us much more heavily than someone else. They don't carry a dozen different CAD products. They don't carry -- they are really tied to our business. And so they're very aware of how important it is that the changes we make support their business. And anything we do that changes causes some degree of alarm. We're also really aware that the success of our business has to do with the success of the partners. So we see changes taking place with our partners, for example. I would continue to imagine a trend that we've seen for a while where we have fewer partner companies, yet more partner feet on the street selling. So some amount of consolidation that's been going on in parts of the world. I think we'll see trends like that continue through this, but I don't see dramatic shifts in direction.
Brent Thill - UBS Investment Bank, Research Division
And just to be clear, the shift to the cloud, you don't need any additional capital expenditures to get you up, you're going to utilize Amazon. Is that the view?
Mark J. Hawkins
Our CapEx, I think you're asking about that, historically, as you know, it's been around 3-ish percent of revenue, plus or minus a little bit. I don't see that as a huge change right now for the foreseeable future.
Yes. I mean, just to get it on the record, I don't see Amazon as necessarily -- we use Amazon today for some of our services. For some, it's appropriate. I don't think long term, that's it, but we don't see -- to reiterate what Mark said, I don't see CapEx changing a lot.
Gregg S. Moskowitz - Cowen and Company, LLC, Research Division
It's Gregg Moskowitz from Cowen. Mark, first of all, just wanted to ask you with regard to the consumption model. So one clarification you've outlined I think about, again, $50 million of a delta in Q4. Are these all customers that volunteered for the consumption model? Did you approach them and they were receptive to it? And then also, geographically speaking, is that math, roughly speaking, pretty closely to your deal revenue split?
Mark J. Hawkins
Sure. So in a second, I'll talk [ph] to Steven. These are very specific set of enterprise customers. You're exactly right, Gregg. And I'll let you talk about the geography of it. And I think you're totally clear that there's -- if we didn't make this change, it would be $50 million of additional recognized revenue today -- in Q4 rather, excuse me. So with that noted, I'm going to turn to Steve briefly to add a little bit of additional color to the -- to answer your question.
Steven M. Blum
Well, in the first part of your question, just to be clear, our customers are pulling us here. We're actually driving them value they want. These are our named accounts. We've been engaged with them. We have active campaigns. Many of them, they've worked with us in the past. They've been requesting new ways of acquiring and really using our software. So we're basically accommodating the needs and the voice of the customer with these model changes, which is what's really exciting about it, overall. And these are established opportunities that we've had. So from a geographical mix perspective, whatever you've been modeling, you should continue to model.
Yes. Just one piece of color. We've worked historically to be able to recognize revenue upfront, and the customers desire this licensing model more than anything [indiscernible].
Steven M. Blum
Yes. We've been holding back, so this is actually meeting their needs.
Gregg S. Moskowitz - Cowen and Company, LLC, Research Division
Great. And just a follow-up for Mark. Are you anticipating any Q4 revenue effects from customers embracing your cloud or rental offerings?
Mark J. Hawkins
Yes. What we're anticipating is factored into the guidance that we've given, Gregg, so there will be some effect. But what's in there is encompassed in the guidance we've given.
And we will see the adoption rate. It may change, but right now, we factored in some and should be faster [indiscernible] and should be slower in the other direction.
Mark J. Hawkins
Sterling P. Auty - JP Morgan Chase & Co, Research Division
Sterling Auty from JPMorgan again. Mark, you talked about the 26% cash flow margins. How should we think about that out in FY '18, given the operating margin guidance of 30%-plus?
Mark J. Hawkins
Well, I think that the way I look at this is if we keep -- if you think about the CapEx answer that I just gave in terms of 3%-ish from that standpoint to the degree that, that doesn't change a lot and we are making more money, I think the cash flow margin will potentially go up. We're not guiding that at this stage, but I think there's a reasonable cause that, that could go up with someone that we had operating margins at a higher level.
Sterling P. Auty - JP Morgan Chase & Co, Research Division
And I want to circle all the way back to kind of an earlier question in terms of you've given us billings guidance of 12% CAGR. How should we then kind of wrap our minds around what that might mean, the reported revenue would look like in FY '18 in terms of -- relative to peak? I know you're not going to give us a specific number. I'm just saying, as we layer this in, are we well above the 2009 peak revenue, somewhat in line? Just give us some framework.
