Kylie Davis:

Welcome to the Proptech Podcast. It's Kylie Davis here and I'm delighted to be your host as we explore the brave new world where technology and real estate collide. It's so great to have you here and to share stories of innovation and opportunity across real estate, property, and building services. Now the aim each episode is to introduce listeners to a Proptech innovator who is pushing the boundaries of what's possible across how we design, build, buy, sell, rent and invest in property and all the associated behaviour around that. Now none of this would be possible without our sponsors so a big shout out to Direct Connect, Dynamic Method the innovators behind the forms live and real works forms and the Proptech Association of Australia. Thank you everyone for your support for the podcast. And my guest this week is one of the founding fathers of Australian Proptech, Simon Baker, chairman of the Proptech group.

Kylie Davis:

Now Simon was brought in by News Corp 20 years ago back in the day when real estate.com.au was just two weeks away from bankruptcy. Can it be true? Yes. This is a recent history. His analysis of the opportunity for news led them to inject $2 million in cash into REA, plus provide an additional $8 million in marketing support. And he took up the role of CEO turning the business around and leading it to its IPO.

Kylie Davis:

Now, given that the company now has a market cap of 15.35 billion, it's fair to say that none of this would've been possible without Simon's vision for the business back in the early 2000s. So in this interview, Simon and I discuss how he turned the business around, how Proptech has changed and stayed the same over the past 20 years and how he's applying that vision to the Proptech Group, where he is chairman. And believe me, his advice is timeless. So here to tell us all about it, Simon Baker, welcome to the Proptech Podcast.

Simon Baker:

Thank you.

Kylie Davis:

It's great to have you here. Now Simon you are one of the founding fathers almost of Australian Proptech. When you introduce yourself these days, what's your elevator pitch?

Simon Baker:

My elevator pitch, depends on the elevator ride. How long is it? If I'm going up there the boo yellow rub, I've got a long way to talk. Now the elevator pitch is very simple. I've got over 20 years experience in the Proptech industry. I've been everything from a CEO of a large multinational right through to the chairman of ASX listed companies. And through that complete journey, I have seen many things experienced many things, and then I love to share that knowledge and experience with the next wave of entrepreneurs and CEOs coming through.

Kylie Davis:

Awesome, awesome. So tell us how you got started in Proptech, what was it like in those early days?

Simon Baker:

Okay, so I fell into Proptech, I was actually very lucky. I was originally working in online health in the United States and I went back to Australia and to Sydney to go work for News Corp. And there is the head of business development for all their online businesses. And this is back in 2000 time of the Olympics. And I got called into a meeting, a meeting with Lachlan Murdoch and a bunch of other people to talk about realestate.com.au because they had approached News Corp and said, "Hey, would you like to invest in us?" And so I sat in that meeting and it was an interesting pitch and but news at that point in time was a little bit skittish about these sort of investments because this was in 2000 and these were the early days and people weren't really sure where it was going.

Simon Baker:

And it was through that experience that I was given the task of analysing realestate.com.au as an investment for News Corp. So I went through that process. I had to do the pitch to Lachlan Murdoch and to the other the CEO of News Limited Australia and convinced them to make what was in those days a very small investment of $2.25 million cash. And this is $2.25 million cash and $8 million in marketing spend. That took a while actually to get through. And I always remember when they eventually agreed to buy 44%.

Simon Baker:

That's for 44% of realestate.com.au. I always remember when sitting down with the CFO I think it was and they were signing a check and said, "You know this is not a real business." And they gave me the check to pay for it. That 44% which is they've increased over time to 60% is now worth about $12 to $14 billion. So I think it pretty much is a real business today so that was my introduction.

Kylie Davis:

It did all right as an investment [crosstalk 00:05:11]

Simon Baker:

Yeah, It did okay as an investment but that was my introduction to Proptech. And that was back in 2000 and since then I've been knee dipping Proptech for the last 20 plus years.

Kylie Davis:

I'm curious about that statement. Why did you say it wasn't a real business? Because this is going back to the days of Jamie Packer and Lachlan trying to convince their parents or their dads that they really needed to get into this space. Isn't It?

Simon Baker:

Yes, yeah so a couple of things, one is the business was in a very poor state. It didn't have a lot of cash in it, it was burning cash, it was doing $4 million revenues I think and $6 million in losses. So it wasn't making much money. In fact, it was losing a lot of money. It had come within at that point with a couple of weeks of closing running out of cash, it was listed on the stock exchange at that point in time but a very baby listing at $8 million so it was very, very small.

