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Reinvention of GEO-BIM Companies in AEC Sector

Resilient business models, definite execution plans and strategic product lineups have enabled geospatial and BIM technology companies in the AEC sector to not only weather the Covid storm, but also do well in terms of numbers in these uncertain times.

By Ananya Narain
By Ananya Narain

Industry Manager | AEC

The COVID-19 pandemic has created complex challenges for the Architecture Engineering and Construction (AEC) industry, forcing it to look beyond the traditional approaches. While the sector has continued to rely on disparate solutions for design and construction, it has been forced to reinvent, and leverage latest technology for efficient work processes. “The pandemic has enabled construction firms to embrace the powerful potential of digitalization to make a lasting impact on the industry’s overall productivity. Construction firms are realizing this potential and accelerating the use of digital tools to remotely manage workflows and create an enabling and productive virtual working environment,” says Bryn Fosburgh, Senior Vice President, Trimble. The benefits of this long due digital transformation can be gauged from the earnings of some of the geospatial and Building Information Modelling (BIM), or GEO-BIM companies. 

At the onset of Covid, majority of GEO-BIM businesses catering to the AEC industry expected significant market volatility owing to restrictions on economic activities and country-level lockdowns. However, a few months into the pandemic, as construction companies began adopting data-driven remote solutions, some of the leading companies started revising their conservative revenue estimates. 

Looking at the quarter-wise revenues of GEO-BIM companies for 2019 and 2020, a stark contrast is visible in the earnings of software businesses and those on the hardware and manufacturing side of the industry. Leading GEO-BIM software providers such as Autodesk, Ansys, Dassault Systemes and Nemetschek Group reported positive results, while hardware companies like 3D Systems, Trimble, FARO Technologies and Topcon Positioning Systems witnessed a decline in revenue from the previous year due to lower customer demand. However, it was a “fall”, and not a “slump”, as was predicted by a section of experts.

Transformative Journey

This is how GEO-BIM companies in the AEC sector are reinventing themselves

Technology Integration

Integrating 4IR and geospatial technologies much earlier in the BIM process to improve construction workflow efficiency

Cloud-based Construction Software

Substantial investments in Cloud-based construction software as their demand rises

New Business Models

Transition from perpetual license models to subscription models

Modern Construction Methods

Accelerate investments in modern construction methods such as Design for Manufacture Assembly (DfMA), offsite and modular construction

Research and Development

Strategic investment in R&D, adding new products and solutions and refurbishing the old ones to stay relevant

Cloud-based solutions in demand

The revenue results of companies such as Autodesk, Ansys, Dassault Systemes and Nemetschek Group for Q1 to Q3, and Bentley Systems’ IPO debut show that these firms did not face major setbacks in terms of earnings and cash flows in these uncertain times. Most of these companies have made significant investments over the last few years to provide Cloud-based construction software, and are now reaping the benefits of their strong position in the market. The value of Cloud is becoming more and more apparent, and Cloud-based software solutions are now being seen as a necessity.

In an earnings call with analysts and investors, Andrew Anagnost, President and CEO of Autodesk, reported year-over-year revenue (y-o-y) growth of 20% in Q1 2020, and 15% in Q2. Attributing the growth to Cloud-based solutions, Anagnost said, “Our investments over the last few years combined with our ongoing focus on Cloud-based offerings leave us with a competitive advantage and well-positioned to help our customers. Since early March, cumulative new commercial projects grew over 200% in BIM 360 Design, and over 100% in BIM 360 Docs. This surge in usage has been a great test for our Cloud product infrastructure, which has scaled up seamlessly.”

Announcing AECOM’s “focused digital transformation” over the last three years and an adjusted EBITDA increase of 21% for the first half of the year (H1), Randall A. Wotring, the company’s Chief Operating Officer, credited Cloud-based software tools for enhanced work-from-home capabilities of all employees, especially the design team. Randall stated that since software companies like Autodesk, Bentley Systems store all their design data and libraries on Cloud, it helps stakeholders to detect design anomalies collaboratively, which makes the design process more accessible and efficient.

Our investments over the last few years combined with our ongoing focus on Cloud-based offerings leave us with a competitive advantage and well-positioned to help our customers”

Andrew Anagnost

President and CEO of Autodesk

Similarly, Axel Kaufmann, Chief Financial and Operations Officer, Nemetschek Group, announced a “better second quarter” than what the company had expected in March. With $165.75 million revenue, the company reported a y-o-y growth of 2.7%. In its half-yearly earnings, the group attributed the strong growth in revenue in both Q1 and Q2 to Bluebeam — a Cloud-based software. “Our Build segment with almost 8% more y-o-y growth shows a very resilient development in the second quarter, with the largest contribution coming again from Bluebeam,” said Kaufmann. 

