In the final section of this three-part Extranet Evolution interview with Aconex CEO Leigh Jasper (read part one; part two), the focus is digital transformation and long-term growth prospects.
Digitising construction
As a former McKinsey consultant, Jasper was pleased to talk about the McKinsey Global Institute’s ‘Digital Transformation’ reports showing how developed economies (like Australia, US, UK and western Europe) were pushing forward in digitising their construction industries. While the sectors were starting from a low base (in the US, MGI’s December 2015 report showed only agriculture and hunting was less digitised; a June 2016 MGI report showed that, in Europe, construction was bottom of the league), he said this meant there was lots of opportunities for technology providers such as Aconex to help the industry adopt new ways of collaborating.
“Construction is at the bottom in terms of spend on IT, which I see as an opportunity because at some point construction will start spending at the levels of other industries. The nature of the industry is that it’s quite conservative in terms of its adoption of technology, and the UK and Australia, with Germany in some respects, are well ahead of other markets. The [February 2017] McKinsey report shows all the countries that have been early adopters of our technology – collaboration or more general digitisation – have increased labour productivity in construction.”
Returning to the investor presentation and its growth forecasts, Jasper said:
“There is no reason why we can’t grow at 20%-plus for a very long time given the scale of the market. And I reckon we are still only less than 1% of the impact we could have on the global construction market. With all the providers globally, the market is still less than 10% penetrated, and I reckon we are picking up less than 10% of the total processes we could manage over time. As the industry digitises more and more, every process will become digital over time – well, it will have digital as well as physical components. So there is still more impact we could have on the industry, and that’s what gives us confidence we can grow for a very long time.”
We discussed emerging industry standards in areas such as BIM and workflow, and how these have helped providers develop software. “We believe we can be a big part of that standardisation across the industry, and particularly being open with our APIs, we can become part of wider digitisation.”
However (and consistent with what he said when announcing the 2016 results), Aconex’s growth was unlikely to be delivered by another Conject-style competitor acquisition, Jasper said, forecasting “massive” opportunities for many construction software businesses as the industry digitises:
“We’ll do it organically. There might be some product bolt-ons – we’ll make some ‘build versus buy’ decisions and we have a range of discussions going on regarding potential bolt-ons. Nothing immediate, though.
“We don’t see any others in our space as competition – we are all helping in this drive towards digitisation. If we can take IT spend from 1% to 2-3% in a $10 trillion construction market, the potential is massive.”
My analysis
While not the first SaaS construction collaboration provider to launch, Aconex has expanded out from its Australian roots to become the dominant pure-play provider in the global market (Autodesk and Bentley probably have similar global reach, but SaaS collaboration – Buzzsaw/BIM360 and ProjectWise respectively – are only parts of much bigger software portfolios, much of them based on on-premise installation and usage).
Recognising that SaaS provision quickly transcends national boundaries, and that the Australasian market alone would not satisfy their ambitions, Aconex established footholds in both developed and developing markets around the world. It also looked beyond building projects to embrace civil engineering and natural resource projects. While it suffered occasional setbacks due to regional conflicts (civil war in north Africa, for example) or economic downturns (eg: the global financial crisis, gas and oil price plunges), it seems this wide spread of activity has helped make Aconex more resilient compared to firms reliant on one region or one vertical market.
When Jasper talked about the Aconex technology stack “not being a mile wide but an inch deep”, I felt this might also now apply to their global reach. Its international expansion, particularly in the early days, was often based on creating small outposts, with energetic sales people looking for local early adopters to help grow a local footprint and reputation (not for the first time, someone at a competing SaaS firm last week described Aconex then as “backpackers”!). Aconex, particularly after the Conject acquisition, now has both wide international reach and sufficient depth of financial and human resources to build strong local operations in both developed markets and – probably more important for long-term growth – developing markets.
Aconex can also capitalise upon the technological sophistication of its customer base in the most developed markets such as the UK, Germany and other parts of western Europe, Singapore, Korea and Australasia and the US. As these push forward with BIM and other digital transformations (including – in due course – FM or asset management in the cloud), Aconex can make use of its customer and end-user networks to develop applications and functionality that can then support its customers’ construction and operations in emerging markets. Its ‘open’ philosophy may also help it grow as software partners market the integration opportunities with the Aconex platform.
The company has, understandably, attracted a lot of investor attention, being the first construction SaaS business to do an IPO. There was some uncertainty ahead of the on, off, on again flotation, but Aconex’s initial rise to ‘unicorn’ status in mid 2016 certainly boosted investor confidence in the sector. Partly as a result, several other ‘ConTech’ companies (eg: Finalcad, Plangrid, Procore, think project!) are now well-funded and expanding their marketing and software R&D activities, adding scale and momentum to the industry’s digital transformation.
If early adopter customers start to show a conservative and often sceptical industry that they can improve productivity and deliver projects at higher margins and with greater certainty, then this may encourage other construction companies to upgrade their systems and undertake the necessary people and process transformations to make digital construction ‘business as usual’. Looking long term, Jasper may well see net construction IT spend more than double. The potential is, indeed, massive there.
And, while FM may be off the Aconex product road map for now, if digital transformation eventually extends to owners/operators managing asset information for operational purposes, then the growth potential (and, as operational spend is more consistent over time than construction spend, the resilience of revenues) could be even greater.
