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. 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. As of Q3 FY12/21, annual recurring revenue (ARR) was JPY2.0bn (+30.8% YoY), the number of customers was 1,114 (709 in Q3 FY12/20), the number of user IDs was 45,481 (36,005), and average revenue per user (ARPU) was JPY3,695/month (JPY3,569/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 FY12/20 was 145%. 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 Q3 FY12/21 was 0.8%.
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 November 2021. Using 670,000 IDs as the denominator, the service penetration rate for potential users as of Q3 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 August 2021, 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 beta version launch planned for FY12/21, the company is revamping SPIDERPLUS and intends to leverage the upgrade as a selling point to accelerate new customer acquisition.
Earnings trends
FY12/20 results: The company posted revenue of JPY2.0bn (+53.4% YoY), gross profit of JPY1.0bn (+57.6% YoY), operating profit of JPY113mn (+75.1% YoY), and recurring profit of JPY107mn (+79.4% YoY). Annual recurring revenue (ARR) for the ICT business was JPY1.7bn (+44.0% YoY). The net retention rate (NRR) was 145%. The number of user IDs was 38,560 (+32.8% YoY). The number of customers was 793 (+67.7% YoY). Customer churn averaged 0.6% over the past 12 months. ARPU for Q4 was JPY3,616/month (+8.4% YoY).
FY12/21 forecast: The company forecasts revenue of JPY2.2bn (+12.3% YoY) for FY12/21, with higher sales in the ICT business due to an increase in the number of SPIDERPLUS IDs, and lower sales in the Engineering business due to a lack of aggressive business expansion. SpiderPlus expects an operating loss of JPY540mn (vs. operating profit of JPY113mn in FY12/20), a recurring loss of JPY590mn (vs. recurring profit of 107mn), and a net loss of JPY593mn (vs. net income of JPY103mn). The forecast operating loss is due to increased outlays for advertising and personnel expenses. In the ICT business, the company forecasts revenue of JPY2.0bn (+31.6% YoY), and expects the number of user IDs to exceed 48,000 (+24.5% YoY). It expects ARPU growth to be around 4–5% YoY in FY12/21, down from 8% in FY12/20. This is because the company is holding back on adding new functions before the planned upgrade of SPIDERPLUS (slated for end-FY12/21), and because it is prioritizing new customer acquisition in FY12/21 over improving ARPU for existing customers.
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 reach its target of 48,000 IDs (+24.5% YoY) by end-December 2021 and 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.
Recent updates
Transfer of its Engineering business
On November 12, 2021, the company announced the transfer of its Engineering business.
At the board of directors’ meeting held on November 12, 2021, the company resolved to transfer its Engineering business to Armacell Japan Co., Ltd. and signed a business transfer agreement on the same day. The decision came as the company concluded that concentrating its management resources on the ICT business and focusing on expanding digital transformation services for the construction and building maintenance industries, centered on SPIDERPLUS, would contribute to improving its corporate value in the medium to long term. The transfer price is JPY200mn, and the transfer date is scheduled for January 4, 2022. The company expects to record an extraordinary gain in FY12/22 from the business transfer, but the amount is still under review and will be disclosed as soon as it is finalized.
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.
Q3 FY12/21 results
In cumulative Q3 FY12/21, revenue was JPY1.6bn (+10.9% YoY), gross profit was JPY935mn (+24.5% YoY), the operating loss was JPY298mn (JPY182mn profit in cumulative Q3 FY12/20), the recurring loss was JPY353mn (JPY179mn profit), and the net loss was JPY357mn (JPY173mn profit).
Higher revenue in the ICT business (+31.8% YoY) drove overall revenue growth. The company-wide gross profit margin rose to 57.9% (51.6% in cumulative Q3 FY12/21). This was due to the ICT business, which has a high gross profit margin (64.7%), increasing its share of the revenue mix to over 80%. For Q3 on a standalone basis, GPM in the ICT business was 60.1%, which exceeded the company’s forecast of 55%, largely due to the hiring period for development engineers being pushed back slightly.
