SpiderPlus & Co. develops and sells SPIDERPLUS, an application for architectural drawings and construction site management. The ICT business, the company’s main business segment, accounts for about 90% of total revenue (FY12/21 forecast). SPIDERPLUS is a vertical SaaS (Software as a Service) specialized for use in the construction industry. As of end-FY12/20, about 70% of customers (based on the number of user IDs) were subcontractors in the electrical equipment and air conditioning/plumbing industries, and about 25% were general contractors.
Construction & EngineeringConstruction Materials
Executive summary
Business overview
Business structure and customer characteristics: SpiderPlus & Co. develops and sells SPIDERPLUS, an application for architectural drawings and construction site management. SPIDERPLUS is a vertical SaaS (Software as a Service) specialized for use in the construction industry. As of end-FY12/20, about 70% of customers (based on the number of user IDs) were subcontractors in the electrical equipment and air conditioning/plumbing industries, and about 25% were general contractors. As of Q4 FY12/21, annual recurring revenue (ARR) was JPY2.2bn (+30.3% YoY), the number of customers was 1,204 (793 in Q4 FY12/20), the number of user IDs was 48,767 (38,560), and average revenue per user (ARPU) was JPY3,726/month (JPY3,616/month).
Application and effectiveness of SPIDERPLUS: SPIDERPLUS is mainly used at construction sites for buildings, condominiums, and large facilities. It is particularly effective in cases where a single site is managed by multiple site supervisors (construction managers) from different companies. Such situations involve numerous drawings and photographs, and various inspections need to be carried out for each construction process. In the past, site supervisors used paper to manage the huge number of drawings required for such processes and construction records were created afterwards by transcribing paper drawings, memos, and on-site inspection results into Excel. SPIDERPLUS addresses the inefficiencies of this approach by making drawings paperless, linking with inspection equipment, and sharing information among multiple companies. In a customer survey conducted by the company in 2019, 40% of users said that SPIDERPLUS saved them more than 20 hours per month.
Revenue structure: SPIDERPLUS uses a subscription model in which monthly usage fees are charged per user ID. One user ID is issued per site supervisor. An user ID with standard functions costs JPY3,000/month (excluding consumption tax). Recurring revenue from the subscription model accounts for over 95% of ICT business revenue. The company’s management goal is to increase ARR, and its KPIs are the number of user IDs, ARPU, and the number of customers. In many cases, SPIDERPLUS is not introduced company-wide at the time of contracting, but rather at the construction site or departmental level. This means that the number of user IDs gradually increases after the service is introduced. Historically, the number of user IDs per customer has peaked two to three years after introduction (i.e., the use of the service expands company-wide). As of end-September 2021, about 68% of the client companies had been using the service for two years or less. The net retention rate (NRR) for FY12/21 was over 120%. The company also discloses the monthly churn rate of its customers (trailing 12-month average of the monthly churn, calculated as churn in the current month divided by the number of customers in the previous month; not a per-ID churn rate). Customer churn as of Q4 FY12/21 was 0.7%.
Market size: The company’s main target market is construction companies (excluding house builders) with 30 or more employees. SpiderPlus estimates that there are approximately 670,000 site supervisors working for these companies. Multiplying this estimate by the company’s minimum monthly unit price of JPY3,000 for 12 months yields JPY24mn per year. In the company’s view, this is the minimum value for its serviceable obtainable market (the market size of the company’s target segment) as of February 2022. Using 670,000 IDs as the denominator, the service penetration rate for potential users as of Q4 FY12/21 was about 7%.
Competitive products: As of 2021, digital transformation (DX) in the construction industry is in its early stages. Therefore, the company states that about 80% of the increase in the number of IDs is being driven by market expansion. In many cases, customers who have not been using tablets at construction sites or who have only been using services such as Dropbox to share drawings have started using SPIDERPLUS to improve their productivity. As of February 2022, there are two products that customers might consider as competitors to SPIDERPLUS: CheX by YSL Solutions Co., Ltd. (unlisted) and Photoruction by Photoruction Inc. (unlisted). According to the company, customers often look at CheX as an option when they consider introducing SPIDERPLUS; Photoruction is rarely considered.
Construction industry environment: The construction industry, like other industries, needs to enforce a cap on overtime hours by March 2024 (discussed in detail in the “Market and value chain” section). In the company’s view, customer companies need to achieve operational efficiency by this deadline. Given this timing and the time required to maximize the number of IDs after service introduction (typically two to three years after signing a contract), the key is to increase the number of customers by 2023. With the official launch planned for 1H FY12/22, the company is revamping SPIDERPLUS and intends to leverage the upgrade as a selling point to accelerate new customer acquisition.
Earnings trends
FY12/21 results: The company posted FY12/21 revenue of JPY2.2bn (+11.8% YoY), gross profit of JPY1.3bn (+20.4% YoY), operating loss of JPY433mn (versus operating profit of JPY113mn in FY12/20), recurring loss of JPY504mn (versus recurring profit of JPY107mn in FY12/20), and net loss of JPY512mn (versus net income of JPY103mn in FY12/20). The ICT business posted full-year revenue of JPY1.9bn (+30.5% YoY) and segment profit of JPY183mn (-57.7% YoY). Achievement rates versus the company's FY12/21 forecasts were 99.2% for ICT business revenue and 101.6% for the number of user IDs. Annual recurring revenue (ARR) was JPY2.2bn (+30.3% YoY) and the net retention rate (NRR) averaged over 120% for the past 12 months, exceeding the company's standard of 120%.
FY12/22 forecast: The company forecasts FY12/22 revenue of JPY2.7bn (+20.9% YoY), operating loss of JPY1.2bn (versus operating loss of JPY433mn in FY12/21), recurring loss of JPY1.2bn (versus recurring losses of JPY504mn in FY12/21), and net loss of JPY1.1bn (versus net loss of JPY512mn in FY12/21). The transfer of the company's Engineering business took place on January 4, 2022. For the ICT business alone, the company forecasts revenue growth of 37.8% YoY. It targets ARR of JPY3.0bn (+38% YoY), with the number of IDs exceeding 64,000 (+31.0% YoY) and ARPU reaching JPY3,875 (+4.0% YoY). The company expects the employee count to reach 250 during the year, representing a gain of 56 from the end of December 2021. It plans to formally release the upgraded version of SPIDERPLUS during 1H FY12/22.
Medium-term goals: The company intends to focus on SPIDERPLUS. For the time being, the company says it will concentrate on revenue growth over profitability, and looks to achieve ARR of JPY10bn by FY12/25. Growth in the number of user IDs is gradually recovering from the impact of COVID-19, and is expected to rise to around 30% in the medium term. If the company can maintain an annual growth rate of 30% thereafter, the number of IDs would reach 137,000 by FY12/25. In this scenario, the penetration rate among potential users would be around 20% (based on a denominator of 670,000 potential users, i.e., the company’s assumption for the serviceable obtainable market). If the company achieves ARR of JPY10bn and 137,000 IDs in FY12/25, ARPU would be around JPY6,100. In this case, the compound annual growth rate of ARPU would be slightly higher than 10% based on FY12/20 results.
Strengths and weaknesses
Strengths:
1) SpiderPlus has deep knowledge of the structure of the construction industry and its issues and needs, due to its history as an engineering company providing thermal insulation work.
