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Feb 19 2013

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16 reasons why nobody yet dominates the construction SaaS collaboration sector

Despite widespread adoption of SaaS-based construction collaboration platforms and wider acceptance of SaaS, no company has achieved real dominance across any major regional, national or vertical AEC market. Why? [Warning: this is a longer-than-usual post!]

By revenues and (notwithstanding recent restructuring) by manpower, Aconex is the biggest player in the Software-as-a-Service (SaaS) based construction collaboration market, but its prominence has been achieved on relatively modest revenues and, in recent, years, continued losses. The Melbourne, Australia-based company was one of several that launched during the dot.com boom of the late 1990s and early 2000s, all hoping to ride an architecture, engineering and construction (AEC) e-business wave generated by faster internet speeds, increased use of IT, and growing enthusiasm for collaborative working. Of course, the dot.com bubble soon burst, puncturing plans for rapid growth and stock market flotations; vendors instead had to settle into longer campaigns to achieve market dominance (which, in my view, is different to ‘leadership’ which is prone to all sorts of definitions depending upon how a vendor justifies its leadership claims – see September 201o post: Does “industry leadership” matter?).

Yet, despite apparent consensus on the value of SaaS-based construction collaboration platforms and wider acceptance of SaaS, no company has achieved real dominance across any major regional, national or vertical AEC market. Why?

I have been asked this several times, and there is no quick or simple answer. There are numerous often inter-related or overlapping factors that are beyond the control of individual vendors (a complex market structure, global recession, etc) and then vendors may mistime or miscalculate their strategies.

