Specialist
Executive at Atlanta-based construction consultant
Agenda
- Construction management software sector operating environment and growth trends
- Product innovation across project management vendors, innovation in AI and product roadmaps
- Competitive dynamics and partnerships among major players across product functionalities and segments – Procore (NYSE: PCOR), Autodesk (NASDAQ: ADSK), Trimble (NASDAQ: TRMB) and others
- Consolidation trends, cloud adoption rates and adjacent module opportunities driving upsell and cross-sell motions
- Outlook for 2023 and beyond
Questions
1.
Can you outline the overall operating environment or landscape for the construction management software sector? What major solutions and modules are being adopted by the different customer types in the space today?
2.
How far along are general contractors in their overall IT modernisation journeys? Would you consider them to be on the higher end of the adoption curve compared to other customer buckets in the space?
3.
How far along is the general construction contracting client base in their transitions to a modern or cloud-based management system, whether ERP [enterprise resource planning]-like, a single tool or a multitool software suite? How much of the sector might still be on pen and paper or a home-grown or legacy solution, and how much is on a modern solution?
4.
Could you expand on what the under USD 10m bracket using basic tools looks like? Is it literally a pen and paper or an extreme legacy solution, such as basic Excel?
5.
Could you do a similar breakdown for the trade contracting bucket? Who is further along in the tech or digital transformation or IT modernisation journey? Are any specific customer buckets here further along the adoption curve of a modern solution?
6.
How much overlap is there with traditional enterprise ERP vendors with specific verticalised tools for construction management in the high end of the USD 25m-100m revenue bucket, such as Oracle, SAP, Dassault and Siemens?
7.
How much does a typical general contracting customer in the USD 15m revenue category have for discretionary software spend on construction management software and ERP tools? You mentioned they are pretty far along in the adoption curve and using some kind of enterprise-level solution. What is their threshold or willingness to spend OPEX on mission-critical or discretionary software today?
8.
Procore said about 60% of its overall customer base works with three-plus tools. In the USD 15m annual revenue bracket – where 0.5-1% of gross spend is on software – how many tools are they primarily adopting? Are most customers still working with basic ERP and accounting tools, or are they looking to continually add to their value with other adjacent modules?
9.
How are you assessing the revenue growth trajectory from vendors in the USD 15m revenue bucket? How much could customers be willing to spend on software as a percentage of their budgets? Do you see this percentage increasing to any specific amount over the next 1-3 years? Are any tools growing in demand among the customer base?
10.
You seem to be describing increased demand around a platform of software tools that increases productivity, either on the commercial or residential general contracting side. Is anything else impacting the demand for construction project management software on a macro level? Are clients more motivated to adopt cloud-based tools based on any other factors we should pay attention to?
11.
Are any vendors more exposed to residential construction and homebuilding trends than any other vendors? Does anyone have a particular amount of weight stacked on the residential side over commercial? You mentioned Buildertrend, but is anyone else more exposed to volatility in this market?
12.
Are there any customers or customer categories where demand for any type of software might be more elastic?
13.
Do you have any insight into Dassault Systèmes and its construction management offering? It’s a European conglomerate moving into the North America market. Is it addressing any unmet needs by other players?
14.
Procore’s offerings tend to be relatively focused or narrow, whereas Autodesk has a much broader suite. To what extent does vendors offering a more horizontal platform or many different solutions present a competitive threat to Procore?
15.
What do you think are the biggest risks for Procore moving forward? The company seems to be strong with general contractors. Does its willingness to run demos or prove concepts with smaller accounts signal a play to move more downmarket, or could it be more successful moving up to asset owners?
16.
When talking about the software companies, there definitely seems to be a lot of overlap in competitors. How familiar are you with Bentley Systems? It’s a traditional engineering- and architectural-focused software firm on infrastructure, but it’s now offering productivity tools. Who would you consider to be the main competitors to Autodesk, and how much overlap is there already with systems coming into the construction management software space?
17.
I’m curious about the overlap between larger ERP systems and the more niche or verticalised construction management tools, such as Oracle’s Aconex product. Do you consider larger vendors with the full ERP suite moving more into vertical solutions to be more of a competitive threat than the verticalised software vendors themselves? What is the number one competitive threat to players such as Procore?
18.
Where would you ballpark the market share breakdown? How has it been trending? You said players are fighting over low-single-digit market share shifts. Could we see a disruptor or anyone else be significantly displaced?
19.
How often are general contractors working with multiple vendors as opposed to standardising with just one?
20.
There’s a lot of discussion around a possible recession or a flat or declining economic period. How might demand for construction management software trend over the next 12-18 months? How could a recession impact construction management software?
21.
You said a company’s reaction to a recession is down to the owner’s personality. Is the average owner or general contractor more price-sensitive in either residential or commercial?
22.
What key pain points might lead customers to churn across general contracting in commercial and residential? You said customers could reduce spend on more expensive tools if we were to enter a harsh macro environment, but do customers ever rip and replace a tool once it’s integrated? What do the customer trend or switching dynamics look like?
23.
What goes into the ROI calculation from a customer’s perspective, or are residential and commercial general contractors assessing their needs differently in terms of software spend?
24.
How much of the customer switching is due to price competition from vendors? Is anybody primarily undercutting on price, lowering the TCO [total cost of ownership] and winning business?
25.
You mentioned that residential general contractors have a higher margin but lower overall revenue opportunity, whereas commercial has a lower margin but higher overall revenue opportunity. How does a vendor’s CAC [customer acquisition cost] increase if it’s trying to go after SMBs or the USD 5m-10m revenue customer bucket in residential vs commercial? Is it more expensive for software vendors to go after SMBs or mom-and-pop vendors in higher- or lower-margin accounts? What do the dynamics around acquiring a customer look like? I’m trying to better understand the unit economics.
26.
We’ve seen a lot of advanced technology emerge in construction, especially in the design industry and in data and analytics. Are there any key emerging technologies construction management software vendors might be poised to execute on that could present a new growth opportunity?
27.
Are any vendors more tech-forward or willing to adopt and look at selling opportunities in emerging technologies?
28.
How much of a growth opportunity is it for construction management vendors to also offer data analytics tools and upsell accounts on these new modules? I think Procore is already adding on the data analytics component. Companies obviously have their own data, and they’re looking to add on these functions themselves.
29.
Do vendors have a lot of pricing power to increase contracts on renewals? How successful are construction management software vendors at consistently increasing prices?
30.
What annual growth rate could the overall construction management software sector reasonably achieve over the next 1-3 years? We’ve seen estimates that this is a USD 10bn-12bn market today, expanding at a high single-digit CAGR. Is that reasonable?
31.
We talked about product growth in emerging technologies, but should we monitor any other possible wildcards or disruptors in this sector?
32.
Do you expect the rate of construction management software vendor consolidation over the past 12-18 months to pick up or slow down? How are you assessing consolidation trends in the sector?
33.
Is there anything else you’d like to highlight regarding the construction management software sector?
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