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WHY DOES IT COST MORE TO MOVE A PIANO THAN INSTALL A LIFT?

When you move house, if you mention to the removal company that you have a piano that needs to be shifted too – albeit just an upright piano, not a grand piano, let alone a concert piano – the tone of the chat will turn suddenly from friendly to frosty, and the price will shoot vertically upwards. And yet the same does not happen if you own an apartment or office block and speak to a company about a new lift to be installed, which will itself shoot vertically upwards. Why?

Lifts and pianos seem to be similar in that both are bulky, heavy items that are difficult to get round corners and into position correctly, especially if you want them to work properly afterwards. But in business terms they are very different beasts.

ROLLING THE STOCK

A building lift is a vehicle, not unlike a very short vertical railway. And like a railway, there are two parts to the system: the shaft in which the lift travels up and down; and the ‘rolling stock’, which in this case means the big motor that pulls the lift cables. The actual box that we all travel in is a fairly inconsequential and inexpensive bit of the whole system. The interesting thing about lifts is that the building owner will usually get the rolling stock for much less than the cost of manufacturing it and installing it into the building’s lift shaft.

A CAPTIVE MARKET

Why? Well, the lift manufacturer knows that, once the lift is in the shaft, they have something close to a captive market. You can’t change lifts like you might change your car if you fancy a newer model. Your building (if it’s more than a couple of storeys high) is entirely unusable without the lift, and the lift has to be maintained rigorously in order to comply with building standards (and to avoid the risk of sending your tenants to a screaming death, something that the more ethical commercial landlord also cares about). All of these considerations would suggest that a lot of negotiating power would gravitate towards the lift-maintenance guys, and that lift-maintenance contracts would tend to be very attractively priced – for the lift-maintenance guys, that is.

A CONTRACT KILLING

And that is indeed the case. In a lot of cases, it’s worth it to install a lift system for well below cost, in order to get hold of the lucrative multi-year lift-maintenance contract. And once the lift and its contract is in place, it will go on paying out for years and years and years. Furthermore, the massive cash flow from their installed base of lifts makes it very difficult for anyone to compete against the incumbent players in the lift industry – any plucky little ‘start-up’ lift company would have to offer the same upfront terms to builders, which would be very difficult to finance without the cash flow from an existing portfolio of lifts. Perhaps this won’t always be the case and somewhere in Silicon Valley right now is a jeans-wearing entrepreneur who will ‘disrupt’ the lift industry, but, if that is to happen, someone will need to quite literally think outside the box. Because ‘the box’ looks very much like an oligopoly; nearly all lifts in the world are manufactured by either Otis (USA), Thyssen (Germany), Kone (Finland) and then of course there’s Schindler’s lifts (Switzerland).

A sharp business brain might think, though – couldn’t you start up a specialist lift-maintenance company, and go around poaching all those lovely lift-maintenance contracts, leaving the unattractive heavy work of manufacturing and installation to the incumbents (who would presumably go bust, since this bit doesn’t cover its costs)? Nice idea but…

THE MONOPOLY OF THE BIG FOUR

If you’re maintaining an Otis lift, where do you go to get spare parts? Otis. And since the lift of a multi-storey office building is a very large insurance risk indeed, how are you going to convince building owners (and their insurers) that you’re reliable? In general, by getting certification of your staff’s expertise and training by Otis. You can see how well set up the big manufacturers are to defend their market share. It is just about possible to compete with these guys – there are some independent installation and maintenance companies, but they’re not usually as profitable as the big integrated manufacturers, and the Big Four have something close to a monopoly (or, in the view of the European Competition Commission in 2007, an actual monopoly) on the really big contracts in skyscraper buildings.

LIFT TODAY, PAY TOMORROW

So why do the owners of the buildings agree to these long-dated, usually expensive contracts? Basically, it’s swapping an upfront cost now (when the building is being constructed) for a stream of payments later (after the tenants have moved in and started paying rent). Effectively, the lift companies are providing financing, in the form of a cheap lift, and are able to pick up a premium in exchange for structuring their charges to be more convenient for the developer. Of course, the building owner could negotiate harder and get price reductions when the lift-maintenance contract comes up for renewal, but somehow it always seems to be the case that, around that time, an important part of the lift mechanism itself is also scheduled for replacement, which would be a very expensive lump sum payment to make … unless you sign up for another contract…

COMEDY OF ERRORS

So, let’s return to our piano-removal operation. The piano in question is being jingled and jangled about by Laurel and Hardy, and it is clear that the business dynamics in operation are very different. Your removal company certainly has no service contract following the piano later, there are no joint removal and piano-tuning companies in operation. Indeed, the removal company can have only a very slight expectation of ever getting any repeat business from you at all. Therefore, they have to load all of their costs upfront, at the point of delivery. They have to charge you what it actually costs to move a large heavy item from one location, round corners, up stairs, to another. And because this is a time-consuming and people-heavy (literally) operation, it’s not cheap. Which is why the piano owner turned to Laurel and Hardy in the first place, because they were.

The owner of the house learned of his mistake, though, when the donkey, providing the counter-balance for the piano of course, crashed in through their first-floor window. And the piano smashed on the ground just for good measure. All in all, better leave it to the professionals and pay the real price, too.