Mark J. Hawkins
Look, a couple of things, Sterling, I think I can help on that, is that when you look all the way out to '18, you start to see revenue and billings growth converge. The difference is that when you're going through a transition, right, you start to see billings growing faster than revenue because you're pushing things to the balance sheet until you walk through the transition, right? So if you think about revenue growth and a CAGR over a longer period of time, it starts to match your billings growth over that kind of a long period of time, assuming that you're all the way through the transition. So I hope that helps, number one. Number two, in terms of peak revenue, the only thing I would say to you is look at where we're at today and think about the correlation I just said between revenue and billings growth and you could start to extrapolate what will be in FY '18 based on that CAGR, okay? I hope that answers it exactly and just what you're looking for.
Walter H. Pritchard - Citigroup Inc, Research Division
Mark, just a quick one for you on R&D spend. You haven't given us sort of a business model breakout of the 30%. But if I look at your R&D spend at 24%, 25%-ish, you're fairly aggressive on the M&A side, not big numbers but buying lots of projects and turning them into products, arguably, additional R&D spend on the M&A side. You're quite a bit above your industry average, if I look across the software space and even companies like Adobe. Could you help us understand why that's so high? And are there pieces that -- with the transition to the cloud, does that go higher or lower? Or is this sort of steady-state with the R&D spend?
Mark J. Hawkins
Well, a couple of things I would say. One is that everything is going to scale when you get to 30%-plus operating margin. So everybody is going to get more productive over time, and R&D would be no exception, number one. Number two, in terms of the kind of M&A that we spent per year, if you look at it over, let's say, the last 5 years, we look at it very carefully as a percent of free cash flow, and then we benchmark it against all the compares in our industry and all the compares within our immediate competitive set. We're very much on track with that. I mean, the percent of free cash flow that's dedicated is right in the zone. So I would say what's different, Walter, is we do more small ones, and other people do more big ones. But dollar-wise, the free cash flow percent, I guess, would be important to call out, I don't see really different, I think very much in the norm. I think the third point, when you look at R&D, and I'd certainly welcome Carl's additional comment on this, but one other thing that's different about our business is, today, about 85% of our business is indirect and about 15% is direct, right, not considered direct or anything like that but just roughly. So when you think about that model and you compare our R&D dollars, keep in mind, we're giving contra away for the portion that's indirect, right? And if you have something that's 85% direct and 15% contra, they don't have a lot of end user spend that's higher compared to like we do. Now think about both the R&D dollars being fixed in the same circumstance. If you look at our R&D dollars as a percent of end user spend, you get a completely different view of where we're at. Now, obviously, we look at both. But product and technology and being a leader like we are is important to fund. It will scale as we go to 30%-plus, but I think these are factors that give it a bit more of a holistic view. But Carl...
Yes, I think if you really want to understand the spend, I think Mark's right. As the operating margins go up across the board, you'll see improving efficiency. I think to triangulate and benchmark more accurately, I think one of the things that really helps is to do it against end user spend. So if you made the denominator, in our case, end user spend, and I'm not talking about services and everything else, but about $4 billion is directly spent on our product, I think you come out with a slightly different conclusion where -- that I think a bigger haircut is probably in ordering sales and marketing than in R&D, I mean, because we incur almost the entire R&D for the $4 billion in end user spend. When you add in the amount that our channel partners get back, you add in our sales and marketing spend, that's much higher. Most of the channel, of course, is some kind of go-to-market activity. So I think you come out with a slightly different picture in terms of where we could be more efficient, certainly, if they fare a comparison when you benchmark direct and indirect companies against each other.
I think we're doing a round trip here. In terms of the subscriber growth, the 50% of that equation, how should we think about it in terms of today? The vast majority of them obviously are maintenance customers or all maintenance customers. Can you give any kind indication as -- is there any significant portion of cloud subscribers in there today? And then on a going forward basis, how should we think about the growth of how much of that comes from cloud subscribers versus maintenance-based growth versus rental? And I have 2 follow-ups.