  1. Fragmented customer base – Choices about collaboration systems are made at both project and enterprise levels, by consultants, by main/general contractors, and by the ultimate owners of assets (or sometimes by multi-company groups comprising two or more of these). Few of these firms dominate their markets, so there is fierce competition at every level in the supply chain; it is therefore difficult (impossible?) for a vendor to agree strategic deals with most of the leading companies that will give it, in turn, a dominant market position in one country or region. Equally, many consultants, contractors and clients/owner-operators are in competition with similar firms, and may consciously select a rival platform to maintain a perceived differentiation.
  2. Continuous ‘pilot projects’ – Particularly in the early days of collaboration, systems were often selected on a trial or pilot basis, with no guarantee that a system would be deployed on subsequent projects. Indeed, often rival systems would then be tested for comparison purposes (notwithstanding the difficulties of comparing performance across even apparently similar projects), drawing out the final selection of a preferred system still further.
  3. ‘Project churn’ – As AEC supply chains are reconstituted for subsequent projects, competitive marketing and sales processes – already often protracted and time-consuming – often had to be repeated. This limits the vendor’s ability to market the system to new customers and their supply chains.
  4. ‘People churn’ – Similarly, with many construction people employed only for the duration of a project, personal preferences count for nothing if they are no longer in post when it comes to their employer company selecting a system for its next project.
  5. Product sale complexity – Simple self-service approaches to buying online collaboration have not worked (at least not yet – Woobius and some other low-cost platforms have tried; post). Particularly at the higher-end, collaboration platforms are still sold like consultancy services, with their precise configuration and delivery capable of almost infinite variation, and with considerable scope for negotiation over what is provided and at what price. Without more “commoditisation”, buyers find it difficult to make consistent comparisons between the different offerings.
  6. ‘Low hanging fruit’ – Vendors’ sales people will often chase one-off project opportunities (I recall colleagues sifting through published contract leads to identify potential customers) where the cost of a collaboration system will be regarded by the customer/team as an overhead of project delivery. This reactive, project-centric approach to sales is different to the more strategic approach needed to secure corporate deals, which will also be more complex and time-consuming to negotiate. For example, I understand Aconex secured some major project deals in Australia with global mining firms like Rio Tinto, but did not then convert these into longer-term enterprise deals.
  7. ‘Lock-in’ – If and when a vendor does successfully negotiate a longer-term relationship with a customer so that its system is used on multiple projects, the customer may, when the deal comes up for renewal, be reluctant to move to a rival platform. In-house users and supply chain partners would need to be retrained; data might need to be exported from the previous system and imported into the new platform. As a result, the potential risks of switching supplier may outweigh the benefits, creating a technology ‘lock-in’ that looks like customer loyalty, but isn’t.
  8. Strong service relationships – Of course, vendors can also build a strong bond with a customer by being responsive to their technology needs, ensuring high levels of customer service, and offering financially attractive long-term commercial deals. This can mean a steady and predictable revenue stream for the vendor as they nurture their loyal “cash cows” while consistently replace ‘churned’ projects; here, genuine customer loyalty may mean experienced collaboration users do not switch to any emerging market leaders.
  9. Low SaaS commitment – It is easy to forget that provision of SaaS collaboration to the architecture, engineering and construction industry was not solely the preserve of new start-ups; firms such as design software giants Autodesk and Bentley also created online collaboration products, while Microsoft’s SharePoint has also been deployed as a collaboration solution. Historically, these firms already enjoyed significant penetration into the AEC sector, but they lacked expertise in and commitment to SaaS approaches to software sales, licensing, hosting and support. As a result, their solutions (eg: Buzzsaw, Projectwise), while initially popular among design users, failed to achieve the same degree of dominance as their on-premise CAD products.
  10. Fear of the M&A ‘downside’ – In other markets, leaders can emerge as they buy up competitors and take over their loyal customers. This has not happened in the AEC collaboration market. For a start, if a vendor bought a direct competitor, it would need to support two applications and two hosting infrastructures and then progressively move customers to a single solution. This runs the risk of antagonising users of the discontinued solution(s), while slowing development of its incumbent solution(s). And, for some of the reasons above, there is often little solution loyalty to limit ‘churn’ and make such M&A activity viable.
  11. Limited M&A appetite – Even if these issues could be satisfactorily addressed, there has been little appetite for merger and acquisition activity among the leading players (ignoring the mergers of then financially distressed businesses such as BuildOnline and Citadon). Most acquisitions have been by suppliers of other types of software (eg: ERP in the recent case of 4Projects) looking to grow some SaaS capability, with the exception of Conject’s acquisition of BIW in December 2010 (where there was at least a good regional ‘fit’). Given the substantial war-chest of up to Au$50m created by Francisco Partners’ investment in Aconex in September 2008 (post), it is perhaps surprising that the company has only made one small acquisition (of Grazer last year; post) and not looked to consolidate the market by acquiring a competitor or two.
  12. Global financial crisis – The past five years or so saw many AEC projects discontinued or delayed, consultants, contractors and clients going bust, with some regions or countries particularly badly hit. This had a knock-on impact on all project-based businesses, including collaboration vendors who, in some extreme cases, found loyal enterprise customers going into liquidation (eg: BIW suffered from the effective withdrawal of Nakheel from the Dubai market, and the demise of two long-term deals with major UK banks; Aconex was also hit by the Dubai downturn). The credit crunch has also increased competition on price, cutting margins and so limiting the ability of vendors to invest in marketing and sales.
  13. International structural differences – While many of the collaboration platforms offer generic functionality, there can be significant differences between industry structures, processes and terminologies. As a result, for example, US-developed systems were rarely effectively deployed in markets adopting more complex, UK-style approaches to construction project planning, design and delivery. UK-developed systems could be successfully deployed in the US, but buyers can be sceptical of non-US platforms – and the location of hosting facilities can be critical (EU businesses can be wary, for example of hosting their data in the US).
  14. Transient marketing – Provision of local sales and support can help but it is expensive and time-consuming to create a self-sustaining operation in a new country; and partner networks have, so far, had limited success (Aconex, Asite and 4Projects all have active partnership programmes – post). Aconex grew its global footprint very rapidly during the 2000s, but rarely deployed more than a handful of people in each country. Arguably, it could have achieved deeper market penetration by focusing on some key growth markets (China, Japan, India, etc), establishing local hosting and indigenous employees, rather than chasing distributed opportunities. It has invested heavily in recruiting US personnel to grow its north American business but the benefits have been slow to appear.
  15. Micro-management – Growing a SaaS business to become a major player in a country market is an achievement, of course, but then taking that business the next step so that it dominates a region or global market is a very different challenge, and one which company founders, used to hands-on micro-management, may find a step too far. It is also easy for small issues to distract such leaders (could the Hitler t-shirt debacle have been nipped in the bud by the Aconex chairman’s early resignation, for example?), though Aconex has been appointing some experienced US executives, so this may yet change.
  16. No ‘killer’ functionality – Across the main vendor platforms, fundamental file-sharing capabilities have become increasingly similar and there is often little difference between the user interface/experience. Vendors have therefore been trying to anticipate what other functionality or services will be valued by their customers and/or end-users. For example, BIW invested in developing its project cost control functionality, while R&D at 4Projects and Asite has been focused on building information modelling (BIM) capabilities, and, if/when data begins to flow more seamlessly between project participants, we could yet see demand for greater integration between collaboration and other systems such as ERP and HR, with facilities management also a potential growth market. Contract change control (eg: NEC3 management) has been a keen UK battleground, and mobile tools are also increasingly important. However, the ‘Killer app’ has yet to emerge that will encourage migration to the relevant market leader.

