The conject interview

Having recently received a comment from Chris Brandt, CTO at conject, I thought it was high time that I took a more detailed look at this construction and real estate collaboration vendor. Based in Munich, Germany, but with operations across most of Europe, conject has gradually been expanding its international reach beyond Europe. It has bases in Dubai and Boston in the USA, and this year has opened offices in Singapore and South Africa.

I decided it might be best to get some conject people to tell me about the company and its history, so I posed a few questions (and a couple of follow-ups), and this is how Chris and his colleague Elke Tonscheidt responded….

1. Conject was founded in 2000 just before the dot.com bubble burst. How did it survive that period and how has it grown into the company it is today? Were there any mergers or acquisitions along the way?

First: We had (and have) a big and strong founding team (12 people!) with a powerful and ultimately successful vision – offering ASP [application service provision] tools to make collaboration in the real estate market possible. The dot.com crash was not helpful but the team and idea were outstanding. In 2002 and 2003 we made two acquisitions that helped to create a whole lifecycle product from (a) planning, through (b) building to (c) running – operating and maintaining – the built asset.

2. Which markets did conject target first? What was the initial reaction in those markets to an on-demand/SaaS solution? Have attitudes towards SaaS changed, and, if so, how?

We have always consistently targeted the real estate market. The initial reaction was: ‘Yes, we need that but we do not want to be the first ones’ – real estate people are innovative in building but regarding technology they do not belong to the trend-setters…. So for us it was more than helpful getting well-known clients like BMW very early (in 2001). After the ice was broken, the attitude quickly changed a lot. Today nobody would dare to say that these tools are unimportant.

3. Who do you see as your main competitors?

As a software as a service (SaaS) company for infrastructure lifecycle management (ILM), conject is the only company covering the entire life cycle of Real Estate assets. However in selected fields of our activities we have high profile competition that we appreciate and love to take on. Aconex from Australia is competing with us is some markets outside Europe. However, the market itself is our most challenging competitor since it still takes a lot to convince the conservative market participants to adopt the value-add of SaaS – a notion most of our competitors would agree on.

4. Give me a sense of the scale of the business. What is conject’s annual turnover? Is it profitable? How have revenues grown over the past 2-3 years? How many people are employed by conject?

In 2008 we had a turnover of €11.5m [£10.3m] and generated a profit of €2.1m [£1.9m]. This revenue was 18% more than the year before. In the preceding years we grew at a rate of 16% (2007) and 15% (2006). Currently conject employs 124 people (up from 92 at the end of 2008).

5. What has been the impact of the current downturn in the construction sector on conject?

In times of crisis people HAVE to think about efficiency. They are forced to control their costs – if they don’t do it on their own, others will remind them…. With conject you save time and money and the chance to achieve even more quality is high. So the demand for tools we offer is even stronger when a downturn takes place.

6. Any plans to market conject in the UK?

UK is a very interesting market due to its maturity and size. But due to resource restrictions on the management level we aren’t currently planning to enter the UK organically. Nevertheless we follow our customers into foreign markets (that naturally includes the UK) and are always in search for partners, that could open us the doors to the UK.

7. How do you see the market for your services changing over the next five years?

Due to the financial crisis but also due to the fact that products became easier-to-use, more speedy and more mobile we expect the market to continue growing. Together with devices like trendy iPhones and reasonable applications for them we are prepared for a strong demand – especially worldwide. So we are looking for new partners all over the world – at the moment especially in Asia and Africa.

8. Can you tell me about the history of conject’s applications? Were they designed from the start as web-native applications or migrated from client/server?

conject’s ILM suite consists of over 45 modules. Each one is based on the most appropriate technology for the processes it supports. For example, our collaboration modules are multi-tenant web based, the module for (project) time tracking is single tenant web based, and the module for cash-flow planning is implemented as a fat client. Our SaaS offering was designed as web-native from the start but most of our single-tenant web modules are new developments based on already existing client/server modules.

9. Can you explain the thinking behind infrastructure lifecycle management? What types of organisations (maybe a few named examples) are using ILM?

The lifecycle phases of real estate are becoming shorter. Today, it’s short-lived technical and usage-specific infrastructure which dominate the costs. Traditionally, the main costs beyond construction were heating and maintenance. Today, the ongoing costs of maintaining a building make up the majority the of the lifetime costs of the building. Traditionally, buildings were built for the eternity. Today, the owner has to consider later conversions even during the initial construction phase.

Due to these shortened lifecycle and usage phases, real estate is no longer the safe long-term financial investment it once was. In fact it has become a significantly more risky investment. In order to effectively manage these risks, real estate must be actively managed throughout the entire lifecycle.

Successful real estate requires more than just an ideal location, dynamic architecture, and effective cost control. More importantly, successful real estate demands that these and other factors harmonise well together. It is the combination of multiple well-managed elements that creates long-term success. Nowadays, the real estate manager requires at all times a high transparency of all processes and the possibility to react quickly to changes in the market and the community.

(conject’s website lists a big selection of its corporate clients. As well as the afore-mentioned BMW, it includes Bilfinger & Berger, Deutsche Bank, Hochtief, Hugo Boss, IKEA, Lufthansa, Siemens Real Estate, ThyssenKrupp and T-Mobile.)

10. Is conject looking at building information modelling (BIM)? What is the current appetite for this approach among designers in your target markets, and how do you see this changing?

BIM during the design phase was a fad in Germany already over ten years ago. We see some new initiatives in the market to re-fuel this topic under the heading of four or five dimensional planning/design. We are not convinced this is the best approach.

We see a high relevance of building information during the hand-over phase when owners would like to receive their as-built documentation in a format that is suitable for use in a CAFM [computer-aided facilities management] system. As we also provide such modules to the market we see ourselves uniquely positioned to support contractors and owners during that phase. It is still hard to find owners who are forward thinking enough to address this topic in their contracts but some of our clients have successfully received a fully loaded CAFM system from their general contractor at the end of the project thanks to our help.

Some financial context

In terms of its turnover, conject is larger than all but one of the UK-based construction collaboration vendors. The much merged business that is today Sword CTSpace (while the parent Sword group is a France-listed company, shortly to relocate to Luxembourg, the CTSpace business is headquartered in west London) had a 2008 turnover of €14.4m [£11.5m], of which around €4.4m came from the former Citadon operations in the USA, and roughly the same amount from Germany and Austria (see post).

However, conject lags some way behind Aconex, which recently reported global turnover of €21.1m [£17.985m] in the year to 30 June 2009 (post) – around twice the level of conject.

Looking at the key profit metric, conject is just ahead of 4Projects, who generated an impressive €2.2m [£1.8m] profit in the year to 31 March 2009 on a lower turnover of €6.6m [£5.5m] (post).

But 4Projects’ healthy pre-tax profit margin – 33% – is almost double the 18% margins achieved by both conject and Sword CTSpace.  And to put 4Projects’ performance further into context, UK rivals BIW and Business Collaborator (post) achieved margins of 13% and 7% respectively in 2008; retail specialist StoreData’s most recent results (post) showed a 17% margin.

Updates (24 November, 2 December 2009) – Having mentioned IKEA above, it might be worth pointing out that Aconex recently announced it was being used to support the refurbishment of IKEA’s Wembley store in north-west London, and Sword CTSpace is also working for the Swedish retail giant.