I have spent my entire career in the Real Estate industry, with the first 13 years being focused on the residential sector. In 2016, I was introduced to Commercial Real Estate when I was offered the role President of the Northeast for one of the nation's largest and most established Smart Building Technology companies. Stepping into this completely new arena, focusing on Office and Multifamily, my knowledge of the sector was nonexistent. Eager to learn, I spent my early days absorbing information from industry experts and literally anyone who would speak with me. One of the earliest surprises that I came across centered around the word “Proprietary”. I had always thought that proprietary was a positive word. Software companies are always touting their proprietary software and algorithms as a huge differentiator; signifying unique advantages that only they possessed. I was confused. How could proprietary be a bad thing? Wouldn't a lack of it imply the commoditization of that technology solution? Yet, as I engaged with various customers and prospects, "proprietary" kept rearing its head. Gradually, I grasped the crucial distinction between proprietary software and hardware.
To make matters more confusing, I learned that all hardware in the Smart Building space is technically proprietary, but there are different categories of the word which can be grouped into 3 buckets, each with their own advantages and disadvantages:
Exclusively controlled by one company: This approach offers a singular point of contact for manufacturing, software, installation, and service, potentially guaranteeing consistent quality and a streamlined experience.
Highly proprietary solutions, manufactured and serviced by a single entity, offer a one-stop shop for hardware, software, installation, and support. This translates to simplified management and potentially consistent quality across all components. However, this convenience comes at a cost. Vendor lock-in restricts choice and potentially inflates prices for upgrades, expansions, or support. Flexibility is also limited, as customization options might not cater to unique needs of every customer. Finally, clients who rely on a single company's continued operation and support, face potential obsolescence if the company falters or fails to invest in future enhancements.
While highly proprietary solutions provide ease of use and potential quality control, they pose substantial risks around limited flexibility, vendor lock-in, and dependence on a single entity. If that vendor goes out of business, stops supporting the offering, provides poor service, or lacks investment into additional features, the client is often forced to rip out all of the proprietary hardware and start again which can be expensive and disruptive to their business. Oftentimes, it is easier to just leave the poorly performing solution in place because the amount of money and time needed to upgrade it outweighs the benefits that a best-in-class alternative could provide. And since these offerings are accompanied by recurring subscription fees that show up every month, regardless of if the solution works well or not, there is little incentive from the manufacturer to invest heavily in improvements once they build a large enough customer base.
Manufactured exclusively, but serviceable by many: The most common business model sees a single company manufacturing both hardware and software, but leveraging third-party System Integrators for sales, installation, implementation, and service. This approach grants clients some flexibility. They can readily switch service providers if dissatisfied and shop around for better prices on replacement parts and maintenance packages. However, a significant drawback lies in the proprietary hardware. Clients remain locked into the specific equipment, limiting their options if they desire a change or the manufacturer discontinues production. Additionally, mergers and acquisitions can introduce uncertainty which can potentially impact service quality or investment levels affecting client satisfaction. While this model offers some degree of service provider redundancy, the trade-off of hardware lock-in and potential vendor shifts necessitates careful consideration by clients. It can also provide an inconsistent service experience if a client owns properties in different regions since many Systems Integrators typically only service a small region.
Off The Shelf Hardware and Serviceable by Many: This model is unique in its use of proprietary software running on readily available off-the-shelf hardware.
In this model, the software vendor doesn't manufacture their own hardware, opting instead for components that any licensed vendor can acquire and resell. This approach offers significant flexibility for end users. If a client is ever unhappy with service levels, pricing, or even the platform itself, switching service providers or software becomes surprisingly easy – all without needing to replace any existing equipment. This freedom isn't just convenient, it also fosters a competitive environment where vendors must continue to deliver best-in-class technology and support to retain their business. If you know that your customers can swap you out at a moment’s notice, the onus is on the vendor to earn their clients’ business every single day. Ultimately, this model empowers clients with choice and control, shifting the risk to the vendor and ensuring that they remain focused on exceeding your expectations.
As with the option above, these solutions are also typically installed, maintained and serviced by Systems Integrators, and the service experience can vary if the client uses different integrators to service assets that they own in different geographies.
These 3 categories are general buckets, but within them are many variations. For example, many companies that use proprietary hardware also mix in some off the shelf products such as access card readers, locks, and other infrastructure that can be reused if a change of vendor is desired. Before making any decisions, it’s a good idea to get cut sheets on every device that is being proposed so that you can make an informed decision based on the experience that you are looking to offer to your employees/tenants/visitors.
As I learned more about the pros and cons of each type of offering, I remained surprised that the topic was so polarizing throughout the commercial real estate industry. And by polarizing, I mean that it was something that came up early and often in most client conversations that I had. As I learned from industry veterans that had spent decades in the industry, past experiences had left deep scar tissue from back when most building technology was proprietary. Whether it was HVAC solutions, Building Management Systems (BMS), or Fire Detection solutions, highly proprietary hardware had created vendor lock-in which resulted in poor service, skyrocketing prices for replacement parts, and a lack of innovation. Once a proprietary solution was deployed in a building, it became way too expensive and disruptive to swap it out, making a change impractical.
