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Jun 26 2014

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Valuing the UK SaaS construction collaboration market

I was recently asked what proportion of the UK market used a construction collaboration system from a particular vendor, and this led on to a conversation about the overall value of the UK market for SaaS collaboration.

It depends…

Calculating this is fraught with difficulties:

  • First, some of the smaller vendors do not publish full accounts (and even some of the larger vendors have become more opaque as their ownership has changed and reporting requirements have altered – the former BuildOnline/CTSpace and Business Collaborator operations, for example, now McLaren Software and Unit4 respectively).
  • Second, some vendors offer construction collaboration as part of a wider suite of products. In some cases, collaboration may be the main offering but revenues may also come from procurement transaction hubs – to use Asite as an example. In other businesses, collaboration may be a small part of a much bigger portfolio. Instances here include Bentley Systems and Autodesk who offer strong portfolios of AEC design authoring, analysis and visualisation tools (among other things) with their ProjectWise and Buzzsaw toolsets relatively minor contributors to overall revenues. Identifying recurring SaaS collaboration revenues in any financial reports from such firms is impossible.
  • Third, some vendors report global revenues and don’t provide a regional breakdown of where their income is generated.
  • And, fourth, not all collaboration solutions are provided on a hosted Software-as-a-Service basis. Some applications are managed on-premise by the customer, and this can also make it less transparent to the vendor if the provided solution is being used for external project collaboration or more for internal content management.

I started collating information about the financial performance of most of the leading UK providers in the mid-2000s, and I have reported regularly on the ups and downs of the various companies. Most were startups founded in the late 1990s or early 2000s so their early successes were relatively modest. This is unsurprising. The businesses had to establish a track record, overcome risk-averse construction industry attitudes about collaboration in principle and about SaaS in particular, and show they were financially stable in a technology market tainted by the 2001 bursting of the Dot.com Bubble.

Stable mid-2000s growth

However, by 2005, SaaS construction collaboration had established itself as a viable market, the revenues of most of the leading vendors were growing steadily, and profitability became the norm rather than the exception. This continued through to the late 2000s; in 2008, I estimated that seven of the most well-known firms were generating total revenues of around £24m. As several smaller businesses, SaaS offshoots of software majors, and overseas providers were also targeting the market, I ‘guess-timated’ the UK market peaked in 2008 at around £30m, but I revised this figure back down to £24m as I allowed for non-SaaS, non-collaboration, non-UK revenues, etc.

UK AEC SaaS vendor revenues Oct13 (amended)The global financial crisis and resulting recession hurt all the UK-based vendors, some more than others depending upon their exposure to certain market sectors or adversely affected regions. Growth rates – averaging around 14% up to 2009 – went into reverse, with revenues dropping by an average 7% over the next three or four years. By the time the UK construction sector began to emerge from recession, I figure the SaaS collaboration space had lost around a quarter of its value.

A return to recurring revenue growth

However, over the past 18 months, the leading vendors have all been very bullish: talk of “double-digit recurring revenue growth” (4Projects, September 2013) has been commonplace, with Asite reporting 25.6% growth in the year to June 2013 and the Conject group reporting 14% growth in 2013. Much of the ground lost during the recession has been regained, and, so, if we assume average growth in the 15-20% range, then I think the mainstream UK SaaS construction collaboration market is perhaps currently worth around £20m-£21m, and – as growth continues, buttressed by demand for web-based ‘Common data environments’ to support BIM processes – will exceed its pre-recession peak in the next year.

This figure excludes projects where teams are deploying generic cloud-based collaboration tools or file-sharing platforms such as DropBox. It also excludes the growing market for mobile point solutions, some of which – like Mobile Computing Solutions’ Priority1, or Sypro – have a SaaS back-end for monitoring and reporting on tasks such as defects management or NEC contract changes.

Permanent link to this article: http://extranetevolution.com/2014/06/valuing-the-uk-saas-construction-collaboration-market/

2 comments

  1. Ritesh

    Hi Paul,

    Thanks for the valuable analysis. I have a very basic query –

    Is this sector a viable sector for industry players and what is your opinion about its future outlook?

    I am skeptical about the viability of the industry due to the following facts:

    1. The industry started about 10-15 years ago – which in my opinion is a considerably larger time for firms in internet enabled businesses.

    2. For a large country as GB – having worlds 6th largest economy [USD 2.5 Trillion as per wikipedia] – the size of the industry is about GBP 20 million. The users in economy as UK – are expected to be much more IT literate/savvy with respect to those from Asia or African countries and i m assuming that would be more inclined towards tools that increase productivity as collaboration.

    3. There is a considerable threat for both larger players – as Autodesk/Bentley offering authoring tools & extending product portfolio to include collaboration/Autodesk 360 as well. Further- there are tools available for file interchange – as dropbox.

    Given the above challenges – how would you value the long term viability of the industry?

    Regards
    Ritesh

    1. Paul Wilkinson

      You raise some interesting points, Ritesh.

      In a developed market where use of IT to replace paperwork is commonplace, I think the collaboration vendors have established a strong niche, but online file-sharing is only part of the picture. The smart businesses know that Dropbox and the like offer a low/no-cost alternative for simple file exchange, so they have developed strong workflow and process support, and their expertise in industry contractual processes separates them from generic providers of collaboration products.

      These firms also have deep expertise in delivering Software-as-a-Service rather than conventional on-premise applications, and their businesses are set up to deliver such services (Bentley and Autodesk are having to make a transition to subscription-type services, but their business models are still heavily reliant on selling expensive upfront licenses). The collaboration vendors – at least in the UK – also have the opportunity to capitalise on growing demand for cloud-based “Common data environments”, accessed via standard web browsers, to support BIM-enabled working. And they are increasingly able to integrate their solutions with enterprise tools and with mobile apps (which are also rapidly growing in importance). These factors, in my view, make the construction collaboration sector attractive to customers and to investors (the Viewpoint acquisition of 4Projects, and the subsequent injection of capital into the business by Bain Capital, was justified for its expansion of SaaS and BIM capabilities in Viewpoint’s portfolio).

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