Compared to many new technology markets, buildings technology can be boring, stuffy, and slow. After all, construction is a mature market that just barely outperforms overall economic expansion (see chart below). Buildings are long-lived assets, designed to be built over years and last over decades. Moreover, for most of the world, the amount of space needed in the built environment is stagnant. Buildings can be viewed as a mature, slow-growth market, and that poses a problem for the industry. Shareholders care about two things: growth and cash. In a market without growth, only returning cash will keep them happy.
Value of Construction Put in Place, Real GDP, and Population, US: 2002-2017
(Source: Navigant Research)
Indeed, many of the incumbent giants in buildings technology are caught in this dichotomy. United Technologies, owner of Carrier air conditioner and Otis elevator businesses, is under pressure from Activist investor Dan Loeb to split into three standalone business: elevators, air conditioners, and aerospace. Similarly, John Flannery, chief executive with General Electric (GE), announced that any GE asset could be spun off into independent entities. The conglomerate has already sold parts of its overseas lighting business and is shopping around the remaining pieces of GE Lighting and Current. The message from investors is clear: sell slow-growth business and focus on core assets.
Follow the Growth
There is still opportunity in a mature market, however. The first for-hire coach service was 400 years ago, yet Uber created a new market in this context. Retail is even older, yet Amazon erupted into the second most valuable company in the world over a short 2.5 decades. Technology can unlock growth potential in mature markets, even in buildings. In Navigant Research’s recent report, Intelligent Buildings Market Overview, a global compound annual growth rate of 18.1% was forecast over the next decade. If more buildings are not being built, where is this growth coming from?
The short answer is digital transformation. The IT infrastructure, data, and analytics that are redefining building operations are creating new value. But they are also removing the need for existing technology. As Internet of Things permeates buildings technology, the functionality previously performed by dedicated hardware will be performed in the cloud by software.
Several building incumbents are charging full-steam into this transition, aspiring to capture the technology growth in this mature market.
Tags: Building Innovations, Digital Transformation, Intelligent Building Management Systems, Market Effects
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