So I would say, today, there's not substantial -- I mean, they're growing quickly but small relative to the overall base in terms of other subscribers, people use the cloud. We're not going to give guidance specifically on the proportion, but in the out-years, we anticipate that, that part of the business is really much more quickly, and that more of the growth in the number of subscribers certainly happens on the cloud side than it does on the maintenance subscription. So -- I mean, it shifts over time. And if you just run any models and you look at this and you assume a small base now and over a 5-year period, you can see the shift pretty clearly what happens there. The other thing that will be true is that not all subscribers will be equal. One of the things that could be a little bit hard is I don't think we could have a great representative kind of average subscriber. They will range across the board from a subscriber who may be a PLM user paying us $25 or $35 a month to someone who's paying the equivalent value of, let's say, rentals.
On the rental question, should we think about those rental customers as durable subscribers, meaning -- I mean, at some point, they're going to do the math and say, "Hey, listen, if I'm going to use this more than 2 years, I might as well go to a professional license and attach [ph] maintenance, right?" So should we think of those guys as -- [indiscernible] annual rental for 3 to 4 years or, eventually, when they find the utility of the product, they're going to switch into something that economically is more attractive over a 3- to 5-year period?
I think all the evidence about customer-buying behavior is that they don't do necessarily the long time. I mean -- and whether you look at cable companies, gym member -- I mean, I can give you endless examples in both personal and corporate environments, in which people often make short-term decisions. Short-term -- their interest has definitely served them in the long term by a different decision that they make. Also, I think Andrew pointed out a number of cases where it makes less sense. So there are those project-based users, there are people who are cash flow-constrained. There are a number of reasons that motivate it. It's not a lack of understanding of the math that does it. There's other things that affect their decision, uncertainty of their business environment and requirement for that peak demand for their business where the jobs in there are different. So I mean, there are a number of things that drive that. But we have seen this repeatedly. And it's incumbent upon us to make sure that, that's valuable enough so that people want to pay for that.
Right. And then last question for Mark. You mentioned that you want to push as much of your revenue Q, at least a ratable recognition, if not recurring -- to ratable. Thus far, we're talking about $50 million which is a select group of customers with a built-in program and what not. Should we expect more shoes to drop, if you will, as we go forward, is that -- there's going to be other buckets of what's today upfront perpetual revenue going to at least to a ratable model over time?
Mark J. Hawkins
I think you should. I think over time, our intention is to move more ratable over time.
I mean, we would like to move to ratable as fast as possible. We think one of the things that really will make it much easier for both us internally, and there's a question before about internal operations, it'll help us internally as well. It is, I think, help our external constituencies to have less of the mix model. And so I don't want you to walk away and say the accounting is driving this. But I think the more clarity we can provide in the simpler, in which we don't have conflicting metrics: Deferred revenue going up, recognized revenue going [indiscernible]. The more we can be straightforward about that and as clear as possible, I think it will help us run the business in a more streamlined fashion. So we would like to let those shoes to drop. It's probably the right way to think about it in that it does happen in some kind of quanta.
Okay. And you want to rip the Band-Air off as quickly as possible?
As soon as possible.
Okay. [indiscernible] the mechanical engineer back again.
By the way, you're one of the mechanical engineers who doesn't pay and maybe a rental models is what you're looking for.
25 years back, there was no piracy. So, very rare. We had floppy disks, proud of them. So anyway, maybe a question for Steve. What are you seeing with respect to the government shutdown since you're an October quarter company, you don't have to hustle, what not, but any thoughts you have on procurement cycles and how you -- maybe as it relates to implications for other software companies, how do you -- what are you seeing in that vertical especially in the last few days? And my other question was -- keep going back to the rental versus the license in Keepass. So I think you're -- why would you just not lower the price of the rental even more aggressively like Adobe did? They started about $120 a month. They brought it down to $30, $35. So that way, you would get less churn but more of a solid uptick as you build this business up to a large business.
