good note, thanks. I have been recently looking at Japan Elevator Service. Seems like a very well run company and it has a strong track record. Where did you find the stat on ASP for JES and competitors?
Enjoyed the piece, great work. I disagree with this part on pricing power/switching costs. “Pricing power resulting from a high switching cost. Since elevator maintenance cost accounts for merely ~3% of the building’s operating budget, it is not worth the effort to look for another servicing partner and save a minuscule amount of budget.” The reason for 90%+ retention rates is inertia not lock in. These OEMs have service customers not hostages. True that it is ORMs right to lose. As long as they provide good service they will keep the work but If you speak to ISPs or PE in the space they will testify to price competition/ low switching costs. Curious your thoughts.
Hi Ben, thank you for the comment! They are very insightful.
I agree with your point on inertia. Perhaps my wording is confusing. To me, the inertia you mentioned is similar "not worth the effort." Customers are free to leave the contract. But if servicing meets requirement and downtime is minimized, why risk it? The power of default is quite strong here.
Your premise here is that the service level between OEMs and ISPs is on par, but pricing at a discount. But OEMs do have some advantages: 1) parts availability 2) route density 3) ability to service multiple regions with major clients such as hotel chains. 4) modernization, digital connectivity, predictive maintenance. 5) financial strengths and resilience.
To be fair, I did read about cases where OEMs servicing get sloppy after a while absence competition. "High margin is 'guaranteed' so we don't need to try anymore" In fact, many ISPs were from former Otis/Kone Directors frustrated with bureaucracy and rigidity. Consultants favor ISP too.
But his own ISP venture, Uptime.ac, seemed to have gone belly-up as well :)
On the ISP side, so far only Japan is able to match all that. E.g. JES (I do want to own it at the right price). But Japan is quite a unique case.
Regions also matters. US have high labor costs that are unionized, so labor supply is not always ensured. Regulation standard differs so training matters too. Many technicians, especially when first starting out, join OTIS to get training and certified.
good note, thanks. I have been recently looking at Japan Elevator Service. Seems like a very well run company and it has a strong track record. Where did you find the stat on ASP for JES and competitors?
Enjoyed the piece, great work. I disagree with this part on pricing power/switching costs. “Pricing power resulting from a high switching cost. Since elevator maintenance cost accounts for merely ~3% of the building’s operating budget, it is not worth the effort to look for another servicing partner and save a minuscule amount of budget.” The reason for 90%+ retention rates is inertia not lock in. These OEMs have service customers not hostages. True that it is ORMs right to lose. As long as they provide good service they will keep the work but If you speak to ISPs or PE in the space they will testify to price competition/ low switching costs. Curious your thoughts.
Hi Ben, thank you for the comment! They are very insightful.
I agree with your point on inertia. Perhaps my wording is confusing. To me, the inertia you mentioned is similar "not worth the effort." Customers are free to leave the contract. But if servicing meets requirement and downtime is minimized, why risk it? The power of default is quite strong here.
Your premise here is that the service level between OEMs and ISPs is on par, but pricing at a discount. But OEMs do have some advantages: 1) parts availability 2) route density 3) ability to service multiple regions with major clients such as hotel chains. 4) modernization, digital connectivity, predictive maintenance. 5) financial strengths and resilience.
To be fair, I did read about cases where OEMs servicing get sloppy after a while absence competition. "High margin is 'guaranteed' so we don't need to try anymore" In fact, many ISPs were from former Otis/Kone Directors frustrated with bureaucracy and rigidity. Consultants favor ISP too.
Augustin Celier was pretty vocal about it: https://medium.com/uptime-ac/going-down-the-elevator-industry-at-risk-f791358d76e5
But his own ISP venture, Uptime.ac, seemed to have gone belly-up as well :)
On the ISP side, so far only Japan is able to match all that. E.g. JES (I do want to own it at the right price). But Japan is quite a unique case.
Regions also matters. US have high labor costs that are unionized, so labor supply is not always ensured. Regulation standard differs so training matters too. Many technicians, especially when first starting out, join OTIS to get training and certified.