9 ms·

Razor Thin Margins Make Construction Ripe for Innovation

33 points by rsuttongee 13y ago

deleted 13y ago
[deleted]
leashless 13y ago
There's a long path-not-taken on housing. Most things in our society have gotten a lot cheaper per unit service in the past hundred years or so, including many entirely new categories of services. Housing has stubbornly resisted change, with the result that an ever-larger portion of our culture's capital is tied up in providing housing. And housing hasn't gotten any more useful, either. http://hexayurt.com http://hexayurt.com gives some notion of how radical that shift could be when it arises. Industrial panels (of whatever kind) directly into owner-build housing. Free Hardware. You may laugh, but half the world lives in cinderblock-and-tin-roof shacks and worse. Nobody said the innovation had to start here, or look like what we do now.
- coolsunglasses 13y ago
  Housing has gotten cheaper for the actual cost of constructing the house, but other things have eaten up what could've otherwise been consumer surplus.
  - rwmj 13y ago
    Hardly? I'm still paying hundreds of pounds to get plumbers and electricians and roofers to fix things in my house. Compare the £3500 I paid to have a new boiler fitted[1][2] to what £3500 would buy you in technology these days. [1] Can't DIY it: I'm legally required to have a Gas Safe fitter to touch anything related to the gas supply. [2] Replacement of open vented system with combi. Replacing like-for-like would be much cheaper, I know.
    - coolsunglasses 13y ago
      Using cost of labor is cheating.
      - rwmj 13y ago
        Why? When I buy a tablet computer, I don't have to employ someone to install it.
        coolsunglasses 13y ago
        Manufactured homes reduce the labor component considerably.
        lostlogin 13y ago
        This is a great thread. What happens when there is a problem with a manufactured home? I'd bin the iPad, do you build a new house?! Working with proprietary systems is hard and expensive.
        VLM 13y ago
        Prefab house sounds like the big builders. Everything that can be installed is the cheapest garbage that can legally be sold. If you watch big box home retailers (home depot, etc) they even make fun of it by calling the worst possible model they sell the "contractors special" or "builders special" to emphasize that no one who intends to live there and be stuck using it, would ever install such garbage.
        lostlogin 13y ago
        It's odd that its like that - assembly line production doesn't have to equate to poor quality, and with the things I own its usually quite the opposite. Done right you can have good materials made into complicated things cheaply. However I'm yet to see (in the flesh) a prefab building that I like. Grand Designs, the UK show, has shown a few great ones featured but its a shame there aren't more to be seen as making a house on a production line would solve many of the things home owners grapple with. In the last month alone I have replaced a shonky toilet, a leaking pipe from bad install, bad fuse box case, several bad roof tiles, weird sink plumbing and 3 cheap crappy doors. If production line assembly can make these jobs easier and more standardised (how many different diameter pipes can one toilet use!) without resorting to cheap junk that whilst creating houses that look nice, I'll be happy.
- sjm-lbm 13y ago
  Indeed, it actually seems like we've gone the other way. During the first half of the twentieth century, buying and living in Ikea-esque "Kit Houses" was actually not entirely unheard of. The Wikipeida page for Sears Catalog Homes [1] actually lists the price range as between "$12,590 and $55,390 in 2008 dollars," which certainly seems like it could be price competitive with other methods of new home construction, even taking into account costs like land, etc. [1] http://en.wikipedia.org/wiki/Sears_Catalog_Home http://en.wikipedia.org/wiki/Sears_Catalog_Home
  - VLM 13y ago