Simon Baker:

And there was still a very strong belief in the papers. Remember that was the rivers of gold that were flowing through the News Limited papers at that point in time. And the business wasn't in a great state. So I could understand from a pure financial perspective why this person formed that view. However, in reality, what was clear was that the world was gone digital and that the concept of newspapers were going to be there forever and that the internet was only a fad was clearly false. Well, was to make clearly false and to millions of other people clearly false.

Kylie Davis:

I think you've been proven right now.

Simon Baker:

It's just me. And what the hurdle was the education of the industry. When we have, is it 12,000 plus agencies, 30 of thousand people working in the industry. And they were very tightly webbed to the traditional advertising of the newspaper. And so it was then how do you go through this process of transferring that education or transferring that knowledge from how do I advertising and marketing in the newspaper, picking three or four houses and that's what you do. Maybe get half a page or a full page, or if you're Ray White four or five pages put together to now you can put all of your listings online for the massive amount of $150, totally, yeah.

Kylie Davis:

Yeah. So how did you turn it around?

Simon Baker:

The turnaround story is literally one of rolling up the sleeves and hard work. So in those days we had a team of about 20 people Australia wide, because as I said about $4 million of them revenues and we had about 1,200 so about 10% of the agencies were using us. And they're paying about a $150 per month each which is actually was [inaudible 00:08:25] $125, I don't remember, long time ago. Anyway, the way we turned it around was quite simple in hindsight. And it all came down to focus. We made sure we had one product to sell, which was an all you could eat subscription. We said, right, that's the product. We had everyone understanding how that product worked in the company which was important. They were trying to sell many different things.

Simon Baker:

At that point, they had web hosting, they had dial in, they had rooms full of modems. Literally they had rooms full of modems, their own little ISP, I'm not joking. So there was a whole bunch of stuff. So we got rid of all the things that were not clear and important because they were just trying to make money from in each way they could. We focused in on the one subscription and then I got all the sales force focused on that. We then made sure everything layered from that down. So telephone call issue, we could handle it. So we had a good call centre. We were in those days still receiving photos from agents via mail that we would scan on their behalf to upload the listing onto the internet. We focused heavily on brand building, but we didn't have a lot of money.

Simon Baker:

So we didn't go and as they had done historically sponsored tennis tournaments and things, what we did was we focused on leveraging the relationship with News Limited in putting, we rebranded sections of the newspapers. We got very good at SEO. I think there was some SCM in those days, I can't remember now. And we just solely build the brand that was focused and we just did that sort of job for about three years. We expanded the product sector progressively over time. And our KPIs were as simple as how many agents in Australia are using us. And what is the average amount spent per agent? And how do I make sure my churn rate is close to a zero as possible? How can I sign up my 100, 200 a month or whatever the target was that we had set, and how can I progressively move the amount they spend from $125 which was nothing compared, that wasn't even a small little module in a newspaper for a week [crosstalk 00:10:55]

Kylie Davis:

When I was at News Corp, I remember Jerry Harris from Queensland Newspapers was telling me that the Courier-Mail was the most expensive real estate paper in the world.

Simon Baker:

Yes. I wouldn't be surprised.

Kylie Davis:

No, about $10,000 plus a page or something, scary.

Simon Baker:

Yes. Yes. When you're paying $250 for all your listings, it's a different world. And so we knew we had to that up progressively over time otherwise the whole industry would collapse from paying a lot of money down to paying nothing. And that was really what it was. And it was sort of what they say rinse and repeat in terms of just doing it again and again, day in, day out, it was incredibly boring strategically because we didn't do a lot differently for two or three years, but very exciting because you're seeing the business grow from $4 million revenues to 20, to 30, to 40, to 50 to go to profitability and to eventually become a billion dollar market cap, which is [crosstalk 00:11:56] when I left.

Kylie Davis:

Fantastic, so how has the Proptech and the property industry changed since that time and conversely, what do you think stayed the same?

Simon Baker:

So what stayed the same is the agents? Once you're in the industry, you're in the industry.

Kylie Davis:

That internet thing, I don't know if it's going to fly.

Simon Baker:

No, no, not the attitude, the actual people. I mean, if I walk around now and think about who I was dealing with at a franchise group level, whether it's Ray White, Raine and Horne, Century 21, it's the same people, literally the same people. So I still know them today and I still work with them today as chairman of the Proptech Group. And what is interesting is that many other players in the industry are the same people. So what stays the same is that. What stayed the same is the underlying, one of the key themes that was clear to me in the early days was if I'm going to help real estate.com.au and make money out of this, I can't change behaviour. I've got to work with the existing behaviour. So what was the existing behaviour was a real estate agent was very comfortable walking into a vendor and saying, you've got to spend $10,000 marketing your house.

