One on One: Alan Laing

Laing is a central figure in all these innovations. In this muddled .com world, where new companies pop up seemingly overnight, he has perhaps the clearest sight line on earth into all the forces driving Internet-based technology into the American housing market.

PROFESSIONAL BUILDER: What’s driving the creation of all these different e-commerce firms?
ALAN LAING: Opportunity. For example, we have a minority interest in USBuild.com, but we also have a strategic development agreement to develop their business model, which is a kind of clicks-and-bricks approach. It has an on-line ordering/scheduling functionality married to a physical distribution solution that eliminates a lot of waste from the way several finishing products’ supply chains are configured today. The waste and inefficiencies in how our industry is organized creates the opportunity.

What’s your relationship with BuildNet - have you soured on that model as a supply chain solution?
Pulte is an investor in the company and we are working on a limited basis with BuildNet in support of the commercial development of their products. We clearly see the opportunity for technology to help reduce supply chain costs and help streamline what is, today, a very inefficient process. Like the other big builders, however, we have become a little frustrated with the company’s ability to demonstrate that it can deliver the products and that the products will meet our needs. From outside the industry, it can be difficult to appreciate just how different day-to-day operations are for Pulte versus a small builder delivering 50 homes a year. We deliver an average of 50-plus homes every day.

Every day, the landscape becomes more crowded with potential solution providers, including a couple of home builder-sponsored initiatives that have been announced recently. We all recognize that the opportunities are significant, but that the challenges in developing value-added applications are equally great. Pulte’s position with all of these potential solution providers and business exchanges is that we will support those applications that enhance our core building operations and can provide a competitive advantage.

Is USBuild.com an outgrowth of disappointment with BuildNet’s progress?
No. They are two different solution providers. USBuild.com is a physical distribution solution. It changes how products physically flow from the manufacturer to the home site. The combination of improving order and production information flow with the physical flow of material is the distinction between BuildNet and USBuild.com. BuildNet is about information management.

Where is this explosion of new Internet companies and technology going to lead, over time?
On the business-to-business side, it’s going to encompass everything from product design to value engineering to bidding, contracting, and production scheduling. All of that will go on-line, probably a lot sooner than any of us think, within the next couple of years. We’ll see a lot of competitors in this arena, some more efficient than others. And that will lead to consolidation among these companies.

At last count, there were 17 competitors in the home building e-commerce marketplace. A year ago, there were only a couple. It’s going to happen. It’s going to make us much more efficient. It’s going to save the industry a lot of money by taking the waste out of our distribution systems.

I think the new housing industry has the opportunity to enhance the customer’s experience on-line as well. Properly managed, we should be able to gain market share from the re-sale market.

You seem to imply that this whole exercise is very different for big, national builders than for the vast majority of home builders...
The needs of big builders are very different from those of small and mid-sized local competitors.

This is also a change from several years ago when there was truly no national builder and even fewer suppliers. That is not the case now. BuildNet has the potential to serve the small firms very well, where a lot of suppliers are looking for incremental sales to small builders in secondary markets, and the builders are looking for new sources of supply. Contrast that with our situation, where we know exactly who we want to buy from and where they are. I think this is the case in many industries. The larger companies have different requirements, and it appears that very few of the industry-leading companies are utilizing exchanges owned and operated by others. In effect, different segments of any industry will create solutions for their specific needs.

Furthermore, I think a lot of the chaos that now exists in the e-commerce marketplace will subside within the next two to three years. It really depends on what happens in the equity and venture capital markets. If the NASDAQ keeps going up 3% a week, then we’ll soon be back in the silly season in terms of investment flow. If it stays rational, which I am optimistic will happen, you’ll see some clear winners emerge—companies that can deliver on solid business plans, with competent management, and a revenue model that can be sustained. The trouble with many of these firms is that so much has changed, since their business plans were created, that they have trouble staying on track.

With so many firms, and none having a dominant market share, is it impossible for a builder to initiate e-commerce on its own?
It depends on what you’re trying to do. A lot of our suppliers, like G.E. in appliances and the forest products giants, are already developing on-line connectivity. We can already buy all our G.E. appliances online - very efficiently. So why would we go through an exchange, adding its costs to both supplier and builder, when G.E., on its dime, is already providing direct connectivity?

A lot of manufacturers, in the near future, will provide builders with the opportunity to buy online through their own sites. Most builders are going to look at that and say, "Why should I pay an exchange $40 or $50 a house to participate when I can buy direct from G.E.?"

That may work for appliances, but does it work for everything?
Our supply chain work started five years ago. Part of that effort has been to reduce the number of vendors we use. This allows us to implement this process cost effectively. For most products, we know who our suppliers are. And for a good number of them, we have direct connectivity. There’s currently a wake-up call coming from the CEOs of large supply companies - that they are unwilling to allow anybody to get between them and their largest customers. You see that in the business-to-business markets of industry after industry. Why would it be different in ours?

What about the trade contractors - many of them are very small?
Yes, but they are increasingly willing to get online. We are now doing online scheduling in 15 of the 40 cities where we build. Surprisingly, suppliers and contractors have jumped online and used the tools we provide. This is all being done on a construction "extranet" that has been in place for a year. Production schedules, along with color selections and options for every house, are there. We have a release on that product every six to eight weeks, so it’s moving very fast. In Las Vegas, we have been doing online bidding for the past nine months. The trades can download blueprints, specs and contract documents.

By the end of 2000, we will be doing online scheduling in all 40 cities. Bidding will be there for most during 2001.

Where do you see business-to-customer on-line relationships heading?
We think we can attract more customers to our web site by providing quality information, and differentiate ourselves with an online experience that results in more sales. We also think the ability to follow the home through production on-line is a big one. We are going to deliver that next year. Online warranty service, the ability to submit warranty requests, will come next year as well.

We’ll also have a maintenance "house doctor" - where we’ll send follow-up e-mails to remind home owners when it’s time to change the furnace filters or repaint the house. And if they need help, we’ll provide the name and contact information for a certified Pulte contractor to do the work for them. Managing customer relationships and making them "home owners for life" is the centerpiece of Pulte’s strategic plan. Already, 25% of our business is referral or repeat customers, totaling over $1 billion a year. Today, it’s just obvious that a good part of enhancing that relationship is going to be done online.

What’s your bottom-line projection for the next two to three years?
On the business to business side, you’ll see a successful application of the Internet exchange model, whether by BuildNet or someone else. It’s equally likely that the big national builders will develop a solution that’s more their own. Our needs are just different from smaller builders. It may come in a form similar to BuildNet, or by some form of collaboration like HomebuildersXchange, or possibly by the individual companies pursuing their own solutions.

It is clear that web-based applications will improve the home builder core processes, like product development, estimating, bidding, prospect management and production scheduling. Clearly, none of the builders or suppliers would invest in these solutions if we did not anticipate improving our operating results. On the business-to-consumer front, creating a differentiating experience for new home buyers will also offer huge benefits. For every new home sold today, there are 4.5 sales of existing homes. As the Internet lifestyle invades our customer base, new homes will have a big advantage over existing homes since providing broadband connectivity now is more cost effective than retrofitting.

And companies like Cisco and Microsoft are now pioneering lifestyle-impacting technologies that will take new housing web lifestyles to the next level, beyond just high speed Internet access. The consumer electronics and software manufacturers are pointing us in the direction we need to go.

But don’t underestimate the importance of high speed Internet access. Already, colleges around the country are finding they can’t pry even juniors and seniors out of residence halls because they have become conditioned to high speed Internet access.

What will happen when that generation starts buying houses?