Winners & Losers in PropTech: 16 Differences

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2019 has kicked off with something of a feeding frenzy in the world of PropTech. There is much talk of this company investing, that startup raising, and the thousands of new entrants from all around the world looking to ‘disrupt the biggest asset class in the world’. Well, here is a tip: most startups will fail and most investments in using startup technology will fail as well.

Why? It is simple:

“Winners win because they do the ‘right’ things. Losers lose because they don’t’ 

Winning in the real estate industry of the future is not about knowing which company to invest in, or what technology to buy, but in understanding how to think about technology and the nature of truly digital businesses. It is about a mindset, learning, and constant iteration as much as anything else, 

Below are 16 differences between Winners and Losers. On what side of the fence do you sit?

1.Winners understand the speed of change / Losers don’t follow the tech industry

Technology drives behaviour, not vice versa. Societies undergo rapid transformation when technological change is rapid. And today, technological change is especially rapid. Moore’s Law, essentially the doubling of computing power every 18 months or so, might have held for 50+ years but other areas of computing are developing much faster. GPU’s, the processors largely used for artificial intelligence, have massively outshone CPU’s (the standard unit of measure for Moore’s Law) over the last 6 years. Neural Network Training (a foundational process for AI) increased in speed 60 times between 2013 and 2016. The scale of computational power available to leading AI practitioners increased 300,000 times between 2012 and 2018. Yes, that is not a typo - 300,000 times.

And this has consequences. Professor Amy Webb’s company, The Future Today Institute, released their latest annual Tech Trends report last week (free to download at https://futuretodayinstitute.com/2019-tech-trends/) and this contains 315 trends that will impact significantly on business and society within the next 0-10 years. i.e within the lifespan of a major development project.

Winners in real estate companies will know this, and whilst not needing to discern every granular implication will be cognisant of major trends, because trends impact on behaviour and fundamentally behaviour drives real estate demand. Losers, on the other hand, will carry on as they have historically within real estate knowing next to nothing about developments in the world of tech.

The flip side, of course, is that PropTech winning companies will update their knowledge sets by diving equally deeply into how the real estate industry functions, what incentives different sections of it respond to, and the nature of competitive advantage within the market. Losers, and many fall in to this camp today, will know little, and care less, about real estate. Both sides have much to learn.

2. Winners know about networks, ecosystem and what ‘being digital’ means / Losers know nothing about networks, ecosystems and ‘being digital’ 

Digital companies are different to analogue ones, in six areas: Data, Customers, Competitors, Networks, Ecosystems, Platforms and Marketplaces. Knowing the difference is a major difference between winners and losers.

Truly digital companies (think of tech being an interwoven thread throughout the organisation as opposed to the IT department down in the basement) are built upon data. Without having your data ‘in order’ you cannot be a digital company.

Digital lends itself to direct to consumer, or as Tim Cook of Apple would have it ‘the iPhone is the most personal computer we have ever built’. Each of us has a £25,000,000 1980’s Super Computer in our Pocket, connected thanks to the Cloud and the likes of Google, to just about ‘all the world’s information’. As such digital companies can provide each of us with personalised, contextual, on-demand data and services. In real estate this should be leading us to communicate not just with those responsible for official matters concerning our assets but every single person who enters into our spaces. Our Customer has changed.

As has, or might, our Competitors. Winners are paranoid about whether the tech industry will learn real estate before they can learn tech. In the years ahead our competitors are very likely to not be traditional real estate ones.

So we need to understand the power of networks. Every tech business aims to build as large a network of users as possible, and to understand their wants. needs and desires well enough to be able to build an ecosystem of partners who can help them sell, up-sell, or side sell as many non core products or services as possible. Ultimately tech companies aspire to be platforms or marketplaces where they curate their networks by matching supply and demand, buyers and sellers. GAFA - Google, Amazon, Facebook, Apple - are as powerful as they are because they are mighty platforms and marketplaces.

in real estate, despite interacting daily with the majority of our customers, we tend to know very little about them, and mostly do not think of networks, or platforms. An exception, which hopefully elicits the right response, is of course WeWork. They emphatically do understand the value of networks.

3. Winners have the Four V’s of Data sorted / Losers have Data ‘issues’

Building on point 2 above, winners invest in the Four V’s of data: Volume, Variety, Velocity and Veracity.

They know how much data they have, they seek to ensure they have the variety of data that is required to garner true insight, they know exactly whether their data sources should be captured annually, monthly, daily, hourly, by the minute or even the second. And they are ruthlessly honest in defining just how ‘true’ their data is. Data does not have to be 100% accurate, but if it is not you need to know, and know whether that matters.

Winners invest the money time and effort in to getting their data in order. Losers have ‘data issues’, and in the years ahead that alone will destroy many an established company.