Simon Baker:

Okay, so I don't want to change that which means I don't want to go direct to the consumer, to the seller. And I don't want to try to get them to not sell the product. So I wanted to create packages that the agents can then sell onto the vendor. And if we do that, we can then all make money in this process. So that hasn't changed either what has changed is the adoption and use of Proptech. So in the early days, Proptech was pretty much limited to some CRM systems like my desktop which funnily enough as part of the Proptech Group we own today and they're the same people involved in that.

Simon Baker:

What also has changed is the way that technology is saying to go through all parts of a real estate industry and the business and that the access to data, the interpretation of data. So you can now find out what 123 Baker Street's worth if you're in Richmond, Victoria, if that's an address so that when it comes down to negotiation, you can then have, there's more informed parties. It's not just the real estate agent saying this is worth a million dollars and no one else really knowing whether that's true or not, and having to conduct options to work out what the market is. So there's far more data in that whole process. So technology is really purveying all parts of the industry.

Kylie Davis:

Let's just take a short break and hear a quick word from our sponsors. Imagine a real estate forms and contract solution that's always accessible, up to date with legal changes and cuts admin time by 40%. That's the beauty of the Forms Live platform from Dynamic Methods. With Forms Live, Dynamic Methods have created a form system that is easy online and best of all compliant. Every month, 50,000 agents and property managers use Forms Live in seven and a half thousand agencies across every state and territory in Australia. Plus Forms Live has over 100 integrations including the industry's most popular CRMs, connection services, and digital signatures with DocuSign, making it the national platform of choice for real estate forms. Check them out at formslive.com.au.

Kylie Davis:

On that point of the tech being a lot more sort of across everything that agents are doing now, we do hear from agents that, oh, there's too much tech, and there shouldn't be as many prop techs because I think there is a little bit of overwhelm with how much is out there and how ubiquitous it is across sort of every part of the transaction, what's your advice to agents about how to get their brains around what they should be adopting?

Simon Baker:

Yeah. Well, first of all, you're not going to stop the amount of project out there. It's like saying, oh, please stop making so many cars because there's too much choice. I mean, the reality is you need to have a clear vision of what technology means to your business, how is it going to help your business? How involved do you want to be in the technology and then who is the best provider to help you? Who's the one who's thought through it on your behalf. Now for the majority of agents, what that really means is technology is very important for the business, they do need to adopt it, they should not be building it themselves. No one builds an accounting programme or a spreadsheet nowadays, they use off the shelf stuff and they should be working with players that have thought through how these bits of the jigsaw fit together and put it into a nice little package so that when it does come down to you're talking to a vendor and the vendor may need assistance in some short term funding to make some changes to the house.

Simon Baker:

Okay, well, here's a financial package, thank you very much that we'll pick the money up later out of the proceeds. You can now go fix up your house and get a bit of price or the renter coming in needs a deposit. Well, here's a deposit product that we'll actually pay your deposit for you every month. We're going to take an extra $10 out of your or ask you to pay an extra $10 so that you then pay off the interest around this deposit product. There are lots of different ways in which the technology will prompt for an agent or a property manager to do something that will then make their lives a lot easier. The question is who's providing that level of technology, and that's where they've just got to, they've got to work out who's going to help them the most so they can run their business far more efficiently and effective. And the whole objective here is that the agents or the property managers can focus on what they're best at, which is usually dealing with people and marketing, that's where their skill sets are. So let's remove all the things like lead management and all the things that are often not handled as well as they could be and automate that. And that's really where this is all heading.

Kylie Davis:

And so those two kind of ideas that you mentioned around the deposit for the bond, for renter and the ability to pay for marketing or for upgrade expenses, are they products that Proptech Groups investing in or looking at or?

Simon Baker:

Yeah, absolutely. I mean, from a Proptech Group perspective, we basically say the core of the experience is the desktop or the laptop or the mobile device. And that is the starting point, that's the CRM system. So how do we put that in place with when we have My Desktop, we have Eagle and we have Vault. So we have 40 to 45% of the industry using one of our products. We then say, what are the things that can be bolted in to that to make life easier, and that they sort of pop up on the screen at the most appropriate moment. They can be data products. Well, this person wants to rent the house. Here's the renter report, yes, the person can pay the bills. Thank you very much.

Simon Baker:

You can recommend this renter to the landlord. Then there are marketing products. Well, how do I get the most out of my marketing? Is it I've got to be on REA in domain or is it social networks, or is it using Homely or is it some group of products out there. The third category of finance and transaction based products, and how do we help them with the right finance product at the right time as an example, or insurance product at the right time. And then the last group is office automation, how do we help them become far more efficient and effective in running their office? For example, automated lead management, a lead comes in. I mean, there are hundreds and hundreds of leads that are coming into an agency. Many of them are lost because someone doesn't answer the phone, doesn't respond to the email, takes too long.

