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ADSK) owns a lucrative corner of the software world: computer aided design. The firm's AutoCAD product has been the industry's standard-bearer since it was introduced in 1982, and today it boasts around 12 million users around the world. The dominance of ADSK's platform among designers and engineers gives it a huge economic moat going forward.
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The inherent complexity of computer-aided design products gives ADSK a big advantage: high switching costs. After investing considerable time and effort to gain expertise in one software platform, customers are unlikely to jump ship for any but the most serious reasons. Perhaps more important than sunk time, proprietary formats up the ante in switching platforms for existing projects -- you can't change software without the likelihood of problems converting your files.
To keep its huge share of the market, ADSK has been putting its focus on students. As the industry standard, ADSK makes its software available to educational institutions through inexpensive licenses, which ensures that the next generation of professionals enters the workforce trained up on the latest version of AutoCAD. The introduction of software "in the cloud" could be a major boon to ADSK, creating big recurring revenue streams and turning reluctant software pirates into legitimate licensees.
Shares reacted well to the firm's second quarter earnings on Friday, so we're betting on ADSK to start this week.