    My grandfather did that in the 50s with my dad helping a little. You need to scale for sq footage, the average American house has increased from 1000 sq ft to something unaffordable recently. By sq foot its probably not so much of a deal. Apparently it takes only a couple weeks for one man to build a house, but the labor involved in general contracting to get the subcontractors to do their thing exceeds the time spent swinging a hammer. He sub'd out to dig and pour the foundation, some electrical, gas, some plumbing... For those of a certain generation it was how you proved to the employer that you could complete long complicated projects, basically the equivalent of completing your college degree (which was hard to complete during WWII) This is still done on a regular-ish basis for large garden sheds and garages. Home Depot and others will dump a pile of wood at your location with some plans and bulk pack of nails and other hardware and a weekend or two later you'll have a garden shed. The permitting and inspection process is more about revenue generation than safety.
- justin66 13y ago
  > http://hexayurt.com http://hexayurt.com gives some notion of how radical that shift could be when it arises. That's interesting stuff, but all we really need to get the ball rolling is to remove the financial and regulatory speed bumps that prevent people from buying prefab homes. It's not like it is some kind of mystery how to reduce the cost of building a home... EDIT: I was thinking more in terms of the way lending and building ordinances very strongly favor building a house on site vs. trucking it in, as opposed to the really... insightful... stuff you guys have mentioned.
  - sliverstorm 13y ago
    It's not like it is some kind of mystery how to reduce the cost of building a home... Agreed! Just remove all those pesky restrictions about fire safety, earthquake safety, tornado safety, electrical safety, and you can put that house up for real cheap :)
    - lostlogin 13y ago
      Don't forget leaky buildings made with bad materials, poor design and with no one liable. New Zealand followed Canada off that cliff.
      - sliverstorm 13y ago
        Why do you seem bitter? They were cheap! :)
        lostlogin 13y ago
        I'm not particularly bitter - I didn't like them when they were new, disliked them once the birds nibbled the rendered polystyrene off the exterior, and avoided them like the plague once we came to buying houses. What I am bitter at is the way the manufacturers of the systems that have failed have seemly got off completely freely from the disaster they have created.
        13y ago
- platypii 13y ago
  Something like this, where they put up a 30-story building in 15 days in China. Super impressive timelapse: http://www.youtube.com/watch?v=Hdpf-MQM9vY http://www.youtube.com/watch?v=Hdpf-MQM9vY
- lsc 13y ago
  >There's a long path-not-taken on housing. Most things in our society have gotten a lot cheaper per unit service in the past hundred years or so, including many entirely new categories of services. Housing has stubbornly resisted change, with the result that an ever-larger portion of our culture's capital is tied up in providing housing. And housing hasn't gotten any more useful, either. Yeah... but a lot of that is we don't /want/ housing to get cheaper. Most voters will vote to keep housing more expensive.
jessriedel 13y ago
Um, doesn't thin margins mean generally mean the industry is mature and most things have been tried? I guess if you hold constant the "degree of difficult" for innovation, then large revenue make an industry "ripe for innovation". But this applies just as well to Apple, right? A 1% increase in efficiency in a $100 billion industry nets the same profits, regardless of the existing margins. Or am I misunderstanding?
- pg 13y ago
  No. Amazon is famous for seeking out low-margin businesses; that's what attracted them about AWS as a business. Walmart is another example.
  - lquist 13y ago
    Do they seek low-margin businesses? My take was that they looked for industries where they could comfortably price lower than anybody else. Case in point: tablets. Traditionally a fairly high margin business (on a unit basis), and Amazon comes in at a price that is only feasible because of the Prime play.
    - VandyILL 13y ago