On the other hand, while Trimble Inc. posted a quarterly revenue of $733.6 million in Q2, down by 14% as compared to the second quarter of 2019, Robert G. Painter, the company’s President and CEO, reiterated Trimble’s focus to execute the “Connect and Scale 2025” strategy, at the core of which lies the Cloud system. “Our primary sources of recurring revenue, including Viewpoint, e-Builder and Building construction software collectively saw recurring revenue growth of greater than 10% in the second quarter,” said Painter. Besides, Trimble’s SketchUp business and construction had another quarter of over 50% y-o-y growth. “And that, to me, is a tremendous sign of expanding the addressable market,” he added. According to David G. Barnes, the company’s Senior Vice President and Chief Financial Officer, the gross margins for Trimble went up in Q1 to Q2 and up year-over-year, which is seen in the Building and Infrastructure segment, where the hardware segment of the business was weaker in comparison to the software segment.

While Bentley Systems’ IPO debut had everyone talking, it is the company’s expansion of its strategic alliance with Microsoft Corporation that caught our attention. It was Greg Bentley who coined the term “constructioneering” and empowered the concept of “Digital Twins”. With an intent to capture a seemingly large AEC market soon, the strategic alliance is going to enhance Bentley Systems’ Digital Twin offerings on the Cloud. Greg Bentley, CEO, Bentley Systems, said, “With Azure as the foundation of our Cloud services, our offerings are more broadly scaled and differentiated by the further integrations of Microsoft technologies. We are excited to extend our partnership to bring new Digital Twin advances to infrastructure engineering organizations and their constituents.” The company was close to $6 billion before the IPO, and is now worth nearly $9 billion. With its earnings call for Q3 scheduled in November, the impact of Cloud-based revenue for the infrastructure technology giant is yet to be seen. 

Our Build segment with almost 8% more y-o-y growth shows a very resilient development in the second quarter, with the largest contribution coming again from Bluebeam”

Axel Kaufmann

Chief Financial and Operations Officer, Nemetschek Group

Regions driving business growth 

An overview of growth per region for GEO-BIM companies presents an exciting picture. From a geographical perspective, the results in Q1, Q2 and Q3 are largely related to the impact of Covid on the economy, the shutdowns and the pace of reopening. What ideally stands out from a regional business perspective, particularly in the case of software companies, is how even a slight economic recovery globally can boost the revenue performance of the businesses. “Asia-Pacific led the way in the share of multi-year deals consistent with the region’s relatively strong performance in new business. In China, Korea and Japan, we already see usage above pre-Covid levels, and we see improvement in some areas of Europe as well. Some of our major markets like the USA, and the UK have stabilized, but are yet to show meaningful improvement. As such, we continue with a wider than normal revenue range for the remainder of the year,” said Anagnost, confident of a quick recovery. In Q2, Autodesk closed three deals of more than $1 million each in the APAC region. 

Upbeat about the highly profitable second quarter, Ola Rollen, President & CEO, Hexagon AB, said, “China recovered with a bang, 16% organic growth, strong recovery across all segments. We see a sort of go-back-to-work trend, which is very powerful and very strong in China. South Korea and Japan recorded low single-digit growth despite COVID-19-related slowdown.” In Europe, Middle East and Africa (EMEA), the company saw substantial growth in the software portfolios despite the lockdowns, though restriction on movement severely hit the business in the UK, Germany, France, Spain, Italy and parts of Scandinavia.

Echoing similar views on China and Japan, Michael Burger, President and CEO of FARO Technologies, said, “I think we saw China and Japan relatively strong at the end of June. Europe, in my opinion, was average and North America was strong. In the construction business, we are seeing signs of life in North America. Europe has actually been surprisingly slow for construction space, even though there is some ongoing construction. I think that there is an apprehension to place capital.” 

For Trimble too, the geographical results were quite similar to that of Hexagon, with the Asia Pacific doing organically better than the rest of the world. “The Covid-related dynamics in North America and Europe were similar, with business conditions deplorable in April and improving through the quarter. North America was down 17%, and Europe was down 13%; the Asia Pacific was the best performer in the quarter, up by 1%,” said Painter. AECOM too announced that despite all the challenges in Asia, the company managed to achieve its profit target and exceeded its cash flow targets for H1. 