SG&A expenses increased to JPY1.2bn (+116.7% YoY) in cumulative Q3. The number of employees (including temporary staff and SES staff) as of end-September 2021 was 173 (+19 from end-June 2021). This included 70 development staff (+11), 62 sales staff (+7 YoY), 34 corporate staff (+1), and seven Engineering business staff (unchanged).
The company maintained its FY12/21 earnings forecast, which it announced at the time of its IPO. In line with its initial forecast, the company still expects to spend JPY305mn (+163.5% YoY) in advertising during the year, with Q4 investment expected to be similarly in line with management’s initial forecast. In addition to advertising expenses for TV commercials and Internet-based marketing, the company intends to invest in marketing activities (which are included in the unit economics used as a benchmark for investment efficiency).
Overview by segment
ICT business (SPIDERPLUS)
Cumulative Q3 revenue was JPY1.4bn (+31.8% YoY), and segment profit was JPY153mn (-58.7% YoY). Versus the company’s full-year forecast, revenue reached 71.7% (71.6% in cumulative Q3 FY12/20). The gross profit margin in Q3 (three months) was 60.1%, down 4.4pp from 64.5% in Q2.
KPIs
Annual recurring revenue (ARR) was JPY2.0bn (+30.8% YoY).
The number of user IDs reached 45,481 (42,638 at end-June 2021). As a result of focusing on existing customers and due also to the seasonality of the construction industry, Q3 growth in the number of IDs was 26.3% YoY. Progress in the number of user IDs at end-Q3 against the full-year forecast was 73.3% (73.2% in end-Q3 FY12/20).
The number of customers reached 1,114 (996 at end-June 2021). The company’s stock market listing as well as the TV commercials it aired in Q1 contributed to an increased awareness of its existence. 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. As of end-September 2021, about 68% of the client companies had been using the service for two years or less. Only about 19% of the existing user IDs as of end-September 2021 were from companies that have been using the service for this much length of time. Customer churn averaged 0.8% for the past 12 months (0.8% in Q2 FY12/21).
Average revenue per user (ARPU) for Q3 was JPY3,695 per month (JPY3,677 per month in Q2 FY12/21). In terms of existing users, the increase in options utilization made a positive contribution, while for new users, the positive contribution came from an expansion in users without volume discounts. Growth is trending in line with the company’s initial forecast calling for YoY growth of about 4%–5%.
Average revenue per account (ARPA; calculated by dividing average ARR at the beginning and end of the quarter by the average number of customers at the beginning and end of the quarter) for Q3 was JPY1.8mn per customer (-15.7% YoY). The number of user IDs per company was 41, down from 51 in Q2 FY12/20. While ARPA tends to decline as the number of new users increases, the company expects it to increase moving forward on an expansion in IDs among new users and added options contributing to enhanced ARPU.
The ratio of SG&A expenses to ICT business revenue in Q3 was 36.2% for sales and marketing (38.0% in Q2), 4.1% for research and development (3.5%), and 32.6% for general and administrative (37.3%). Advertising expenses in Q3 were JPY30mn (JPY48mn in Q2). Advertising spending was focused mainly in web marketing. The ratio of advertising expenses to ICT business revenue was 6.0% (10.4% in Q2 FY12/21).
Upgrading SPIDERPLUS and the expected impact on earnings
Development of the upgraded SPIDERPLUS is moving steadily forward, and the company reiterated its intention to launch the beta version by the end of 2021. The official launch is scheduled for March–April 2022. Management expects the upgraded version’s improved functionality to contribute to an increase in ID count and higher ARPU.
Strengthening of BPO (Business Process Outsourcing) Services
On November 10, 2021, the company announced it would strengthen its BPO services, using the Learning Center provided by AI inside Inc. (TSE Mothers: 4488).
Although the company has been providing BPO services for some time, limited human resources have prevented it from being particularly proactive in the field. However, there is a strong need among the company's customers to outsource simple and time-consuming non-core tasks. As such, the company believed that if it could expand its BPO services, it would greatly improve customer convenience, which in turn would contribute to an increase in the number of SPIDERPLUS customers and IDs. The use of AI has made it possible for the company to provide rapid and large volume BPO services even given its limitations in human resources, and management believes that its accumulation of data and knowhow will allow it to further enhance its AI.
