992 Billion Reasons Big Tech is Entering the Building Industry…and the Art of the Impending War
Google and Amazon and Microsoft…Oh my!
“Every battle is won before it’s ever fought.” — Sun Tzu, The Art of War
In the Art of War, an ancient military text from military strategist Sun Tzu, 13 chapters outline aspects of warfare and how it applies to strategy and tactics. It has had a great influence on business and politics, leading many politicians and executives to adopt and apply its lessons to growth strategies. The chapters can be synthesized to 3 fundamental steps to success — research, tactical planning and positioning, and calculated execution — and we may be witness to its deployment under our nose.
“Attack him where he is unprepared, appear where you are not expected.” — Sun Tzu, The Art of War
Tech companies are defined as types of business entities that focus primarily on the development and manufacturing of technology or provision of technology as a service. Why on (Google) earth would they want to get involved with the building industry? Despite being a traditionally low-tech and slow to evolve industry, new private construction in the U.S. has grown to a total value of 992 billion dollars in 2018. The home building industry alone had a total revenue of 83 billion dollars in 2018. Since the 2008 housing crisis, global investment from the tech industry has jumped from 4.5 million dollars across two deals to 1.38 billion dollars across 61 deals by August 2018.
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” — Sun Tzu, The Art of War
The five factors to assess before entering a war are the way (industry standards/practice), seasons, terrain, leadership and management. The 2008 recession and subsequent affordable housing crisis has pushed industry issues into the national conversation. Productivity and affordability have been two major issues that big tech is well versed in addressing. With the problem in view, the experience to address the problem and a willingness to finance solutions, the tech industry is primed to become a leader in the industry.
The “Frightful Five” — Amazon, Apple, Facebook, Microsoft and Google — are among the largest investors in research and development. Google’s parent company Alphabet spent 19.3 percent (21.4 million dollars) of its operating expenses on R&D in 2018, while Amazon spent 13 percent (28.8 million dollars). Comparatively, R&D investment information for design and construction are incredibly elusive. Building for Tomorrow: Global Enterprise and the U.S. Construction Industry (1988) sites a study by the Building Research Board, Construction Productivity, National Academy Press, Washington, D.C., 1986 which observed that, at the time, the U.S. design and construction industries invested less than .05 percent in R&D as a group. While there has been improvement, it doesn’t appear that there has been significant change to investment in R&D as an industry.
Tactical Planning & Positioning
“The skillful tactician may be likened to the shuai-jan. Now the shuai-jan is a snake that is found in the Ch’ang mountains. Strike at its head, and you will be attacked by its tail; strike at its tail, and you will be attacked by its head; strike at its middle, and you will be attacked by head and tail both.” — Sun Tzu, The Art of War
The tech industry has a far-reaching scope that provides efficiencies to various industries in a variety of ways. By positioning itself and by targeting weaknesses, risk can be mitigated, and the organization strengthened. The accepted “cyclical nature” of the industry has provided runway for the “frightful five” to strategically build up a plan to enter the building industry and housing market. By creating its own landscape or playing field, supporting its predecessor in the short term and establishing goodwill with the public, the tech industry is establishing themselves as trusted leaders to usher in a new era.
As one of the biggest concerns for industries moving forward, artificial intelligence (A.I.) is a manufactured landscape or playing field for big tech. In 2016, Sundar Pichai, Google CEO, announced a new era for Google where they would be an “A.I. first” company. The company is using A.I. to teach computers to understand language, to see and hear, to diagnose diseases, and even create art. The building industry will undoubtedly be influenced and has little recourse to stop it. The best the industry can do is partner to provide input to the system and gain insight as to how to integrate it into future business operations.
“Build your opponent a golden bridge to retreat across.” — Sun Tzu, The Art of War
Global consulting firm, McKinsey, reported that construction labor productivity averaged 1 percent growth annually over the last two decades, compared to the 3 to 4 percent average found in other industries. It’s suggested that if new technologies could help close that gap, that would add an estimated 1.6 trillion dollars to the industry’s annual output. The tech industry is currently developing collaboration software, work site monitoring, safety and new design tools. (You can hear a broader discussion on technological advancements in the building industry below.)
