PropTech: The Big Picture

July 2016

Steve Jobs once said of Dropbox that it was a feature, not a product. Which, multi billion dollar valuation aside is probably correct. Great software that it is, ultimately it will end up as part of something bigger. Because it addresses just a small part of a wider need.

PropTech, as of today, is much the same, though without the heft of Dropbox. Much, most, perhaps everything that is vaunted right now is just addressing small inefficiencies, and minor quirks of a marketplace that is largely digitising the past. Lease management, virtual viewings, listing services, comps, data services etc are all addressing the needs of the industry as it is now. Not surprisingly, as one needs a customer. What happens though if that customer is going the way of the Dodo? No point in skating to where the puck is, if the ice is melting.

And melting it is, as the real PropTech revolution will be in what we build, how we build it and what we do in it. And that will upend the entire real estate ecosystem, to the detriment of some but the greater good of a whole lot more.

Last year there was much talk of ‘Stranded assets’ within the oil industry; headlines such as “How fossil fuel firms risk destroying investor returns” and talk of “The $2 trillion assets danger zone”. This was all predicated on the idea that the oil industry was sitting on what they considered long term assets, but that were in reality worthless as they would never be extracted and used, because of the continuing fight against climate change. Societal change will turn their assets to dust!

What if this applies equally to real estate, as the way we work, and the work we do renders old ideas of what occupiers want, redundant? What if 40% of the workforce really do operate as freelancers by 2020, as has been predicted? What if 45% of all tasks currently performed in offices are taken over by technology, as McKinsey say is possible today? What if 5G does become widely available in 4-8 years and we all have devices with us at all times that can communicate at 10G a second? What if Magic Leap (Google them) do create their augmented reality technology that allows us to conjure up holographically real entities, on demand, anywhere we want? What if AI continues this years astonishing progress, skips the high priced limited market stage and jumps straight to being an everyday commodity that all of us can take advantage off, easily and practically for free? What if….?

None of the above is really all that contentious. As William Gibson said ‘The future is already here; it is just not evenly distributed’ These technologies are clearly going where I am suggesting, and nothing will change that. So then what?

Well, even the ‘Offices are forever’ evangelists accept that you don’t need to go to an office to do the vast majority of work today. All the hype around ‘Activity based work’ reinforces this; most of the time it is the face to face collaboration that people highlight as the point of the office. And that is, and will remain, true. But the amount of real face to face we need will reduce markedly as connectivity explodes and the tools for realtime, high definition, zero lag, but haptically enabled, communication come on line. Technology creates options, alternatives, and these often take time to be adopted, but suddenly become second nature and accepted. Think of self check out machines at supermarkets; for quite a while these were resisted, and resented, but today many of us whizz through them as it is quicker and easier that waiting to be ‘processed’ the old fashion way.

So, it seems to me, city centre offices (especially in very expensive places like London, will become rarely used but luxurious treats for employees (or tightly embedded ‘Contractors’). These will be places we go to perhaps once or twice a week, that will be of the utmost quality and that facilitate the intensely human collaborative skills that all of us will need to focus on now that the robots are doing anything that can be automated. They will be cauldrons of social intelligence, imagination, innovation, design, empathy and creativity. Interaction hubs. And if they do not enable this type of ‘work’, what will become of them? They will be stranded assets.

Where will we spend the rest of our time? Nearer to home. Who wouldn’t want to commute less IF the right spaces were available closer to home, with all the right technologies to make them as productive as possible. So the market for transforming urban villages and current commuter belt towns has to be a strong one for quite some time to come. Combined with the above, we have of course the continued rise of online shopping, on demand delivery, and ‘sharing economy’ services. As people slowly realise that trying to revive the High Street as retail nirvana’s is a dead end, they will slowly transform into culturally rich, very human centric, mixed use live/work/play places. The Agora, redux.

