How IoT Is Disrupting the Global Elevator Market

Predictive maintenance and technologically powered connectivity in the form of the Internet of Things (IoT) are changing the elevator industry. To find out what these changes are and how they are shaping the business, GLG’s Sam Stopps recently hosted a teleconference featuring Patrick Bass, now a consultant and formerly the North American CEO and President of thyssenkrupp AG. The conversation, edited for length and clarity, follows.

Let’s start with an overview of the current industry.

Currently, four companies dominate the global elevator market. The largest in revenue and in its service portfolio is Farmington, Connecticut-based Otis Worldwide Corporation, the parent of Otis Elevator. Second is Swiss-based Schindler, which has a healthy balance of new installations and service sales. Third is KONE, a Finnish company more dominant in Asia than in North America, and fourth is Germany’s thyssenkrupp Elevator or TKE, which is particularly strong in North America. In 2020, thyssenkrupp spun off TKE and United Technologies, now named Raytheon Technologies, spun off Otis, making the two standalone elevator companies.

After the leaders are several smaller original equipment manufacturers (OEMs), including Mitsubishi, Fujitec, and Toshiba from Japan; South Korea’s Hyundai; and Chinese companies including Cherry and STEP. There also are several Chinese system suppliers who so far have focused on the domestic market but who might go global as the domestic market consolidates.

Have the spinoffs of Otis and TKE affected the industry?

Yes, and to a great extent. The sale of the companies drew considerable attention to the profitability and interesting business model of the elevator business. That, in turn, has led to some significant private equity investments in North America, where you’re seeing heavy consolidation of independent, smaller service providers as well as component suppliers. Many very long-standing, family-owned companies are now under one brand and one roof. The same thing is happening — a little later and a little slower — in Europe, creating an unprecedented level of investment in the industry.

What do you think the chances are of a price war among the majors, perhaps to win service contracts?

The short answer is that there already is a price war underway in service markets, especially when looking at legacy installations versus new installations in North America, which represents one of the smallest service markets in the world while also being the most value-based market. Historically, every time there was an increase in new installations, service prices would go up. But in the last cycle, pre-pandemic, new installations rose while service prices held flat or went down. That was a first.

It seems that servicing legacy product was very much becoming commoditized, and margins were eroding. There was increasingly less differentiation among independent service providers and some OEM providers, who were busy with new installations and not as focused on improving service margins. At some point, business leaders decided they needed to accelerate their efforts on predictive maintenance and IoT to recapture more of that market, de-commoditize it, and get better control of margins.

Given the OEMs’ interest in upping their service, couldn’t independent service providers (ISPs) develop their own predictive data systems and analytics?

They certainly recognize the opportunity. OEMs have an advantage in their proprietary predictive maintenance platforms, but that isn’t necessarily going to allow them to optimize efficiency across their entire service portfolio, which has installations that are not their own. So there is an opportunity for the independents. Still, the reality is that creating a predictive data platform is a big investment. You must develop a platform, invest in cloud infrastructure services, and then outfit a sufficiently large portion of the installed base to generate a data stack big enough to yield the desired outcomes. The business case outcome is quite substantial, but a small, independent service group trying to execute on it is just not realistic.

To fill the void, we’ve seen several start-up companies at elevator trade shows that provide cloud services platforms for predictive maintenance models to ISPs on a nonproprietary, generic basis. We’re also seeing building management companies interested in purchasing these systems and having them installed independent of any service provider. That shift is probably going to have the biggest impact on the service industry in its history. So far, OEMs have had success in this area, which is central to sustaining their profitability. But very soon there are certain to be complete nonproprietary systems that will rival those of the OEMs. At that point, competition will become intense.

One last point. As companies focus more on predictive maintenance through IoT, it seems that their need for expensive technical help would decline, lowering costs. Is that true?

It is true that predictive maintenance allows the same number of people to provide more service, but the cost savings are not going to be as dramatic as you might expect. To be sure, there are definite efficiencies. For one, with predictive maintenance you’re now finally able to do necessary servicing without callbacks, and unscheduled callbacks are really what erodes margins.

The new systems also will lead to better margins, but they also enable companies to change the role of the service person to one of a salesperson. In the new service world, a service person makes sure a problem doesn’t happen. Their presence doesn’t mean something is wrong; instead, things are going right. Since customers are now happy to see them, service people are in the best position to inform customers about additional things they could do to improve their systems and have an even better experience. That is likely to make the service person’s job more valuable, leading to higher pay. Another factor militating against lower costs is a growing shortage of elevator systems technicians. More are retiring than entering the field, which only worsens the existing shortage of talented service employees.

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About Patrick Bass

Currently an independent consultant, Patrick Bass was formerly CEO and President of North America for thyssenkrupp AG, overseeing multiple divisions of the company, including its North American elevator business. Earlier, he served as Executive Vice President of R&D and Product Strategy, Global Elevator at the company, where he was involved in elevator product development strategy globally. He also has served as a board member of the National Safety Council and is currently on the board of Cedes Corporation of America.

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This facilities and property management industry article was adapted from the GLG Roundtable “Elevator Market — Installations and IoT Disruption.” If you would like access to events like this or would like to speak with facilities and property management industry experts like Patrick Bass or any of our approximately 1 million industry experts, please contact us.

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Questions Asked During the Teleconference

• Who are some of the major companies currently operating in the elevator market?
• Could you provide a brief overview of the four largest companies currently operating in this space?
• How do smaller companies compare with the larger ones, and are any up-and-comers? Does any pose a competitive threat?
• Has thyssenkrupp going private and Otis spinning out changed the industry’s competitive dynamics or the macro environment? Any specific thoughts on Otis?
• Is a price war possible among the major companies, particularly to win service contracts?
• Is there anything that would stop Chinese OEMs from moving into additional markets?
• What’s an owner’s total elevator cost when constructing a new building?
• How much could new elevators increase efficiency and save on energy consumption?
• Would an independent service provider developing its own predictive data system and analytics be a competitive threat to the market? Do you think that is feasible or could happen?
• Since greater IoT use drives retention, does it also decrease the need for technical staff?
• Any last thoughts?