Rise of the platform era: The next chapter in construction technology
It’s been a decade since construction players began embracing digital solutions. In the early- to mid-2010s, thousands of new market entrants offered point solutions that served existing use cases or, in some instances, created new ones. The first widely adopted construction point solutions addressed basic needs; for example, improving design capabilities or digitizing paper-based information. By the second half of the decade, industry players spurred by end-customer feedback about their difficulty integrating point solutions began expanding their product portfolios to create suites of integrated solutions.
While the construction technology industry is still filled with players offering point solutions or limited suites, our latest annual effort to map and understand the construction technology landscape reveals that the industry is moving toward platforms and predicts that a combination of multiple platforms will coexist in the space. As the global COVID-19 pandemic forces many construction players to digitize and use technology to ensure the safety of their workers and boost productivity, this dynamic will likely only continue to accelerate. There are significant opportunities to create value for both strategic and financial investors that are evaluating consolidation plays.
The continuing pandemic has also had an impact on the construction technology industry. As thousands of health professionals heroically battle the COVID-19 virus, construction industry leaders are also charting a path toward keeping their employees, contractors, and end users safe. Indeed, the bulk of short- and long-term pandemic-driven construction industry issues will be solved with technology.
Top construction companies were already investing heavily in technology prepandemic. By necessity, contractors, architects, engineers, and suppliers have quickly shifted to working and collaborating digitally from video-call site meetings to filling digital orders. While there has already been a rapid increase in collaboration technology uptake, the pandemic has also triggered a painful shakeout. Many contractors are seeing shrinking backlogs and more competitive bidding environments, which have analogously impacted the construction tech industry. Construction tech players have been forced to lay off employees and cut costs to manage cash flow. Continued uncertainty on recovery timelines and the risk of virus resurgence could drive an additional wave of bankruptcies among smaller players, further accelerating the trend toward industry consolidation.
Taking the good with the bad, we expect that the continuing COVID-19 pandemic will drive a net acceleration in the use of technology and the construction industry will continue its transformation from a highly complex, fragmented, and project-based industry to a more standardized, consolidated, and integrated one.
Construction tech in the platform era
In 2018, we first assembled multiple data sets and employed advanced analytics to map the global construction technology industry ecosystem. We recently refreshed our analysis and found that the largest clusters of use cases include 3-D printing, modularization, and robotics; digital-twin technology; artificial intelligence (AI) and analytics; and supply-chain optimization and marketplaces.
These investment trends, coupled with end users’ frustration with integrating the proverbial sea of point solutions, have driven a clear shift toward the development and launch of integrated platforms rather than point solutions. We define platforms as technologies that enable visibility into management of business or operations processes through native capabilities and seamless integration with other technologies to aggregate data and process control in a single place. Currently, 20 percent of companies offer solution suites addressing more than five use cases, compared with just 13 percent in 2017.
Platforms are attractive because of their ability to increase customer stickiness compared with point solutions. The more features and interfaces with other tools offered, the higher the likelihood the platform will become critical to day-to-day operations for customers’ businesses, increasing switching costs and boosting profitability through both reduced churn and increased pricing leverage. From an industry perspective, the growth in platforms implies that large companies will need to continue to scale to remain competitive, while smaller companies offering point solutions will need to simultaneously consider their integration with the broader ecosystem in addition to the core value proposition of their technology. Failure to account for these trends could adversely affect revenue growth and, more broadly, competitive positioning in the market.
There is compelling economic logic for platforms, and we see many other industries moving in this direction. This does not, however, signal the end of point solutions. Even among platform competitors, there remains space for multiple winners in the broader construction technology market. Most of the existing platforms have grown from a core foothold in a given customer segment such as general contractors and architects, or a project phase such as construction execution or design and engineering. As winners emerge in each of these focus areas, other competitors looking for growth will either need to cross segments and compete against a different incumbent platform on that incumbent’s “home turf” or create the capability to easily integrate across multiple platforms. Given that the most successful incumbent platforms are owned by some of the industry’s largest and most well-capitalized technology firms, we believe the most likely outcome will be the continued growth of multiple, interconnected platforms in the future.
Construction technology is still a heavily fragmented, point-solutions-driven market with ample opportunity for integration plays that create either new platforms or attractive component acquisition targets for growing incumbent platforms. This fragmentation is more evident when analyzing construction tech offerings across the project life cycle. The construction and commissioning phase continues to be the most active, with twice the investment activity and more active players than other phases. Preconstruction and “overarching technologies,” which include advanced technological applications such as AI, robotics, and advanced visualization, were the next largest.