2) The value of SPIDERPLUS as an information-sharing tool increases cyclically as the number of customers and service users rises.
3) In the SaaS business, where market share is critical, the company was able to raise large investment funds ahead of its competitors by going public.
Weaknesses:
1) The company’s customer base is heavily weighted toward the domestic construction industry (due to the nature of its products), making the earnings structure vulnerable to rapid changes in the external environment.
2) Since it takes two to three years from initial contract for the number of user IDs to peak, measuring ROI and quickly determining the cost effectiveness of a marketing investment is more difficult for SpiderPlus than for other SaaS companies.
3) Now that SpiderPlus is a listed company, information on the company’s KPIs and strategies is easier to obtain than for unlisted competitors and companies operating in peripheral areas.
Key financial data
Note: The company conducted a 912-for-1 stock split on April 27, 2017, and a 100-for-1 stock split on December 8, 2020.
Trends and outlook
Quarterly trends and results
Notes: Figures may differ from company materials due to differences in rounding methods.
Segment earnings
Notes: Figures may differ from company materials due to differences in rounding methods.
Notes: Figures may differ from company materials due to differences in rounding methods.
KPIs
Notes: Figures may differ from company materials due to differences in rounding methods.
SG&A expenses (as percentage of ICT business revenue)
Investment
Notes: Figures may differ from company materials due to differences in rounding methods.
Q1 FY12/22 results
In Q1 FY12/22, revenue was JPY569mn (+3.5% YoY), gross profit was JPY349mn (+6.5% YoY), operating loss was JPY211mn (JPY138mn operating loss in Q1 FY12/21), recurring loss was JPY216mn (JPY183mn recurring loss in Q1 FY12/21), and net loss was JPY86mn (JPY184mn net loss in Q1 FY12/21). The company sold its Engineering business at the start of the quarter, so there will be no revenue from the Engineering business in FY12/22.
The company left its initial forecast unchanged. Progress against the company's full-year forecasts was 21.3% for revenue and 7.1% for number of IDs. Revenue, ARR, customer count, and ARPU were in line with company estimates. The number of IDs was below the company's estimate due to the company's focus on large transactions expected to close by the end of the year. The churn rate was below the company's forecast. For details regarding the company's initial forecasts, please see the FY12/22 company forecast section of this report.
ICT business (SPIDERPLUS)
Q1 FY12/22 revenue was JPY569bn (+30.1% YoY), and segment loss was JPY211mn (loss of JPY17mn in Q1 FY12/21). In Q1, GPM was 61.4%, up 1.5pp from 59.8% in Q4. The number of development employees rose to 82 from 80 at end-Q4.
KPIs
Annual recurring revenue (ARR) was JPY2.3bn (+28.6% YoY). Progress was in line with the company's expectations.
The number of user IDs reached 49,843 (48,767 at end-December 2021). Q1 growth in the number of IDs was 23.4% YoY. This was below the company's forecast, reflecting its focus on large deals that are expected to close by the end of the year.
The number of customers reached 1,258 (1,204 at end-December 2021), in line with the company's forecast. Under the SpiderPlus business model, it takes two to three years from initial contract for the number of user IDs to peak. Accordingly, the company believes the increase in new customers drives future growth in user IDs. Customer churn averaged 0.5% for the past 12 months (0.7% in Q4 FY12/21), lower than the company had expected. The retention rate increased due to enhanced use of customer data.
Average revenue per user (ARPU) for Q1 was JPY3,771 per month (JPY3,726 per month in Q4 FY12/21). This was in line with the company's expectations. Sales of options increased. Average revenue per client account (ARPA) in Q1 was 149,000/client (-9.7% YoY), and the number of IDs per company was 40, down from 46 in Q1 FY12/21.
The ratio of SG&A expenses to ICT business revenue in Q1 was 57.0% for sales and marketing (57.5% in Q4), 12.2% for research and development (7.6%), and 29.2% for general and administrative (21.2%).
The number of employees (including temporary staff and SES staff) as of end-March 2022 was 202 (+8 from end-December 2021). This included 82 product staff (development/R&D) (+2), 80 sales and marketing staff (+11), 40 general and administrative staff (+2).
Topics
The company opened new sales offices in Sapporo and Fukuoka in April 2022. This brings the total number of sales offices to four, in addition to the company's existing offices in Tokyo and Osaka.
Toshima Ward in Tokyo was the first municipality to introduce SPIDERPLUS.
Sale of Engineering business
The company transferred its Engineering business to Armacell Japan Co., Ltd. on January 4, 2022 (it initially disclosed its intention to do so on November 12, 2021). The company booked extraordinary gains on the transfer of the business of JPY132mn in Q1 FY12/22.
FY12/22 company forecast
Notes: Figures may differ from company materials due to differences in rounding methods.
Assumptions for the initial forecast (February 10, 2022)
The company forecasts FY12/22 revenue of JPY2.7bn (+20.9% YoY), operating loss of JPY1.2bn (versus operating loss of JPY433mn in FY12/21), recurring loss of JPY1.2bn (versus recurring loss of JPY504mn in FY12/21), and net loss of JPY1.1bn (versus net loss of JPY512mn in FY12/21). The transfer of the company's Engineering business took place on January 4, 2022. For the ICT business alone, the company forecasts revenue growth of 37.8% YoY. The operating loss is projected increase by JPY756mn compared to FY12/21. The increase will be driven by higher personnel costs associated with the increase in the number of employees and an increase in rent related to the scheduled relocation of the company's headquarters in May 2022. The company expects to book JPY132mn in gains on the transfer of the Engineering business as extraordinary gains in FY12/22.
The company expects demand aimed at improving productivity in the construction industry to increase even further from 2023, just before the 2024 application of upper limits on working hours in the same industry under the Act on the Arrangement of Relevant Acts to Promote Work Style Reform. Moreover, with the needs of the construction industry becoming increasingly diverse and sophisticated, the company believes it will have to invest strategically in FY12/23 and thereafter so that it can effectively capture this demand. Specifically, the company in FY12/22 will continue to aggressively invest in the hiring and training of sales personnel and in marketing activities aimed at increasing awareness of the company and gaining new customers. At the same time, it will invest in product development so that it can be first in providing the products its existing customers need. The company has stated that it plans to focus on revenue growth over profitability at least for the time being.
SpiderPlus targets ARR of JPY3.0bn (+38% YoY), with the number of IDs exceeding 64,000 (+31.0% YoY) and ARPU reaching JPY3,875 (+4.0% YoY). As the number of IDs is the KPI used as an indicator for sales activities, the company has yet to announce the planned number of customer companies. The company's estimated personnel plan for FY12/22 is for over 250 (gain of 56 versus end-FY12/21; gain of 63 considering the transfer of the Engineering business).
The official release of the renewed version of SPIDERPLUS is expected in 1H 2022. As of February 2022, the beta version is being tested by a limited number of customers. There has been a short delay in the official release, but the company said it is taking its time to reflect the needs of users as much as possible to optimize the official version. The timing for customers to switch to the renewed version will be following the completion of one site and prior to the beginning of the next site. This is why the entire system will not be replaced immediately after the official release; rather, the renewal is expected to occur in phases.
It is possible that the company will change the price structure with the official release of the renewed SPIDERPLUS, but as of the time of the initial forecast announcement, a determination had not yet been made. Therefore, the ARPU in the initial forecast does not factor in this potential change.