4. Winners work in multi-functional teams / Losers work in silos

The Ultimate Marketing Machine (https://hbr.org/2014/07/the-ultimate-marketing-machine) is a Harvard Business Review article from 2014. In it the authors describe how solving a customers problem, or need, or desire requires the input of three different types of people. First people who can ‘Think’ and who are focussed on data and analytics. Secondly people who can ‘Feel’ who are focussed on customer engagement, and thirdly people who can ‘Do’, whose job is to build the solution. Each different problem needs a different mix of the ‘Think, Feel, Do’ toolkit; sometimes the solution is more technical than anything else, whereas in other instances the problem is a very ‘human factors’ one. Regardless though, you always needs a mix of inputs.

Much the same core thinking lies behind the practice of ‘Design Thinking’ or ‘Sprints’ (see the book by three Googlers - https://www.thesprintbook.com/).

Steve Jobs nailed it in 2003:

 “Most people make the mistake of thinking design is what it looks like. People think it's this veneer – that the designers are handed this box and told, “Make itlook good!” That's not what we think design is. ...Design is how it works.” 

Now maybe you do not think of your role in real estate being about design, but ultimately everything is. ‘How it works’, for you, you customer, partner or stakeholder is the bottom line.

Start thinking about the UX, or User Experience, of everything you do in business and you soon realise that this is where competitive advantage lies. As we move from a world mainly focussed on selling Products, to one more involved with delivering a Service, the UX you offer your customers is the difference between you and your competitors. 

The best UX wins, and winners know that only multifunctional teams can collaboratively create a great UX. Losers carry on with what is, sadly, largely the norm, working in silos. That doesn’t work so well know does it? Why is it likely to in the future?

5. Winners know the difference between disruptive and sustaining technology / Losers think all technology is equally important

‘We need to buy some PropTech!’ - who has heard or read that? Yes, I thought so, too many of us. Or ‘we’re not a tech company, we can’t build any technology’. Again, this is not a novel thing to read or hear.

And of course, completely the wrong way to think about technology. Understanding the difference between technology that is table stakes and that which is a competitive advantage is vital, but also something that only winners do.

‘Anything that can be bought is by definition not a differentiation’

The great management writer Charles Handy (in The Empty Raincoat) used S-curves to to demonstrate the need for significant and regular reinvention and change. Technologies, and businesses, start at the bottom left with real innovation, maximum competitive advantage, but few customers (or competitors) and work their way through the S, hitting customisation and then productisation, and then finally at the top right, with the biggest numbers of customers, but also the most competition, end up being commoditised.

Knowing where you business is, or the component workflows and divisions within it, is absolutely vital to knowing what type of technological strategy to adopt. Anything in the upper right hand side of the S you may as well buy in, as all your competitors will be doing the same, and whilst you must have this technology, it is just table stakes. Think Word, or Excel or Yardi, or Altus.

During the central part of the S, where services tend to be highly customised but still available off the shelf, you are often best to partner with someone who can help you leverage the available tools better than your competition. But at the bottom left you are at the point of maximum competitive advantage. You have something no-one else does. Often this becomes something competitors acquire over a period of time but the opportunity exists to build a persistent competitive advantage. Most particularly at the moment, use of Artificial Intelligence can enable strong and persistent advantage because unlike with most technologies, being a fast follower with artificial intelligence is very hard. The hint is in the term ‘Machine Learning’, which means the system learns through experience and over time. There is no short cut through this learning process so the entity that has the best data to learn from, will benefit from a flywheel effect where better data leads to better learning which leads to more data which leads to more learning. 

Team up AI with a firm grasp of the benefits of networks and winners really will have powerful competitive weapons. Fail to understand why just ‘shopping’ for tech is a bad policy and you’ll be deep in loser territory.

6. Winners think of Real Estate as a Service industry / Losers think of Real Estate as a Product industry

Two trends have been growing in strength over the last few years and they are the move from Products to Services and Ownership to Access.

Increasingly we are moving to an almost post consumer world where we are less bothered about accumulating more things and much more interested in being provided with services, experiences and ephemeral pleasures. 

So Uber instead of Cars, Spotify instead of CD’s, Netflix instead of DVD’s: on-demand this, on-demand that. Why bother to own something you seldom use, that becomes out of date rapidly, or that you really cannot afford. Rent it when you need it.

And Real Estate is not immune from this trend. 

In fact the real estate business is no longer about real estate, or soon won’t be. Just as it is now easy to buy almost any Software as a Service, so it will become with real estate. Space, as a Service, is the future of real estate. On demand and where you buy exactly the features, and services, you need, whenever and wherever you are.

The key point is that real estate is moving from a Product to a Service. And that means that organisationally, culturally, financially our industry is fundamentally changing. We will need a different mix of people, with new and different mindsets and skills. Yes we will still need all the real estate knowledge that we have today, but going forward that will most definitely be necessary but not sufficient.

Losers will persist in thinking real estate is a product business, where the physical asset represents the value and the sun around which everything else rotates. Winners will realise the physical asset is just the wrapper; the business is about what goes on inside that wrapper.

7. Winners put the customer at the centre of their business / Losers put themselves at the centre of their business

How many meetings have you been in when the only topic of conversation has essentially been about how you, as a company, wishes the world worked? It is a constant of modern business; in a way understandable as we all try and configure our businesses to work in a way that suits us best, whilst too often forgetting that ‘it’s not about us’.