Simon Baker:

Doesn't go, oh, says, oh, that's not an instant buyer or seller. I'll get to that later. Now, how do I automate all that so that the relationship between the person who is sending the request in and the agency is seamless. You think of chat box when you go online and have a service somewhere, most of the time, you're not chatting to a human being. You're chatting to some AI intelligence who's answering your questions. And eventually it pops up to a human being when the questions get too specific or too hard to handle.

Kylie Davis:

Or when you say, can I talk to a human please?

Simon Baker:

Yes. And then they keep saying, I am a human and no, you're not. Actually, I am. So yeah, so I understand [crosstalk 00:21:08]

Kylie Davis:

Well, start behaving like one and solve my problem for me. Yeah. I did actually have a conversation with one of those lines recently. So you mentioned before, you've just mentioned automation and before we were talking about data, what are the other trends that you see are really driving Proptech at the moment?

Simon Baker:

I think the things that are really driving Prop tech is there are a finite number of leads out there. And what happens is often those leads are wasted and people say, I need more leads. What they're really saying is I need more quality leads. So one of the trends is lead management. How do I ensure that a lead is not immediately classified as being useless and thrown out, it's actually someone goes back answers and is nurtured. So that nurturing of leads over a long period of time is a trend. The second is optimization of marketing spend. I mean, at the moment it's here's $7,000 REA, you can have a top of the list, the top of the thing add, done. I mean, that sort of doesn't answer the real question is that the most efficient use of the $7,000 which is a real $7,000 that's coming from a vendor.

Simon Baker:

It's coming out of their pocket. And no one's saying, well, wait a second, if I bought a $5,000 ad or a $1,000 ad or just bought the standard ad, will I get the same volume of leads or the same quality of leads coming out of it or can I take that money and place it on a Facebook or Google AdSense? So there's [inaudible 00:22:51] and then in those, you're solving the problem of how do I maximise my marketing spend? I think another trend that's occurring driven by technology is the reduction of all the tasks that occur in an office on a daily basis, that's actually wasted time. Time not spent talking to a vendor or talking to a potential buyer. So it's that automation of all those minor little tasks out there, far more than just lead management.

Simon Baker:

And then the fourth sort of key trend I think is occurring is the merging of Proptech and FinTech. So Proptech, property technology, and finance technology, so that you have these incredibly innovative products occurring. So convenient there's a company that we work with, they offer these, the capacity to get your commission early if you're a salesperson or that's an attractive proposition for a salesperson is where I can get $0.98 in the $1 or whatever it is, or $0.95 cents in the $1 today. Yeah, it cost me a little bit of money, but I don't have to wait my three months and what happens if there's a closing is delayed and who knows whatever in that process. So I think there's a whole bunch of these things that are coming together that are really creating a much stronger real estate industry and the capacity to, when you think about Dave, if you go online and you buy from Amazon.

Simon Baker:

And I've been in the US for the last month or so and I own a house there and I've been buying way too much from Amazon. The process is literally seen online, by the process, they're the same day. Oh, I don't like that. Some guy comes back in a truck picks it up the next day. I don't have to leave and everything is seamless. So how do you create that incredibly exciting process that saves my time, gives me far more choice in what I'm doing. And it ends up with delivering to me what I need, how do you take real estate from the traditional shop front and I have to go and engage with them to that far more seamless, far more focused on the user experience. And that's really where it's all going.

Kylie Davis:

Well, I mean, look, real estate is so expensive. You would hope and the goal should be for you to have an amazing experience when you spend $1.2 million in the same way that you have an amazing experience if you spend $4.50 on a coffee, right?

Simon Baker:

Yes. Yes. But often it's not.

Kylie Davis:

No, no, it's not.

Simon Baker:

Because there are a lot of moving pieces in the puzzle. And more importantly, you buy a coffee every day. So you know your role in that transaction. And you also know when you've got good coffee or bad coffee. You buy and sell a property once every seven years on average. So in that case, you don't know if you're getting good service or not. You are really very nervous in that whole process. You probably are aware you don't know very much about what's happening which allows you to live with poorer quality service than you should, but what's happening is these teenagers and I've got three of them are roaring through the system and they're very demanding on instantaneous satisfaction on every dimension. And that instantaneous satisfaction on every dimension means that you as real estate agencies as these people go from these young people go from their 20s through the rental process into the buying process, they don't want to wait three months to get in property. They don't want to wait three days to get approved for a loan. They want everything instantaneously, this millisecond. And then they're onto the next thing. So I think you have to move with the times.