Have I missed any key factors out? What else has slowed this market and the emergence of a genuinely dominant market leader?

Permanent link to this article: http://extranetevolution.com/2013/02/16-reasons-why-nobody-yet-dominates-the-construction-saas-collaboration-sector/

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  1. Eric Law

    Paul
    I would add a lack of industry standard procedures and practices to your list of contributing factors to the lack of a dominant player as well. Not just across the globe but within regions. For example in the US projects in Healthcare, Water/Waste Water, General Buildings, etc are all managed differently. Everything from procurement method to stakeholder involvement can be different. Even within a vertical like healthcare you can have a proactive owner that manages their own projects and you can have one that hands the work off to a program management firm who’s procedures and practices will vary by firm. This lack of standardization and fragmentation as you pointed out will make it very difficult for one player to dominate the entire construction collaboration market.
    Also keep in mind the size of the construction industry and variety of projects provides lots of opportunities for software companies but will pose challenges for any one of them to dominate.
    Eric

    1. Paul Wilkinson

      Excellent contribution, Eric.

      I think the collaboration vendors have helped promote greater standardisation in workflows among their customers (after all, the vendors can often identify and distil best practice from tens, even 100s, of firms), but we clearly have some distance to go, and need to dissuade firms from “reinventing the wheel”.

  2. Mike

    You’re being a little bit unfair. Aconex did get to a dominant position in their own national market, Australia with 60-70% market share a couple of years ago. This has slipped back with success of ProjectCentre and QA Software and new market entrants such as 4Projects and others taking projects but Aconex are still dominant with over 50%.

    1. Paul Wilkinson

      Really? My understanding is that there was still a substantial proportion of projects undertaken without use of any collaboration platform. This is true of many markets, of course – email, Excel and FTP still get a share of the space, as do in-house EDMSs – and the challenge for vendors is not just to beat other SaaS players but ensure they also offer a better alternative to other forms of document collaboration.

      But I think you support my underlying point: that Aconex has slipped back in its home market through its focus on non-Australian markets, allowing others to grow their Australian market share and undermine its apparent market dominance.

      Thanks for the comment.

  3. Frank Carron - Aconex

    Paul, while I wouldn’t agree with every detail, there is plenty of food for thought in this analysis.

    One thing that struck me is that people-churn can work both ways. Certainly, vendors can be kept on their toes as one-time advocates move on to be replaced by fresh thinkers. But those advocates pop up elsewhere, often introducing a particular solution, or even collaboration in general, to their new employer.

    In the months after the GFC, for example, we won’t have been the only vendor to be contacted by former users from the Middle East who had returned to Toronto, Delhi or Aberdeen to find work.

    My sense is that this mobility, local or global, only serves to grow the pie.

    1. Paul Wilkinson

      Hi, Frank (wouldn’t expect you to agree on everything I write 🙂 )

      Good point on ‘people churn’. In the early days of the SaaS collaboration market, there was a strong “viral” marketing effect, as users on one project told others in their company about a system (or – as you say – about SaaS collaboration in general), or as they moved to new companies and brought their experience with them. The test was often a question: “would you want to go back to the old way of doing things?” – almost invariably the answer was no, and, slowly but surely, adoption grew…. and continues to grow as we are still some way short of SaaS-turation of the market.
      Regards, Paul

  4. Mike

    Sorry…I meant of projects using collaboration solutions in AEC or other big capital projects such as infrastrucure, minerals or LNG.

