Ever since Sramana Mitra analyzed the Mendance deal as a necessity for consolidation as well to spur innovation, I have been keen in studying how this might play out. Not in the hypothetical, over-a-Heineken manner, but in a more Nash-equilibrium kind of a way.
A very interesting financial engineering paper is Product innovation and imitation in a duopoly with differentiation by attributes. It analyzes the interaction between a duopoly with competing products, where one firm has a greater number of attributes, than the other. It considers the possibility that a competitor may try to imitate the product to drive sales. Given the realities of hi-tech industries and patent laws, what is interesting is Section 3.2 which deals with situations in which product imitation is impossible.
Forgive my naive understanding, but here are the relevant parts reproduced:
… In the ﬁrst stage, each ﬁrm i selects speciﬁc attributes for its product…
… This standard assumption (see for example Motta, 1993) means that it is more costly to improve a product which already possesses many speciﬁc attributes.
…In the second stage, ﬁrms compete in prices. There exists a price Nash equilibrium if conditions (3.1) and (3.2) are veriﬁed. Equilibrium prices are given by (3.3) and (3.4) and proﬁts by (3.5).
If my understanding is correct, then the projections are not entirely rosy - duopoly’s tend to gravitate towards competing on price rather than innovation in features.
There are very few truly innovative products that appear on the horizon - maybe Avant! was one (I like to think that PowerPro is another). However, most innovations are incremental. Look at the acquisitions in the non-EDA space - they are not game changing per se, but cut-throat competition (in features, not in price - a story for another post) drives innovation and hunger for acquisitions. What I fear is, duopoly’s will tend to compete on price rather than on attributes.
Sramana gives a good/noble suggestion in one of her comments - corporate venture capital. Truly, well meaning for the industry and will help a lot too. Usually, it is the brilliant-yet-underappreciated guys in big companies who end up creating startups and this would go a long way towards that. It is a matter of fact with comapnies like Microsoft. I do not know, how massive a change in corporate mindset will be needed to get this going in EDA.
But perhaps all these discussions will be moot - why do people underappreciate tools? Be it GCC or Design Compiler or any other compiler in any industry? It is basic belief that a human is better than a computer.
” I dont really need that synthesis tool which promises to give a 10% improvement. I can innovate in the design itself and get that to happen”. It is why ESL is being under-used: big design houses will simply choose to hire 3 more teams, working under their tried-and-trusted-design-process and get them to focus on power/timing/area and not worry about the correctness of ESL compilers.
What this may lead to is what I have always believed - EDA will have to return to the folds of the mother-ship. As a captive unit within design/fab companies. I do not believe that the senior executives will mind that too much - it is far cooler and impactful to be a senior executive in Intel than in Cadence, though they might be getting paid the same.
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