And how will we build new spaces and places? With robots, of course. Four drivers will ensure this; first off, the technology either already exists or is easy to fathom out. Secondly, the construction industry currently substitutes labour for technology (and thus impedes progress and suffers low productivity) but as labour becomes more costly, and scarce, not least of all because of Brexit, it will have no choice but to push the button on automating itself. If the Government mandated this through regulation the whole process would move faster but the die is cast; construction is so obviously an industry ripe for automation that at some time it simply will have to happen. Thirdly, everything points to a convergence in the use of space; our homes are full of technologies we use ‘at work’ and our work places are becoming more aesthetically akin to homes, as the way we work suits softer settings. And because of this, the places we build absolutely have to be flexible in a way they’ve not needed to be to date. Usage changes, configurations need to be modified, lighting, heating, furnishings need to flex to perform different functions. Home to office, office to home, either to retail will become commonplace and our idea of what constitutes modular will explode. Obviously this will require work on use class legislation but more importantly it will require construction models, processes, and technologies that allow for extreme flexibility. And fourthly it will become ever more important to be extremely sustainable and energy efficient. These trends, which are strengthening by the day, all point towards the necessity, and desirability, of robotic construction.

And finally, on top of this new type of space, and new usage, will be applied the burgeoning AI mentioned above. Kevin Kelly, the co founder of Wired magazine, has a great way to think about AI. Think back to when farmers had nothing but horses and wooden ploughs. Then think how their lives improved when ‘Artificial Power’ became available, in the shape of engines. Suddenly they had dozens of artificial horses they could call upon for help, that didn’t tire, and didn’t need sleep. And that is how it will be with Artificial intelligence; once we stop worrying about what it means for society we will realise each of us will have dozens, hundreds, thousands of artificial brains to assist us. Instead of thinking how many jobs will be lost, we will start to think of all the things we can now do that were previously impossible. With better hardware, more connectivity, and an infinite number of sensors, AI will enable all of us to ‘do more with more’, make better use of our time, and improve the places and spaces in which we choose to spend it.

All of which is something to look forward to, but to return to the original point; does this mean the ice is melting under the real estate industry as it is today? In my humble opinion it clearly does, but the upside is huge. The future is predictable in many ways, and it is incumbent on all of us to see that, seize an extraordinary opportunity, look beyond rearranging the deckchairs and embrace the big picture.

Antony

Technology: celebrating 20 years of EGi

July 2016

If a week is a long time in politics, 20 years is an eternity in tech. Unlike politics though, tech gets better with age; today is the best day in history from a technological point of view. And tomorrow will be better.

In 1996, we were just at the start of the world wide web (the internet itself had been around since the 1960s), and by the end of the year the number of users had doubled to 36m worldwide. By 2000, this had increased to 361m, by 2005 1bn, by 2010 2bn and today just under 4bn. These are statistics that highlight how far off the IT director of the old Healey & Baker was, when quoted in the then print-only Estates Gazette as saying the internet was “a solution in search of a problem”.

The first internet bust was in 2000, when a spectacular bubble blew up, with the likes of Boo.com imploding, having worked its way through £125m in six months. However, with the addressable audience now being 10 times the size, many of the companies that blew up were really just ahead of their time. No end of e-commerce websites died that year, whereas today the press is endlessly discussing whether today’s variants are killing off the high street.

Likewise, billions were invested in “video on demand” platforms to no avail. Now when you sit on a commuter train half the carriage is watching videos on their phones and tablets. The difference? Sixteen years of Moore’s Law (basically, processing power in computers doubles every two years), ubiquitous high-speed broadband, and smartphones.

And on top of increases in speed and power, the cost of technology has plummeted: 20 years ago I budgeted £100 a month to save for a new computer every two years. Today, two decades later, it would be hard to spend £2,400 on a mainstream computer.

The past though is a poor guide to the future in technology.

The growth in capability and decreases in cost we have experienced over the past 20 years will look meagre when we look back in another 20 years’ time, because exponential industries, which tech is, have a growth profile resembling a hockey stick. Doubling every couple of years from a tiny base means you don’t get very far for many years and then, boom, growth hits the uptick and that very same doubling becomes transformational.

