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Autodesk's John Walker Explained HP and IBM in 1991 (2015)

134 points by suioir

by computator

6 subcomments

> But oh what a difference it makes in the accounting! In the first case, where Autodesk sold the copy of AutoCAD to the dealer, that was the whole transaction; whatever happened to the copy of AutoCAD after the dealer paid for it has no effect on Autodesk’s books. Autodesk sells, dealer pays, end of story. But in the second case, when Autodesk sells to Spacely Sprockets, that appears on Autodesk’s ledger as a sale of AutoCAD for $1000. The instant the $1000 shows up, however, we immediately cut a check for the commission, $500, and mail it to the representative, leaving the same $500 we’d get from the dealer. Same difference, right? Not if you’re an accountant! In the first case, Autodesk made a sale for $500 and ended up, after expenses and taxes, with $125, and therefore is operating with a 25% margin (125/500). In the Spacely sale, however, the books show we sold the product for $1000, yet wound up only with the same $125. So now our margins are a mere 12.5% (125/1000).
I'd like to know how an accountant would respond to the above. Based on his two examples, it seems like accounting rules really distort the financial picture of a company.

by pavlov

2 subcomments

John Walker passed away last year.
His “Autodesk File” is an interesting read because it’s not the usual “just so” kind of startup memoir that tries to explain how success was preordained by the founder’s genius, but instead a collection of actual documents like memos in chronological order:
https://www.fourmilab.ch/autofile/

by nobodyknowsme

1 subcomments

I met John Walker in Second Life shortly after the pandemic started.
We both used the name "Acme" in our gadget names and he came by to see what I was building. He was wearing a Wile E. Coyote avatar.
It wasn't until after he left that I noticed he was one of the original authors of AutoCAD.
He was very prolific at writing code in Second Life from the beginning of the pandemic until shortly before his death.
He was very thorough in writing documentation for all the free code he wrote, and even included detailed diaries of his development of his neat gadgets.
His products were all removed from the Second Life store after his death, but I'm trying to get it all back up for people to enjoy. The code is still on github, but I'm trying to recreate some of the 3d objects needed for that code to work.

by yodon

1 subcomments

I love the article, and love the genuinely appropriate intellectual outrage, but isn't this just the market telling AutoDesk that it was paying too much for its enterprise sales function, and that it should be able to run sales more efficiently ($375/seat cost of sales rather than $500/seat cost of sales), when the sale is happening at the enterprise scale where lots of seats are involved?
Given that your largest customers are generally your most profitable, the market was simply telling AutoDesk at the time that it was spending more than its peers selling to large enterprises and matching per-seat SMB sales costs shouldn't be their benchmark for enterprise sales costs.
By shifting the target from $500 to $375/seat cost of sales, AutoDesk would have kept their margins but doubled their returns. Alternatively, AutoDesk could keep the cost of sales unchanged ($500) and bump up the enterprise price from $1,000 to a little over $1,125, and achieve the same goal. The market doesn't care which approach AutoDesk takes, but it knows the company was giving away too much margin on enterprise sales. Most modern SaaS companies today take the later approach, except they would charge enterprises $2,500/seat instead of a little over $1,125/seat.
AutoDesk has had some very forward thinking senior leadership at different points in its history, but it's also made some missteps. Writing a wonderful assault on the accounting industry instead of realizing that enterprises will pay $2,500 for the same thing SMB's are buying for $1,000 is an example of one of those missteps (and yes, AutoDesk eventually figured how to screw over customers with pricing, but that's another misstep, explaining why I no longer own any AutoDesk products).

by thevillagechief

3 subcomments

> Ginni Rometty and Meg Whitman appear to be more interested in keeping their jobs than in saving their companies
I think this is why I have so much respect for Pat Gelsinger. He really was trying to save Intel, so much so that it cost him his job.

by rawgabbit

1 subcomments

Nice article that sums up the modus operandi of rudderless companies.

Quote:

     This is the pit into which HP and IBM have fallen. They want to maintain margins to keep Wall Street happy, but the easiest way to do that is by cutting costs. Eventually this will be visible in declining sales, which IBM has now experienced for three straight years. Yet with a combination of clever accounting and bad judgement even declining sales can be masked… for awhile.

by kragen

2 subcomments

(02015) but both HP and IBM seem to be alive and well 10 years later, even if their products are dog vomit.
This phrase "confusing the scoreboard with the game" is golden!
IL14 is a lot better than Cringely's commentary on it: https://www.fourmilab.ch/autofile/www/chapter2_86.html

by ghaff

2 subcomments

As Cringely himself admits, he's had something of an obsession with IBM; not sure of the history. And IBM has actually done pretty decently the past few years post-Rometty.
HP, by contrast, has been somewhat adrift even after all the boardroom drama.

by WillAdams

0 subcomment

For a further analysis of this letter (in the context of CAD) see:
https://www.shapr3d.com/history-of-cad/introduction

by teach

1 subcomments

(2015)

by jaynate

3 subcomments

Had me hooked right up to this point: “When we get the check, we pay a commission to this representative. Assume the commission is $500.”
I’ve never seen a software company pay 50% commissions on a software sale. I know it’s and example but the percentages are wrong even for the perpetually licensed days. Should be closer to 8-15%.
Totally sales and marketing spend could indeed be higher in this model because autodesk moved to direct positioning with end buyers rather than distributors.

0 subcomment

by zkmon

0 subcomment

The way businesses or empires had success was by dancing to the tune of the time. The tune changes with time. The wind changes, tides change direction, the overall context changes. So it doesn't help to much to study what business have done or what empires have done or what leaders have done. They were a minuscule part of the overall climate and context, which was overlooked by historians.
Foreground is a product of the background.