      I think it's that they go after low margin industries in situations where they know that they can use their scale to undercut the existing businesses. Since the margins are so low the existing businesses do not have many options to compete or different ways to add value. Combine this with the fact that Amazon operates on a long horizon and is willing to take losses on certain investments as they scale over time and eventually dominate that market by pushing the margins even lower. Then there's other things like Prime play which may justify them going after low margins in the tablet industry, but there's other good android tablets in that price range. I think what you're thinking about w/ prime and tablets is their general approach with complimentary products. For example they're developing original content. This isn't just to profit off content, it's also from the realization that physical books and movies are becoming less imporant and that digital copies are becoming more and more prevalent. This lowers the cost of the goods & reduces the amount Amazon earns by charging a % of the sales. So it makes sense for Amazon to just outright own and distrubute the content too. But this also compliments other Amazon businesses. If people are watching TV through Amazon then Amazon has more opportunities to advertise their products to individuals. I doubt Amazon plans on loosing money on original content, so it's not a loss leader, but the fact that it boosts the value of their tablets, prime service (which significantly increases the amount people spend at Amazon per year), advertising etc. means that they are willing to accept much lower margins on content production than traditional studios and perhaps even Netflix.
Bjartr 13y ago
This is half plug and half relevant to the article, I like to think we're worth knowing about. I work for Ekotrope[1], we're looking to make those margins bigger and help build green at the same time. Believe it or not, they're not mutually exclusive and we know how to make it happen. [1] http://www.ekotrope.com http://www.ekotrope.com
smackfu 13y ago
That chart sure could use a label showing what years it covers.
josh2600 13y ago
A formula for disrupting Construction in the United States: * Pre-fabricate everything * Assemble onsite using non-union labor * Move away from "Cost-Plus" pricing structures Construction has Razor Thin Margins for a number of reasons, not the least of them being the incentives associated with Cost-Plus bidding. Non-Union labor and Pre-fab would literally upend the industry. The problem, as with most mature industries, is policy-based and not technical in nature. Construction is as ripe for Innovation as Medicine, and an equally difficult water to navigate.
- Avshalom 13y ago
  You're missing the step that includes a decades long pr campaign to destigmatize pre-fab housing.
  - VLM 13y ago
    On the way. Believe it or not my parents house was so old they built the cabinets and original doors onsite by hand! Back in the old days they literally dropped off a pile of raw wood, none of this prefab cabinets, prefab windows, prefab doors, etc. They even hand laid tile rather than using a fiberglass tub surround.
  - Zigurd 13y ago
    I saw a relatively small apartment building go up in Cambridge MA a couple years ago, built from prefab modules. I very much doubt the rent is lower than the site-built buildings down the street. One-story modular houses in trailer parks have a stigma, perhaps for a reason. Can you think of any other type of modular construction that has a PR problem?
Zigurd 13y ago
I don't understand the focus on margins. While bigger margins would be nice, it seems like modular construction would have a more direct effect on turnover rather than margins. Maybe the term "profitability" would be more accurate.
Ultron 13y ago
Disruption may be in finding gold where others see garbage, like the Banana King did: http://cbpowerandindustrial.wordpress.com/2013/04/10/you-could-be-the-next-banana-king/ http://cbpowerandindustrial.wordpress.com/2013/04/10/you-cou...
khelal 13y ago
Interesting article and totally agree with it. This problem is however not just a US problem but is much more global, as was shown by a recent string of reports. Their conclusion was that the few systems that could actually help the construction industry get better prices and better manage their process were either too complex or expensive to be properly implemented (Oracle, SAP, IBM...), thus delaying adoption. Interestingly enough, we had the same problem a few years ago when we were working in Dubai and so came out with an incredibly powerful but easy to use bidding platform for all the professionals in the industry called ProTenders (http://www.protenders.com http://www.protenders.com) and it sold like hotcakes. Within 3 years of operation, we had signed up 700 companies and processed over 12 billions in bids. And we're now opening in the US, so hopefully we'll be able to help companies save and get better prices.

