It’s a great time to be a facility management professional. New, innovative technologies are enabling staff to do more with less, identify equipment faults before any serious damage or comfort issues emerge, and streamline integration between systems and protocols to save time and money. At the same time, research firms continue to project healthy growth in the smart building and energy management industries.
And while some venture-backed startups struggle to gain traction, a handful of building and facility technology companies continue to raise money and exit successfully through acquisition. For example, in just the last few weeks, Oracle acquired Opower and GE Current bought Daintree.
But that doesn't mean the building energy management space is simple. Recent conversations with building professionals have opened my eyes to a few issues.
One of the biggest problems is the number of companies in this space. Very often, building professionals just can't keep up with all of the vendors out there. And with over 100 firms offering some kind of energy management or smart building system to commercial buildings, there is a fair bit of feature-functionality overlap between many of these firms.
Fragmentation and vendor churn cause confusion among buyers and thus result in inaction. And product feature overlap makes it hard to differentiate and select the right vendor. This results in further inaction.
The market still doesn’t seem to be consolidating. For every company that leaves the market, a new one enters.
Back in 2009, Clear Standards was an emerging vendor, selling an enterprise platform to Fortune 500 clients for tracking energy data and calculating carbon emissions. Once acquired by SAP, the company didn’t grow enough -- and within a few years it was no longer a priority for SAP.
Later, firms like Hara and Carbon Networks launched with similar value propositions, and were acquired by Verisae and Infor, respectively. Infor is no longer a player in energy management or smart building solutions, and Verisae has not continued to support the full scope of Hara’s product.
These are just a few examples of the shifting landscape. With all these departures, one would think consolidation is inevitable. But new firms continue to enter the market to replace them. This is vendor churn, and it has only led to confusion and skepticism among building operators. (Full disclosure: I previously worked for ENXSuite, which was the rebranded Carbon Networks.)
The best visualization of this churn is a comparison of the Verdantix Green Quadrant for each year from 2012 until 2015. The changes over the years are quite significant -- of the four leaders in 2012, one of them left the space by 2014, and the other three leaders were rivaled by five other firms by 2015. Between these years, there was significant turnover in the other firms that were covered by Verdantix (firms included in the report but not labeled as leaders).
Additionally, when comparing the 2014 Verdantix Green Quadrant to the 2014 Navigant Research Leaderboard Report, one notices significant differences. Each analyst firm includes 14 vendors, but only nine appear in both reports. There are also successful vendors in the market that were not covered by either firm. Moreover, some of the vendors left out of one report were identified as leaders in the other firm’s analysis.
This points to significant confusion and fragmentation in the market. How is a building owner/operator to make sense of this situation? Given all of the other responsibilities these professionals have, is it really surprising that many are delaying their investments in smart building technology?
There is a second issue at play: many of the 100+ vendors in this space have similar product feature sets.
The current vendor landscape includes some big players with deep pockets and significant development resources, like Schneider, Siemens and GE Current, and smaller firms that are trying to compete across the board as an enterprise offering. There is a feature-functionality arms race across the industry, rather than a focus on differentiating with a unique set of features or a discrete offering.
To be fair, the specification-driven nature of the building industry also contributes to a demand for wide-ranging feature sets. But many vendors also chose to build vertical, expansive technology stacks: data acquisition, management and normalization capabilities, in addition to a wide variety of applications for different roles and responsibilities. Additionally, many vendors see the smart building space as being wide open, and attempt to build a wide feature set to employ a land-grab strategy. The result is that many building owners are comparing feature sets across the market and having trouble differentiating between vendors.
Should we rethink the standard vendor approach?
There are some companies providing a more focused offering for smart buildings. For example, Urjanet has decided to focus specifically on streamlining the acquisition of utility bills and other energy data. It sells this data to other vendors or building owners. Genability’s business model, which is collecting and monetizing utility rate tariff data, is not so different. That company recently raised another round of venture capital.
By focusing on being the best at one specific thing, these vendors avoid building a lot of duplicative technology. And instead of competing with the 100 or so vendors in this space, they partner with them.
More smart building vendors should look at the success of focused offerings in the market and consider if they, too, could benefit from such a strategy. And the smaller smart building players should think more about partnering with their peers. While there are risks to partnering -- especially in a fluid and fragmented market -- there are also risks in perpetuating battles over feature-functionality.
More focused offerings would result in less fragmentation in the market and less confusion among building managers. This will help the industry finally hit real scale.
Joseph Aamidor is a 12-year veteran in the building and energy management industry. He has held product management responsibilities at Johnson Controls and most recently served as director of product at Lucid Design Group.
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