Kylie Davis:

I thought your comment before about for a former CEO of REA around that whole marketing and where does the marketing money, where should that be going, that was really interesting. What's your view on the future of portals? I mean, we are seeing even more new ones with Homely and that coming out now here in Australia, do we need more portals to challenge REA and Domain? Where do you think the future of portals is going?

Simon Baker:

Well, it's not about the future of portals. So I think the portals as we know them, they served a purpose. They served to replace a newspaper, that was their objective. They had and they replaced a newspaper, but had a far broader reach and far greater content. So they were the newspaper on steroids, they were far better. The challenge is that the world is moving beyond that. They're moving beyond just putting an ad up and I get a lead and I've got, here's the email address or here's the form that turns up in my inbox. I've got Domain leads and REA leads and Homely leads and whoever else leads, boom. Though what's important is not the volume of leads, which was how it was traditionally measured is the quality of the leads.

Simon Baker:

Okay, mean I can give you one lead only and that person buys the house and I can give you 10 leads in a year and those are 10 houses that were sold. Well, is that more valuable than I give you 1000 leads and you still sell 10 houses? Well, answer is clearly it's more valuable because I don't have to wait through 990 leads that were rubbish or were not valuable to me at that moment in time. And so therefore the role of the portal has to change. The problem is can it change in that process because then going to become a lead manager, but then wait a second, isn't that doing the job of the agency. And then it plays into the fear of the portal's going to replace the industry. And that's a fear that was there from day one. And I've still got emails of hate mail, literally hate mail. My most favourite one [crosstalk 00:29:03].

Kylie Davis:

How did [inaudible 00:29:03] them?

Simon Baker:

Because it's fun. It's fun to look at the stupidity. So I always remember that internally at a very large franchise group will remain anonymous, they had this newsletter go around and it was literally a paper talking about all the reasons that you should not advertise on real estate.com.au. And they had dripping blood painted down the page. I've still got this in the bottom of a box somewhere. And that group was the last to embrace the portals as a lead source. And so we have to understand that there is this natural tension between the industry and between the portals about whose job is whose in the industry.

Simon Baker:

What I think is really emerging you is that there are, and we're seeing this outside of Australia is that the portals are now moving into the transaction space. And they're not doing it in the category of directly dealing with established homes. They're working very much with the developers. So that becomes less contentious In this whole process. They'll go to a developer and say, look, I will take and market your property. Now, instead of you paying me a marketing fee, you pay me a success fee. And why don't we have that success fee equal to the commission? That's applicable. Well, that's the role of agency so we're seeing this around the world of what's happening. So do you need more portals? Well, the reality is there are so many other lead sources out there.

Simon Baker:

Whether it's social media lead sources, whether it's the Googles of the world, whether it's SEO, using your own brand out there, building your own network, whether it's cross marketing, sharing of listings. Now why the franchise group never got together and said, look, why don't we share the listings on each other's sites?

Kylie Davis:

Like an MLS?

Simon Baker:

Like an MLS, but without necessarily the transaction behind it. So a lead comes from a Ray White to a LJ Hooker and a lead from LJ Hooker to Ray White. Well, over the time, it's going to be about the same. Well, if you do that, you are less reliant. So need more portals to challenge. I think there are massive marketing opportunities out there at the moment. I think the problem is that it is, I think what the real issue is is that the agents in Australia, and this is very unique in the world, don't pay for their advertising because the vendor pays for the advertising. That is globally unique so in most places, the agent pays for the advertising. And so therefore the concept of paying $10,000 or $7,000 or whatever the number is for a listing is an alien concept. Nowhere on the planet they're going to pay that for a listing. The fact here is that REA and Domain have done a very good job at creating external Salesforce. And that's called real estate agents in the country. And they're the Salesforce for REA and Domain. And they're out there selling the products every day.

Kylie Davis:

Do you run a Proptech business or are you the founder of a Proptech? Make sure you join the Proptech Association of Australia. It's Australia's new, not for profit association, made up of tech people who are passionate about the property industry and committed to improving experiences in how we buy, sell, rent, manage, build, and finance property. Joining will give you access to events and networks across Australia, and globally to help you promote and grow your business. Go to proptechassociation.com.au and follow the prompts to join. So where do you see it going to go? What do you see is the future of the portals?

Simon Baker:

Well, I think the natural outcome out of all of this is that first of all, they can't keep jacking up the prices because there's only so much money that people are willing to spend on marketing. Plus there are alternate sources of leads that are emerging. Plus there are alternate marketing platforms. So you think of a portal is a marketing platform that has an agent and a portal. Well, if something comes that does both of them and emerges then there's no and they truly understand the role of social media versus search engines versus building their own brand versus marketing on some other traditional channels, but they're very integrated their process internally so that people go from listing their property through to selling on the property or listing their property for rent through to renting that property out.