SpiderPlus has not released a detailed breakdown of its personnel plan. However, since the company plans to increase the number of product staff members from 80 to 100 by end-2021 and does not plan to significantly augment the number of corporate staff, the assumption is that the company plans to increase sales staff from 69 to 110–120 by end-2021. With the renewed SPIDERPLUS scheduled to be officially released during 1H FY12/22, the company will be able to significantly fortify its products, and the strategy for FY12/22 is to bolster sales in particular. The company said it does not expect headcount to increase at the same pace in FY12/23 and beyond as in FY12/22.
Longer-term outlook and growth strategy
The company intends to focus on the ICT business (SPIDERPLUS) moving forward. With the transfer of the Engineering business in January 2022, the ICT is now the company's sole business.
For the foreseeable future, the company plans to make forward-looking investments that prioritize revenue growth (i.e., annual recurring revenue [ARR]) over profitability.
As of February 2022, the company had not disclosed its medium-term management plan, citing uncertainties in FY12/22, such as the scheduled launch of the renewed SPIDERPLUS. The company does intend to announce a medium-term plan after assessing the effects of upfront investments and service upgrades. The following section describes the company’s medium- to long-term goals, growth strategy, and future investment plans based on the business plan and growth potential released by the company at the time of its IPO in March 2021, its annual securities report, and interviews with management. The company intends to release an updated version of its document outlining the company's business plan and expected growth potential sometime around the end of March 2022, one year following the IPO.
Longer-term outlook
Long-term targets
The company has set a long-term target of 300,000 user IDs for SPIDERPLUS in the domestic construction industry. The company estimates that the serviceable obtainable market (SOM; number of potential users) is 670,000 construction site supervisors. If the company reaches 300,000 IDs, its SOM penetration rate would be about 45%. The company’s long-term target is 500,000 IDs, including overseas development and expansion into new industries (horizontal expansion).
The company has not stated when it aims to reach this long-term target, but Shared Research assumes it will be FY12/26 or later. The company expects average revenue per user (ARPU) to continue rising, but if ARPU is calculated at the FY12/20 level of approx. JPY3,600, annual recurring revenue (ARR) at 300,000 IDs would be JPY13.0bn. At 500,000 IDs, the figure would be JPY21.6bn. Based on these numbers, Shared Research estimates that the 300,000 ID target is further away than FY12/25, when the company looks to achieve ARR of JPY10.0bn.
Medium-term targets
The company has stated that it aims to achieve ARR of JPY10.0bn in FY12/25 through growth in the ICT business. Once this target is met, the company expects the marginal profit ratio to be around 70–80% and the operating profit margin to be 20–30%. However, the company is currently more focused on revenue growth than profitability. Accordingly, rather than a commitment we interpret the profit margin as a figure that could change depending on the need for investment. The company has not provided a breakdown of its user ID and ARPU targets once it reaches ARR of JPY10.0bn.
Number of user IDs
According to the company, the growth rate in the number of IDs is gradually recovering from the impacts of the pandemic, and medium-term CAGR is expected to rise to around 30%. As of August 2021, the forecast reflects only the effect of growth in domestic construction clients. It does not consider the effects of overseas expansion and industry expansion (horizontal expansion), which will be discussed later. The company explained that it has only recently started overseas expansion. Accordingly, it is difficult to predict customer acceptance. Also, in horizontal expansion the company is still deciding what industries to focus on. These factors make it difficult to predict horizontal growth potential and market size.
If the company sustains a CAGR of 30%, the number of IDs would be 137,000 by FY12/25 (a penetration rate of around 20% according to SOM calculations described in the long-term targets above). Growth in the number of IDs tends to lag customer numbers by two to three years, so even if medium-term CAGR is around 30%, it would be lower initially. ID growth will depend on whether the company focuses on acquiring new customers or increasing user IDs (by expanding the user count among existing customers).
Impact of the application of the cap on overtime hours (from April 2024)
Construction, like other industries, will need to enforce a cap on overtime hours by March 2024 (discussed in detail in the “Market and value chain” section). In the company’s view, customer companies need to achieve operational efficiency by this deadline. Given this timing and the time required to maximize the number of IDs after service introduction (typically two to three years after signing a contract), the company believes it will be key to increase customer numbers by 2023. The company is scheduled to officially release the renewed SPIDERPLUS in 1H FY12/22. It will use this upgrade as a selling point to drive new customer acquisition.
Number of customers
The company believes that the number of user IDs per company will remain at around 50. Based on this assumption, if the company reaches 137,000 IDs in FY12/25, it will have 2,740 customers. As with the growth rate in the number of IDs, the growth rate of the number of customers is expected to depend on whether the company emphasizes new customers acquisition or concentrates on increasing the number of IDs by expanding usage among existing customers, rather than growing at an average rate of around 30% each fiscal year.
ARPU
Assuming the company achieves ARR of JPY10.0bn and 137,000 user IDs in FY12/25, ARPU would be around JPY6,100. In this case, the CAGR of ARPU would be slightly above 10% based on FY12/20 results. Although the FY12/21 growth forecast is lower than this, at around 4–5% YoY, the company is revamping SPIDERPLUS and intends to officially release the renewed version in 1H FY12/22 while continuing to enhance its functionality thereafter. Therefore, Shared Research thinks that in the medium term, the company expects ARPU to increase in line with the service enhancement (productivity improvement for customers).
Growth strategy
Expansion of domestic market share
Domestic market
SpiderPlus’ primary customers are construction companies with 30 or more employees. The company mainly targets companies that build condominiums or larger buildings rather than builders of detached wooden houses. The company estimates that about 670,000 site supervisors work for such construction companies. Multiplying this figure by the company’s minimum monthly price of JPY3,000 per month for 12 months yields JPY24bn per year. The company considers this figure to be the minimum size of its serviceable obtainable market (SOM; the market size of the company’s target segment) as of February 2022. Based on its APRU of JPY3,726mn as of Q4 FY12/21, the company believes its SOM in the target segment can expand as ARPU increases.
Investments
The company’s mainstay service, SPIDERPLUS, is based on a SaaS (Software as a Service) business model, so early growth in market share is crucial. To achieve this growth, the company needs to increase user IDs among existing customers, acquire new customers, and continue to provide attractive products that meet customer needs. To this end, the company has been investing continuously since Q4 FY12/20. Specifically, the company is strengthening its system development and sales staff to improve its services, and promoting marketing activities to win new business and raise awareness of SPIDERPLUS. The company intends to continue making such investments, using unit economics and other indicators as reference, and assessing cost-effectiveness. See “Use of proceeds from IPO” below for details of investments expected as of FY12/21.
Expansion of areas, domains, and functions
Overseas expansion (area expansion)
The company believes demand in Southeast Asia will increase as the region faces the problem of a declining labor force. It plans to support multiple languages after the system upgrade, with the renewed version slated for official launch in 1H FY12/22 (English was already supported as of August 2021), and established an overseas alliance team in May 2021. Initially, the company will focus on selling its service to Japanese companies, with priority on Southeast Asia, where many Japanese companies are operating and substantial room for growth exists. The company believes that Southeast Asian countries with high population densities, like Japan, are likely to require Japanese construction companies’ technologies and expertise for high-rise building construction. The company estimates that there are 10,000-20,000 overseas workers at Japanese companies and the market including local hires to be several times this number. The company plans to initially offer the full SPIDERPLUS package to Japanese companies that adopt the same inspection standards as those in Japan, but in the future may offer a lower-priced version with limited functions to local companies.