Steven M. Blum
Okay. So I'll answer the first part of the question. I can't really comment on what's happened in the last 2 days. It's hard to judge changes in that short a window of time. I will say that federal government has been slower based upon the sequester and just some budgets tightening up, and that's not something that's happened this week. It's been out in the marketplace. It's nothing that hasn't been built into our expectations already. But certainly, the federal government spend in the U.S., specifically, has been different than what we've seen in the past. Doesn't seem to be impacting state and local and things like that, but federal U.S. certainly is have a different dynamic this quarter than what we've seen in prior Q3, which was the fiscal year end.
Yes, I would not be bullish about companies that have a large proportion of U.S. government business very specifically. And unlike other times, one of the things we didn't see is a big spending rush. Usually, like with the budget, when people know the money is going to freeze, there's often a rush of that money out the door. I think it was a little bit of it but not enough got out the door.
Steven M. Blum
I think the sequester more than the shutdown was slowing things down. The shutdown just ended up being a holt. But we saw this dynamic being very different, to Carl's point, the year end -- fiscal year end spend rush didn't occur.
And I'll answer the second question. So you remember, in my presentation, I talked about 2 dimensions, the separation between the perpetual price and the rental price and then the value differentiation between the 2 offerings. Obviously, over time, we're going to be looking at that separation critically. Right now, we think we're in the right place, given what we know, what we want to then in terms of the separation between the perpetual price and the rental price. That could change over time but we feel like we're in the right place. The other knob we're going to be pulling is the differentiation between the offerings, what's available with the rental versus was available with the perpetual purchase. Those things will evolve over time, too. So all of this will evolve us we learn more and get some more momentum.
Keith has taught me how to ask true questions.
You don't need any help.
Right. First question for Amar and for Buzz. Your comments about the greater breadth of your functionality and even Buzz talked about share gain in automotive, for instance, brings up the following question, which is how do you think about the possible ability to gain share from or recapture, so to say, the large amount of maintenance revenues that your principal competitors have? For example, if you look at ds [indiscernible] and others, their combined maintenance revenue's somewhere between $2.5 billion and $3 billion across all of their industries, there's precedent in the industry for a new competitor to make a very nice living off of somebody else's base, i.e. Solidworks and Pro/E for example. Do you think about that at all in terms of anything you're doing here in terms of being able to induce share gain through your pricing model, coupled with your tools and then I a couple of follow-ups for the other questions.
I certainly think about that. Example is factory model. There are -- our competitors have very expensive, very complex, very high maintenance fee factory designed products. So we see, in every case, we are either adjacent or displacing one of those older tools. So I think it's not only that they're expensive, they're really old and they're not being developed as aggressively. So I think that's a significant opportunity. That is just one example. I think there's many of them like this. One of the things that's attractive about that space it's really the cloud that really enabled an involvement to us to do it. We felt we had a new way to help those customers with a different sort of solution as well.
Yes, I think when you look at entrenched competitors, Jay, it's hard to make a frontal attack unless you see some difference in the environment. In this case, the 2 things that are there are those technology platform transition and a business model transition. I mean, it's very hard to go into one of your customers and just be incrementally better, marginally cheaper. That is not a compelling reason. If you can be better, less expensive and differentiated, it's a huge opportunity. So we think about exactly what you pointed out all the time as an opportunity to go after those. And if you looked at almost everything in a portfolio that ends with 360, you could find the opportunities there. You could map it against the competitive set and see what customers are doing today and why we think what we're offering will be perceived to be more valuable.
I think the business model of consumption really supports that as well. It makes it easy for people to trial. So analysis, data management is a very easy on-ramp into expanding into that.
Yes. Like one of the businesses we're most bullish about is our PLM business. If you look out there, there's huge recurring revenue for others in their PLM and maintenance business. We think the cost of procuring PLM, the cost of deploying PLM, cost of maintaining PLM is at a whack. It is no different than what we've seen in a lot of other markets, what we've seen in ERP or CRM or HR and you can map the old to the new. The old people who provided and the new. By the way, PLM is identical to that. And so we look at that as a great opportunity to provide that same kind of value. And what we're seeing is really easy deployment. I mean, the customers get up and running with PLM really quickly. It's a dramatic -- I mean, I can't emphasize how different it is than the year or 1.5 years, and the tens of millions of dollars that people used to spend to do that. So we think something like the PLM 360 product is really disruptive. And then we're getting not only into medium-size customers, we're getting into large customers on a department level where people can try it down.
