Before we kick off, this is a nerd alert. In this article I pull apart what the future of real estate could look like - but we’re going to go deep.
Back in July this year, Chris Rolls, the CEO of PieLab, presented a three horizons of technology slide at his annual briefing to the investors in his $20 million venture capital fund for residential proptech. He used it to explain the roadmap of technical innovation in Australian real estate and how it is developing.
Horizon planning was also a key message from the Macquarie Perspectives conference. I’ve stolen it (sorry Chris!) and added my own insights above to help understand what is coming next in innovation and what the industry is likely to look like.
Horizon planning is a McKinsey framework that seeks to understand how businesses can thrive by improving their efficiency, expanding into new markets. By doing so, it shows you how to build your capabilities so you can morph into completely new business models.
It’s a really helpful way of mapping disruption because the horizons are not linear – the timeframes can move across each other. The intention is that by Horizon 3, your business has been completely transformed. You may be delivering a similar service as you did in H1, but you will be doing and monetising it in a completely different way.
Chris put forward the idea that technology in real estate fits into each of these horizons and that this can help with understanding what’s coming next.
Let’s break it down:
Horizon 1
Horizon 1 examines “what do we do and how do we make money right now?”. The Australian technology businesses in this horizon are those that have helped real estate agents do their traditional job of prospecting, listing, selling and renting more efficiently and affordably.
In this space we see the portals of Realestate.com.au and Domain which help agents market and advertise more affordably and effectively than the old print media options and make it easier for buyers to find homes. It is also the horizon of industry software providers like Rockend and RP Data helping agents perform data driven tasks more effectively, and the CRMs creating a central repository for agent data and supporting new workflows.
Chris had the timeframes of 2002 to 2013, but these businesses are still viable and active. The timeframe however is a good measure of when the technology environment they were operating in started to change, in turn making them legacy products.
H1 ties into the original web 1.0. If we think of it in terms of Simon Sinek’s “What’s your why” philosophy, the technology businesses in H1 are those that support agents in ‘what’ they do - prospecting, listing, selling, managing.
Horizon 2
In traditional horizon planning, H2 is used to identify how you can grow your business by doing what you already do in new or different markets. The way this is playing out the property space is that it’s the horizon of the disruptors – with technology players helping consumers get closer to the transaction.
This is the challenger stake of tech enabled services and new methods of arbitrage of traditional real estate assets.
In H2 in Australia we see the new players taking agents out of the transaction like Purple Bricks, the property management players like :Different, Snug and Cubbi, and new ways of buying property like BrickX. Overseas it is the domain of AirBnB and WeWork.
In Sinek’s terminology, these technology businesses are all supporting the how property is bought, sold, managed, rented and owned. This is web 2.0 where the businesses are aligned to a more social connection with the property and the people come closer together.
Horizon 3
Horizon 3 is intended as the culmination of H1 and H2. It’s where a completely new business model is created that draws upon the best of the earlier horizons.
H3 is, in Sinek terms, where real estate starts to get back to its ‘why’. It’s where the technology is about supporting the relationships between the agents and consumers, through service platforms that are fully big data, AI and tech enabled.
Who are the technology players in real estate in Australia in this space? The Agency might claim some credit here. But it’s possible we haven’t really seen them yet. Platforms that support agents to deliver new and differentiated services capturing new datasources along the way could play a role here, in which case The Centre of Liveability is one worth watching.
Internationally, it’s the models like Compass or Redfin real estate where the work of both the agents and buyers and sellers are supported by technology to create better and more frictionless experiences.
But what’s interesting about H3 is that it’s the business model – how the money is earned – that undergoes the greatest change as traditional charging models are turned on their heads.
How H3 plays out
In the US examples, Redfin pays its agents wages rather than commissions while the business model currently for Compass is as a ‘startup’. It is receiving VC funding – more than $100 million – which is fuelling it for acquisition, market share and growth, but not profitability, yet.
In this model, it’s unlikely that a commission only charging scheme would survive or be replaced by a single other magic bullet. Instead we’re most likely to see more pay-per-service where a full service model is offered by agents. This would include not just helping vendors sell their homes, but preparing them for sale, including renovations, helping you move and setting up your new home. Equally, its about matching buyers better with potential properties and supporting them through the financing, moving and insuring processes.
And in fact real estate agents could provide ongoing services to home owners, not just at the time of selling or buying, but while you own the home. It’s the job currently of property management teams to organise services and repairs for the buildings they manage on behalf of landlords at the requests of tenants. Why not offer concierge services to manage property maintenance and improvements for property owners at their own request?
But it’s up to consumers to decide which of those services they want, and pay only for what they choose. Or alternatively, they can self service with online options.
At the back end, the data and AI enabled platforms make it both easier and cost effective to deliver these services for humans and machines alike both as agents and consumers.
At INMAN this year, Gary Keller asked whether we want to live in a world where the technology controls the agents, or the agents control the tech. H3 is where we get to decide but the time to start creating it is now.
Want to see Horizon planning in action? Check out some of the H2 and H3 players in the property management space.