Industry expansion (horizontal expansion)
The company aims to expand SPIDERPLUS into other industries to foster digitalization (i.e., paperless drawings) in a variety of industries. As of March 2021, SPIDERPLUS has been used in sectors such as building management and plants/factories/substations. Customers in the former sector include Toho Building Management Co., Ltd. (a subsidiary of Toho Co., Ltd. [TSE1: 9602]), Nomura Real Estate Development Co. Ltd. (a subsidiary of Nomura Real Estate Holdings, Inc. [TSE1: 3231]), and Mori Building Co., Ltd. (unlisted). Customers in the latter sector include Kanden Plant Corporation (a subsidiary of The Kansai Electric Power Co., Inc. [TSE1: 9503]), Nippon Steel Texeng Co., Ltd. (a subsidiary of Nippon Steel Corporation [TSE1: 5401]), and Mitsubishi Heavy Industries, Ltd. (TSE1: 7011). As of FY12/20, the company’s ARR outside of the construction industry was below JPY15mn, but inquiries have been increasing as the company’s IPO boosted name recognition, and the company says it has high expectations for the future.
Functional expansion (data utilization)
SPIDERPLUS stores data from drawings, location information, recorded photos, inspection data, operation logs, and voice data. The company aims to further improve convenience by analyzing these data and using them to add future functions and improve UI/UX. In addition, when the company implements AI-based services in the future, it thinks this corpus can be used as training data. The company is also considering the implementation of AI-based automation and efficiency improvement services, taking advantage of its position as a company that can ascertain on-site needs and utilize a wealth of data.
Use of proceeds from IPO
The company plans to use its estimated JPY3.4bn in estimated proceeds from the issuance of new shares at the time of the IPO, together with JPY1.2bn in proceeds from the third-party allotment of new shares, for capital investments. Specifically, the company plans to invest in (1) system renewal costs, working capital, (2) advertising and promotion costs, (3) repayment of loans, (4) recruitment and personnel costs, and (5) system development costs. The company intends to use the remaining amount as working capital to expand the scale of its business, but has no specific items in mind. Until the time comes to appropriate these proceeds into specific areas, the company will invest the funds in secure financial instruments.
System renewal costs
The company will upgrade its systems, enhancing the development environment and the SPIDERPLUS user interface.
SPIDERPLUS has been in operation for more than 10 years, and repeated upgrades have made its systems complex. As a result, the company has had to spend extra time on system upgrades and trouble-shooting. In addition, complexity has made the parallel development of multiple functions difficult, which has hampered development speed. For this reason, the company plans to revamp its systems during 1H FY12/22 to speed up the process of repairing and responding to failures. By streamlining the parallel development of multiple functions, the company expects to achieve functional enhancements and expansion more easily. The company will also upgrade the UI/UX. The company plans to add multiple-language support (English is already supported) at this point, and may add several new functions, as well.
In addition to thorough testing, a cross-divisional project team is working on various aspects to prepare for the risk of failures and malfunctions associated with the system upgrade. The company notes that the current system can be redeployed in the event of a major failure after the new system is released.
Advertising expenses
The company advertises to increase the number of SPIDERPLUS customers and expand market share. The company plans to invest in online advertising and TV commercials to expand service recognition and acquire sales leads.
Repayment of loans
The company has been borrowing money from financial institutions to cover temporary shortfalls in development costs for SPIDERPLUS and working capital needs due to increased headcount. To strengthen its financial position, the company will use funds from the IPO to repay these loans.
Recruitment and personnel costs
The company believes in the importance of hiring, retaining, and training excellent human resources, including engineers engaged in system development and personnel engaged in sales and customer support, to the growth of the ICT business. To this end, the company intends to use the funds raised to cover increasing recruitment and personnel costs. The company plans to raise the number of product engineers to 100 by FY12/22 to speed up functional expansion. Personnel costs are expected to increase in line with the increase in staff count.
System development costs
The company plans to allocate development costs to enhance SPIDERPLUS functions. Its goal is to further improve operational efficiency at construction sites. According to the company, such spending equates to R&D costs at other companies.
Other topics
M&A policy
While the company has not ruled out the possibility of M&A, now it is prioritizing investment in SPIDERPLUS. The company says it may consider M&A to reinforce its development staff and technology.
Approach to ESG
The company explains that SPIDERPLUS helps reduce the use of wood resources by through digitalization of the construction industry. The company also believes its service can aid work style reforms through productivity enhancement and improve the working environment for women in the construction industry. In addition, the company offers a free SPIDERPLUS Academic Plan for educational institutions. In terms of governance, the company has identified the ratio of female executives as an issue to be addressed going forward.
SPIDERPLUS Academic Plan
In July 2021, the company announced the SPIDERPLUS Academic Plan for educational institutions. This service allows architecture and civil engineering students, as well as vocational trainees, to use SPIDERPLUS for the hands-on learning of construction and inspection. The company’s five-year goal is to have more than 3,500 people working in the construction industry after using its Academic Plan. According to the company, the service has three benefits. First, potential employers will value students’ experience with SPIDERPLUS. Second, customers will find it easier to hire students who can be deployed immediately. Third, the service will help the company cultivate future customers and enhance the service value of SPIDERPLUS. The Academic Plan will be available free of charge.
Business
Business overview
SpiderPlus & Co. develops and sells SPIDERPLUS, an application for architectural drawings and construction site management, mainly to the construction industry. SPIDERPLUS is a vertical SaaS (Software as a Service) specialized for use in the construction industry. As of end-FY12/20, about 70% of customers (based on the number of user IDs) were subcontractors in the electrical equipment and air conditioning/plumbing industries, and about 25% were general contractors. As of Q4 FY12/21, annual recurring revenue (ARR) was JPY2.2bn (+30.3% YoY), the number of customers was 1,204 (793 in Q3 FY12/20), the number of user IDs was 48,767 (38,560), and average revenue per user (ARPU) was JPY3,726/month (JPY3,616/month).
ICT business (SPIDERPLUS)
Overview
Introduction and effects of SPIDERPLUS
SPIDERPLUS is mainly used at construction sites for buildings, condominiums, and large facilities. It is particularly effective in cases where a single site is managed by multiple site supervisors (construction managers) from different companies. Such situations involve numerous drawings and photographs, and various inspections need to be carried out for each construction process. In the past, site supervisors used paper to manage the huge number of drawings required for such processes. Construction records were created afterwards by transcribing paper drawings, memos, and on-site inspection results into Excel. SPIDERPLUS addresses the inefficiencies of this approach making drawings paperless, linking with inspection equipment, and sharing information among multiple companies. In a customer survey conducted by the company in 2019, 40% of users said that SPIDERPLUS saved them more than 20 hours per month.