Simon Baker:

And that's a seamless experience for the beginning to the end, all driven by an app. So you're selling your house, you get the Simon Baker real estate app, here you go, download this. I will communicate with you daily on this. You will see everything you ever need to know, checkpoints, what's needed for you. You can take some pictures, you can update stuff, you can show me your fixed stuff. You'll liaise with your conveyance through it. You will liaise with the bank who clearly wants their money once you've sold the property and so on. Everything's liaise through that. And by the way, you'll track the process right up to an auction or right up, you can see every single beat, every single interaction I've had with someone, we can run a silent auction. We can do so many different things.

Simon Baker:

Okay. Well, I then I'm selling through a platform. No different to if I'm someone who's selling iPads, I can go and sell them through Amazon or eBay, they're platforms. And if you look around the world, there are large companies that are emerging like QuintoAndar in Brazil for example that's a multi-billion dollar business and they just do rentals and that whole rental process. I want to rent my place out, I interact with an app. Take pictures, da da da, they come, they verify that it's real, done. Then everyone who's applying goes through the same platform, but then there's all this electronic certification that I'm a real renter and I can pay the rent, paid. I then offered a deposit bond. Okay, thank you very much. The landlords offered tenants insurance so if the tenant disappears, they're still going to get paid.

Simon Baker:

And then what happens is once that deal is done, QuintoAndar manage the rental for them or buy the app, so the tenant now has a problem. Oh, you've got a problem with this leaky pipe, take a picture, bang. It goes straight to the plumber and the plumber turns up with and they see it on the app. Oh yeah, 35 minutes, the plumbers coming in, it's just like Uber driver. You can see where the person's going to turn up and so on. That service, so whoever delivers that, whether it's agency or portals wins the customer. The problem is both are sort of not there.

Kylie Davis:

Yeah, again, no, that's true.

Simon Baker:

That creates opportunity in the middle.

Kylie Davis:

And it's been interesting, isn't it? That portals have been going into that sort of transaction space, so just this last couple of weeks, Zillow closed Zillow offers, which was where they were purchasing and then flipping properties. What's your take on that and what are the lessons for Proptechs in that space?

Simon Baker:

So there are two issues here. First of all, doesn't make sense for people to buy, flip, sell. The answer probably is yes, but you've got to do it in a smarter way. And you've got to look at people like OfferPad who are doing it or you need to have a different model like the guys at Knock are doing as well, which is a financing type model rather than it's a finance led sale rather than a I'll buy your property, do it up, resell it and try to make a margin sale. So the underlying mantra works. Why didn't Zillow work in its office? Probably for a number of reasons. One is I think probably a degree of arrogance in that whole process that they were the ones they knew how to do it all and these beautiful models they would trot out to the market and the market would look at them and so they show that a brit for this and sell it for this. And their Zestimate model proves that this is going to occur and they will, can bolt on these three other products and insurance products and a title insurance title insurances that have the US product, a financing type product and so on. And then they will make X percentage points on every transaction. Beautiful in a spreadsheet, amazing spreadsheet, spreadsheets are never wrong except they're always wrong.

Kylie Davis:

No, they're their own kind of Zestimate, right?

Simon Baker:

Right. So but where it fell over was a couple of ways. One is the Zestimate didn't take into account market shocks. The impact of COVID, the rapid desire of people to move out of cities and into suburban areas. And so on. There's a big bunch ofso the model sort of didn't quite project prices well enough. And the overall market itself, market rapidly moved up and then plateus, and suddenly you're buying properties at a higher price than you should have. The second thing is the desire to, as they called it project ketchup as in a source ketchup or catch up, but it's ketchup as in source. And what they were trying to do is catch up to Offerpad who was ahead of them. So they were buying properties too fast. The problem is when you buy all these properties too fast and then you basically buy, renovate, sell.

Simon Baker:

Oh, wait, renovate, oh, that requires people. Ah, okay, I can't get them done fast enough. So then you've got to pay more, but wait a second, you don't want to pay more. So you actually want to pay less because the finances aren't looking so good at the overall equations, but those same handymen and women, handy people had to also then got offers to work with Offerpad and other places who are paying more. So they'll take the job over here that pays me 30 bucks an hour and not 25 bucks an hour. Thanks very much. And so they had all these properties they couldn't get renovated fast enough. So then the whole thing just went, fell in on top of itself. So that was a, I think it was all a bit of hubris or arrogance about how it is and too much money was thrown at the problem was the final issue.

Simon Baker:

Wall Street just loved it so they were just raising billions to throw at the problem. Well, you can throw all the money at the problem in the world, but if the fundamental underlying economics are too thin, the margins are too thin that any exogenous shock to the system cause it to go from positive to negative, then you have a problem. And that's the summary of what happened in all that. So good lesson learned, don't throw the baby out with the bath water in terms of the underlying concept is not false, back how they approached it I think was a bit too aggressive.