Jeff Bezos and Steve Jobs provide the best summations of the winning way to think:

“You’ve gotta start with the customer experience and work backwards to the technology.” Steve Jobs

“The most important single thing is to obsessively focus on the customer. It’s our job everyday to make every important aspect of the customer experience a little better.” Jeff Bezos

It’s back to the UX point; ‘how it works’ matters and only by focusing on the customer need can you win.

8. Winners ‘Build, Measure, Learn’ / Losers stop at ‘Build’

In the software industry there is a golden rule for development. You Build, you Measure and you Learn. And then you repeat the process. Software is never finished, it is always in permanent beta.

In real estate we typically stop at ‘Build’. A project is finished and everyone disperses. No-one measures performance, or how well the asset meets the needs of the customer, or successfully addresses the KPI’s it was designed around (in fact the notion of KPI’s is generally ignored). Which is why so many buildings perform so badly, according to their users.

Real estate, especially the workplace, needs to be thought of as software. We will build it, we will measure how it performs (across a wide range of physical, and human, criteria) and we will adapt it accordingly. Optimise, optimise, optimise is the new location, location, location.

9. Winners are ‘Learn-it-Alls’ / Losers are ‘Know-it-Alls’

This is derived from something Microsoft CEO Satya Nadella recently said in an interview about how he likes to think of himself. In a world where change is a constant, and what you knew yesterday might not be right for today, winners have to be endlessly curious and voracious acquirers of new knowledge. If you’re not, you’ll be a loser.

10. Winners understand what AI is good at / Losers don’t understand what AI is

AI is clearly a big topic, too big for this article, but at root it has five key capabilities:

  1. Perception - Understanding the world based on sensory input, such as images or sound

  2. Communication - Natural Language Processing, Speech Recognition

  3. Knowledge - Aggregating, synthesising multiple datasets or streams

  4. Reasoning - The application of logic : deductive, inductive, abductive

  5. Planning - Setting goals and how to achieve them

Which means that all companies can now exploit 6 new capabilities:

  • Understand people using language

  • Automate processes

  • Optimise complex systems

  • Understand what is happening in pictures and videos

  • Create content

  • Make predictions

McKinsey in January 2017 wrote this:

‘Overall, we estimate that 49 percent of the activities that people are paid to do in the global economy have the potential to be automated by adapting currently demonstrated technology.’

The critical point is that anything ‘structured, repeatable, predictable’ will be capable of being automated by AI. And that involves a great deal of the tasks performed everyday within the real estate industry.

Winners will get to grips with AI, and the best will aggressively try to leverage it within their businesses, as it is uniquely powerful. 

Losers will not make the effort (this is hard), and over time will live to regret that.

11. Winners realise companies want a productive workforce / Losers think companies just want an office on a ‘reasonable’ lease

Following on from all the above it is clear, to winners, that no company actually wants an office; what they want is a productive workforce. Historically they needed to have an office, today they do not. They must be made to want rather than need an office, through the provision of a range of services and overarching UX that does enable their workforce to be as productive as possible. That, essentially, will boil down to #SpaceAsAService (see https://www.propmodo.com/space-as-a-service-the-trillion-dollar-hashtag/)

Losers will continue to argue that people ‘need’ an office and that companies are only really after a bit more flexibility in their leases. Good luck with that in five years time.

12. Winners embrace automation / Losers avoid automation

Don’t bring a knife to a gun fight. If something benefits from, and can be automated, it will be automated. If your business makes money out of manually performing tasks that will be automated, then the best thing to do is either move out of that line of work, or be the first, and best people to automate it.

Mostly automation will allow people to do more with less. So you could take the attitude that there is only X amount of Y to be done and therefore automation will wipe out your business, or, by enabling A to be delivered 10x cheaper, faster, better than now, you could see automation as an opportunity to massively grow your addressable market.

The only thing that is clear is that losers will fight automation, with inevitable results. It might take time, but the end point is certain.

13. Winners think ‘Human+Machine’ wins / Losers think Machines will wipe out Humans

As with the attitude towards automation, losers tend to look upon ‘the Machines’ as an existential threat that is going to wipe them out. Images of the Terminator come to mind far too fast.

The reality is that we are many decades away from the sort of ‘Artificial General Intelligence’ that would enable the sort of super intelligent machines that pose a real threat to mankind.

The reality is more in line with what is known as Moravec’s Law, which states

"it is comparatively easy to make computers exhibit adult level performance on intelligence tests or playing checkers, and difficult or impossible to give them the skills of a one-year-old when it comes to perception and mobility”

Human + Machine is the smart way to think about the future. The path of using technology to replace humans is a dead end. Far better is to think how humans can be augmented by technology, and indeed how technology can be improved by humans. 

14. Winners obsess over ‘Value Propositions’ and ‘Product/Market Fit’ / Losers assume their Value Proposition is OK, and what’s ‘Product/Market Fit’?