Revenue structure
Revenue structure: SPIDERPLUS uses a subscription model in which monthly usage fees are charged per ID. One ID is issued per site supervisor. An ID with standard functions costs JPY3,000/month (excluding consumption tax). Recurring revenue from the subscription model accounts for over 95% of ICT business revenue. The company’s management goal is to increase ARR, and its KPIs are the number of IDs, ARPU, and the number of customers. In many cases, SPIDERPLUS is not introduced company-wide at the time of contracting, but rather at the construction site or departmental level. This means that the number of IDs gradually increases after the service is introduced. Historically, the number of IDs per customer peaks two to three years after introduction (i.e., the use of the service expands company-wide). As of end-September 2021, about 68% of the client companies had been using the service for two years or less. The net retention rate (NRR) for FY12/21 was over 120% (145% in FY12/21). The company also discloses the monthly churn rate of its customers (trailing 12-month average of the monthly churn, calculated as churn in the current month divided by the number of customers in the previous month; not a per-ID churn rate). Customer churn as of Q4 FY12/21 was 0.7%.
Market size
The company’s main target market is construction companies (excluding house builders) with 30 or more employees. SpiderPlus estimates that there are approximately 670,000 site supervisors working for these companies. Multiplying this estimate by the company’s minimum monthly unit price of JPY3,000 for 12 months yields JPY24mn per year. In the company’s view, this is the minimum value for its serviceable obtainable market (SOM; the market size of the company’s target segment) as of February 2022. Using 670,000 IDs as the denominator, the service penetration rate for potential users as of Q4 FY12/21 was about 7%.
Competitive products
As of 2021, digital transformation (DX) in the construction industry is in its early stages. Therefore, the company states that about 80% of the increase in the number of IDs is being driven by market expansion. In many cases, customers who have not been using tablets at construction sites or who have only been using services such as Dropbox to share drawings have started using SPIDERPLUS to improve their productivity. As of February 2022, there are two products that customers might consider as competitors to SPIDERPLUS: CheX by YSL Solutions Co., Ltd. (unlisted) and Photoruction by Photoruction Inc. (unlisted). According to the company, customers often look at CheX as an option when they consider introducing SPIDERPLUS; Photoruction is rarely considered.
Construction industry environment
The construction industry, like other industries, needs to enforce a cap on overtime hours by March 2024 (discussed in detail in the “Market and value chain” section). In the company’s view, customer companies need to achieve operational efficiency by this deadline. Given this timing and the time required to maximize the number of IDs after service introduction (typically two to three years after signing a contract), the key is to increase the number of customers by 2023. The company is scheduled to officially release the renewed SPIDERPLUS in 1H FY12/22. It will use this as a selling point to accelerate new customer acquisition.
Effectiveness and application of SPIDERPLUS
Effectiveness
SPIDERPLUS is a service to make construction sites paperless and to promote information sharing among workers. The company believes that this will help improve productivity in the construction industry by shortening working hours and reducing the number of working days per year. In a survey of existing customers conducted by the company in 2019, 40% of users said that the service had reduced their hours by more than 20 hours per month.
In the past, a huge number of drawings were used for a single construction project, leading to inefficiencies (such when site supervisors [construction managers] had to go back to the office to get paper drawings when needed by craftsmen). Construction errors also occurred due to version control of the drawings. Construction record-keeping was another onerous task for site supervisors. In the past, supervisors had to return to the office and transcribe paper drawings, notes written at the site, and inspection results one by one into Excel, and then create forms by comparing drawings and images.
With SPIDERPLUS, drawings, PDFs, videos, documents, and various other data can all be consolidated on a tablet and immediately checked at the work site at any time. Photos are organized into folders for each work site, and the latest drawings are clearly visible, so construction work can proceed without confusion. There is no need to go back and forth between the site and the office, and communication with craftsmen becomes smoother. Keeping construction records, which used to be a cumbersome task, can be completed with one click by compiling notes and photos from the site, greatly reducing the time required.
Efficiency improvement and cost reduction
While the specific effects vary from client to client, as part of its listing materials the company has produced case studies of SPIDERPLUS’s introduction. According to the company’s research (based on tablet usage time and customers’ internal survey data), introducing SPIDERPLUS reduced employee work time by 2.5 hours per day, resulting in a cost savings of JPY156,250 per employee per month (2.5 hours reduction x 20 working days per month x [JPY25,000 paid per day / 8 working hours per day]). Since the monthly standard plan fee for SPIDERPLUS is JPY3,000 per ID, the monthly cost reduction per employee equates to approximately 150,000 yen.
Case study and network effects
SPIDERPLUS is an information-sharing tool. As such, an increase in the number of customers and users makes the tool more valuable, driving further expansion of the customer base. This positive cycle is called a “network effect.” SPIDERPLUS is mainly used at construction sites for buildings, condominiums, and large facilities (facilities made of reinforced concrete). SPIDERPLUS is particularly effective in cases where multiple site supervisors from different construction companies are managing a single site. At these sites, there are many drawings and photographs, and various inspections need to be carried out for each construction process. SPIDERPLUS integrates the construction information of multiple contractors into a single application, and has a wide range of inspection functions that can be used for many processes. Even in cases where the large general contractor is responsible for the construction and interior work (after the air conditioning and sanitation work), and the electrical equipment and air conditioning/plumbing work are performed by different specialized companies (subcontractors), the entire process up to the completion of construction can be centrally managed between companies based on SPIDERPLUS. The company notes that existing users often recommend SPIDERPLUS to other construction companies (potential customers/users) to improve overall work efficiency at the construction site.
Net retention rate (NRR)
The company has achieved a high net retention rate (NRR) due to the network effect described above. NRR is an indicator of the revenue retention rate of existing customers. A value above 100% indicates that upselling (in the company’s case, increased user ID count and usage of optional features) is outpacing churn and downgrades (decreased ID count and cancelation of features). The company’s NRR in FY12/21 was over 120% (145% in FY12/20). The large network effect also suggests that certain software is likely to gain a majority market share (i.e., a winner-takes-all structure). While the company's policy is not to disclose the details concerning NRR due to its high volatility, it has set a target of 120% or better.
Functions
In developing SPIDERPLUS, the company aims to create an all-in-one solution that improves work efficiency in various aspects of construction work.
Standard functions
The functions that are essential for all processes at a construction site are available as standard functions in all contract types.
Drawing management function
The drawing management function of SPIDERPLUS streamlines construction management and inspection, which used to be done using paper-based drawings. By importing drawings to a tablet and viewing them using SPIDERPLUS, a large amount of data can be carried and managed with a single tablet. The drawings can be easily enlarged or reduced. In addition, users can write directly on the drawings on the tablet and place icons on areas for inspection. Inspection details can also be recorded by pasting memos or photos on the icons.
Photo management function
In the past, site managers would take pictures of various construction and inspection areas with a digital camera, check the pictures in the office, and paste them into drawings. With SPIDERPLUS, photos can be taken and pasted onto drawings directly with a tablet. SPIDERPLUS also has an electronic blackboard function that allows users to attach information to photos as if they were on a blackboard (lower right part of the image below). This function is also compatible with the designated format for electronic delivery recommended by the Ministry of Land, Infrastructure, Transport and Tourism. In addition, SPIDERPLUS displays the direction from which the photo was taken with an arrow, making it possible to clarify the photographer’s position and viewpoint. The photo management function can also be linked to external cameras, and supports shooting at high altitudes and 360-degree photos.
Optional functions
SPIDERPLUS has optional functions for both general contractors and subcontractors (responsible for electrical equipment, air conditioning equipment, etc.). These functions help users achieve further efficiency improvements and labor savings. As of end-March 2021, there were 14 types of optional functions, available individually or in industry-specific packages. Optional functions incur additional monthly fees.