Revenue derived from BPO services is generally considered to be one-time revenue, generated largely on a per-project basis. However, as noted earlier, the main purpose of the company strengthening its BPO services is to bolster recurring revenue by increasing the number of SPIDERPLUS customers and IDs.
One BPO service that the company is already providing is the rebar layout inspection function. In the past, part of the advance preparation in construction entailed drawings and photographs used in supplementary explanations being cut out from the individual rebar diagrams and plotted, with inspection records kept along the photographs. This was a very time-consuming process for general contractors. Customers using BPO services, on the other hand, are relieved of the burden and just have to take the photographs. With this in mind, the company by bolstering its BPO services expects to provide added value, especially to general contractors. Moreover, by expanding the scope of its services, the company aims to strengthen its BPO service offerings to subcontractors.
Collaboration with Osaki Electric (TSE1: 6644)
The company on November 4, 2021 announced that it was pursuing the joint development of services with Osaki Electric. By combining its knowledge with the technology of Osaki Electric, which maintains the leading share in the Japanese market for electric power smart meters, the company aims to enter maintenance sector on a full-fledged basis from around spring 2022. The company also announced that it would work with Osaka Electric to jointly develop IoT-combination strategies for the construction industry.
The company expects this collaboration to result in an increase in customers and IDs in the maintenance field. As of November 2021, the company's main customers are the construction companies that build the buildings, but it aims to expand its customer base to include building owners and the maintenance companies that maintain buildings after they are built. By automatically importing the data in the smart meter to SPIDERPLUS, Osaki Electric will be able to improve the efficiency of maintenance work and increase the added value of the smart meter. On the other hand, users should find it easier to improve the energy efficiency of their buildings.
The domestic target market for this collaboration is approximately 50,000 factories and commercial facilities, and approximately 700,000 stores (detached houses are not included in this figure). The company's SOM (Serviceable Obtainable Market) and SAM (Serviceable Available Market) figures do not factor in the maintenance industry market, so these figures should be considered in addition to SOM and SAM figures.
Overseas development
The company launched its overseas alliance team in May 2021 and updated its English version product. Test usage by Japanese corporate customers is currently underway in seven countries, mainly in Southeast Asia. Implementation has been officially decided upon in Indonesia, with contracts for SPIDERPLUS PARTNER, a service for specialized construction companies, also being concluded.
Lifting of the state of emergency
With a sharp decline in the number of new COVID-19 cases from the beginning of the month, the Japanese government lifted its state of emergency at the end of September 2021. Noting a high level of demand for face-to-face meetings in the construction industry, the company’s key customer base, management indicated that the lifting of restrictions on movement would likely have a positive impact on the company’s business.
Engineering Business
Cumulative Q3 revenue was JPY212mn (-45.8% YoY), and segment profit was JPY26mn (-46.8% YoY). Although the number of completed projects was small in Q3, the results were in line with the company’s plan. In the Engineering business, the company has a policy of not conducting aggressive sales activities. During the period, the company had a steady flow of orders from existing clients for heat insulation and thermal insulation work using ArmaFlex and other insulation materials. The company handled several large spot projects during the same period the previous year.
Transfer of the Engineering business
On November 12, 2021, the company's board of directors resolved to transfer its Engineering business to Armacell Japan Co., Ltd. and signed a business transfer agreement on the same day.
The decision came as the company concluded that concentrating its management resources on the ICT business and focusing on expanding digital transformation services for the construction and building maintenance industries, centered on SPIDERPLUS, would contribute to improving its corporate value in the medium to long term. The transfer price is JPY200mn, and the transfer date is scheduled for January 4, 2022.
Alongside the transfer of the Engineering business, the company will transfer the assets, liabilities, and personnel in the business to Armacell Japan. The Engineering business is expected to produce sales in FY12/21 of JPY262mn (11.8% of total revenue). As of end-September, assets were JPY65mn (1.2% of total assets) and the count of employees was seven (4.0% of total employees). The company expects to record an extraordinary gain in FY12/22 from the business transfer, but the amount is still under review and will be disclosed as soon as it is finalized. Management expects that the transfer will have no substantial impact on FY12/21 earnings.