In the tech industry everyone obsesses about ‘Value Propositions’ and ‘Product/Market Fit’, concepts made famous by Alex Osterwalder and Steve Blank respectively. In the first, one dives deeply into how well one’s product or service matches the exact needs of a customer and in the second how well suited one’s overall business is to the market, and how big that market is. The point being to place a laser like focus on pleasing the customer, and to precipitate repeated iterations until that is achieved. 

In software you know you are winning when growth goes exponential, whereas in real estate a number of different measures could be used. One of the best, but least used in the industry, is your NPS or Net Promoter Score. This is:

‘an index ranging from -100 to 100 that measures the willingness of customers to recommend a company's products or services to others. It is used as a proxy for gauging the customer's overall satisfaction with a company's product or service and the customer's loyalty to the brand.’ 

Winners will increasingly be following the tech industry in making these two concepts central to their businesses. Losers are unlikely to know what they are.

15. Winners look to be 10X better / Losers look to be a 10% better

Absolutely critical to how to think about PropTech and the future of real estate is to reject the notion that the industry is working just fine and all we need to do is ‘digitise’ it. Digitising the past is one of the worse mistakes to make. All that will do is move you on 10% or so, and it is what losers are doing, and will do. We have a wide range of extremely powerful digital tools at our disposal and we must use them to rethink ‘how it works’, as Steve Jobs described the role of design. Almost every area of real estate could be re-designed to be 10X better than it is now. Either a much better experience, or 10X faster, 10X cheaper, 10X quicker or 10X smarter.

Thinking 10X requires you to use all the tools covered here to go back to first principles and consider just how good something could be.

Take Uber: the experience of simply tapping your phone, getting in to a car and then getting out at your destination is definitely 10X better than the old ride hailing, fumbling around for change and shouting directions at the driver way of old.

Take your own speciality in real estate and rethink it. Make it 10X better. 

16. Winners think Better before Cheaper and Revenue before Cost. Losers the opposite.

This last difference between winners and losers is inspired by another Harvard Business Review article, this time written by Michael Raynor entitled ‘Three Rules for Making a Company Truly Great’ (https://hbr.org/2013/04/three-rules-for-making-a-company-truly-great)

The three rules are:

  1. Better before cheaper—in other words, compete on differentiators other than price.

  2. Revenue before cost—that is, prioritize increasing revenue over reducing costs.

  3. There are no other rules—so change anything you must to follow Rules 1 and 2.

For me these are what PropTech and Future Real Estate should be all about; Aspiring to being better, and pricing accordingly, not looking to cut costs and price your way down to gaining a customer.

They used to say you could not brand real estate. And maybe in a product centric industry that might have been true. But in the world of new real estate, where the service, the UX, you deliver is what sets you apart, you assuredly can. Putting better before cheaper and revenue before cost is a core component of how to do it.

So that’s it, 16 differences between winners and losers in the new world of PropTech driven real estate. Mostly representing a new mindset, inspired by the best companies in the technology sector. Not only might these companies be amongst our best customers, they have much in their DNA we can learn from.

Antony


AI, Retail Real Estate, Value: 6 Questions

The Bezestein Bazaar, El Khan Khalil, Cairo, 1872, by John Frederick Lewis. Watercolour. The Higgins Art Gallery & Museum, Bedford

The Bezestein Bazaar, El Khan Khalil, Cairo, 1872, by John Frederick Lewis. Watercolour. The Higgins Art Gallery & Museum, Bedford

Recently there has been much talk of a ‘Retail Apocalypse’, with millions of square feet of retail space shuttering and the demise of many long term household names. The US and UK have been particularly heavily affected but the impact has been felt widely across the developed world.

Just across the US we are now seeing over 100,000,000 sq ft of retail space closing per annum.

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And online sales have been, for years, growing much faster than offline:

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Though still the overall penetration is not that high and varies markedly across countries.

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Looking at all of this positively many real estate people point out that the majority of people still prefer to shop, in shops. A recent US survey results are shown below.

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Further comforting the real estate industry is the sight of many previously ‘online only’ Brands opening physical stores. So we may have an industry closing a lot of space but ultimately it seems like ‘online only’ does not work and shoppers, by and large, still want to go to physical stores. Or that is the way the real estate industry likes to look at the market.

What we will discover over the next few years though is that they are both right, and very wrong. Yes, people will always like the experience of shopping but the current experience of shopping, with notable exceptions, does not have product/market fit.

A rising tide will not lift all boats, it will expose the naked.

Fundamentally, and this is the problem for real estate investors, not all retail, or retailers, are equal, and the difference in capabilities of operators is going to become more and more a key driver of returns. As with the office market, where one could previously ignore the particularities of occupiers and focus purely on the NOI, today and going forward the operator of that asset will be a major determinant of performance. Retail Real Estate is going to become an asset class where understanding the dynamics of the retail industry, at a very granular level, will pay of handsomely. 

Real Estate Investment as a numbers game is coming to an end. Our industry is morphing from being about selling a Product to delivering a Service. And that changes everything. You’re no longer buying into an asset class, you are buying into an ecosystem of variables, most of which are not real estate related, that combined, will determine short, medium and long term value.

