Scaling construction technology platforms: A framework to evaluate competing software solutions
Construction technology continues to experience rapid growth in the 2020s. Between 2020 and 2022, investment in construction technology grew by 85% (see?https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/from-start-up-to-scale-up-accelerating-growth-in-construction-technology ). Investors in the 2010s began to uncover the opportunities in construction technologies, with investment groups like SoftBank funding Katerra in 2018 (with an investment of $865 million).
The opportunity to build new solutions has drawn numerous entrants into the construction technology space. At the same time, leading companies in the industry have started to consolidate their position. The result is the emergence of large-scale, horizontally integrated providers that are often built by acquiring smaller companies (platforms).
However, this market evolution represents a substantial challenge for construction firms looking to acquire a product or service. Daniel Pink, in his book?To Sell is Human, makes the point that greater information access has given buyers more power in the sales process. The evolution of platforms in the construction technology space has shifted the information imbalance back to the seller. By understanding the incentives for the platform and stand-alone providers, firms can leverage them in the evaluation process and more successfully select and launch solutions.
What are platforms and why they are no-brainers for software providers
Who hasn’t heard a sales team talking about land and expand? This rallying cry to upsell more complementary products is common in software companies. Often, it refers to selling more licenses or additional services for the same product. But the meaning shifts when we look at a company with a broad portfolio of solutions across several market areas – a platform company (or just a platform).
Platforms are different from traditional software companies. They approach a market by looking broadly at an industry and providing tools that fit needs in various moments or phases of that industry. The approach is to build broadly across an industry, not just deep into one specific area.
Here are the typical attributes of a platform:
There are two classic examples. The first is the iTunes platform. If you look at Apple’s revenue in Q1 of 2024, two segments dominate. The first is the iPhone, which is not a surprise, given the company’s origin as a hardware company (and Steve Jobs’ genius at product design and marketing) at 58% of revenue (https://www.statista.com/statistics/382260/segments-share-revenue-of-apple/). The second is more surprising – 19.33% of Apple’s revenue was in services, primarily from the iTunes store, the App Store, Apple Pay, etc. In contrast, Macs were only 6.5% of its revenue. When looking at the trends, the percentage of revenue from services has continued to grow from 2012-2024. While iPhone sales expand and contract with new releases, these services are driving Apple’s top-line performance.
The Apple platform truly is a flywheel, increasing revenue and adoption in each sales phase. iPhone purchases drive microtransactions in the App Store and larger transactions on Apple Pay. The virtuous cycle keeps people coming back to the platform.
The other example is Microsoft’s Windows operating system. In the 1990s, the operating system allowed Microsoft to bundle and pre-install other software onto new (or upgraded) computers. The most notorious example was Microsoft’s pre-install of Internet Explorer onto Windows, which the federal government found to be ultimately anti-competitive. Even today, Microsoft products drive users to their complementary products (for example, defaulting opening PDF files in Edge rather than a dedicated PDF tool such as Adobe Acrobat or Bluebeam).
But they have a fundamental benefit that doesn’t work for other companies – product bundling. Companies can offer add-ons to products and services in a multitude of ways. They can package low-cost products with high-cost products as a sales incentive. The fast-food chains are a case in point. “Meals” as an alternative to a la carte sandwiches allow these chains to increase revenue by coupling low-cost items with higher-cost ones. They can also enable companies to buy market share by bundling a product that is a direct competitor to another company’s (see the Internet Explorer example). Finally, they can also spread development costs across their brand with new, evolving, and mature products, bootstrapping new offerings with the old ones.
The emergence of platforms in construction technology
Construction industry platforms emerged in different ways, but they all approach technology in the same way. They try to build or acquire products in areas where they do not have a solution (or at least not a good one). The acquisition patterns of two platforms show how they have transitioned from a strategy that values depth to one that values breadth.
Procore began its life as a software for managing construction projects in the field – submittals, plan management, and inspections, among other functions. In 2018, however, the acquisition of BIManywhere showed that Procore was expanding from the field toward preconstruction and design. In 2021, the acquisitions of Laborchart and Levelset moved Procore into crew management and subcontractor payment processes. The trend continued in 2023 with the announcement of Procore’s foray into the insurance marketplace with products and services around risk analysis and mitigation.
