We 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:
The 3 Categories of Proprietary
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.
Buying and Selling Buildings
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.
