Is HVAC Optimization Better As a Product or a Service?

By Franco Faraudo

Not too long ago, companies wanting large websites needed to purchase servers to store their data. Once cloud computing technology became widely available, large companies like Amazon offered a better solution: web services. They built the physical infrastructure for data storage and sold it piecemeal to the rest of the world. This made a lot of sense for consumers, as they were able to outsource a difficult, expensive process and scale up their storage according to their needs. It also made a lot of sense for the companies that sold it, as they could use their economies of scale to create a product that was hard for smaller companies to compete with.

A similar thing might be happening to HVAC. Rather than just selling sophisticated hardware, more companies are getting into the game of selling the ongoing “optimization” of the hardware as well. Startups were the first to adopt this business model. “We find it works best when we bundle the tech with the service, especially for smaller multifamily buildings that might not have a team big enough to monitor and train the HVAC software,” said Brad Pilgrim, co-founder and CEO at Parity. Parity started in 2017 and has been able to guarantee utility cost savings by remotely controlling HVAC equipment in multifamily and hospitality properties.

It isn’t just startups that are getting into the HVACaaS space. Most of the large equipment manufacturers are also starting to offer similar services. Companies that were once content with just providing the hardware needed to heat and cool buildings are now deploying software and the services that come with it to help clients hit their energy reduction targets. Honeywell rolled out its Advanced Control for Buildings platform earlier this year and has begun offering different remote management services to clients with connected systems. While not yet available to the public, Siemens is developing its own AI-powered HVAC optimization in cooperation with Vigilent AI.

One reason so many companies are focusing on selling services for HVAC rather than just products is the nature of their enterprise value. Products, particularly HVAC equipment, don’t get purchased that often, making it hard to predict a company’s recurring revenue if they only sell products. Service contracts, on the other hand, create a more consistent cash flow, and therefore, service revenue is more valued by investors when it comes to the company’s overall valuation. This is likely one of the reasons Parity was able to raise a Series B funding round for $19 million earlier this week.

Much like data storage or cloud computing, HVAC optimization might be better handled by large companies that can utilize their size to bring down costs and increase capabilities. This is particularly true when it comes to using AI for HVAC improvements. Developing and training an AI model is only feasible for the largest property companies; all others would be better off outsourcing. The unique nature of buildings will always make an on-site engineer a valuable resource. But as more sensors are deployed and HVAC systems become more automated, we could see the job of optimizing the scheduling of equipment done remotely, as a service, rather than an in-house role. One day, we might look at on-site computers with BMS interfaces just like we do on-site server stacks: as relics of a bygone era.

Energy Management

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🏷️ Priced out: Costs for HVAC equipment are set to increase in the next few years due to inflation and new regulations.

🧰 Reuse, recycle, refurbish: Schneider Electric has announced its new EcoFit initiative for the Canadian market and will now offer take-back services for old equipment.

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