Autodesk started from a different location in the construction industry as a leading provider of design and preconstruction software. The company acquired Navisworks in 2007, further cementing its depth in this area of construction. However, Autodesk has steadily been moving beyond its origins, as well, with key acquisitions like Plangrid in 2018 (electronic plan management), ProEst in 2021 (estimating), and Payapps in 2024 (subcontractor payment management).
Other platform players have emerged in the industry, from broad providers such as Oracle to industry-specific ones such as HCSS in the Civil and Infrastructure area. Regardless of the player, they all seek to solidify their place as?the?primary platform for their customers.
Platforms and their added complexity for evaluating competing construction technology solutions
Given the benefits for them, any software company of sufficient size should attempt to build a platform of solutions. They improve customer retention while providing revenue optimization strategies through bundles within the platform. The story of their services/products for the consumer is not so universally positive. Buyers of software in environments where the providers have coalesced into platforms face additional complexity in evaluating solutions.
There are nearly as many versions of platform strategy in construction technology as there are software solutions providers. Uncovering their complicating impact on decision-making could be a monumental undertaking if each of these different incarnation gets its treatment. I would suggest that looking at three broad types of solution providers can help uncover the effects of most of these platforms.
The first is an existing platform for a consuming company, one that has already been implemented and integrated into the operations of the company. The second is a competing platform that has not yet been implemented or is secondary to another platform. This second category can also provide insight for companies that have yet to invest in a platform (for example, a company transitioning from a home-grown solution to a commercially available platform). The third is a company that is not part of its platform but is a stand-alone offering. Many early-stage start-up entrants fit this category. This is not to say that these companies do not integrate into platforms, as many do. However, they are not attempting to provide a fully featured platform but rather fit into existing ones.
The impact of key factors on the software evaluation process
One way to uncover the complexity of engaging with platforms is to walk through the impact of several factors on the software consumer. These factors can illuminate the relative advantages of these various software providers, all other items being equal.
For this evaluation, I created five categories of key factors for consumers to use when evaluating software providers:
In total, I defined 17 different factors to evaluate the difference between these three types of software companies. The result is a weighting of each factor based on the relative effort required by the consumer company.
Before looking at each factor individually, a short description of the categories will give context to the later weighting.
领英推荐
Administration
Administrative factors encompass the tasks required to launch and sustain the product. Administration generally begins with user provisioning/de-provisioning (which could be integration into an Identity and Access Management tool or manual/batch creation). Other items in this category are authentication management (setup of SSO or another means of federated authentication and authorization), data integration in and out of the new tool, and project/job administration (which might be part of the integration work). Generally, this category represents work done by the Information Technology organization, with perhaps some overlap with Information Security and Project Accounting.
Function evolution
The category of functional evolution factors speaks to the feature set of the software offering. In addition to the feature fit of the tools for the customer, functional evolution includes creating new and enhancing existing features. It describes questions around whether features are rolled out quickly, whether the customers have significant (or any) input into feature prioritization, and if the features tend to enhance lock-in to the platform (such as easy integration within the platform, but no thought to API access).
Organizational fit
The organizational fit category describes the degree to which a software offering readily integrates with existing tools and practices. For example, with process-based software offerings, what impact will the new tool have on existing processes? How well will it work alongside existing tools? Additionally, this category is the home for pricing considerations. This price factor is not only about the lowest price offering but the effect of the type of tool on the pricing model. For example, are tools rolled out in existing platforms likely to be priced better than those in a competing platform or a stand-alone product?
Risk
The risk category speaks to two factors for evaluating the risk of adopting a new software. The first is the effort required to ascertain that risk – in privacy and security this represents the due-diligence approach to understanding compliance with governmental regulations and industry standards. The second is the additional risk that the customer takes on when adopting the software or service. The risks for security and privacy are well-documented, but there is another category of risk – the existence of the provider itself. If a process or team member begins to rely on a software product, there is some risk that this provider will no longer be in business (or will no longer support that software title).
Roll-out and functional support
The final category includes the factors related to organizational change management and implementing a new software or solution. Several factors that are relatively easy to quantify impact the customer in this area – the roll-out of new software to devices, the purchase and configuration of new hardware, and the time and effort required for initial training. But two factors are often overlooked. The first is the consumption of change readiness. Each organization has a limited capacity to absorb new processes and technology. Software from our three different types of companies will consume different amounts of this capacity. Finally, there is the burden of developing, integrating, and refreshing the best practices for the software or solution.
