Cloud Construction ⎟ Redefining Manufacturing Models In The Building Industry

February 28, 2025

Cloud manufacturing revolutionizes traditional building materials manufacturing models. Surprisingly, Coca-Cola serves as a blue-print for the category creators in construction such as Infra.Market and Metalbook.

Patric Hellermann

Shub Bhattacharya

Cloud Construction ⎟ Redefining Manufacturing Models In The Building Industry

Cloud manufacturing revolutionizes traditional business models by optimizing existing production capacity before building new facilities, as exemplified by Coca-Cola's success selling concentrate to bottlers who handle capital investments while the parent company maintains brand control.

This Week On Practical Nerds - tl;dr

Coca-Cola operates as a B2B (not B2C) company selling concentrate to bottlers who take on capital investment and factory operations

This model served as a hidden blue-print for building materials cloud manufacturers

Cloud manufacturing evolves beyond contract manufacturing by optimizing asset utilization and matchmaking

It differs from managed marketplaces in critical characteristics - for example, cloud manufacturing does the opposite of maximizing supply liquidity

Startups going for cloud manufacturing grow faster and more profitably when they maximize existing supply utilization before building new production facilities

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Coca-Cola's Hidden B2B Business Model

Time to burst a bubble that's been part of our reality: That bottle of Coca-Cola you're grabbing from the convenience store? Coca-Cola didn't make it. Coca-Cola didn't sell it to the store. In fact, Coca-Cola – as we understand the company – never touched the physical product!

This revelation floored us when Shub first brought it up. We've been conditioned to see Coca-Cola as the quintessential consumer brand, but the reality is even more interesting.

What Coca-Cola actually produces is concentrate – previously called syrup – which contains their jealously guarded secret formula. They sell this concentrate to independent bottling companies who do all the heavy lifting: investing in manufacturing facilities, adding water and sugar, creating packaging, filling bottles, and handling the entire logistics operation to get products into retail channels.

From that $1 bottle of Coke you purchase, Coca-Cola receives “just” 20-25 cents. Yet they've built one of history's most valuable brands on this model. The bottlers operate on tight margins, handling all capital expenditure and operational costs from their 75-80% share.

Despite not handling the physical product, Coca-Cola controls the brand and quality. They're not advertising to sell directly to us – they're driving consumer demand so retailers will purchase more from bottlers, who then must purchase more concentrate from Coca-Cola. It's an elegant, multi-layered B2B relationship camouflaged as a direct consumer business.

This arrangement isn't unique to soft drinks. McDonald's employs the same model – franchisees sink capital into restaurant locations, purchase ingredients (some exclusively from McDonald's), and handle the actual "manufacturing" of burgers and fries. We never think of fast food restaurants as manufacturing centers, but that's exactly what they are.

Construction has similar models in the cement and concrete world. Cement manufacturers often view concrete plants as their equivalent of gas stations – distribution points for their primary product. While these materials lack the emotional brand attachment of consumer products, the underlying mechanics of the cloud manufacturing model are similar.

The bottler-brand relationship demonstrates how asset-light models can succeed in cloud manufacturing

Why would bottlers willingly surrender their brand identity and margins to Coca-Cola?

These bottlers aren't fools. They're making a calculated trade-off:By aligning with Coca-Cola, they're purchasing something precious in manufacturing: certainty. Not peak earnings, but consistent, predictable utilization of their facilities. That predictability is worth its weight in gold when you've sunk millions into production infrastructure.

A factory running at 50% capacity isn't half as profitable as one running at 100% – it might be running at a loss. Fixed costs, depreciation, and overhead don't scale down proportionally with production volume. They're relentless, grinding away at margins when machines sit idle.

What Coca-Cola offers bottlers is the confidence to operate at consistently high utilization rates. The bottler sacrifices brand control and margin percentage but gains something far more valuable – stability and predictability of cash flows. That's the core value exchange that makes these arrangements work.

This dynamic utterly transforms how we should think about manufacturing businesses. We've become trapped in outdated mental models that equate manufacturing with smokestacks, heavy assets, and dreary industrial parks. The reality is that some of the world's most valuable companies have reinvented manufacturing into asset-light enterprises through these business models.

What they've done is separate the physical act of production from the higher-value activities of brand building, demand generation, and customer relationship management. They've converted manufacturing operations into IP businesses and brand businesses, driving returns on capital while avoiding the heavy asset investments traditionally associated with manufacturing.

This reframing of manufacturing – from asset-heavy to asset-orchestrating – sets the stage for a wholesale reimagining of the construction materials sector. Cloud manufacturing isn't just a tech-enabled twist on contract manufacturing; it's a fundamental rethinking of who does what in the value chain and who bears which risks.

Cloud manufacturing differs from managed marketplaces by concentrating suppliers rather than expanding them

I remember a conversation with a marketplace investor who had backed several successful platforms. When I described one of our portfolio companies as a "cloud manufacturer," he looked puzzled. "So, you mean a managed marketplace?" he asked. It was a natural confusion, but the distinction is crucial.

This misunderstanding goes beyond semantics – it reflects fundamentally different strategic approaches to organizing supply chains.

