Autodesk (NASDAQ:ADSK) is the leading provider of software tools for the architecture, engineering, and construction (AEC) industry. Its biggest current initiative is trying to win the construction management software market through its suite of products called the Autodesk Construction Cloud.

The problem is, Autodesk is competing with the fast-growing privately help Procore Technologies to win customers in this market. Procore, which last raised money at a $5 billion valuation, has refiled its paperwork for an initial public offering (IPO) and will likely enter the public market soon.

Here's how investors should look at Procore and how the company might affect Autodesk over the long term.

Two construction workers talking and looking into the distance.

Image source: Getty Images.

What Procore is

Like the Autodesk Construction Cloud, Procore is a construction management platform looking to serve owners, general contractors, and other workers within the construction market. Think of it as a super-sized Dropbox but with a unique focus on serving construction teams, specifically project managers. It has its own tools for preconstruction, project management, and financial analysis, but its core offering is the potential to connect with hundreds of other apps straight from the Procore platform. It also has an API product that allows developers to build tools on top of it.

Procore generated $400 million in sales in 2020, up 38% from 2019. Autodesk's revenue was around 10 times as much last year, at $3.79 billion, but remember that the majority of its sales come from Revit, AutoCAD, and its other design products. Investors are not privy to specific revenue numbers for Autodesk's construction cloud segment, which is the direct competitor to Procore, but it is likely lower than Procore's annual number at the moment. Autodesk only recently built out the majority of its product suite, while Procore has been serving the construction management market since it was founded in 2003.

Why Autodesk has an advantage

Procore was the first to market, has locked-in contracts with many customers, and seems to have the most mindshare in the construction industry. But Autodesk owns many of the design tools for architects and engineers that give it a comprehensive offering when selling to customers. For example, it owns Revit, the No. 1 design tool for architects. Combined with its other design products and the construction cloud offerings, Autodesk can fulfill almost everything a construction job needs, going from design to build to operate. Yes, Procore has nice integrations and APIs, but it is easier for teams, especially larger companies, to sign one contract with Autodesk and get the majority of the paid products it needs to finish a project.

This is why Autodesk has recently signed eight- and nine-figure contracts with customers, because of the comprehensive design, communication, and management solutions it has for the AEC industry. 

The market is big enough for both to win

Even though Procore was earlier to the game than Autodesk, and with Autodesk having a more comprehensive solution than Procore, the construction software market is big enough for both to continue growing. In its pre-IPO filings, Procore estimated that the construction industry will grow to $14 trillion by 2025. Now, the majority of that is not spent on software, but right now the industry spends around $10 billion a year on digital tools. This number should only grow over time. If Procore and Autodesk have the best products, then it isn't a reach that the majority of this spend will flow to these companies over the coming decade.

A lot of Autodesk's future growth will come from its construction cloud product suite. With Procore going public soon, investors have gotten a chance to look at its top competitor within this market. After looking at both product offerings, and each company's competitive positioning, there's no reason for investors to fret about Procore stunting Autodesk's growth. In fact, it seems that the opposite is more likely.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.