The Engineering business in the past has provided on-the-job training that allows employees to deepen their understanding of the construction industry, and as a place for the company to gather information on the latest trends in the same industry. The company does not expect the transfer of the business to hamper SPIDEPLUS development as: 1) on-site training and the exchange of information can still continue after the transfer of the business to Armacell Japan; 2) the company has already established effective communications with a number of enterprise customers; and 3) the number of sales and engineering employees hailing from the construction industry in the ICT business has increased to about 20% of all employees.
For details on previous quarterly and annual results, please refer to the “Historical financial statements” section.
FY12/21 company forecast
Notes: Figures may differ from company materials due to differences in rounding methods.
Supplementary information at the time of the Q3 earnings announcement (out November 12, 2021)
The company maintained its FY12/21 earnings forecast, which it announced at the time of its IPO. In line with its initial forecast, the company still expects to spend JPY305mn (+163.5% YoY) in advertising during the year, with Q4 investment expected to be similarly in line with management’s initial forecast. In addition to advertising expenses for TV commercials and Internet-based marketing, the company intends to invest in marketing activities (which are included in the unit economics used as a benchmark for investment efficiency). The company reiterated that it was positioning FY12/21 as a year for forward investment.
Transfer of the engineering business
At the board of directors’ meeting held on November 12, 2021, the company resolved to transfer its Engineering business to Armacell Japan Co., Ltd. and signed a business transfer agreement on the same day.
The decision came as the company concluded that concentrating its management resources on the ICT business and focusing on expanding digital transformation services for the construction and building maintenance industries, centered on SPIDERPLUS, would contribute to improving its corporate value in the medium to long term. The transfer price is JPY200mn, and the transfer date is scheduled for January 4, 2022.
Alongside the transfer of the Engineering business, the company will transfer the assets, liabilities, and personnel in the business to Armacell Japan. The Engineering business is expected to produce sales in FY12/21 of JPY262mn (11.8% of total revenue). As of end-September, assets were JPY65mn (1.2% of total assets) and the count of employees was seven (4.0% of total employees). The company expects to record an extraordinary gain in FY12/22 from the business transfer, but the amount is still under review and will be disclosed as soon as it is finalized. Management expects that the transfer will have no substantial impact on FY12/21 earnings.
Supplementary information at the time of the 1H earnings announcement (out August 12, 2021)
The company maintained the FY12/21 forecast announced at the time of its IPO. On August 26, 2021, after the 1H earnings announcement, the company announced it would relocate its headquarters. The company plans to relocate in May 2022 to prepare for an increase in personnel due to business expansion. It is currently examining the costs associated with the relocation, and will disclose them promptly when there is a need to do so.
Progress in the number of user IDs in 1H against the full-year forecast was 43.2% (45.5% in 1H FY12/20). The slightly slower rate of progress was partially due to the company’s focus on acquiring new customers in 1H. ID count also tends to grow more slowly in March–April, which construction projects are typically completed (cancellations and suspensions occur). The company said it was well within its target of exceeding 48,000 IDs by the end of December 2021 (+24.5% YoY).
Since late July 2021 (which corresponds to the company’s third quarter), the spread of COVID-19 intensified in Japan. However, as of late August, the company stated that this situation had not had a significant impact on new customer acquisition. Nevertheless, since mid-August the company has been adopting such measures as increasing the number of people teleworking and restricting the number of employees working at the office. These practices have hampered sales activities in regional areas and overseas. The company said that the sales cycle from September could be prolonged (as it was in 2020), depending on the COVID-19 situation. Subsequently, the Japanese government ended the declaration of a state of emergency at the end of September 2021, as the number of new COVID-19 cases dropped significantly.
The company forecasts a gross profit margin of 39.9% for 2H, down significantly from 58.5% in 1H. The expected decline reflects higher cost of revenue in 2H due to a major expansion of the development workforce in Q2. The company said that the hiring of development staff is progressing as planned.