During its Q1 FY12/21 results briefing, the company explained that its strength lies in its ability to develop functions based on the needs and opinions of users, which has resulted in a wide range of optional functions. According to the company’s own research (as of May 2021), pile construction records, construction progress management, corrective work management, power distribution equipment testing, power meter verification, pipe slope measurement, and linkage with illuminance measurement robot are optional features unique to SPIDERPLUS.
The company has developed these optional functions with leading companies in the industry, including Kinden Corporation (TSE1: 1944) and Kyudenko Corporation (TSE1: 1959) for electrical equipment and Takasago Thermal Engineering Co., Ltd. (TSE1: 1969) for air conditioning equipment. The burden of development costs and royalty payments for jointly developed optional functions varies depending on the function, according to the company.
The following is an explanation of the distinctive optional functions: pile construction record function, construction progress management, and corrective work management (all geared toward general constructors).
Pile installation records
Pile installation is a type of foundation work conducted when constructing a building. Piles are driven into the ground to create a foundation that supports the structure. SPIDERPLUS can keep a record of pile installation and display the progress of inspection items in different colors, such as status before installation, when in progress, and upon completion. In addition, SPIDERPLUS can display incomplete inspection items to prevent omissions that are likely to occur with paper-based management.
Construction progress management
This function makes it possible to record and visualize the progress of construction work, and to share information in real time. The site manager can smoothly perform management tasks such as coordination between construction types, planning the next process, contacting suppliers, and arranging materials for the next day. The progress information recorded at the site can be easily output on forms, leading to a reduction in paperwork time. In addition, comments and photos recorded at the site can be output, allowing for accurate sharing and recording of points raised.
Corrective work management
With this function, users can tap on the drawing where corrective work has been designated, and output a document listing the corrective work by item and contractor. They can also save multiple photos of the designated areas, which is useful for checking the progress of the correction. Users can also take photos from the same angle before and after the correction, making it easy to check the results of the correction.
Linked functions
Functions linked with various devices
SPIDERPLUS can be linked with 360-degree cameras or various inspection devices such as temperature and humidity meters and water pressure gauges, and automatically collect and record data via Bluetooth. In the past, contractors would have to visit the site periodically to manually record, tabulate, and graph such data, but SPIDERPLUS automates this process. Linkage with each device is provided as a standard or optional feature.
Approach to API integration with other software
The company will consider API integration if (1) the functions are necessary for customers and (2) existing software integrates smoothly with SPIDERPLUS. Conversely, in areas where no software solution exists, or where existing software is not fully compatible with SPIDERPLUS (insufficient functionality, poor usability), the company intends to develop the software itself.
Approach to computer-aided design (CAD) and building information modeling (BIM)
The company does not intend to cultivate business in the CAD and BIM domains on its own. Instead, it intends to expand its user base by linking SPIDERPLUS with existing BIM solutions. CAD and BIM contain a wide variety of information, and incorporating all this data into SPIDERPLUS would improve efficiency. For example, a user can import inspection data stored in BIM into SPIDERPLUS, use it, and then feed the data back into BIM.
SPIDERPLUS PARTNER (released beta version in July 2021)
While SPIDERPLUS focuses on sharing information at the site supervisor level, SPIDERPLUS PARTNER’s emphasis is on sharing information between site supervisors and specialist contractors (site foremen). The aim is to digitalize communication with specialized construction workers and to promote digital transformation across entire work sites. Specifically, SPIDERPLUS PARTNER has functions for work instructions, work reports, sharing of information on drawing changes or construction progress.
As of February 2022, the beta service is being offered to about 20 companies on a trial basis. Although the post-launch billing method and price have not yet been determined, the company expects to begin by offering SPIDERPLUS PARTNER as an option for SPIDERPLUS. (The reason is that the company currently has no direct contractual relationships with specialist contractors, so will roll out the new service mainly to meet the needs of site supervisors). On the other hand, SpiderPlus believes there is room to monetize specialist contractors over the medium to long term if the company can clearly identify their needs and enhance the functions of SPIDERPLUS PARTNER accordingly. The company currently bases its calculations of the serviceable obtainable market (SOM) on the number of on-site supervisors. By expanding the scope to include specialist contractors, it will be able to capture a portion of the serviceable available market (SAM).
Supplementary information
Hardware and supported OSs
The company does not provide the hardware needed to run SPIDERPLUS; customers must buy hardware through distributors or rent or purchase it on their own. More than 90% of tablets used by construction companies in Japan are iPads, so as of August 2021, SPIDERPLUS is only compatible with iOS smartphones and tablets (no Android support). Following the upgrade of SPIDERPLUS (the company expects to officially release the renewed version in 1H FY12/22), the company plans to support Android in web browsers first, and then via a smartphone app. The main purpose of Android support is to meet the needs of overseas markets, where inexpensive tablets are more commonly used.
Customization
The company also offers SPIDERPLUS customization, but this accounts for only a few percent of revenue. The company typically responds to general customer needs by adding and updating functions, and customizes functions that are used only by specific customers (e.g., output of specialized forms, connection to internal systems). While the company will provide customization if necessary to sell SPIDERPLUS, it does not make an active effort to generate revenue through customization.
Authority settings
SPIDERPLUS allows customers to set viewing permissions for each data storage folder. It is possible to set both viewing permissions for specific construction sites only, as well as for the entire company.
Revenue structure and KPIs
Revenue structure
SPIDERPLUS uses a subscription model in which monthly usage fees are charged per ID. Revenue in the ICT business consists of recurring revenue charged monthly per ID, customization revenue from commissioned development, and other revenue from sales of peripherals such as tablets and tablet cases. In the ICT business, recurring revenue accounts for more than 95% of the total. This revenue comes from monthly usage fees for SPIDERPLUS and monthly recurring server usage fees associated with its use. The monthly usage fee breaks down into the number of user IDs x unit price, and the server usage fee can be broken down into the number of IDs x server usage fee per ID. For standard functionality, the monthly charge is JPY3,000 per ID (excluding consumption tax).
KPIs
The company’s management goal is to increase ARR, and its KPIs are the number of user IDs, ARPU, and the number of customers As of Q3 FY12/21, annual recurring revenue (ARR) was JPY2.2bn (+30.3% YoY), the number of customers was 1,204 (793 in Q4 FY12/20), the number of user IDs was 48,767 (38,560), and average revenue per user (ARPU) was JPY3,726/month (JPY3,616/month). The company also discloses the monthly churn rate of its customers (trailing 12-month average of the monthly churn, calculated as churn in the current month divided by the number of customers in the previous month; not a per-ID churn rate). Customer churn as of Q4 FY12/21 was 0.7%. The company says KPIs generally expand in the following order: number of customers (new customer acquisition), user ID count (increase in the number of users of existing customers), and ARPU (addition of optional functions).
Notes: Figures may differ from company materials due to differences in rounding methods.