33 points by rsuttongee 13y ago

deleted 13y ago

[deleted]

There's a long path-not-taken on housing. Most things in our society have gotten a lot cheaper per unit service in the past hundred years or so, including many entirely new categories of services. Housing has stubbornly resisted change, with the result that an ever-larger portion of our culture's capital is tied up in providing housing. And housing hasn't gotten any more useful, either. http://hexayurt.com http://hexayurt.com gives some notion of how radical that shift could be when it arises. Industrial panels (of whatever kind) directly into owner-build housing. Free Hardware. You may laugh, but half the world lives in cinderblock-and-tin-roof shacks and worse. Nobody said the innovation had to start here, or look like what we do now.

coolsunglasses 13y ago
Housing has gotten cheaper for the actual cost of constructing the house, but other things have eaten up what could've otherwise been consumer surplus.
- rwmj 13y ago
  Hardly? I'm still paying hundreds of pounds to get plumbers and electricians and roofers to fix things in my house. Compare the £3500 I paid to have a new boiler fitted[1][2] to what £3500 would buy you in technology these days. [1] Can't DIY it: I'm legally required to have a Gas Safe fitter to touch anything related to the gas supply. [2] Replacement of open vented system with combi. Replacing like-for-like would be much cheaper, I know.
  - coolsunglasses 13y ago
    Using cost of labor is cheating.
    - rwmj 13y ago
      Why? When I buy a tablet computer, I don't have to employ someone to install it.
      - coolsunglasses 13y ago
        Manufactured homes reduce the labor component considerably.
        lostlogin 13y ago
        This is a great thread. What happens when there is a problem with a manufactured home? I'd bin the iPad, do you build a new house?! Working with proprietary systems is hard and expensive.
        VLM 13y ago
        Prefab house sounds like the big builders. Everything that can be installed is the cheapest garbage that can legally be sold. If you watch big box home retailers (home depot, etc) they even make fun of it by calling the worst possible model they sell the "contractors special" or "builders special" to emphasize that no one who intends to live there and be stuck using it, would ever install such garbage.
        lostlogin 13y ago
        It's odd that its like that - assembly line production doesn't have to equate to poor quality, and with the things I own its usually quite the opposite. Done right you can have good materials made into complicated things cheaply. However I'm yet to see (in the flesh) a prefab building that I like. Grand Designs, the UK show, has shown a few great ones featured but its a shame there aren't more to be seen as making a house on a production line would solve many of the things home owners grapple with. In the last month alone I have replaced a shonky toilet, a leaking pipe from bad install, bad fuse box case, several bad roof tiles, weird sink plumbing and 3 cheap crappy doors. If production line assembly can make these jobs easier and more standardised (how many different diameter pipes can one toilet use!) without resorting to cheap junk that whilst creating houses that look nice, I'll be happy.
sjm-lbm 13y ago
Indeed, it actually seems like we've gone the other way. During the first half of the twentieth century, buying and living in Ikea-esque "Kit Houses" was actually not entirely unheard of. The Wikipeida page for Sears Catalog Homes [1] actually lists the price range as between "$12,590 and $55,390 in 2008 dollars," which certainly seems like it could be price competitive with other methods of new home construction, even taking into account costs like land, etc. [1] http://en.wikipedia.org/wiki/Sears_Catalog_Home http://en.wikipedia.org/wiki/Sears_Catalog_Home
- VLM 13y ago
  My grandfather did that in the 50s with my dad helping a little. You need to scale for sq footage, the average American house has increased from 1000 sq ft to something unaffordable recently. By sq foot its probably not so much of a deal. Apparently it takes only a couple weeks for one man to build a house, but the labor involved in general contracting to get the subcontractors to do their thing exceeds the time spent swinging a hammer. He sub'd out to dig and pour the foundation, some electrical, gas, some plumbing... For those of a certain generation it was how you proved to the employer that you could complete long complicated projects, basically the equivalent of completing your college degree (which was hard to complete during WWII) This is still done on a regular-ish basis for large garden sheds and garages. Home Depot and others will dump a pile of wood at your location with some plans and bulk pack of nails and other hardware and a weekend or two later you'll have a garden shed. The permitting and inspection process is more about revenue generation than safety.
justin66 13y ago
> http://hexayurt.com http://hexayurt.com gives some notion of how radical that shift could be when it arises. That's interesting stuff, but all we really need to get the ball rolling is to remove the financial and regulatory speed bumps that prevent people from buying prefab homes. It's not like it is some kind of mystery how to reduce the cost of building a home... EDIT: I was thinking more in terms of the way lending and building ordinances very strongly favor building a house on site vs. trucking it in, as opposed to the really... insightful... stuff you guys have mentioned.
- sliverstorm 13y ago
  It's not like it is some kind of mystery how to reduce the cost of building a home... Agreed! Just remove all those pesky restrictions about fire safety, earthquake safety, tornado safety, electrical safety, and you can put that house up for real cheap :)
  - lostlogin 13y ago
    Don't forget leaky buildings made with bad materials, poor design and with no one liable. New Zealand followed Canada off that cliff.
    - sliverstorm 13y ago
      Why do you seem bitter? They were cheap! :)
      - lostlogin 13y ago
        I'm not particularly bitter - I didn't like them when they were new, disliked them once the birds nibbled the rendered polystyrene off the exterior, and avoided them like the plague once we came to buying houses. What I am bitter at is the way the manufacturers of the systems that have failed have seemly got off completely freely from the disaster they have created.
        13y ago
platypii 13y ago
Something like this, where they put up a 30-story building in 15 days in China. Super impressive timelapse: http://www.youtube.com/watch?v=Hdpf-MQM9vY http://www.youtube.com/watch?v=Hdpf-MQM9vY
lsc 13y ago
>There's a long path-not-taken on housing. Most things in our society have gotten a lot cheaper per unit service in the past hundred years or so, including many entirely new categories of services. Housing has stubbornly resisted change, with the result that an ever-larger portion of our culture's capital is tied up in providing housing. And housing hasn't gotten any more useful, either. Yeah... but a lot of that is we don't /want/ housing to get cheaper. Most voters will vote to keep housing more expensive.

jessriedel 13y ago

Um, doesn't thin margins mean generally mean the industry is mature and most things have been tried? I guess if you hold constant the "degree of difficult" for innovation, then large revenue make an industry "ripe for innovation". But this applies just as well to Apple, right? A 1% increase in efficiency in a $100 billion industry nets the same profits, regardless of the existing margins. Or am I misunderstanding?