And Jay, that consumption example I gave you, that usage growth, dollars that came back to Autodesk, those came out as -- out of those legacy bases you were talking about.
Okay. Two for you, Andrew. LT is your largest product by any volume in terms of cumulative base, historically. Earlier this year, the company talked somewhat unusually about LT is possibly being one of your growth drivers this year, which unfortunately has turned out not to be. But for the long term, how do you think about converting that very large base or up selling that very large base of LT into higher end products with more returns? And then lastly, at the meeting last year, you talked about an inclination towards industry solutions, coupling ad hoc configurable products with consulting services. And if you can talk about that very much today, but how do are you thinking about that industry solutions orientation?
So first, let me answer the LT question. So there was a long perception for a while that LT customers don't buy anything else. We've certainly overcome that expectation. We're already showing that LT customers can and do buy other things. It's just a matter of talking to them. The typical LT buyer tends to be smaller business so that's kind of a bi-modal business, it's a large chunk in enterprises. But then there's this large pool of smaller businesses. They tend to have different buying patterns, different needs. So we've proven we can upsell them. They also tend to be less attached on subscription than the rest of the base. So one of the things you're going to see us do pretty strongly as we look at that LT acquisition engine, we're going to be looking at some of these new business models and using that as a compelling dialogue with some of these customers. And I gave you some examples during my presentation that say, "Hey, you know what, you should be using the right tool. And here's a way for you to get to the right tool." And that's a way for us to begin having a recurring relationship with some of these customers that are less likely to have a recurring relationship with Autodesk. So we're going to put a lot of energy into that and using these new models to enhance and expand that LT price point. Because in many ways, LT is more of a price point than it is a product. And that's one of the things we're going to be doing. On the industry solutions side, I mean, you see us doing that in selective areas. So the automotive discussion we had earlier, we're being very deliberate there, we're continuing on that. You see us being very deliberate in infrastructure and construction in particular ways. And we'll do that in those places where it makes sense. But you'll also see us flex product solution and product marketing muscle in the places that make sense as well.
Well, in pay-out [ph] because we didn't talk about it much today, but our consulting business is focused on those industry-specific solutions. So our global service team does work very closely with the sales teams on helping to put workflows together and wrap around compete solutions, and it's helping actually to drive consumption with our largest customers. So that's an integral part of the strategy overall.
John Byun - UBS Investment Bank, Research Division
This is John Byun from UBS. I had 2 questions. One, how are you addressing the opportunity in 3D printing? And then second, related to the channel, can you give us an idea of what portion is today enable to sell the cloud products and the rental products?
Yes, let me start with the 3D printing and then maybe Steve or Andrew, you want to take the other one? I mean, the best thing about 3D printing is you can only print something that you have a 3D model of. And that's sometimes lost on people. Most of the 3D printing business these days is around a business that's built around the consumables, and it certainly is a good business. I mean, I don't know if you guys have looked at that business closely but people are selling consumables for 100x or 200x the price of the commodity material. I don't know about you but I like being in any business in which you could do that. So the 3D printing business is a very lucrative business today but it is right for disruption. Our angle on it is in order to do this 3D printing, you need to use 3D models. And what we're seeing is from manufacturing, construction, in media and entertainment, our customers build 3D models and want them 3D printed. We're also doing some amount of research in 3D printing that you'll hear more about later next year in terms of research on materials science and some other improvements to 3D printing. But let's wait until next year for that.
