Fifteen years of experience in the industry tell me that in near future software and, even more so, specialized technical engineering services will be much more important for achieving market power than hardware.
“Period of excess inertia in BMS field is over and Cloud services will be available for monitoring the operation of buildings and engineering. The BMS industry probably will increasingly look like the Network industry, where is competition for the market, but not in the market. The technical facility of the BMS system will no longer take place in the building itself, but online, i.e., through the platform on Cloud where every element of the system will be visible” said Mladen Vukanac, General Manager, Sauter Building Control Serbia in an article for January issue of Diplomacy&Commerce magazine.
Industry 4.0 is opening new horizons and setting new standards in the field of automation through digitalization – Cloud, IoT, ML and Artificial Intelligence. I would say that period of excess inertia in BMS field is over and Cloud services will be available for monitoring the operation of buildings and engineering and lead to “carrying a building in your pocket”. How will all this affect BMS companies?
During the early 1980s, BMS hardware used closed protocols. That was a perfect entry barrier for competition and a situation where natural monopoly was possible. In the early 2000s, there began appearing movements intent on setting the standard to use “open” communication systems such as the BACnet / IP communication protocol, which eventually became the industry open standard and led to industry-wide compatibility and the development of more competitive markets.
Fifteen years of experience in the industry tell me that in near future software and, even more so, specialized technical engineering services will be much more important for achieving market power than hardware. The presence of high technical spillover, weak appropriability regime and decreasing the expected marginal returns of innovative projects could reduce investment in hardware’s innovation. Instead, companies will build better absorption capacity. Multifunctional sensors will be considered as one of the primary hardware products of Industry 4.0. Besides, BMS providers will try to make long-term contracts with software developers to create entry barriers. The role of cybersecurity companies in BMS field will become very important. Building Automation will enter every home due to availability and lower investment costs, which could lead to the emergence of new companies in the early stages of the 4th Industrial Revolution. A large number of new companies in the market will bring ex-ante information asymmetries and adverse-selection to consumers, so advertising as a signal will be important, as will brand reputation, company size and financial resources.
“BMS firms will create value through platforms where good network externalities will multiply BMS maintenance revenue as a main source of income”
After that period, there could be a period of consolidation of companies through vertical integration and vertical foreclosure aimed at extending the market power. It is possible that Cloud operators will enter into a partnership with BMS companies or will make an acquisition, in order to obtain know-how. The BMS industry probably will increasingly look like the Network industry, where is competition for the market, but not in the market. The technical facility of the BMS system will no longer take place in the building itself, but online, i.e., through the platform on Cloud where every element of the system will be visible. BMS firms will create value through platforms where good network externalities will multiply BMS maintenance revenue as a main source of income.
Energy savings and sustainable development will also significantly improve economics thanks to IoT BMS high energy efficiency due to the fast and effortless availability of a large amounts of energy consumption data on IoT building in the Cloud. Besides, predictively solving issues and continual optimization will reduce costs and environmental impact. In general, the BMS market will become more dynamic.