Renewal rates are one of the most important metrics for subscription-based technology providers. Oftentimes, proprietary solution providers report industry leading renewal rates and low churn, giving the impression that client satisfaction is off the charts. However, the clients’ true satisfaction levels were masked by the fact that swapping solutions was not feasible. Although it was often impractical to swap vendors at the time, the customers had strong memories and vowed to never make the same mistake again.
There are many examples of horror stories from over the years, and they can occur from companies new and old. It is common for startups to build innovative technology such as facial recognition readers, wireless locks, video intercoms, and other bleeding edge (and expensive) proprietary hardware that only operates on the company's proprietary software. These products often make a big splash in the market, but since the large majority of startups fail, the risk typically falls on the early adopters. I wrote an article a few years back on this very topic. There are countless stories of very expensive solutions like this being deployed throughout entire portfolios, only to see the vendor quickly run out of money and fail. The end result is always the same. These early adopters are left with products that no longer function since the company that produced the hardware is the only company that can power them with their software, and since these companies no longer exist, the hardware becomes useless.
On the other end of the spectrum are mature companies that have provided popular and innovative technology for years and delivered on the promises that they made to their clients. These businesses generate significant amounts of recurring revenue, making them perfect targets for private equity firms. Private equity firms are in the business of making money, and the quickest way to increase profitability is to make deep cuts to headcount; often through the downsizing of high-cost roles such as engineers. The needs of building owners continue to change over time, and unless a vendor continuously invests into the development of product enhancements and new features, it is only a matter of time before their solution becomes obsolete.
Proprietary hardware can also create a major headache for commercial real estate owners when it comes time to dispose of their assets. Typically, owners acquire buildings for a set period of time and strive to maximize profits on resale. To achieve the highest returns, they need efficient operations and satisfied tenants, factors heavily influenced by a unified technology stack across their portfolio. Historically, disparate technologies were the norm, decided locally for each building based on which vendor the local staff believed was best for their particular building’s needs. However, recent years have seen a shift towards portfolio-wide technology standardization. This trend only works if it is easy to swap hardware at the point of sale. Proprietary hardware poses a significant challenge here, forcing an expensive and disruptive rip and replace process if the portfolio owner wants to extend their preferred software stack in the recently acquired building.
The issue is further amplified by exorbitant subscription fees for proprietary platforms. Attracting buyers hinges on minimizing operational costs (opex). With proprietary hardware, reducing subscription opex can prove to be nearly impossible, as the only option is a costly rip and replace. Even though most building owners have a 30 day out in vendor agreements for the specific reason that they will likely sell the building at some point in the future, terminating the contract doesn’t help solve this problem. Terminating the vendor contract stops the software from running (assuming it is cloud based), which results in all of the secured doors unlocking since the hardware is no longer actively powered by software.
I have always tried to keep my professional life separated from my blog so that I can discuss my views on the PropTech industry without them being biased by companies that I am working for. However, it would be disingenuous if I did not address a recent change in my life. I recently joined a new company which specializes in Smart Building technology for the Commercial Real Estate industry named Genea.
I have been fortunate to work for some amazing companies in my life, and I very rarely make a move to a new employer. Genea is a company that started to pop up on my radar several years ago after I lost a competitive deal to them. I am a competitive person and I don’t like to lose deals, so I started to research Genea so that I could learn everything that I could about them. I was blown away by the different solutions that Genea offered, and after getting to spend time with their leadership team over the past few months, I was pleased to learn that their company culture was the main driver of their innovation, industry leading products, and NPS scores that rival some of the most respected and trusted companies in the world.
Stepping into this role with them isn't just a career move, it's a chance for me to be part of something groundbreaking. Genea got its start by offering their Overtime HVAC solution (recently rebranded to On-Demand HVAC) to streamline the process of activating and billing HVAC services for tenants during non-business hours. The newly rebranded solution now allows tenants to go fully On-Demand for HVAC services to not only improve tenant satisfaction while reducing costs, but also to reduce energy consumption on days of the week when occupancy is low. The next product that Genea launched was a Submeter billing platform which automates the reading and billing of submeters; a process that typically requires a tremendous amount of time and is prone to errors. Lastly, Genea entered the electronic security industry in early 2020 with the acquisition of a company named Sequr, and rebranded their suite of solutions as Genea Security.
Genea Security offers cloud-based Access Control and Visitor Management utilizing all off the shelf hardware. Genea’s software runs on Mercury boards which have been widely adopted in the security industry. If a client is not satisfied by Genea’s Security platform, they can easily make the change to any of the other companies that offer a competitive solution that uses Mercury without the need to rip and replace a single piece of hardware. Genea has partnered with many of the leading Systems Integrators worldwide to install and service their security platform across the globe. To address the challenges of an inconsistent experience for clients that utilize different integrators in different markets, all of Genea’s customers have unlimited access to their 24/7/365 customer service team so that a single POC is always available to provide support any time day or night. This platform’s open architecture has allowed the company to build native integrations to the majority of the most popular video management platforms, tenant engagement apps, and other critical building systems and software providers. Genea’s offering also includes NFC based digital credentials that work seamlessly with Apple Wallet and Google Wallet, providing a future proofed non-proprietary platform to power the commercial real estate industry.
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