Kylie Davis:

And so when you are investing, because you invest in quite a lot of prop techs, what do you look for? What's the underlying business model that gets you excited?

Simon Baker:

Okay. So I've got about 30 or so investments around the world. I bet there probably in about 12 to 15 different countries. The core thesis I'm working at the moment, and this is where about 12 of the investments most of the recent ones are in e-brokerages or e-agents, but it's that whole concept of I can automate the transaction. So it's digitising the real estate transaction. From the moment you deal with a buyer, sorry, a renter or a seller through to the moment that it is purchased or in the case of rentals, the ongoing management is how do you automate that whole process? So that it's super efficient. And how do you reduce the level of personal interactions to only where it's necessary. The objective there is to reduce wastage and that process to maintain the margin, whether it's 2% or 4% or 5%, depending on where you are in the world, but you improve that margin.

Simon Baker:

So you reduce the costs and you improve that margin through what has to be face to face. Do I really need a salesperson to do this or someone to do that? Or can I get that automated? And then at the moments where I definitely do need to have a salesperson, then that is where they are focused all of their time. Now, if all your time is spent on closing a deal, it gives me great scope on hiring people who fit that type of characteristic really, really well which means that they all then close even higher volumes of transactions. So that's the whole process. A lot of it and then the question is where do you do it? Well, you're doing this in markets that are less structured, there's less franchise groups, it's more like the little independent agents.

Simon Baker:

So I've got investments everywhere from Brazil through to Thailand, Singapore, me and Ma, don't talk about that one [inaudible 00:43:28] Amazingly very good things are happening with me and ma but problem is it's at the military coup which always makes things different and we're doing stuff in [inaudible 00:43:36] and then some more established markets in Switzerland and such. So it's very exciting. That's the first chunk of which I invest in. The second chunk that I invest in are models that I think are that are interesting or markets they're interesting. So I've got investment in Russia at the moment with Sian. Sian's just listed on the New York stock exchange as of last week. And they're a large player, super strong in that position, in that market. And I progressively going forward and are at same time exploring what are the ancillary products and services?

Simon Baker:

Can I get into the financial transactions? Can I get into real estate transactions around that core part of the overall transaction, but you can do these things in markets where the industry yeah, the strongest industry is the NAR in the US, very strong. You've got this amazing, it's basically unionised if you think about it. And so that creates this very interesting tension with the Zillows of the world and how do they work with them and so on. And you have right through the other end where there's literally no certification of agents. If you want to be an agent, you wake up in the morning, I'm an agent, thanks very much. It's all properties are being sold by anyone in the market. So you have multiple people representing a property, and it's just meddling, chaos.

Simon Baker:

Somewhere in there is our opportunities to make money by focusing on how do I digitise this transaction, create platforms. They're really their real estate platforms for growth. And then it's all about having done that, then it's just about saying, how do I progressively work through an industry, expanding the presence. And remember nothing says an agent can't be like an Uber driver and be working for Uber and Lyft or Uber, Lyft, and their own private clients at the same time. At the moment, just traditionally, they've worked for Ray White, I'm a Ray White agent. Well, why can't you be Ray White, LJ Hooker and your own direct brand? As long as you've got some capacity to transact, away you go. So in many markets, it's about saying you can work with these platforms as well as another brand. It's just an app on a phone, thinking, oh, there's a lead coming in from yeah [inaudible 00:46:01] in Brazil. Thank you very much. Would you like to accept this? Great. You've got 30 minutes to respond to the potential buyer. If you don't respond in 30 minutes, this lead will go to the next agent.

Kylie Davis:

Right. Okay. Awesome.

Simon Baker:

Like Uber, if you don't the lead, someone else is going to get it.

Kylie Davis:

Yeah. You can work for all of them. So when you're investing, do you like startups or are you more of a scale up guy or where does your [crosstalk 00:46:29] fit?

Simon Baker:

I don't like pieces of paper.

Kylie Davis:

Okay, needs to actually work.

Simon Baker:

Right. Because I like things that are a bit beyond that. So I prefer scaling up.So they've done some work they've thought through these types of transaction, sorry, the process in depth and have done a number of transactions and then expanding. I guess the one where I do like to invest in which is that expansion is a Proptech group, which is an ASX listed company that I'm chairman of and a large shareholder of, that's all about let's take businesses that exist in the market that have strong customer bases, bring them together, make sure that they can talk to each other. So they're seamless transferring it through APIs of data between the businesses and then help them help through experience for them to grow rapidly into a market and achieve that goal within the Australian and New Zealand markets of how does an agent who doesn't really want to think through all the problems and possibilities of technology get access to a solution that is someone's already thought through for them. So then their points of differentiation a brand and how they use the technology. We all can get access to Excel and we can all get access to Word. It's just what we do with them that differentiates us.