Where though does AI sit in all of this? 

Below are a series of questions I put together for a panel discussing the impact of AI on the valuation of retail real estate.

1. We can see how AI changes things for retailers but how does it change things for shoppers?

The best retailers have been utilising AI for some time. The recent report from the MIT Sloan Business School ‘Artificial intelligence in Business Gets Real’ shows how the early adopters are doubling down on their AI investments, building competencies, and working to take AI to scale.

Principally retailers are working on understanding their customers at a deep level so that they can:

  • Make personalised product recommendations

  • Tailor the inventory in individual stores to better reflect the wants, need and desires of the local population

  • Optimise pricing

  • Deliver more targeted offers and deals

  • Reduce the incidences of fraud.

All of the above is of course aimed at delivering a more compelling shopping experience for customers, by better understanding the individuals drivers of consumption.

Mostly this data harvesting and analysis is being performed online, which is why the best online retailers (think Amazon or Alibaba) are so successful. They understand what I want, and make it extremely easy for me to purchase goods, any time of the day.

Providing customers with what they know they want is a very hard thing for anyone to do better than an advanced e-commerce company. 

What online is not good at though is ‘discovery’, the serendipitous finding of something I didn't know I want. And generating that frisson of pleasure when this occurs.

Which is why offline shopping will persist, albeit with a huge caveat.

And that is that the offline retailer has to make it a more enjoyable experience for me to get up off my sofa, leave my house, and travel to visit their store. And then, when I am there, know enough about me that this experience is tailored to me. Yes I know, this is all sounding very ‘me, me, me’ but the reality is that is what offline retail is all about. Delighting me, and whoever I choose to go shopping with.

Much of all this personalisation is made possible by carefully collecting the right data, with the requisite ‘Volume, Variety, Velocity and Veracity’ (the famous four V’s of data) to be able to answer the right questions that provide the answers to deliver this personalisation.

So how does AI change things for shoppers? By upping their expectations as to what a shopping experience is.

It was recently said, by the ‘Retail Prophet', Doug Stephens, in response to a question about millennials being fickle:

‘Millennials don’t suffer from shortened attention spans. Rather, they simply have a much higher sensitivity to things that are boring.’

That’s how AI has changed things for shoppers.

2. Amazon Go is pioneering AI powered automated stores - is this going to be a big thing?

You’ve probably seen the promotional video Amazon released, showing how the experience of shopping in one of their Go stores was different. You simply walk in, tap your phone to begin shopping, then pick up whatever you want, and simply Go.

Frictionless retail. Just pick it up and off you go. How easy it that?

Essentially this is only possible because of the incredible advances in the AI behind ‘Computer Vision’, which is the ability of computers to understand photos, videos or the world around them. Today, a computer can ‘see’ better than a human. This is the same technology behind many of the autonomous vehicles you hear about, and the ‘self driving’ capabilities of a Tesla.

In computing terms, this is now largely a solved problem. The technology will improve (it is mostly a function of computing power and the availability of training data) so these prototype small Go stores are very likely to grow in size over the next five years. They will be a big thing. Autonomous shopping will be a big thing.

Paradoxically the aim is not solely to replace humans in store. In fact new prototypes include open kitchens, where you can see your food being freshly prepared, right in front of you.

Remove the boring bits of shopping to concentrate on the product and service.

It is speculative at the moment whether or not Amazon will release this technology as a ‘Software as a Service’ product but if they do, close attention needs to be paid to who picks up on these new capabilities, as they will almost certainly be the most innovative retailers in the market. Possibly, even probably, they will enable a new range of entrants.

Critical from a real estate perspective will be whether your asset is equipped to enable a retailer to ‘go autonomous’. Could it be that, in five years time, not having such infrastructure will be like having an office building with poor broadband? i.e effectively useless.

3. Alibaba talk a lot about ‘New’ Retail, especially connecting offline with online shopping. And are huge investors in AI. How does this impact on real estate?

Alibaba is prodigiously good at AI. They are also prodigiously good at e-commerce. The two are connected.

80% of all e-commerce in China touches one or more Alibaba entity, as they control the 3 largest marketplaces in the world, the B2B (Alibaba.com), C2C (Taobao), and the B2C (Tmall). 

Simply put, this enables them to have almost perfect knowledge about the nature of demand across China, in real time.

They have opened 65 of their Hema branded supermarkets in the last year. They own 29 department stores and 17 shopping malls across the country. And through their ‘New Retail’ platform they are helping to digitise hundreds of thousands (yes, hundreds of thousands) of ‘Mum and Pop’ stores.

Jack Ma explained what he means by ’New Retail’ in a shareholder letter in 2017:

 “E-commerce is rapidly evolving into New Retail. The boundary between offline and online commerce disappears as we focus on fulfilling the personalised needs of each customer.” 

The key here is that not only does 80% of Chinese e-commerce pass through Alibaba, but a large percentage of the merchants also run Alibaba software in their stores. So the two way insight, between demand and supply, is something new within retail, and immensely powerful

How does this impact real estate? 