Steven M. Blum
And on the cloud and rental models relative to the channel, we talked about them separately because they're really 2 different things. Start with rental first. So rentals are basically a different way of acquiring our perpetual licenses, our suites. We've made those available to all of our partners. We just rolled it out a couple of weeks ago. They can sell quarterly and annual subscriptions. And we've educated them on how to have that financial discussion with customers to help them navigate through what's the right business model for them. So partners are turned on now and ready to go with our rentals. As I mentioned in one of the earlier questions, from a cloud offering perspective, you can see there are newer offerings. We focus more on specializations and where our partners have actually invested in real resources, feet on the street technical resources to be able to help drive customer adoption. So that's a more deliberate approach. We're working with just specific partners that are investing in that capability and are coming -- basically growing that business with us. So we don't make that wide open. We basically ask our partners to specialize, to add resources, to get trained and then and go through an early process working closely with us. So we're doing a lot of that heavy lifting ourselves in our own resources, both sales and technical-wise, to make sure that the cloud offerings are getting to the right customers.
[indiscernible] also a mechanical engineer, actually I make CAD for HP, a lot. Currently covering 3D printer makers. And when I talk to them, one of the things they say is that a lot of the design software out there now doesn't really have the capability to design for 3D printing. In other words, it assumes that you're still constrained by the classic manufacturing techniques and doesn't allow you to take advantage of the 3D printing. If you could comment upon that, I'd appreciate it.
Yes, I'll take this one, because...
Sure, go ahead.
We spent a lot of time on that. Part of it is true. I think there are some shapes you can make on a 3D printer you can't make any other way, okay? And it's a very unique material, it's strong in one direction, very weak in another because it's layered. So you have to design things very differently. So I would say 95% of the things that are made on 3D printers, our software can -- any of our 3D software can do it perfectly, okay? There's the 5%, I think we need to do some innovative new work. We are working on those things today in that we have done all the right things that connect to 3D printers, we could simulate those things, we can do things like toppling sort of programs, so we can add bracing and those things that will let you print. So we've done a lot for the most of the printing companies that are aware of, but I think we do have some innovative new work to do too.
Yes, I would add, I think, this often happens when you see industries converging. I think the 3D printer companies, specifically, are trying to shooting at the tail. They identify something that's a minor weakness, and they go shooting at the tail and 2 years later, they come out and realize that everybody else has recognized the same thing. So I think in the 3D printing market, what you're seeing is a move from just using them to prototypes to being used for real production. And in that same way, we're seeing the same thing going on with composites. Buzz talked about the analysis of composites. It turns out the design of composites have a little bit of the same problems, that a lot of the stuff that people are doing with design don't anticipate both the new materials and the new processes used to do it. And there's definitely some things that we can do to aid it. So for example, we kind of joke about people making black aluminum. Black aluminum to us is carbon fiber, where you take in aluminum part and you -- by the way, that shows what a funny group we are, we joke about these things. But carbon fiber, if you just take an aluminum part with all the ways that you would've manufactured it before, and just do it in a composite-like carbon fiber, you probably don't get the optimum design. And so it's less that the tolls are not capable of it, it's as much that the designers need to think about how they design these products differently, given that the processes and the materials are going to be different.
And if I can follow-up, you talked about you have to have a model to print. And one of the things we're seeing is 3D scanner technology improving, Jay Leno talked about his Makerbot, just introduced a low-end one earlier this week. Any comment on how much you think 3D printing will be done from a model that might be built in softwares such as AutoCAD versus how much of that to be things that are scanned and, I mean, a better scanner in the gallery here as well?
Yes, so one of the things to talk about is we actually have the leading technology for turning -- for actually processing the information that comes from scanners, as well as we have the ability, and we demonstrated it out here in the gallery, of taking photographs or video and turning that into 3D models. So we actually -- I think the scanners, particularly like the one you saw from the Makerbot guys, at this scale, it's a great solution. You still find even after you scan, in order to be able to print, there's often some post-processing. But we think an important new workflow is capturing reality. So whether that comes from photographs or video or laser scans or lidar scans, we think that's really important. We have both a product that we aim at consumers called 123D Catch plus we have a product called ReCap for reality capture that actually allows people to do that. I actually think it's important for both 3D printing. We also think it's really important for our workflow, in which people's initial starting point is not a blank screen, but you capture something that already exists and you modify it slightly and then you print or manufacturer it in some other way. So we think there are a lot of important workflows that are going to start with objects already there rather than starting with a blank screen in the traditional CAD program. And we think it's really important and really promising.
