Cleantech Market Intelligence
Building Automation Shifts to Integrated Controls
Building automation system (BAS) controls have long acted as a cash cow for vendors. Historically, they were built on closed, proprietary communications protocols, virtually guaranteeing steady revenue from future maintenance and upgrades. Now, though, customers are migrating to control systems with open protocols, such as BACnet and LonWorks, to gain greater flexibility and interoperability. The emergence of these standards is changing the landscape of building controls.
The shift to open protocols largely benefits building owners (and has unsurprisingly been driven by the demand of building owners). Competition is increased, as all vendors are on equal footing, which drives down prices. Naturally, controls vendors are now exploring alternatives to gain a competitive advantage and regain steady revenue. One emerging strategy is integrating more intelligence and more controls into HVAC equipment. Even though more vendors can compete with open systems, the more intelligence that is shipped with HVAC equipment, the less there is available for controls companies to install, thereby protecting revenue from the increased competition.
Johnson Controls seems to be adapting to the changing environment rapidly. The company made two important announcements in September. First, it is reorganizing its building efficiency business to separate the North America branch from the global products business. This will enable the company to focus on high-margin HVAC product lines, notably air distribution and ventilation solutions and variable refrigerant flow (VRF) systems. The second announcement signaled plans to divest Johnson Controls’ Global Workplace Solutions business.
As I noted after Johnson Controls’ acquisition of Air Distribution Technologies, the move was not about products but about controls. Johnson Controls’ joint venture with Hitachi to provide VRF systems follows the same strategy. VRF systems represent lower potential revenue for controls suppliers because controls are typically provided by the equipment manufacturer. Moreover, because VRF systems use refrigerant as the heat transfer medium instead of air, the need for complex air-side control of supply air temperature and humidity is obviated. By shifting its focus to HVAC products, Johnson Controls is ensuring that its controls stay relevant.