We are now just turning that curve from near horizontal to near vertical, and that has profound implications for real estate.

Three technologies in particular are making great strides, loosely all under the banner of artificial intelligence: machine learning, natural language processing and computer vision.

The first is where computers can autonomously learn what actions to take, independent of human instruction, the second involves computers being able to understand our requirements just by listening to our spoken words, and the third covers computers understanding what it is they are looking at. This is the basis of facial recognition, which computers can now do better than humans.

Twenty years ago the real estate industry could, and largely did, ignore the internet. The small audience meant it was a sideshow. Twenty years later, many in the industry still have that “it’s a people business, go away” attitude, but today many of their customers are used to running much of their life and businesses asynchronously, remotely, and via their phones.

The old way of working is dying; give it another five to 10 years and it will be unrecognisable, not least because virtual and physical face-to-face interaction will seem equally “human”.

In five years’ time, 5G will arrive providing mobile connectivity of 10GB per second or even more. For many, that is 1,000 times faster than today. And with 2bn smartphones being sold each year, the component parts (including a wide range of sensors) are becoming almost free, meaning our built environment will be awash with real-time data feeds. That will enable a whole new world of services.

Does everything really change over 20 years? Well no, it does not. In 1517, Niccolo Machiavelli wrote that “men have been, and ever will be, animated by the same passions”. Some 500 years later the same holds; the difference being that if you embrace technology, you can meet and match those passions in ways not possible by your predecessors. You can do more, with less, for more people than ever before.

Happy birthday EGi: here’s to the next 20 years.

Antony

First published in Estates Gazette 14th July 2016

Brexit will turbo charge the technology industry and radically change real estate

July 2016

The U.K has had its referendum and voted for Brexit. We are assured that ‘Brexit means Brexit’, so unless something unexpected happens (which given the last two weeks would by no means be unexpected) we will leave the EU, ‘take back control’ (sic) and reduce immigration to the tens of thousands, as was promised in the Conservative Government’s Manifesto.

And at that point the U.K economy will change, quite dramatically.

Several industries have high concentrations of overseas workers: processing plants at 43%, cleaning and housekeeping at 34 % and hospitality and retail with 30%. And they are not alone. 16.7% of ALL employees are foreign born (2014 figures).

Now we can argue about how quickly and to what degree these numbers diminish, but it is safe to say that many will not be here in 3-5 yrs, and certainly not that many new immigrants will be arriving. The people have spoken, and this will be the result.

So what, in Economics 101, happens when labour becomes scarce or rises in price? Yes of course, it gets replaced by Capital. At a certain point the cost of automating a process crosses below the cost of employing someone. And what is happening in the world of automation, robotics, machine learning and artificial intelligence? Yes, it is very rapidly becoming very much cheaper to do very much more each year. Put the two together and what is the result? The automation of jobs currently performed by inexpensive migrant labour.

UK workers will not benefit from all their jobs no longer being taken by migrants. The jobs will simply disappear in a tsunami of automation.

Fully automated McDonalds already exist. Amazon has spent billions on warehouse robots. Machines can deal with just about every agricultural task. Room service robots are already out there and self driving cars are improving by the day (Tesla crash notwithstanding).

Data is moving to the Cloud, high speed connectivity is becoming ubiquitous, and just about everyone has a 1990 Cray Supercomputer in their pocket. Add to that billions of ultra low cost sensors being deployed into just about everything, and we have the ingredients for replacing vast amounts of Labour with Capital.

And with Brexit we have the incentive to push the button on doing just that. When motive meets opportunity and capability, then big changes can happen very quickly.

So the tech industry is going to find itself swamped with business to automate tasks out of existence. Whatever can be automated will be automated. And according to McKinsey 45 % of ALL work tasks could be automated with technology available today.