In the classic marketplace playbook, the North Star metric is always supplier expansion. More suppliers create more competition, enable better geographic coverage, and allow for category expansion. Marketplace investors track supplier acquisition, celebrating when they cross from hundreds to thousands of suppliers. The conventional wisdom says: more suppliers equals more liquidity equals better outcomes for customers.

Cloud manufacturing turns this logic on its head. Instead of endlessly expanding the supplier base, successful cloud manufacturers deliberately concentrate suppliers. This concentration isn't about creating monopolistic pricing power – it's about creating predictable utilization for a smaller network of manufacturing partners.

Think about the risk allocation here: In a managed marketplace, the individual suppliers still bear the risk of utilization. They might get orders through the platform, but there's no guarantee of consistent volume. One month they might be swamped with orders; the next month, they might be idle. That volatility is the supplier's problem, not the marketplace's.

In cloud manufacturing, the platform itself assumes the risk of utilization. They promise their manufacturing partners predictable volume in exchange for favorable terms. This risk shift fundamentally alters the relationship from transactional to strategic partnership.

The customer experience differs dramatically too. When you interact with a cloud manufacturer, you're not choosing between different suppliers based on price or reviews – you're choosing a unified brand that stands behind the product. When you buy Coca-Cola, you're not evaluating different bottlers; you're placing your faith in Coca-Cola as a platform. The manufacturing details become invisible to you as a customer.

This brand-forward approach creates a different kind of moat than marketplaces enjoy. Instead of network effects between buyers and suppliers, cloud manufacturers build brand equity and customer loyalty. It's less about creating frictionless transactions and more about delivering consistent quality under a trusted brand umbrella.

Building utilization of existing supply should precede creation of new supply capacity

A common misconception among founders building cloud manufacturing platforms is that they need to create new supply capacity from the beginning. This is particularly prevalent in sectors like metal fabrication, where there are legitimate concerns about limited domestic manufacturing capacity after decades of offshoring.

While these capacity constraints are real, successful cloud manufacturing platforms don't start by building new supply. Instead, they begin by maximizing utilization of existing assets. This sequencing is counterintuitive but critical—you must prove your ability to drive utilization before you earn the right to build additional capacity.

This approach stems from understanding what manufacturers want in exchange for giving up their brand identity. When a metal fabricator or building materials producer allows their products to be sold under another brand, they're surrendering a significant privilege. In return, they want certainty of earnings—not necessarily peak earnings, but consistent, predictable revenue.

Cloud manufacturing platforms must solve for this certainty of revenue. With a widely dispersed supply base, achieving this consistency is nearly impossible in the early stages. By focusing on a concentrated set of suppliers and proving the ability to drive utilization, cloud manufacturers build the credibility and operational knowledge needed to eventually expand capacity.

The optimal strategy is to identify categories that are under-utilized, under-branded, and under-discovered. By providing utilization guarantees to existing manufacturers in these categories, cloud manufacturing platforms can establish their model before considering the creation of new supply capacity. This approach minimizes capital requirements while building the operational expertise necessary for long-term success.

This principle applies globally, not just in Western markets. The decision about which product categories to target should be driven by identifying areas where these conditions exist—underutilization, weak branding, and limited market visibility. These factors determine the types of businesses that can successfully implement the cloud manufacturing model.

Conclusion: The Asset-Light Utilization Framework

The ideal entry points for cloud manufacturing models are product categories that meet three specific criteria: they're underbranded, underutilized, and underdiscovered. These characteristics create the perfect conditions for a cloud manufacturing platform to add value.

Under-branded categories lack strong existing brand identities, making manufacturers more willing to produce under a platform's brand. When existing products don't carry significant brand equity, the opportunity cost of giving up brand ownership is lower. This makes it easier for cloud manufacturing platforms to consolidate products under a unified brand.

Under-utilized manufacturing capacity is essential because it creates the opportunity for immediate value creation. Manufacturers with excess capacity face pressure to increase utilization rates to cover fixed costs. By guaranteeing consistent order flow, cloud manufacturing platforms can transform these underperforming assets into reliable revenue generators without requiring additional capital investment.

Under-discovered categories offer growth potential through improved marketing and distribution. When quality products lack market visibility, a cloud manufacturing platform can create value simply by connecting these products to appropriate customers. This solves a discovery problem rather than a production problem.

These three characteristics typically appear together in certain segments of the building materials and construction industry. While some construction materials categories are dominated by large, established brands with optimized manufacturing networks, others remain fragmented, inefficient, and ripe for consolidation under a cloud manufacturing model.

The construction industry's renaissance through cloud manufacturing is likely to take different forms across different regions. Local building codes, climate conditions, and construction practices create natural geographic boundaries. This means successful cloud manufacturing platforms will need to adapt their approaches to local conditions rather than pursuing a one-size-fits-all global strategy.

For founders and investors willing to get their hands dirty with operationally intensive businesses, these under-branded, under-utilized, and under-discovered categories offer tremendous potential. Though cloud manufacturing lacks the digital glamour of pure software platforms, it represents a massive opportunity to transform fundamental industries while creating substantial enterprise value.

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