“When one treats people with benevolence, justice, and righteousness, and reposes confidence in them, the army will be united in mind and all will be happy to serve their leaders.” — Sun Tzu, The Art of War
The tech industry has made great contributions to the building industry and society, building up a level of goodwill with both. Google granted 3 million dollars to the U.S. Green Building Council (USGBC) to accelerate the advancement of green materials. Moreover, while the tech industry has been a major contributor to housing affordability issues in the U.S., there has been a united front to offset these effects and likely to soften public perception. The Partnership for the Bay’s Future, a collection of donors such as Chan Zuckerberg Initiative, Ford Foundation, and private partners like Facebook and Genetech, aims to raise 500 million dollars to address housing affordability issues in the Bay Area — building and preserving up to 175,000 households over the next 5 years. In addition, Microsoft announced a 500-million-dollar investment in the Seattle area — 475 million dollars for the creation of middle-income housing and 25 million dollars to address homelessness.
“Let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt.” — Sun Tzu, The Art of War
Shell companies and hidden development departments are par for the course for the “frightful five.” In a competitive market, plans must remain hidden to maintain the competitive edge. Google’s secret development department, Google X, worked on a technology that reportedly could transform the building industry and architecture itself. “Genie” was a cloud-based collaboration platform for architects and engineers, especially for skyscrapers and large buildings. The platform includes planning tools, advance analytics and simulation tools. “Genie” was projected to save 30–50 percent in construction costs and timing and could generate an increase of 120 billion dollars a year to the building industry.
“Spies are a most important element in water because on them depends an army’s ability to move.” — Sun Tzu, The Art of War
Google X was later accused of stealing ideas. Architect Eli Attia developed a process he calls Engineered Architecture — a system that simplifies the construction process — which he took to Google X in 2010 to turn it into working software. In the summer of 2010, Google proceeded working with Attia on the architecture project that developed into “Genie.” Google X then reportedly viewed the software differently and spun it into a new company without Attia, called Flux Factory. Attia believes the idea was still largely his concept.
Aside from clandestine software and product development, some of these tech giants are reported to hide behind shell companies to purchase land and real estate. That’s right…land and real estate. Google, who has already mapped much of the built environment with great detail, reportedly hid behind the entities Sharka LLC and Jet Stream LLC to quietly purchase land. Through his investment company, Bill Gates purchased 25,000 acres of land in Arizona with plans to build a “smart city.” In August 2018, Microsoft acquired 277 acres near the Gates’ site. However, the Phoenix Business Journal predicts that “a potential data center and other unknown facilities” are planned for the property. Apple has significantly increased its land holdings over the last few years, up from 584 acres in 2011 to 7,376 acres in 2018. While much of the land acquisition has been earmarked for data centers to receive tax breaks or to shift from renter to owner, the practices in combination with other activities should garner attention.
At the Milan Furniture Fair, one of the most important design events of the year, Google displayed an installation called A Space for Being: Exploring Design’s Impact on Our Biology. Ivy Ross, VP of Hardware design describes, “We’re at a place in our trajectory of society which says step into your individuality, know who you are, what you want, and what works for you…We have to be able to, as makers in the world, support that.” The goal is to study how beauty affects your brain. Again, taking the conversation about the built environment to a place that the building industry has largely not adopted.
Installation visitors will don a wearable band, packed with sensors, which will document their physiological experience — heart rate, skin temperature, skin conductivity, and motion — as they walk through 3 distinctively designed rooms that will vary in light, colors and sounds. At the end of the experience, visitors receive a visual explanation of how their body reacted to the rooms, providing insight such as which room made them the calmest.
“If you wait by the river long enough, the bodies of your enemies will float by.” — Sun Tzu, The Art of War
With an anticipated market slowdown on the horizon, we are approaching a crossroads for the future of the industry. The world and the landscape of business has drastically changed in the last decade. Industries must adopt a more forward-thinking mentality to survive. The user experience has risen to forefront, even at the expense of early profits. Its a long play game now and the tech industry understands and has fully committed to this practice by staying ahead of the curve. Steve Jobs famously said, “Some people say, ‘Give the customers what they want.’ But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘If I’d asked customers what they wanted, they would have told me, ‘A faster horse!’’ People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.”
The tech industry will enter the building industry and ultimately shape the future of it, either first hand or by pushing existing businesses to evolve. There are many issues that require unprecedented exploration to uncover solutions. While many may see tech growth in the building industry as a threat or even gimmicky, it is a much-needed infusion of new ideas, a different perspective and frankly, a willingness to push the building industry to new heights. I for one look forward to the future that lies ahead in the wake of this impending war.
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