Evaluating factors that affect company effort
Going one layer down from the five categories, I established 17 factors that affect a company’s ability to adopt and use a software solution and rated each one from low (less effort) to high (much greater effort). The 17 factors are not intended to be a holistic list of evaluation criteria for software and services in construction technology. Instead, they illuminate the differences between them when deployed in an existing platform, a competing platform, or a stand-alone solution.
Existing platform
The effort required to implement a new component/service in an existing platform demonstrates the platform’s value. The existing platform scores the lowest (best) in several factors – 12 low, two medium, and three high. The platform's advantages are in the categories related to implementation and risk. Adding another service or title to an existing platform does not require extensive effort in security (authentication and provisioning), data integration (likely zero or small), and deployment of applications or hardware. Certainly, there is some effort in user functional training, but a consistent user interface offers substantial savings (and consumes less change appetite). The existing platform also scores well in the risk category, as the due diligence required for onboarding a new solution is not as extensive. The risk is not increased if the platform can validate its security and privacy standards extend to the new software. In the same way, extending the capabilities of an existing platform does not alter the risk of a provider not being viable in the long run.
On the other extreme, adopting another solution in the same platform does not offer the same opportunity to find a tight fit with feature requirements, particularly when compared to stand-alone solutions. The same is true for the long-term ability to affect product direction. Platforms tend to develop more complex product management strategies with customer “wish lists” and 3-year product roadmaps. Each individual customer has less control over the product and process. Additionally, expanding the use of the same platform increases the lock-in effect. Customers become more reliant on the platform, which leads to greater opportunities for the platform to extend its reach.
The effect of the existing platform on pricing is mixed. The platform's increased lock-in effect (and overall market power) can drive higher prices than a stand-alone solution. However, the ability to bundle packages of solutions can lead to a lower price for the solution or software title when comparted with a competitor’s solution.
Competing platform
Compared with implementing a solution or tool from an existing platform, the same process with a competing platform requires much greater effort for the customer. Areas where existing platforms are easy, such as administration, roll-out and functional support, and risk, impose greater costs. Companies engaging in a one-off addition of a tool from a competing platform will have to redo the work to connect systems, provision users, and train these users in a new user interface. Most platforms in the construction industry are relatively mature, so the impact will not be overwhelming but rather a duplication of previous work.
Where competing platforms distinguish themselves is in organizational fit and feature fit. Often, a competing platform’s solution for a particular business challenge is significantly better than the incumbent platform’s. In addition, competing platforms can aggressively price a “foothold” product in a construction firm with the intention of getting more products placed at that firm. These two factors must be very strong to dissuade a firm from selecting a similar, if slightly less compelling, alternative on an existing platform.
All platforms share similar challenges, though, particularly since they tend to have large, complex product management functions. Individual firms (and, specifically, later entrants into the platform) have relatively little influence on product direction.
Stand-alone
Solutions provided outside an established platform provide a unique blend of the value of the other two approaches. The areas where stand-alone solutions excel are functional evolution and feature fit. A firm that selects a stand-alone solution is probably doing so to fulfill a specific organizational need, so it is likely to align with the firm’s ideal process for that need. Often, these stand-alone providers are also focused on aligning their tools with their customers’ needs, giving construction firms a more significant say in the product's future direction.
The challenges with stand-alone provider’s solutions are in the areas of risk. In the case of established platforms, they have already built the technology and process control infrastructure needed to satisfy the firm’s security and privacy requirements. In addition, smaller stand-alone providers represent a greater risk because their continued existence is not always guaranteed (or probable). Stand-alone solutions that provide excellent tools often become the target of one of the platforms. Those that grow too quickly can race past their ability to sustain their business (particularly as revenue is frequently the primary driver rather than efficiency).
Construction firms that adopt these stand-alone solutions must carefully weigh the business and information risks with the solution itself. But stand-alone, niche solutions can provide an excellent complement to a platform without a similar solution or product. These smaller players are often more receptive to helping the firm build a connection to the platform (as it is easily reusable for other prospective or existing customers).?
Conclusion
The emergence of platforms in the construction industry is reshaping the alternatives and the entire ConTech landscape. This development represents substantial opportunities for software companies to enhance their revenue at a relatively low cost by adding complementary products for existing customers. At the same time, it complicates decision-making for construction firms. The 17 factors can provide a way to better engage with construction technology platforms when evaluating software and solutions.
?