First, as above, it is vital that any retail asset that wishes to plug into this sort of ecosystem (Alibaba is not the only one, just the largest) is technically capable of doing so. 

Secondly, investing in ‘New Retail’ locations should mean investing in areas where retailers are likely to be more successful, as the level of data and AI powered analytics should enable better matching of demand and supply.

And thirdly, hunting out locations where ‘New Retail’ does not yet exist but is likely to arrive in the near future should offer good returns as the quality of the retail experience will improve as these new technologies and analytical capabilities are put into practice. Asset values should rise accordingly.

4. New retailers like b8ta - who say their mission is ‘Retail designed for discovery’ - provide a very different in store experience. What role does AI have in their business?

What actually is the point of a store today? What will it be in five, ten years?

Most likely, it will not be about product distribution. You used to have to go to a shop because that was where the goods were. Today you do not; they can get to you in a myriad of ways. Delivered to your home, or office, even to your car boot. Delivery has largely been solved. Sure, we still have issues of deliveries when you are not at home but one way or another, that will be resolved in the near future. In a drone delivery world, they would only ever deliver when you were in because the system would know, you are in.

Amazon in particular are spending vast sums trying to solve this ‘last mile’ problem, so it will be solved.

So what then is a store for? Prefaced like that it is obvious isn’t it? A store is for ‘discovery’ and fun. Finding out about things you didn't know, or more about things that you did. All wrapped up in a human-centred environment that is enjoyable and a pleasure to experience.

So how does AI help with that?

Enter the likes of b8ta. They started a store where they work directly with Brands, and act as a marketing platform for them. Each Brands products are displayed in dedicated areas, with Brand trained staff on hand to demonstrate and inform. Sort of like the Apple Store but for multiple vendors.

They are beautifully designed stores dedicated to presenting a Brands products in the best possible way. You cannot buy anything in store, the whole point is nurturing and positioning each Brand.

In the background every movement and preference of every customer is recorded; what Brands they looked at, if they looked at Brand X did they look at Brand Y, what questions did they ask, what did they ask for that was not there, and so on. All of this data is then analysed by AI and fed back to the Brands, together with suggestions as to how to refine, optimise and improve on every aspect of the experience.

This is the software industries ‘Build, Measure, Learn’ for stores.

Since launch in 2015 they have opened 78 stores across the US.

The clever bit though, is that they realised that designing these types of environments was complicated, so they started ‘Built by b8ta’ and now offer their software and systems ‘as a service’ to third parties.

This pay monthly solution includes checkout, inventory, point of sale, inventory management, staff scheduling services and more.

There are large Brands that can do all of this on their own, but there is also a long tail of companies where this is beyond their capability to deliver but nevertheless could benefit greatly from having access to it.

This is analogous to the office market, where the workplace is becoming a too difficult problem for many companies, who are then ‘low hanging fruit’ targets for Flex space operators to sell to.

AI is a great enabler, but it is hard. All companies can benefit from AI powered services but most likely, they will buy into a complete, turnkey solution. Who owns the solution could be sitting on a great deal of value. 

The OneMarket spinoff from Westfield is essentially mining the same seam of need. Off the shelf, managed, highly sophisticated AI powered services. No capex, no long delivery cycle, just go.

5. In the future will we all have personal AI’s that do our shopping for us? That understand our needs, wants and desires so well they just order what we want before we even ask for it? Do we even need shops in that world?

There is a meme going around the internet that a future Amazon service will be one where they send you two boxes each month. One is full of all the things that they ‘think’ you need or want, and the other is empty.

You simply keep what you want and put the rest in the empty box.

Pre-emptive shopping. They ‘know' you, so just give you what you want. And if it is your husband's birthday they will also give you a selection of presents that they ‘know’ he would like.

Now tell me that that is not a service that a large percentage of people would buy in to. Sure, there is also a large percentage of people for whom it is the devils work and they would hate it. But that is the point.

In an AI powered world we will start to know the difference between people and how they want to shop. Our job is then to give each party exactly what they want.

6. Thinking about the role of technology and AI what characteristics of a retailer should we pay attention to? How can we know who needs what type of space, and will they be able to pay the rent?

The starting point from a real estate perspective is to get to grips with what types of retailer one has in one’s portfolio and to make a judgement as to whether they are providers to group 1 or group 2 in the answer above? And then ask, are they setup for their market?

Knowing how well the retailers in your portfolio are ready, willing and able to make the most of this coming world is a key risk factor. Some will not be, in which case they are a bad bet, whereas some others are fully aligned and should be aided and abetted in their efforts in whatever way the owner of their stores can help.

AI is becoming more and more central to the operations of retailers, either handled by themselves, or provided by ‘SaaS’ providers like b8ta.

