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I recently discussed the state of the smart buildings industry with veteran Rick Justis. I told him it seems like every company wants to be THE platform, which is impossible. He agreed, and shared what I think is a great metaphor:
Everyone is playing this game like it's the Home Run Derby. They don’t realize it's actually the All Star Game.
What do you think?
+ Uber for HVAC—this video and the corresponding essay from Joe Aamidor are worth a look. Joe makes a lot of good points about why and how a two-sided platform for HVAC service procurement could change the O&M world. This exploration pairs well with Why Some Platforms Thrive and Others Don’t by HBS.
I’m hoping to dig deeper into this with Joe soon… because I think these concepts apply to all smart building platforms trying to get selected for the All Star Game. For now, here are the questions I’m chewing on:
How will the platform prevent disintermediation?
Disintermediation, wherein network members bypass a hub and connect directly, can be a big problem for any platform that captures value directly from matching or by facilitating transactions.
Imagine that you hire a house cleaner from a platform like Homejoy and are satisfied with the service. Would you really go back to Homejoy to hire the same person again? If a user has found the right match, there’s little incentive to return to the platform.
Additionally, after obtaining enough clients from a platform to fill his or her schedule, the house cleaner won’t need that platform anymore. This was exactly the problem that doomed Homejoy, which shut down in 2015, five years after it was founded. (HBS)
Consider how much the market is already pre-disintermediated: In my experience, most large building owners have 3ish firms for each specialty that are pre-qualified, they have relationships with, and are able to bid on work. On the flip side, contractors are doing everything they can to avoid being treated like a commodity—building these long term relationships is their core.
Is the commercial buildings industry too fragmented?
The more a network is fragmented into local clusters—and the more isolated those clusters are from one another—the more vulnerable a business is to challenges.
Consider Uber. Drivers in Boston care mostly about the number of riders in Boston, and riders in Boston care mostly about drivers in Boston. Except for frequent travelers, no one in Boston cares much about the number of drivers and riders in, say, San Francisco.
This makes it easy for another ride-sharing service to reach critical mass in a local market and take off through a differentiated offer such as a lower price.
Now let’s compare Uber’s market with Airbnb’s. Travelers don’t care much about the number of Airbnb hosts in their home cities; instead, they care about how many there are in the cities they plan to visit. Hence, the network more or less is one large cluster.
Any real challenger to Airbnb would have to enter the market on a global scale—building brand awareness around the world to attract critical masses of travelers and hosts. So breaking into Airbnb’s market becomes much more costly. (HBS)
For our industry, also consider all the types of fragmentation beyond geographical: different building types, different business verticals, and different owner procurement processes that aren’t digitized.
How would the platform add value to the transaction?
In order to mitigate the challenges above, the platform would need to add value to the status quo. It needs to be a better transaction for both the owner and the contractor. The obvious way is to create an easy button— streamline the experience compared to the alternative (e.g. Uber UX vs. Taxi UX).
But let’s consider another crucial value-add specific to our industry: data.
An HVAC service provider will provide better service in proportion to the amount of information they have on the HVAC system. I explained this in detail in Why We Need a Digital Twin for Buildings. A service that incorporates data analytics will provide a better user experience than one that doesn’t.
One reason the Uber platform is so powerful is that it sits on top of another platform: the iPhone and the App Store (or similar from Android). We don’t have an App Store for buildings at this point, although some firms are working on it. Building operators have iPhones, of course, but data for the building systems that need to be serviced isn’t on there.
So would an Uber-like platform with no building data come first and integrate with something like a digital twin platform later? Or vice versa?
+ Why Platforms Fail—After speaking with Phil Zito and Rick, I learned that Johnson Controls' failed analytics platform Panoptix started as an open marketplace for 3rd-party applications. Not unlike an App Store for Buildings.
Since I’ve worked with JCI’s Panoptix successors MEO, MEM, and JEM, I mistakenly thought that Panoptix had the same approach: closed and proprietary. Not true. It was designed as a marketplace… many years before its time.
According to another great article from HBS, Why Platforms Fail, JCI committed one of the 6 deadly sins of platform building: Failure to engage developers. While this seems like a drastic oversimplification if you know this industry, this article is a great one to check out if you’re building a platform for buildings.
And many of you are. 😉
OK, that’s all for this week—thank for reading Nexus!
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