  5. anon1mouse

    Collaboration software is a network and networks are self reinforcing. The bigger the network gets the more everybody gains from being part of the network.

    Domination of one provider in this industry globally could have come in one of two different ways neither of which have happened yet.

    1) Vastly superior solution or sales. Wins over more and more customers until becoming dominant and then reinvesting some profits having best network and keeps dominating.

    2) M&A to consolidate. The largest providers combine forces and phase out all but one system/development effort and sales/support team. However, recent M&A has been from businesses outside looking to enter this SaaS space rather than consolidate it.

    At this rate, it may take another 5 years.

    1. Paul Wilkinson

      Thanks for that. I think the network effect would have been even greater if the vendors had been able to devise more seamless data interchange between the interfaces of the different systems (it was a long-time aspiration of the now defunct NCCTP in the UK, for example). Instead, some users have had to re-learn the functionality of different SaaS applications/interfaces as they move from project to project.

      As for large vendors teaming up, there will be resistance from customers, anti-trust lawyers, etc, wary of cartels and the like, while investors may be concerned about dilution (need to be reassured that their thinner slice of a bigger cake will be more valuable than a thick slice of a tiny cake).

  6. anon1mouse

    Another one to add to the list might be marketing of the product that uninspired, pedestrian or even downright dreadful at times. There has not yet been much marketing oomph in this industry to sell the product in a compelling way.

    As an example, the truly awful undergraduate video by leading vendor Aconex posted on their website “What is Project Collaboration?” must have driven away droves of potential customers. If the industry leader is this poor at marketing no wonder they have never become dominant. Why does collaboration software have to be so boringly and badly marketed?

  7. Peter Daly

    Paul, excellent post. I think it is applicable not only to collaboration software but also to other forms of software in the construction industry. The key point for me is the issue of project centred purchasing versus enterprise deals which seem few and far between. This speaks to a wider issue in construction which is the fact that top management have not regarded investment in IT as a source of competitive advantage in the same way as in other industries where IT has been used to re-configure processes and drive reduction in operating expenses company wide.

  8. Andy

    Paul, Very insightful.
    Your reference to International Structural Differences applies domestically also. Without well defined standards, there is differences not only in domestic market sectors, but within the projects themselves. Construction firms may be using their own systems, Architects their own and Owners have their own. All with their own interests in mind.
    Maybe some day when all is standardized there may be one big cloud that allows all the other clouds to exchange project information between them.

    1. Paul Wilkinson

      Thanks, Andy. It often seems that every firm has its own version of ‘standard’ approaches or processes (Requests for Information, Change orders, etc), and therefore wants a platform that can be configured to suit their way of working.

      Collaboration vendors can have a beneficial effect. The sophisticated vendors will have experience of delivering dozens/100s of variants (some have ‘libraries’ of configurations from which an ideal version can be selected and applied) and can help cross-company teams ‘standardise’ on tried-and-tested formats for each requirement. However, there can still be resistance – “Not-invented-here syndrome”, perhaps – but if standards, processes have wide(r) industry adoption then it may make it more likely they will be adopted (that is something I hope will happen as a result of the UK BIM initiative and its collaborative development of open BIM protocols, etc).
      Regards – Paul

  9. Tom-Erik von Krogh-Martinsen

    User interface and ease of use is THE most important thing (as I see it)
    All SaaS solutions are made by computer people, and the field worker is not first priority.
    Tests and interviews are done with managers, not the field users who SHOULD be in focus. Take a look at http://www.checkd.it an see the difference.

  10. Joe Jagodich

    Tom-Erik is absolutely correct. EllisDon Corp. developed GateThree™ for field level operations. It is intended to capture critical project information from preconstruction through to facilities management. It is all about having the informations available when and where the user needs it to make better decisions. An ERP system that is integrated with Accounting systems, project scheduling, BIM, and efficient mobile apps that can be eaily accessed.
    It has 60+ years of intelectual property built into the workflows and processes. Built for construction, by construction experts. An ERP SaaS system that will have an absorption rate of 100%. All project financial in one platform! Contact Lynn Pilmoor – lpilmoor@ellisdon.com for a demo of the system.

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