I would contend that where these types of retailers, and technology providers, operate is where the successful retail of the future will be. Online or offline is now irrelevant, everything is one. Online behaviour feeds offline and vice versa. And much of this data needs to come from the physical environments these companies operate in, be it a single store, or a giant shopping centre. The physical environment has to be able to be analysed, and has to be responsive. Data will increasingly inform how we setup, manage and optimise our physical spaces. They have to be equipped to enable this.

In summary then, AI is profoundly impacting the retail market because it is changing the capabilities of retailers to provide better products, services and experiences. And that is raising the bar for everyone. Owners of physical assets need to be fully au fait with the new needs the best retailers will have. Ideally they will work in partnership, as the often confrontational nature of landlord/tenant relations is damaging the ability to satisfy the end user.

The bottom line is that shoppers do not need shops to go shopping. They need to be made to want them. AI can help make that happen. 

Ultimately human + machine wins! 

Antony

Space as a Service: The Trillion Dollar Hashtag

The changes coming to the world of real estate, encapsulated by space-as-a-service (affectionately and somewhat ironically described hereafter as #SpaceAsAService), represent a trillion dollar-plus opportunity. Everything we are familiar with about how we design, build, occupy, manage and value all the spaces and places around us will change fundamentally over the next ten years. And this will happen whether we like it or not; these changes are being driven by technological advancements that are rewiring the world around us. They have very little to do with the real estate industry per se, but the real estate industry will have to bend to their will. The genie is out of the bottle, and there will be winners and losers. Many winners and many losers.

I intend to explain “what” is happening to cause the period of rapid change we have recently entered and that will persist for as much time as we can realistically predict. Then I will answer the question “so what”—what will the consequences be? Thereafter I will address the “now what” puzzle. In short, how do we ensure we are not on the losing end of this societal shift (as many will be), and what are the success factors we need to embrace to be amongst the winners in the coming real estate gold rush?

Please continue reading on Propmodo where this 6,500 essay is shown in full.

How should Landlords respond to Flexible Workspace Demand? Are you a Pig or a Chicken?

landlord.jpeg

CBRE Research recently put out a report titled ‘UK Landlords & Investors Embrace the Flexible Revolution’. In it they write, ’77% of survey participants are currently considering some form of flexible space provision’. Whilst UK centric one suspects the results would be similar elsewhere, especially in the US.

My first thought? Wow, #SpaceAsAService is now rapidly moving into the mainstream.

My second thought was about bacon and egg sandwiches…

‘What’s the difference between the Chicken and the Pig in a bacon and egg sandwich?’

‘The Chicken is involved but the Pig is committed!’ 

Knowing who you are as a Landlord is vital with #SpaceAsAService.

‘We’ll do flexible space ourselves’ is something one hears a lot from Landlords. According to the CBRE report some 35% of Landlords say they intend to self operate their flexible space. If any of those 35% are Chickens they will fail. The problem is that making #SpaceAsAService work is as much about mindset as a real estate problem.

Do you REALLY want to go from being ‘a rent collector to a service provider’? REALLY? The former is a very different type of company to the latter. Product companies are organisationally, financially, culturally very different to service companies.

In tech think of Google vs Apple; one is a service company the other a product one. and they have very different busines models, cultures and attitudes. Or take WeWork vs the UK’s largest REIT Landsec - they are from a different planet! Their customers, competitors, networks and ecosystems are all different.

For a traditional real estate company to become a successful #SpaceAsAService company is a HUGE challenge. One cannot be a bolt on to the other. Only Pigs will win in this game. Commitment is everything.

BUT being a Chicken might well be a much better move. This is not a good or bad issue. The point is, you have to understand what you are and what you want to be. If you are a Chicken then fine, but do not kid yourself that you are a Pig.

If you read the phrase ‘Real Estate is no Longer in the Business of Real Estate’ and immediately go ‘Yeah’ then do your own #SpaceAsAService - if not then partner with the best operators you can find.

If you see data analytics, IoT, AI, network effects, BIM, mobile apps, ecosystems, UX, Branding, B2C and hospitality as core skills within real estate then do your own #SpaceAsAService - if not, partner.

If you see your customer as being the name on a Lease, and your billing cycle as being quarterly, and your company is optimised for that, then partner for #SpaceAsAService.

Startups always moan about companies that don’t quickly adopt their products or services. “They just don’t get it” they say. This is almost always wrong. They get it perfectly well but their companies are optimised for their business model. Not the startups. And rightly so. That is why change is so hard; they are operated for business as it is, not as it might be.

Mostly, real estate companies are optimised for being Product/Rent Collector companies. As they should be. That is what has worked for several decades. Build or buy an asset, lease it, keep it or sell it. And many are very good at that; the concern is that many will forget what they are, and think their slick machine will work in a different world. It won’t.

And that is NOT a criticism. Optimising for what you are is what all good management does. But at times like now, when a market is ‘fundamentally’ changing, the chances of value destruction are greater (perhaps) than value creation.

The #SpaceAsAService world we are entering is much more like the Technology than the Real Estate industry, and in tech ‘winner takes all’, ‘monopoly’, ‘market domination’ are the AIM. Networks/Marketplaces are where the value lies. The best space, with no network, will not come out on top.