Assumptions for the initial forecast
The company forecasts revenue of JPY2.2bn (+12.3% YoY) for FY12/21, with higher sales in the ICT business aided by an increase in the number of SPIDERPLUS IDs, and lower sales in the Engineering business due to a lack of aggressive business expansion. The company expects an operating loss of JPY540mn (vs. operating profit of JPY113mn in FY12/20), a recurring loss of JPY590mn (vs. recurring profit of 107mn), and a net loss of JPY593mn (vs. net income of JPY103mn). The company expects to incur an operating loss due to increased spending on advertising and personnel.
Revenue (ICT business)
In the ICT business, the company forecasts revenue of JPY2.0bn (+31.6% YoY), with annual recurring revenue (ARR) growing at roughly the same rate.
User ID count
The company expects the number of user IDs at end-FY12/21 to exceed 48,000 (+24.5% YoY). The company gives several reasons for this modest increase: (1) restraint in adding functions prior to the planned renewal of SPIDERPLUS (the company aims to release the beta version in FY12/21), (2) a longer sales cycle due to the spread of COVID-19, and (3) longer procurement period for tablets due to a pandemic-driven increase in demand. In addition, the company is currently prioritizing new customer acquisition over boosting the number of user IDs among existing customers. (New customers typically have only a limited impact on increasing the number of user IDs. It generally takes two to three years to for the number of user IDs for SPIDERPLUS to peak within client companies). The company is aggressively investing in advertising, including TV commercials. However, these efforts will make only a limited contribution to the number of IDs in FY12/21. The company believes these efforts will boost user IDs in FY12/22 and beyond.
Average revenue per user (ARPU)
The company expects ARPU growth to be around 4–5% YoY. ARPU has been on a long-term upward trend as the use of optional features increases and new IDs are added without discounts. The reason for assuming a lower growth rate than in the previous fiscal year (8%) is that the company is holding back on adding new functions before launching the upgraded SPIDERPLUS (the company aims to release the beta version in FY12/21), and because it is prioritizing the acquisition of new customers over improving ARPU for existing customers in FY12/21.
Customer churn
The company expects customer churn to be low, about the same as in FY12/20. Customer churn for non-construction customers may be slightly higher, but the company said this would not have a significant impact on overall revenue, as they account for a small percentage of total revenue.
Other assumptions
The calculation of server usage fees per user ID (used to calculate server usage fees) is based on results for FY12/20. Customization revenue and other revenue are also based on the FY12/20 results. These assumptions reflect the company’s policy of not conducting aggressive sales activities in FY12/21.
Revenue (Engineering business)
The company expects revenue of JPY263mn (-46.3% YoY) in the Engineering business. The company records Engineering revenue using the completed-contract method. In FY12/20, revenue in this segment benefited from orders for temporary large projects and rising building demand associated with the Tokyo Olympics. However, from FY12/21 the company will not conduct proactive sales and does not expect to receive any temporary large project orders.
Cost of revenue
ICT business
In FY12/21, the company expects cost of revenue in the ICT business to be JPY876mn (+70.2% YoY), mainly due to the aggressive hiring of development staff. Personnel costs and server costs related to SPIDERPLUS are the main components, accounting for more than 80% of cost of revenue in the ICT business.
Personnel costs (including temporary staffing costs) are expected to total JPY474mn (+74.5% YoY). Personnel costs are for the development division of the ICT business and are based on existing headcount and future hiring plans. The company plans to increase the number of engineers engaged in system development. The hiring plan is based on revenue per employee. To meet its recruitment goals, the company plans to hire more HR staff and step up public relations activities.
The company forecasts server costs of JPY202mn (+24.0% YoY), proportional to the target number of user IDs in the sales plan.
Engineering business
The company expects cost of revenue in the Engineering business to be JPY252mn (-38.5% YoY), in line with the segment revenue forecast of JPY263mn (-46.3% YoY). In this business, the purchase of insulation materials and outsourcing costs account for about 80% of total cost of revenue. The cost of revenue figure is calculated by applying a cost of revenue ratio based on historical results. In the event of changes in the external environment, such as a sharp rise in material prices or outsourcing costs, the company’s policy is to maintain the historical cost ratio by selecting projects with high profit margins and adjusting variable costs.
