SAN FRANCISCO (01/26/2000) - Anyone who has remodeled a home or built a new one almost certainly has horror stories about how difficult it is to get the kitchen cabinets, countertops and dishwasher all to arrive at the right time and place.
If the cabinets don't show up on schedule, the countertop can't be installed and the painter can't tickle the trim and so on. One missing part can send a ripple of delay through the entire project.
Venture capitalists smell opportunity in that misery, and several just poured $160 million into three firms trying to improve the supply chain in the building industry, one of the biggest and most technologically backward areas of the economy. Most recently, NetClerk, which facilitates applications for building permits via the Web, got $10 million from H&Q Venture Associates, Adobe Ventures and Wheatley Partners.
The biggest chunk of money went to BuildNet, which is trying to link suppliers, builders and subcontractors over the Internet. It received $104 million from a group of investors including John Hancock Global Technology Fund, J. & W.
Seligman & Co. and Bessemer Trust. That's a big pile of money for an industry that venture capitalists have until now ignored.
BuildNet CEO Nathan Morton says building a home can be an inefficient endeavor because the parties involved don't share information well, causing all sorts of missteps and delays.
He sees all the players synchronized through the Internet so they can march in step toward completing each project. While the sheetrock is being finished, for example, the paint would be delivered, and a few days later the painters would show up to do their thing. In addition to reducing the number of discussions between contractors and homeowners, Morton says using the Net to coordinate home building could result in considerable savings.
"There could be 35 percent of a cost of a house that is waste," he says. "Will that all come back to consumers? Probably not." But some of it will, and the rest will translate into increased earnings for the building companies, which typically have margins of 1 percent to 3 percent.
A similar effort is under way in commercial real estate, where Bidcom is creating a portal designed to help contractors manage all aspects of their construction projects. Bidcom last month received $46 million in venture funding from Internet Capital Group, Oracle, Deutsche Bank and General Electric's real estate division.
The building industry is "a real eclectic mix of people," says Bidcom CEO Daryl Magana, and the Internet provides them with a way to interact through a central medium that is accessible to even your local plumber.
Will that alter the way buildings get built? One indicator will be whether it cuts into the industry's time-honored reliance on relationships to determine who gets what business. Magana believes it will. "The nature of the industry will change," he says. "In a marketplace model you begin to reach out to suppliers you never heard of."
The Net also will visit additional changes on the construction industry. Ron Ross, CEO of Cameron Ashley, a $1.1 billion wholesaler of construction supplies, contends the Internet will accelerate consolidation. The 1,000 wholesalers in the construction industry, he says, sell an average of $10 million a year. Many of those firms will not be able to make the investment required to take advantage of the Internet and will be eaten by larger firms.
"It takes millions to play in this arena," Ross says of business-to-business e-commerce. Consequently, he says construction wholesalers that now produce $1 billion a year in revenue may leverage the Internet to make acquisitions and boost annual sales to $10 billion. He foresees an industry shakeout that will mirror those of the food and pharmaceutical industries.
That consolidation may happen at the upper levels of the supply chain, and the Internet will likely make inroads in some areas of project management, but the construction industry is stubbornly local and skeptics doubt it will see the top-to-bottom coordination pitched by BuildNet and Bidcom.
As Ross admits, "It will probably take a long time for our industry to adopt [the Internet]."