Successfully networks win because they become the safe, comfortable and painless solution to a need. And they grow exponentially; from no-one knowing anything about them to suddenly being known by everyone. But once established their value grows exponentially as well. People are tribal, we like to belong. Only Pigs will build #SpaceAsAService networks we want to belong to.

There will be many winners in a #SpaceAsAService world, Chickens as well as Pigs.

Just be sure you know what you are.

Proptech in 2018: Are we there yet?

The Avenue at Middelharnis   by Meindert Hobbema.

The Avenue at Middelharnis by Meindert Hobbema.

At the end of last year there was much talk about how 2018 will see mass take-up and implementation of proptech. This was going to be the year the industry leapt into the saddle and galloped off into the future. Proptech to the rescue!

Well, are we there yet? The answer is no. Sorry.

The economist Carlotta Perez has written (in her book Technological Revolutions and Financial Capital) about how investment in technology tends to follow a certain pattern. You see a huge buildup of investment in infrastructure and tools, what she calls the ‘Installation’ phase, and then this is followed by a surge of adoption, what she calls the ‘deployment’ phase. However, between the two there is a lull, usually involving a financial crash and subsequent recovery. She says of this pattern ‘nothing important happens without crashes’.

I think proptech is following this trajectory. We are seeing a lot of investment, and a lot of smart thinking, but truth be told, not that much adoption. Or at least adoption that is enterprise wide, pervasive and integral to underlying business models. Why? Because frankly the real estate market has been so good for so many years that carrying on as before is the modus operandi of almost everyone. And probably rightly so.

So don’t be disheartened by the slow progress. It is relative anyway; compared to 2 years ago proptech is on a rocket ship!

For four reasons I am hugely positive about the future of proptech, or more precisely the use of technology by all stakeholders within the built environment.

First, there is a lot of money sloshing around, looking for a home within this sector. Admittedly a large percentage is being directed at what is really FinTech (buying/financing real estate), and mostly it is outside the EU (China / USA) but nevertheless purse strings are being opened. I worry in the UK that large incumbents have contributed almost nothing to date, but that will be their problem long term. Most likely the UK real estate industry will adopt and implement non UK owned software; the best startups here will prosper anyway. The sad thing is that significant players in the UK will have missed out on a great opportunity. Maybe next year they will wake up. I doubt it, but that will not stop progress.

Secondly, the better industry players have grasped the nettle of tech inadequacy and are actively recruiting people who can bring them up to speed quickly. Those people are often encountering something of a culture shock as they come up against the reality of how real estate operates, but I know they are breaking through and establishing strong foundations on which they can build in the next few years. Sorting out data (really shockingly badly managed almost everywhere) is a priority for many as, to quote W Edwards Deming, without data ‘you are just another person with an opinion’. The major breakthrough is that the industry has acknowledged the issue, and for the first time is bothered about it. A big deal.

Thirdly, I am seeing some serious tech firepowernow being aimed at our industry. From computational and generative design, to computer vision, autonomous drones, modular construction, 3D printing, advanced materials, IoT, sensors, automation, data science and machine learning, we are developing beyond the trivial to the meaningful. A lot of this technology is sophisticated, powerful and game changing. In 2018 I saw the first real moves beyond ‘digitising the past’, and rethinking the entire value chain, workflows and value propositions of the industry. For just two examples, look at Skyline AI, from Israel and the work they are doing automating the valuation of every real estate asset in the US, and here in the UK the great work Gyana are doing in helping us understand the characteristics of locations in hitherto unimagined granular detail.

And fourthly, irrespective of our narrow interest in proptech and the real estate industry, technology in the widest sense is transforming the nature of demand from our customers, as well as the definition of who our customer is itself.

Flexibility is the defining characteristic of the future workplace (all workplaces), and much of that will be procured on-demand or via short term leases. Retail is bifurcating into a sector where you are either cheap and convenient or an experience or you are out of business. The vast middle of retail will be taken care of by Mr Bezos and friends. Industrial ‘sheds’ are becoming super high tech, robotic wonderlands where just a handful of people direct thousands of machines. And residential, driven by cost, is seeing the birth of what will be a huge new service sector, Build to Rent.

We are moving from a world where access is more important than ownership and services more desired than products. Witness Netflix, Spotify, Airbnb, Lime, Rent the Runway and Uber. This is of huge import for the real estate industry and proptech; these trends are changing the behaviours of all of society and the dynamics and drivers of location. Everything is being reimagined in Cities; needs must as urbanism grows, but technology is allowing all of us to live our lives in different ways.

Regardless of the desires of the real estate industry (notoriously good at thinking about what they, rather than the customer, wants) there is no area of the world around us that is not being changed by technology. And as it is, the marketplace for hardware, software and services that make the built environment a better place is growing dramatically.

So worry not that 2018 was not the year proptech really took off. The momentum is growing, the pressure increasing, for profound change. The reality is proptech is much smaller than we like to think today, but will be much larger than we can even imagine. Just hold on; we probably need that crash to catalyse real change, but it is coming.