Kylie Davis:

Yeah. Awesome. Well, look, Simon, I'm very conscious of the time, but what does the next five years hold for you personally? What's your game plan?

Simon Baker:

Just continue to enjoy life. At the end of the day it's enjoy working on the businesses that I'm involved in, enjoying helping them grow. I, for example, I've got, I think it's about 12 businesses now that and 12 investments that are in this transaction space. I enjoy getting them all together. So we literally virtually get together every month or every six weeks and we talk about issues. It's about driving knowledge through the industry. I think is probably where I get most enjoyment. I run what's called the Proptech Conference. So it's not the Proptech Conference, Property Portal Watch for since we did our first in 2010 and we'll do them again next year, I think that'll be our 34th conference. And we do them three times a year, Bangkok, Miami, and Madrid, sounds very exotic.

Kylie Davis:

It does sound exotic.

Simon Baker:

Well, it makes it easier for people to come to them. If you're in Latin America, you come up to Miami. If you are in Europe, you come to the one in Madrid and clearly in Asia, you come to the one in Bangkok. That allows hundreds of people to get together in a room and really share ideas. So to me, that's probably the most exciting component is just sharing the knowledge, meaning we've been in this industry for 20 plus years, you just want to share. You just want to want people to all then grow. And then the other element is just enjoying life especially as all kids will as of June next year be out of high school and into college so that'll be fantastic.

Kylie Davis:

Unless COVID brings them all home again, right?

Simon Baker:

Nope [crosstalk 00:49:57]

Kylie Davis:

So for Property Portal Watch, do you have to be part of a property portal to come or can you be any old [crosstalk 00:50:02]

Simon Baker:

No, no, anyone's, we've had guys from LJ Hooker turn up, from Ray White turn up and yeah, the ones in Bangkok. We've had large franchise groups turn up, but we don't mind who comes to it. It's about, if you want to understand how the industry is thinking about technology, it's a good place to learn because you've got people in a room who are one from the Zillows through to the startups.

Kylie Davis:

Yeah. Fantastic. Fantastic. Well, look, we might post some details about the next Property Portal Watch in the show notes as part of this, but Simon Baker, thank you so much for your time. It's been fantastic to talk to you about propert.

Simon Baker:

Great. No problems. Thank you very much.

Kylie Davis:

Thanks Simon. So that was Simon Baker, chairman of the Proptech Group and a founding father of Australian Proptech and in fact, global Proptech. I love Simon's advice about the importance of focus in Proptech and how while it may be boring, it's essential to get your basics right, and to double down on your core value and just get really good and profitable at that before adding the bells and whistles to your offering. It's a really easy trap for a lot of Proptechs to fall into, to offer an expanded suite of services just to bring in revenue, which really just end up distracting you from your main game which is where you really add value and where your profitability lies. So it's all about a laser-like focus. And I also love his observation about how the people in Proptech have stayed the same over that time.

Kylie Davis:

It is so true. The property industry is remarkably sticky in Australia, and it's based on relationships, not faceless tech. So looking at how your technology can enable agent or enable human behaviour rather than trying to change behaviour is really five star advice. And how great was it to hear about his early days at the REA group? It gives all of us great context for those working today in prop tech because the origins of real estate.com.au often get lost in its most recent history as a super successful real estate behemoth. And the story is that real estate.com.au like so many prop techs starting out early, nearly lost its way and went under and that's okay. It needed a cash injection, some external perspective, and that laser-like focus to turn it around and then went on to become a company that today earns $928 million in revenue.

Kylie Davis:

And is something like the 1107th largest company in the world. So if they can do it, anyone can. So dream big little prop techs, dream big. Now, if you have enjoyed this episode of the PropTech Podcast, I would love you to tell all of your friends, check out the episodes on the proptechpodcast.com or drop me a line either via email, LinkedIn or Facebook. You can follow this podcast on Spotify, Google Podcast, Anchor and Apple iTunes and anywhere good podcasts are heard. I'd like to thank my podcast producer Charlie Hollands and our sponsors Direct Connect, making moving easy, Dynamic Methods, the name behind Forms Live, REI Forms Live and Realworks and the PropTech Association Australia, Australia's industry body supporting the flourishing Proptech community down under. Now, if you're an Australian or a New Zealand Proptech who would like to be on the show, drop me a line by LinkedIn or kylie@proptechassociation.com.au. That's it for this week. Thanks everyone. Keep on prop teching.