And one more question. If you look at Autodesk, and I am going back in time, I'm not as current as I'd like to be, Autodesk was always sort of the inexpensive every man's solution competing against, say, Dassault or Parametric or something. How much of your opportunity now do you think is being disruptive with capabilities that a more expensive solution has versus creating new solutions?
I think that's a good question. I think, historically, we have always been on the disruptive side of trying to democratize and put into volume things that have existed before. I still think, heart -- the core DNA of the company is doing that. In doing that, I'm looking to where problems are with customers. I think we've probably stepped over the line -- probably stepped over the line quite a bit in terms of being the leader. So when you look at things like reality capture, 3D scanning, or when you look at what we've done in cloud and mobile, I think, more so now, we see this as being appropriate for a broader spot of people before even our traditional competitors have made it available to the really high priced. So I think it's a mixture. I kind of talked about it in PLM. PLM and CAM and some of those other things I would say is more -- are more traditional disruption in which we go in and we take something that was done in an older, more expensive way and make it more available. I think some of the other things that we're doing are actually where we're breaking new ground, and that's a slightly different position for us.
Chaitanya Yaramada - Robert W. Baird & Co. Incorporated, Research Division
Chaitanya Yaramada from Baird. A question on the outlook. You said 12% CAGR over a 4-year period '14 to '18, and then also you said 20% increase in customer value. So is it fair to leave that as being roughly less than half of the growth coming from existing customers and roughly -- a little bit more than half coming from new customers?
That's a fair way of looking at it, roughly. I mean, the numbers kind of play out that way. I mean, not -- some of the customers in the existing base are going to be -- we're getting more value from and then we're going to be getting more -- I mean, that's a reasonable way of looking at it. Break it out precisely that way...
It's also nonsubscribers turning into subscribers like AutoCAD 360 example, right.
But I think for everybody, if you're doing your homework, copy from her paper.
Chaitanya Yaramada - Robert W. Baird & Co. Incorporated, Research Division
And then a question on the increase in subscription base, you said 50% increase over -- by '18. If could you rank for us what the contribution to that is going to be from cloud versus rental versus maintenance subscriptions?
We're not going to break that out. What I can tell you though is in terms of our new customer acquisition programs, we're definitely going to be turning the focus and the preference engine towards the new offerings, towards the cloud, towards the rental offerings. So over time, you're going to see a very dramatic shift over those years in terms of our new customer acquisition to these other types of offerings. How that plays out in the mix long term, we don't have guidance on, but you can see where we're heading.
I think we have a few more minutes. One more question.
It was interesting when you discussed about how you try to increase the value from a customer, of course, essentially, it's good for the company. It can make you more money. Have you found any resistance? Say, hey I don't want to pay extra for this. And what you do in that situation? I mean, how do we talk about value? What --n and in terms of the pricing, it seems like there's a important dynamic of your plan going forward and I'd like to hear from whoever appropriate, what you do in this situation?
So let me start with the big one and then Steve can share. So the first thing I say is, absolutely, we've seen resistance in some cases. I mean, I think, for example, subscription is a good example. Andrew gave you some detailed metrics on subscription -- I mean, on Suites, my apology, on Suites. We believe it brought more value to the customers and more value to the Autodesk, it was a win-win for both of us. I think in aggregate, that has turned out to be true. Many customers have chosen to buy our Suites and they get more value. But individuals have chosen to stay with individual solutions. In that case, one of the things that we've done and you'll see this all through this is, one of the things we have not done is the more draconian measures. For example, when we introduced Suites, we could have eliminated individual products. We chose not to do that. When we introduced rentals, we didn't get rid of perpetual license. We could have done that. So we continue to give our customers a choice about what they want to do. The flip side of it is we also try to incent behavior through various prices -- pricing, packaging, promotions and other policies. I mean, lastly...
Can I just -- to add one more thing to what Carl was saying is that, I mean, many times the customers pay us because they're taking money from somewhere else. It isn't like we're just increasing cost on their side. It's that they're spending money either with a competitor or on paper-based workflows and it's there that we're creating value and getting rewarded for. So many of the cloud-based services you're talking about is really replacing something they would've spent money elsewhere and turning that into value they would reward us for.