Number of user IDs
One ID is issued per site supervisor. In many cases, SPIDERPLUS is not introduced company-wide at the time an initial contract is signed, but rather for specific construction sites or departments at customer companies. This means that the number of IDs gradually increases after the service is introduced. In the past, the number of IDs has peaked two to three years after introduction (i.e., company-wide rollout). The larger the company, the longer it takes to expand the number of users. As of end-September 2021, about 68% of customers had adopted the service within the past two years. As of Q4 FY12/21, the number of IDs was 48,767. As of end-September 2021, only about 19% of the existing user IDs were from companies that have been using the service for two years or less. These figures suggest room for growth in user IDs among companies that have been using SPIDERPLUS for two years or less.
Using 670,000 IDs (the company’s assumption for serviceable obtainable market) as the denominator, the service penetration rate among potential users as of Q4 FY12/21 was about 7%. The company explained that the slowdown in ID growth rate in FY12/20 reflected a longer sales cycle as well as tighter supply of tablet devices in the wake of the COVID-19 pandemic.
Notes: Figures may differ from company materials due to differences in rounding methods.
Contract period
Contracts are typically on a month-to-month basis, with no specific contract period. If the customer signs up in the middle of a month, the usage fee for that month is waived, and a fee is charged from the following month. Mid-month cancellation in the middle of a month is treated as an end-of-month cancellation. Long-term contracts of one to three years are sometimes concluded, but as of August 2021, there are few such cases. User ID contracts are usually contracted per construction site and suspended (indistinguishable from cancellation) at the end of the construction, so most contracts are monthly. However, cancellation does not always occur at the end of construction. Some ID data needs to be accessed even after construction is complete. (For example, data might be required for maintenance work after completion or referred to at headquarters.). In such cases, IDs are not suspended. The company is considering a future move toward annual contracts, given changes in the business environment, such as more contracts with customer headquarters, where cancellations are less likely, and an increase in customers’ use of the service throughout their companies.
Seasonality in the user ID count
Growth in the number of user IDs (net of cancellations and suspensions) tends to slow in March and April, as the Japanese fiscal year traditionally ends in March. Accordingly, construction projects typically conclude in March. After a short pause, new construction projects begin. Typically, March/April is also the time when clients review their internal systems and make personnel/departmental changes. The company tends to see higher growth in the number of net user IDs in the second half of its fiscal year (July–December), as activity at construction sites increases in a push to complete projects by fiscal year-end.
Number of customers
As outlined earlier, full adoption of SPIDERPLUS within a customer company typically takes two to three years (when the number of user IDs peaks). For this reason, growth in number of customers is an important leading indicator of increases in the number of IDs. Although the rate has varied, generally the customer count has grown faster than the number of IDs since FY12/18. As of Q4 FY12/21, the company had 1,204 customers and the number of average user IDs per customer (simple average) was 41. User IDs per company reached a high of over 70 in FY12/17–12/18, and then declined in FY12/19–12/21. The company attributes this fluctuation to the acquisition of large customers and a subsequent increase in new customers.
Notes: Figures may differ from company materials due to differences in rounding methods.
Major customer industries
SPIDERPLUS is a vertical SaaS (Software as a Service) specialized for use in the construction industry. As of end-FY12/20, about 70% of its customers (based on the number of user IDs) were subcontractors in the electrical equipment and air conditioning/plumbing industries, and about 25% were general contractors. Customers other than subcontractors and general contractors (developers and customers outside the construction industry) account for only a few percent. SPIDERPLUS is mainly used for viewing drawings, recording photographs, and recording various inspections before, during, and after construction.
The company has been strategically targeting subcontractors as its main target, a decision based on the CEO Kenji Ito’s experience in facility construction. According to Ito, if the service is widely adopted by subcontractors, it will then spread to the general contractors who manage the entire construction process. Focusing on subcontractors is effective in expanding the number of customers and user IDs because many subcontractors are involved in a single construction site, and many of the site supervisors (construction managers) who use the service also belong to subcontractors. If SPIDERPLUS spreads to all subcontractors, general contractors will have no choice but to adopt the service to improve efficiency. In fact, the CAGR of the number of user IDs over the five years to FY12/21 was as high as 68%. In addition, subcontractors oversee areas in the construction industry ICT would facilitate efficiency improvements. This is another reason the company has prioritized subcontractors in its product strategy.
Since around 2015, the service has grown popular among general contractors, as well. As of August 2021, the company’s customer base had expanded to include medium-sized general contractors, thanks to the development of various functions in collaboration with major general contractors. On the other hand, the company does not target builders of detached wooden houses.
Customer target size
As of end-January 2022, the company targeted construction companies (excluding companies that build detached homes) with 30 or more employees, believing these companies can make the most effective use of SPIDERPLUS functions. SpiderPlus estimates that there are approximately 670,000 site supervisors working for these companies. Multiplying this estimate by the company’s minimum monthly unit price of JPY3,000 for 12 months yields JPY24mn per year. In the company’s view, this is the minimum value for its serviceable obtainable market (SOM; the market size of the company’s target segment) as of February 2022.
As lead customers, larger companies tend to be more valuable to SpiderPlus than smaller ones. This is because larger companies have more scope to increase their number of user IDs, making their lifetime value higher. A company with 1,000 employees can yield 300–400 IDs, whereas a 10-person company might produce only two or three. According to SpiderPlus, its largest customers generate around 3,000 IDs. As of FY12/20, no customer generated 10% or more of revenue.
Average revenue per account (ARPA)
SpiderPlus’s ARPA rises when a customer’s number of user IDs increases. However, growth in the number of new customers leads to lower levels of penetration in the number of IDs, causing ARPA to fall. ARPA also rises or falls in line with changes in ARPU. ARPA (calculated by dividing the average ARR at the beginning and end of the year by the average number of customers at the beginning and end of the year) per customer rose from JPY1.3mn in 2016 to JPY2.6mn in 2018, then fell to JPY1.9mn in 2021. From 2016 to 2018, the number of user IDs at existing customers rose, boosting contract value per customer. In 2020 and 2021, progress in new customer acquisition led to a rise in the number of customers with relatively few IDs, so the contract value per customer decreased.
The company expects the number of contracts and ARPA to become more important KPIs in the future. For now, however, the company is focused on its core business of boosting overall productivity among its customers, and believes ARPA expresses progress in this area more effectively.
Average revenue per user (ARPU)
ARPU is calculated by dividing monthly recurring revenue (MRR) of the last month of the quarter by the number of IDs. As of Q4 FY12/21, ARPU was JPY3,726/month. ARPU has been on an upward trend as new customer acquisition pushes up the number of undiscounted IDs and server usage fees (see the section titled “Regular pricing structure”), and as existing customers use more optional functions.
Notes: Figures may differ from company materials due to differences in rounding methods.
Regular pricing structure
The company’s regular pricing structure (recommended pricing) as of November 2021 is outlined below. Looking at actual ARPU as of FY12/20, JPY3,615 breaks down as JPY2,750–2,800 for standard functions (excluding server fees) and JPY300–350 for optional functions, with monthly server fees making up the rest. The company is upgrading SPIDERPLUS, planning to officially release the renewed version in 1H FY12/22, and may revise its pricing structure then.
Standard functions: JPY3,000/month/ID (excluding consumption tax). Monthly server fees are based on the amount of data (minimum of JPY8,000/customer/month). These fees are based on the infrastructure costs the company incurs, plus a certain profit margin. The initial server setup fee is JPY40,000 (excluding consumption tax). As it is charged for each customer regardless the number of IDs, server costs per ID can be relatively high for new, small-scale contracts. As a result, ARPU is likely to rise as the number of contracts increases.