In parallel to all this new technology being developed will be the re-thinking and re-purposing of large amounts of real estate. Fully automated warehouses take a different form. Fast food outlets without the ubiquitous overseas staff will be redesigned (in how they look and how they work), and retail will morph into something very different to today. Customers will continue to demand a great experience when they shop, but how that is delivered will have to be re-designed. And it will be.

And you know what, the end result is likely to be better than now: clever use of smart technology coupled with far fewer (but better paid) staff will force retailers to up their game. With cheap labour available on a pay for what you use basis (zero hours contracts etc) the whole game is to be cheap. With expensive labour, the race to improve productivity is intense. And if you use technology wisely you can of course raise the productivity of any individual dramatically.

Furthermore all this new technology will hasten the move to offices being places where humans go to do what humans do best, rather than as knowledge processing ‘white colour factories’. See my earlier article ‘The Office is Dead’, Long live the Imaginarium’ for more on this. http://antonyslumbers.com/2023-the-future-of-real-estate/

So, big changes ahead. Turbo charged by Brexit. Was this what most ‘Brexiters’ voted for? Probably not. But as they say ‘actions have consequences’.

Antony

Real Estate: Equally Cursed and Blessed

June 2016

The Real Estate Industry is equally cursed and blessed. That was my overriding feeling following a day at the FUTURE: PropTech conference a couple of weeks ago. Blessed because nothing much is changing in terms of how the industry works, but cursed because something much bigger is coming down the tracks.

First, the upside. Residential is not my area but for all the talk of ‘disruption’ the industry is largely the same as it was a decade ago. The vast majority of people use a traditional estate agent and list their properties on the portals. The online (or Call Centre as I’ve heard them disparagingly called) agents have spent a lot of money but not got very far. Truth be told most people are more bothered about getting the very best price for their homes than saving a small % in fees, and that fear of losing out (a primal human instinct) is hard to counter. Yes there are new marketing tools (VR will be big, though perhaps niche until smartphones become our VR devices) and it is imperative for EVERY agent to offer first rate technology at every touchpoint of the consumers journey, but is the residential market being disrupted? An emphatic NO.

The Commercial industry, my area, is being changed even less. Public data sets are only slowly becoming available, the agents guard their own data, and even now there is no good search system available for ‘Joe public’. On top of that it is estimated that a third of the worlds real estate assets are still managed via spreadsheets. And judging from many of the comments at FUTURE: PropTech, surveying firms are adamant that that is how they wish things to stay. The industry mindset is still very protectionist, and any notions of free and open markets growing faster than closed ones is dismissed, often angrily. In this world, the primacy of the Lease is everything and the thinking goes that if data surrounding Leases is closely guarded then the industry has little to fear from ‘Disruption’.

So an industry truly blessed; the mechanics of the market are stacked in the favour of incumbents. Let the good times continue.

Ah, but life is not fair; you knew there would be a catch didn’t you? And there is. A big one. You see, most successfull companies do not fade or die because someone comes along and does what they do dramatically better than them. Once powerful and on a sustaining path, incumbents are very hard to shift. “Weebles wobble, but they don’t fall down”, as has been said. No, the real threat is always from something coming along that changes the value of exactly the thing these companies do do. The danger is that the market changes and one is stuck producing a product, or service, that whilst brilliant, and efficient, is simply no longer desirable anymore. The PC killed the Mainframe and Mini Computer (DEC, Wang), the smartphone the mobile phone (Nokia) and the compact camera (Jessops), Uber the taxi business.