I mean, I wouldn't think of how we get more from customer by selling them the exact same thing and just charging them more. We're bringing new solutions that help them solve problems in different ways. Amar used an example in his presentation from some discussions I had when I was traveling last week, where a customer is dramatically changing their go to market, winning more business by leveraging a solution of ours that they didn't have before. And so one of the things I find, as I'm talking with customers, customers of Autodesk use our software and our cloud services to drive their businesses. We're on the front end of their business. They're using our tools to actually win business, to compete in their marketplaces. And if we can help them win more, if we can give them a competitive advantage in their space, they're happy to spend more with us. So we're not trying to just get the same thing and sell it for more money. We're offering more value and we're extracting more value in return. It's a good win-win.
Let me try to bring it back like, for example, when we showed those TAM slides in the beginning, it totaled up to $21 billion. What we're counting in there, to reinforce Amar's point, is mostly revenue that's going to competitors. Jay brought it up in his question. People who have these big maintenance bases in which there's a lot of revenue going to maintenance. Many of our offerings are trying to serve customers who are either over-served and paying too much for what they're already getting. This is a large part of what we see being additional subscribers, us providing better services at lower cost to our customers. And to the person who asked before, that's in, I think, really the history of what we've tried to do as a company is provide more for less, make it easier to use, easier to deploy, easier to maintain.
And can you think of an example of doing something like, let's say, someone has a higher and more e expensive product and you bring in something that says more reasonably priced but essentially does the same thing. So that seemed to be -- the previous question, can you give an example of how that might happen?
Yes, sure. I mean for example, let's use the PLM example. So typically, PLM are deployed inside companies. They will -- $1 million is a reasonable amount to pay in a year. It might cost $10 million for implementation. It'll be widely distributed between all the people in a manufacturing company. We come in with a different model. And the way to probably think about what we do with PLM is totally analogous to, let's say, what salesforce did with Siebel, what NetSuite's doing or Workday with PeopleSoft. Those are the same kind of things. The change in what people expect in terms of the productivity efficiency they get from IT tools is going up. Every company is having the same discussion of how do I do more with less that we were having before. And we provide them opportunities. So a PLM one, in which they would've an otherwise much more expensive and probably risky deployment, we simplify that by giving them easy access. Same thing with our design tools. We believe our design tools. So for example, we think Inventor, with $5,000, does a much better job for the vast majority of customers than something that might be priced at $10,000, $15,000 or $20,000. And if you look back, this is a classic disruption, if you're looking at it like the literature from someone like Christiansen [ph], what ends up happening is our competitors, to some degree, have ignored many of these customers and they're focused on other areas and they just enjoy the profit that comes from milking their customer base. We come in, we continue to invest in it and we build better products with them. And we're proud to do it. And so when we go in, it is really not a sense of how do we get more from the customers. It's really a sense of how do we make them more efficient, more productive, how do we make them win more business.
One more question.
Is it too simplistic to think about the 20% upsell in terms of the existing customers by just taking the subscription revenue last quarter divided by the 1.9 million, you got about $523 of annual contribution per sub. And think about that growing 20% over that forecast period, is there -- is that too simplistic or there are factors that need to be thought of to layer on top of that?
Well, I mean, it's probably simplistic in terms of the mechanics and how it will actually happen. I mean, I think, I was pretty clear about the way when you look at that existing sub base, how we're going to layer on some of these SaaS applications and how we're going to layer on the consumption models. You can see roughly that the some of those offerings, when you think them on an annualized basis, they come out being, on average, 20%, 30% of the cost of a maintenance contract on the year so you can see the additive effect. You can do the math from there.
But I do think it's important to recognize that there will be a distribution amongst our subscription customers in the amount that the pay per year. And for somebody who is getting $10 a month worth of value, that's a fine customer, someone who's getting $1,000 a month. That's also a fine customer.
Thank you, all, for coming. I think there's a little bit of lunch being served, and the executive team is going to stay around and happy to interact and if you have any more questions, happy to answer them there.
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