Optional functions: Optional industry-specific packages (architectural construction, electrical equipment, air conditioning equipment packages) are priced at JPY2,500/month/ID (excluding consumption tax). The finish inspection function and corrective work management function are both JPY2,000/month/ID (excluding consumption tax). The pipe gradient measurement function is priced at JPY1,000/month/ID (excluding consumption tax). To use optional functions, customers must already have a contract for standard functions.
Use of optional functions
Most customers begin with the standard functions. They tend to add optional functions later to boost productivity, once they have become familiar with standard functions. As a result, ARPU tends to grow, the more years a customer uses the service. General contractors tend to request options from the beginning, whereas subcontractors typically begin with just the standard functions. As of Q1 FY12/21, the company said its largest contract price was around JPY9,000. In FY12/20, optional revenues were about 10% of the standard function revenue level (excluding server fees).
Volume discounts
When SPIDERPLUS was first launched, the company offered volume discounts to speed customer acquisition. For this reason, ARPU was below the standard price of JPY3,000/month for standard functions up to FY12/17. ARPU has been above that level since. As of FY12/21, the company offers essentially no volume discounts to new customers.
Room for future price revisions
At launch in 2011, SPIDERPLUS had fewer functions than it does today. The logic for pricing at JPY3,000/month (excluding consumption tax) was that the service would be considered reasonable if it could save the user one hour of overtime work (costing around JPY3,000). The company has not raised the price since, even though standard functionality has continued to increase. With the FY12/21 upgrade (the company aims to officially release the renewed version in 1H FY12/22), the company expects to increase SPIDERPLUS’s functionality substantially. The company believes this upgrade will provide leeway to raise prices. In a customer survey conducted by the company in 2019, 40% of users said that SPIDERPLUS saved them more than 20 hours per month.
Room to consider a low-priced version with limited functions
As of January 2022, the company does not offer a low-cost version with limited functionality. This is because the company aims for SPIDERPLUS to be an all-in-one solution for construction sites and targets a customer base that demands multiple functions and high functionality. However, the company says it may introduce a low-cost version with limited functions to attract smaller customers after it has reached a point where it can acquire sufficient customers who demand multiple functions and high functionality. The company may also offer different functions and prices on products localized for sale overseas.
Customer churn
The company discloses the monthly churn rate of its customers (trailing 12-month average of the monthly churn, calculated as churn in the current month divided by the number of customers in the previous month; not a per-ID churn rate). The company considers churn a KPI because high levels can indicate customer dissatisfaction. The company discloses averages because, like ID churn, customer churn is seasonal, and the company believes that averages represent actual conditions more accurately. As it is based on the number of companies, calculations for customer churn weight small and large customers the same. The company notes, however, that customer churn does not affect earnings significantly, as most cancellations are from customers who have only two or three IDs. As of Q4 FY12/21, the monthly customer churn was 0.7%.
Main reasons for customer churn
Several factors contribute to customer churn. Sometimes, smaller customers cannot put SPIDERPLUS’s multifunctional capabilities to good use and would be better served by a simpler app. An app like ANDPAD (see the “Competitors” section for details) might be more suitable to customers involved in housing. Also, sometimes customers outside the construction industry trial the app but find it does not meet their needs. The company says it may consider disclosing customer churn in finer detail when it expands its target market to customers with different attributes (industry, size).
ID cancellations, cancellation rate
The company does not disclose the number of ID cancellations or the cancellation rate. The company says this non-disclosure is because it is difficult to determine, when a construction site is completed, whether IDs have been suspended or terminated. Suspensions could be treated as terminations, but oftentimes IDs are reactivated at a different site after a few months of inactivity. Lumping suspensions alongside cancellations would suggest that cancellations and the cancellation rate were higher than they actually are, information that could be misleading when trying to make investment decisions. There are no ID charges during suspensions. However, since servers are not stopped, server usage fees are incurred.
Unit economics (LTV/CAC)
Revenue generated over the life of a contract is calculated as lifetime value (LTV) divided by the unit customer acquisition cost (CAC). In a release disclosing IPO-related financial information and provided around the time of listing, the company calculated this figure as: (MoM increase in MRR x gross profit margin / monthly churn rate based on the number of customers) / (monthly personnel costs for the ICT business + advertising expenses + rent + sales commissions + transportation and other sales expenses). However, the company does not disclose specific figures for unit economics. The company says it does not disclose internal metrics for the cost efficiency of customer acquisition because providing specific numbers for each quarter could mislead investors. The company intends to control costs so that unit economics (LTV/CAC) do not fall below 5x.
Sales activities
Sales staff visit construction sites to hold on-site briefings, identify the needs at those sites, and then work with the development team to reflect that information in SPIDERPLUS’s functions. Customer support personnel follows up by responding to customer problems via e-mail and telephone. The company states that these measures have resulted in a high level of customer satisfaction and a low churn rate, both in the initial stages of implementation and in the day-to-day handling of inquiries.
Marketing
The company has changed its marketing approach due to COVID-19, attracting new business through digital marketing methods rather than trade shows. In addition to revamping its landing page (the page of a website that calls visitors to action), since Q4 FY12/20, the company has expanded online marketing activities, especially web advertising, and conducted marketing activities (such as running TV commercials on a trial basis) to reinforce new customer acquisition and enhance name recognition. The TV commercial in Q1 FY12/21 features a leading company, one of the company's customers, discussing the benefits of using SPIDERPLUS. This focus is because the company believes the value of SPIDERPLUS lies in its ability to improve customer operations.
Customer acquisition routes and conversion rate
As of August 2021, the conversion rate among existing customers was extremely high, with 70–80% of the total increase in the number of user IDs coming from existing customers. The remaining 20–30% comes from new customers. The company notes that the acquisition of new lead customers is mainly due to online marketing and the effect of TV commercials. The rate of conversion of initial inquiries via the web and as a result of TV commercials is high, at about 50%. Inside sales are another direct-contact route.
Value of lead customers
As lead customers, larger companies tend to be more valuable to SpiderPlus than smaller ones. This is because larger companies have more scope to increase their number of user IDs, making their lifetime value higher. For this reason, the company has set acquisition targets by size and is focusing its marketing efforts on large companies.
Approach to the recovery of advertising expenses
The company tracks the cost per lead acquired and the number of leads acquired by size of customer. In Q1 FY12/21 (when the company aired TV commercials in the Tokyo metro area), cost per lead acquired was lower than pre-COVID, when the company focused on offline marketing. The commercial has also been effective in terms of the number of leads acquired by size of customer. Recognition of SPIDERPLUS has risen, particularly in rural areas, and the company has seen an increase in inquiries from business partners of the customer featured in the TV commercial. As of August 2021, the company is still prioritizing sales to lead customers acquired during the TV commercial broadcast in Q1 FY12/21, and has not yet decided on the next TV commercial. As outlined earlier in this report, it takes two to three years for the number of user IDs to peak for each customer. Accordingly, it takes some time to recover advertising expenses. The short-term profit/loss scenario worsens when advertising is on a large scale.
Sales
In addition to direct sales, the company also conducts sales via agency partners. The company says its ratio of direct sales to sales via agency partners is around 3:7 when targeting the construction industry. The overall ratio of direct sales could increase as the business domain exp