SG&A expenses (mainly for ICT business)
The company plans for SG&A expenses of JPY1.6 bn (+73.9% YoY) in FY12/21, mainly due to increases in personnel and advertising expenses, which account for most of SG&A expenses.
Personnel expenses
Within SG&A, the company forecasts personnel expenses of JPY524mn (+66.7% YoY). The expenses are for personnel at the head office and the sales division of the ICT business, including existing employees and hiring plans. In FY12/21, the company plans to increase the number of personnel engaged in sales and customer support. The hiring plan is based on revenue per employee. To meet its recruitment goals, the company plans to hire more HR staff and step up public relations activities.
Advertising expenses
The company expects to spend JPY305mn (+163.5% YoY) on advertising, but said it may spend more in Q2 and beyond after evaluating the effectiveness of TV commercials in Q1. Since Q4 FY12/20, the company has expanded online marketing activities, especially web advertising, and conducted marketing activities (such as running TV commercials) to reinforce new customer acquisition and enhance name recognition. In FY12/21, the company plans to continue with online marketing efforts aimed at acquiring sales leads, and intends to engage in more proactive marketing activities such as TV commercials to raise its profile and expand market share.
Non-operating income and extraordinary gains
The company expects no significant non-operating income. It forecasts non-operating expenses of JPY49mn, mainly due to listing-related expenses. No extraordinary gains or losses are expected.
Company forecasts versus results
The company conducted its IPO in March 2021. As the company has not yet closed its books for FY12/21, no data exists upon which to calculate differences between the company’s initial forecasts and actual results.
Longer-term outlook and growth strategy
The company intends to focus on the ICT business (SPIDERPLUS), which generated 70% of revenue in FY12/20 and is expected to account for an even greater share going forward. The ICT business accounts for about 90% of revenue in the company’s forecast for FY12/21. The company decided to transfer the Engineering business in January 2022.
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 November 2021, the company had not disclosed its medium-term management plan, citing uncertainties in FY12/21, such as the planned upgrade of 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.
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 reaches its target of 48,000 IDs at the end of FY12/21 (+24.5% YoY) and sustains a CAGR of 30% thereafter, 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 revamping SPIDERPLUS and intends to release the beta version in FY12/21. It will use this upgrade 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 release the beta version in FY12/21 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 November 2021. Based on its APRU of JPY3,677mn as of Q2 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 beta version slated for launch in FY12/21 (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 by the end of FY12/20 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 from 30 as of March 2021 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. 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. As of Q3 FY12/21, annual recurring revenue (ARR) was JPY2.0bn (+30.8% YoY), the number of customers was 1,114 (709 in Q3 FY12/20), the number of user IDs was 45,481 (36,005), and average revenue per user (ARPU) was JPY3,695/month (JPY3,569/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 FY12/20 was 145%. 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 Q3 FY12/21 was 0.8%.
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 November 2021. Using 670,000 IDs as the denominator, the service penetration rate for potential users as of Q3 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 August 2021, 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 revamping SPIDERPLUS, planning to release the beta version in FY12/21, and intends to leverage the upgrade 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 FY12/20 was 145%. The large network effect also suggests that certain software is likely to gain a majority market share (i.e., a winner-takes-all structure). The company does not disclose NRR on a quarterly basis, but does so on a full-year basis.
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 (launched 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 August 2021, the beta service is being offered to about 10 companies on a trial basis. The company aims to launch the official version by the end of 2021. 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 release the beta version in FY12/21), 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 JPY2.0bn (+30.8% YoY), the number of customers was 1,114 (709 in Q3 FY12/20), the number of user IDs was 45,481 (36,005), and average revenue per user (ARPU) was JPY3,695/month (JPY3,569/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 Q3 FY12/21 was 0.8%. 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 Q3 FY12/21, the number of IDs was 45,481. 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 Q3 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 Q2 FY12/21, the company had 996 customers and the number of average user IDs per customer (simple average) was 43. User IDs per company reached a high of over 70 in FY12/17–12/18, and then declined in FY12/19–12/20. 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 FY12/20 was as high as 101%. 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-October 2021, 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 November 2021.
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.