Autodesk vapourises ten per cent of jobs to go completely cloudy

And it's handling the transition rather better than Adobe

Autodesk, which is getting close to phasing out physical product sales, has announced it's also going to farewell 925 jobs, about ten per cent of its global workforce.

The move comes less than two months after the company woke to find not one, but two “activist” investor funds on its share register: Eminence Capital and Sachem Head Capital.

As Reuters notes, the two investors had signed an agreement about nominating directors and influencing management.

The layoffs will result in a charge as high as US$95 million, but Autodesk's announcement predicts savings starting in 2017. There will also be a “consolidation” in some of the company's leased facilities.

The move seems, however, to be more than just a typical private-capital-driven weight-loss strategy. It comes as Autodesk's cloud subscription passes half of the company's total income.

That proportion will be 100 per cent soon enough, because Autodesk decided to do away with perpetual licenses some time back. The company's LT Family products went subscription-only during 2015, its individual desktop products went the same way at the end of January, and its creative suites will finish the transition to subscription-only on 31 July 2016.

It's a similar story to that of Adobe, which jumped into the cloud earlier, and in 2011 eliminated 750 positions, more than seven per cent of its workforce.

The payoff of that strategy for Adobe is that subscription revenue (US$3.2 billion) far outstripped product revenue ($1.1 billion) for full-year 2015.

However, what distinguishes the two operations is in cost-of-revenue – and this won't have been lost on Eminence and Sachem.

Product cost of revenue Subscription cost of revenue
Adobe 8 per cent 12.7 per cent
Autodesk 18.5 per cent 12.1 per cent

Source: Adobe 2015 full year financials; Autodesk Q1-Q3 2015 financials.

While driving business into the cloud, Adobe has also squeezed the costs out of delivering product. The counter-intuitive outcome is that a SaaS-type sale costs 50 per cent more than a product sale.

The SaaS offering, however, is both sticky and recurrent, characteristics beloved of bean-counters and investors.

The equation, for Autodesk, is pretty much inverted: product sales cost 50 per cent more than subscription sales (for which there's only a sliver of difference between the two companies). Although the cessation of perpetual licences was Autodesk's strategy before the intervention of Eminence and Sachem, the low-hanging fruit was there to see.

Autodesk's latest guidance predicts the company's Q4 2015 revenue will be at the high end of previous forecasts, so the quarter's revenue should be close to $640 million. ®

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