Segment Company 2019 Q1+Q2 ($ mn) 2020 Q1+Q2 ($ mn)
Hardware & Software FARO Technologies 191.139 140.7
Hexagon 2,270.8 2,142.8
Schindler Digital 5,990 5,470
Trimble Inc. 1,659 1,529
Software Ansys 685.7 690.7
Autodesk 1,532 1,799
Dassault Systemes 2,304.36 2,643.99
Nemetschek 321.1 345.84
PTC 585 712
Solutions & System Integration AECOM 10,020 5730
ARCADIS 2,048.4 2,043.6
Skanska 9,245 8769
WSP 3,398 3348
Services Cyient 320.8 265.6
Fugro 923.8 848.4

Subscription — the preferred business model

Over the past couple of years, the providers of GEO-BIM technology have refurbished their business models, and now offer subscriptions as part of their core offerings. Bentley Systems, Autodesk, Topcon Positioning, Hexagon and other leaders in this ecosystem have opened up tiered subscription models — for enterprises (group subscription) and single users in a named user access format. In these trying times, these companies have earned significantly more through subscriptions. 

Trimble’s revenue trends are motivated mainly by the ongoing conversions to subscriptions across their software business. “At Trimble, we are intentionally engaging in a business model transition, moving from perpetual to a subscription offering. And that is emphatically the right thing to do for the business, for the market and the customers,” said Painter. At present, Trimble is offering both models to the consumers; however, more than two-third of the bookings are coming from subscriptions. To keep up with this strategic shift, Trimble has accelerated the move to a subscription-based model in Viewpoint and e-Builder. 

Transformative business models adopted by GEO-BIM companies | Source: Geospatial Media Analysis

Nemetschek Group recorded a doubled-up revenue from subscription sales in Q2 — $46.5 million, which represents 14% of their total sales, as compared to just 8% last year. In contrast, perpetual licenses recorded a decline in revenues of 11%. In support of subscription sales, Kaufmann points out that subscriptions are largely customer-driven — the intent of which is to provide the buyer with an alternative and a more flexible bundling of functional features.

The subscription business model has also worked for Autodesk, as the product subscription renewal rate improved steadily throughout Q2. In the second quarter, the subscription plan revenue grew by 27% — significantly higher than other business revenue sources — including maintenance. “Digging deeper into our renewal rates, our products subscription renewal rates improved on a sequential basis, which is a strong endorsement of the strategic nature of our products and stickiness of our customer base in this new business model. With our transition to a subscription business model behind us, maintenance is only about 5% of our revenue. Similar to last quarter, more than 40% of the maintenance customers who came up for renewal converted to subscription,” said Scott Herren, Chief Financial Officer, Autodesk. Since Q2 2020, Autodesk’s BIM 360 design collaboration tool has doubled its number of subscriptions.

At the onset of Covid, majority of GEO-BIM businesses catering to the AEC industry expected significant market volatility owing to restrictions on economic activities and lockdowns. However, a few months into the pandemic, as construction companies began adopting data-driven remote solutions, these businesses started revising their conservative revenue estimates

Innovation to drive growth

The next phase of the GEO-BIM business ecosystem will be mostly driven by new strategies, business models and innovations. Even during these uncertain times, the companies operating in the GEOBIM ecosystem continued to innovate, partner and acquire to accelerate digitalization in the AEC sector. Most of the leading public listed companies continue to make strategic investments to ensure steady growth. 

Autodesk acquired Pype, an AI-based company which is expected to add significant value for Autodesk Construction Cloud users. The company also made strategic investment in Bridgit solutions, which offer workforce optimization solutions for contractors. Further, Autodesk also expanded its relationship with Factory_OS to advance free fabrication, offsite and modular construction practices. “Our AEC business has continued to be resilient. We continue to make investments in construction where we expect technology adoption to keep growing, especially as we exit the pandemic,” added Anagnost. 

Nemetschek Group has also stepped up on the innovation bandwagon and announced innovative additions to its existing portfolios to improve BIM processes significantly. “One of our key innovations is our SCIA auto converter that substantially enhances the current BIM workflow by integrating structural engineers much earlier in the BIM process. With our auto converter, any 3D structural model can be converted into high-quality analysis models,” Kaufmann emphasized during the H1 earnings call. Nemetschek is also offering a central Cloud storage and management platform powered by Allplan’s BIM plus product to ensure that there is no data loss and the latest information is available to all. 

Apart from the business model transformation, Trimble announced taking strategic actions to scale business. IoT solutions-as-a-service offering for remote monitoring of water and wastewater infrastructure and machine-control platform-as-a-service initiative are two key offerings that Trimble is looking forward to for scaling its business. Burger from FARO Technologies announced the launch of the Swift Laser Scanner — a unique portable solution that enables color 3D scans up to 10 times faster than competing devices.

Opportunity in crisis

The year 2020 has reset the clock for the AEC industry. The “technologically closed” sector has been forced to open and increase investments in smart technologies, particularly GEO-BIM solutions. The businesses operating in this ecosystem, especially the software companies, are already seeing a timely recovery, while the hardware providers, hit by the second wave of Covid and the resulting lockdowns, are transforming their business models. The lean, resilient and transformative approach of these companies is what will drive the GEO-BIM business in future.