pg 13y ago
No. Amazon is famous for seeking out low-margin businesses; that's what attracted them about AWS as a business. Walmart is another example.
- lquist 13y ago
  Do they seek low-margin businesses? My take was that they looked for industries where they could comfortably price lower than anybody else. Case in point: tablets. Traditionally a fairly high margin business (on a unit basis), and Amazon comes in at a price that is only feasible because of the Prime play.
  - VandyILL 13y ago
    I think it's that they go after low margin industries in situations where they know that they can use their scale to undercut the existing businesses. Since the margins are so low the existing businesses do not have many options to compete or different ways to add value. Combine this with the fact that Amazon operates on a long horizon and is willing to take losses on certain investments as they scale over time and eventually dominate that market by pushing the margins even lower. Then there's other things like Prime play which may justify them going after low margins in the tablet industry, but there's other good android tablets in that price range. I think what you're thinking about w/ prime and tablets is their general approach with complimentary products. For example they're developing original content. This isn't just to profit off content, it's also from the realization that physical books and movies are becoming less imporant and that digital copies are becoming more and more prevalent. This lowers the cost of the goods & reduces the amount Amazon earns by charging a % of the sales. So it makes sense for Amazon to just outright own and distrubute the content too. But this also compliments other Amazon businesses. If people are watching TV through Amazon then Amazon has more opportunities to advertise their products to individuals. I doubt Amazon plans on loosing money on original content, so it's not a loss leader, but the fact that it boosts the value of their tablets, prime service (which significantly increases the amount people spend at Amazon per year), advertising etc. means that they are willing to accept much lower margins on content production than traditional studios and perhaps even Netflix.

Bjartr 13y ago

This is half plug and half relevant to the article, I like to think we're worth knowing about. I work for Ekotrope[1], we're looking to make those margins bigger and help build green at the same time. Believe it or not, they're not mutually exclusive and we know how to make it happen. [1] http://www.ekotrope.com http://www.ekotrope.com

smackfu 13y ago

That chart sure could use a label showing what years it covers.

josh2600 13y ago

A formula for disrupting Construction in the United States: * Pre-fabricate everything * Assemble onsite using non-union labor * Move away from "Cost-Plus" pricing structures Construction has Razor Thin Margins for a number of reasons, not the least of them being the incentives associated with Cost-Plus bidding. Non-Union labor and Pre-fab would literally upend the industry. The problem, as with most mature industries, is policy-based and not technical in nature. Construction is as ripe for Innovation as Medicine, and an equally difficult water to navigate.

Avshalom 13y ago
You're missing the step that includes a decades long pr campaign to destigmatize pre-fab housing.
- VLM 13y ago
  On the way. Believe it or not my parents house was so old they built the cabinets and original doors onsite by hand! Back in the old days they literally dropped off a pile of raw wood, none of this prefab cabinets, prefab windows, prefab doors, etc. They even hand laid tile rather than using a fiberglass tub surround.
- Zigurd 13y ago
  I saw a relatively small apartment building go up in Cambridge MA a couple years ago, built from prefab modules. I very much doubt the rent is lower than the site-built buildings down the street. One-story modular houses in trailer parks have a stigma, perhaps for a reason. Can you think of any other type of modular construction that has a PR problem?

Zigurd 13y ago

I don't understand the focus on margins. While bigger margins would be nice, it seems like modular construction would have a more direct effect on turnover rather than margins. Maybe the term "profitability" would be more accurate.

Ultron 13y ago

Disruption may be in finding gold where others see garbage, like the Banana King did: http://cbpowerandindustrial.wordpress.com/2013/04/10/you-could-be-the-next-banana-king/ http://cbpowerandindustrial.wordpress.com/2013/04/10/you-cou...

khelal 13y ago

Interesting article and totally agree with it. This problem is however not just a US problem but is much more global, as was shown by a recent string of reports. Their conclusion was that the few systems that could actually help the construction industry get better prices and better manage their process were either too complex or expensive to be properly implemented (Oracle, SAP, IBM...), thus delaying adoption. Interestingly enough, we had the same problem a few years ago when we were working in Dubai and so came out with an incredibly powerful but easy to use bidding platform for all the professionals in the industry called ProTenders (http://www.protenders.com http://www.protenders.com) and it sold like hotcakes. Within 3 years of operation, we had signed up 700 companies and processed over 12 billions in bids. And we're now opening in the US, so hopefully we'll be able to help companies save and get better prices.