And this is what is going to happen to the commercial real estate business. It is not that Lease data, (and all that sits atop it) will suddenly become open source, and publicly available, and in doing so open up the industry to a wave of competition that will destroy margins, or empower customers to route around the advisory services they are currently lavishly charged for today. No, the point is that the Lease itself will go the way of the Dodo, becoming something that is simply no longer fit for purpose. Now, not entirely of course as a decent chunk of the market (top end, large corporates) will still require large amounts of space on secure long term terms. But the business landscape is becoming ever more barbell shaped – large numbers of big and small companies, with a diminishing number of mid sized firms. 80% of city of London based businesses have fewer than 10 employees. Just 205 employ 250 or more. As this trend develops do you really see long leases remaining relevant? Serviced office space has quadrupled in the last twenty years; factor in the growth of Co-working (which plays to multiple primal human instincts) and it is not hard to envisage a majority of space being occupied ‘as a service’. It is already commonplace to use ‘Software as a Service’, transportation (Uber) ‘as a service’ or accommodation (AirBnB) ‘as a service’. Why on earth not workspace?

All of which means many traditionally minded commercial real estate players are protecting a market that is (whisper it quietly) dying. The seeming normality of the industry today is very much flattering to deceive. The curse that is yet to be felt is merely sotto voce.

There is though another blessing out there. and that is that the entire technology landscape is moving from hardware and software to services, and the death of the Lease fits in with this trend. The smartphone may only be nine years old but essentially it has been perfected; witness the moans that the iPhone 7 is likely to look near identical to the iPhone 6. The format conundrum has been solved (Blackberry tried a square phone – it sold about 3 of those) and on device processing speeds are at near physical limits. So where does the industry go from here? The answer is services: natural language voice control is the next big thing in interface design. Instead of typing onto a keyboard we will increasingly just talk out loud. Google Amazon Echo for a foretaste of this world. This device is US only for now but, along with the newly announced Google Home, is a pointer to what having a PA (personal assistant) means in the late twenty teens. We thought the age of robots and artificial intelligence would look like something out of The Terminator, instead it looks like something from Heals.

What has this to do with commercial real estate? Everything. We all have a supercomputer in our pocket and the worlds knowledge available on demand. And this is changing all our aspirations; increasingly we crave experiences, not ownership. And what we’ll spend our money on is wrapped up in one word, services. Everything ‘as a service’, collaboratively so. Because what we can afford to do together is more than we can do apart. So I may only have 10 work colleagues but we all want to work in great spaces. We don’t need them all the time though, as our work and interactions with colleagues, clients and suppliers can happen from anywhere. And because we don’t need them all the time, we are prepared to pay much more for a great experience during the lesser number of hours we do. Coffee used to be cheap and from a pot; now it is expensive and presented to us by a Barista. We don’t care if the price is triple what it was; the experience is what we value.

Technology changes behaviour, not the other way around, and it is becoming invisible. Great spaces have a rich, but hidden, digital layer that enlivens them and makes them much more appealing places to be. The technology is allowing us to become more human, with far less restraints than historically. And the big restraint that we no longer want is the Lease. So it will die.

Once the industry figures out a new financing and investment model for this world it will explode. Freed by technology the real estate industry will enter a golden age. Different but much better.

Digital Strategy No 5: The dirty secret about innovation

April 2016

There is a dirty little secret about innovation; it doesn’t require much inspiration. Having a ‘Eureka’ moment like Archimedes is, by and large, not necessary. So anyone who has ever thought they could not innovate because they haven’t had any special moments of inspiration need not despair. Innovation is largely the result of systematic process, and everyone can learn that.

If you follow the startup world you will know that the best new companies work with a set of tools that to the wider business community are not that well known. These are:

1. The Business Model Canvas
2. The Value Proposition Canvas
3. Lean Startup Methodology + Agile development
4. Design Thinking/Sprints
5. Systems Thinking

Lean Startup author Eric Ries famously wrote “A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.” and the tools above are aimed at removing as much of that uncertainty as possible. Their applicability though is across the board; established businesses may have different dynamics to start ups, but the ongoing prosperity and survival of any business involves creating or improving products or services. These tools really help.

1. The Business Model Canvas

Created by Alexander Osterwalder, this is a visual chart that splits your business model into 9 segments, and in doing so allows you to really focus in on the fundamental purpose and viability of your business. The nine segments are:

1. Value Propositions
2. Customer Segments
3. Costs
4. Revenues
5. Channels to market
6. Customer Relationships
7. Key Partners
8. Key Activities
9. Key Resources

Points 1 & 2 are expanded on below but the beauty of this process is that it forces you to distil your business down to fundamentals, and encapsulate it on one slide or sheet of paper. Unlike a 50 page business plan, where discursion is the norm, the Business Model Canvas is powerfully transparent. If it does not look good here, then you better start planning for change. It can be a chastening exercise to run your own business through this; maybe it isn’t as strong or sustainable as one thought (or more precisely probably never actually thought about – in depth).

2. The Value Proposition Canvas

Extrapolating points 1 & 2 of the Business Model Canvas, here you address what your value proposition is, and whether or not it addresses customers who have real goals, real pain points and real beneficial requirements. Again the point is to surface strengths and weaknesses in your product or service. So many products address imaginary needs, miss areas where they could really add value, or go after customers that in practice do not exist, or are unlikely to ever be profitable.

3. Lean Startup Methodology

Once you have negotiated the two hurdles above you need to get your product or service into a state where it can be put in front of a real customer. As Steve Blank has said “No business plan survives first contact with a customer”. The Lean Startup Methodology is all about not wasting your time on things that do not matter. And it does that by taking you through a process where you get your product or service in front of a customer, learn from the encounter, and iterate until you have something with strong and sustainable ‘Product/Market Fit’. Build/Measure/Learn – and repeat. Honestly measure what matters and test all your assumptions. Business does not have to be boring, but it does have to be rigorous; the goal is to work on what works, and to not waste your time.

4. Design Thinking / Sprints

Steve Jobs said “Design is not just what it looks like and feels like. Design is how it works.” Few people seem to understand this. So often in business one encounters people who think of design as logo/colours/font and that is if they even think of font. Which is why the world is full of badly designed products, services and environments. Design thinking is a systematic approach that follows five steps: Empathise, Define, Ideate, Prototype and Test. You start off by working out who is your customer and what matters to them. From there you define their needs and ideate as many possible solutions as you can come up with. Then you filter these down to your best guess as to the number one option, prototype it and put it in front of a customer. You will then find out what worked, or didn’t, what hypotheses you had that were valid and which were plain wrong. Then, in the spirit of Build/Measure/Learn you repeat the exercise until you get it right. Though there is no absolute right. This whole process should be standard operating procedure in your company, something you do on an ongoing basis. After all the world moves on, doesn’t it?

Google use a variation of design thinking that they call design sprints. Where there is a particular issue, or service, or product to be dealt with they gather together everyone who might have an impact on the matter, and through a ‘Sprint’ lasting five days they collaboratively work their way through an intense ‘design’ process that culminates with controlled interviews with customers. This process allows for decision making time to be compressed dramatically. What might take months being discussed and moved down a decision tree is thrashed out in just a week through the not so simple expedient of forcing everyone who counts to focus on just one thing for five days. In ‘Get Things Done’ terms it wins top marks!

5. Systems Thinking

Lastly, Systems Thinking “is the process of understanding how those things which may be regarded as systems influence one another within a complete entity, or larger system.” So for example, if you are involved in the world of Smart Cities you need to look at how changes to transport networks affect pollution levels and energy usage. If you are developing software you might need to consider how taking one approach in a ‘standalone’ module would be much more impactful if it were linked to another hitherto ‘standalone’ module. It is the ‘no man is an island’ principle; everything is connected, although often in subtle ways that are missed unless one consciously looks out for such connections. Systems thinking is about zooming out and seeing the big picture, but as with everything discussed here, the process is iterative. You zoom in, then out, in then out. In mature industries you can pursue six sigma and aim to design out any inefficiencies or superfluous costs. In the world described above the assumption is that life is fluid, ever changing and ever demanding that we change and flex with it.

So there you have five very powerful tools to build, sustain or grow your business. As every business is becoming a digital business they should be an active part of your digital strategy.