The Intoxication of PropTech: Boom, Bust, and Survival

The Intoxication of PropTech: Boom, Bust, and Survival

In an economy energized by Internet of Thing (IoT) device energizing Smart Buildings and Smart Cities, today’s Real Estate CIO is spearheading digital transformation on a global scale. With new found inclusion in the C-Suite, CIOs are being tasked with discovering innovative solutions capable of automating archaic manual processes, along with developing a strategic vision capable of creating a competitive advantage and new business opportunities.

Not withstanding being a trillion-dollar industry, Real Estate has been a laggard in technology spend,relying on the adage “If you build it, they will come.” PropTech, an acronym describing the intersection of technology and real estate, is looking to change that mindset. From 2015 through 2018, $30 billion has been invested in the PropTech industry worldwide. Intoxicated by visions of fortune and glory, vendors are trying to capitalize on the funding frenzy, pitching concepts and solutions with limited or no substance. As a result, quantitative and qualitative success has been elusive when measured by adoption and profitability.

These dynamics are reminiscent of the dot-com boom and subsequent bust of the late nineties. Industry leaders are trying to balance their enthusiasm embracing “failing fast”, and “if you’re not failing you’re not innovating”philosophies. For this approach to be meaningful, and prevent major financial losses, each failure must come with a lesson learned.

For innovators, adopters, and investors to survive and beat the odds, a series of sound business fundamentals must align. First and foremost, PropTech solutions must be architected to address an existing problem or pain point. 

When done properly this will either enhance revenue, reduce expenses, improve operating efficiencies, or provide an add-value amenity to owners, tenants or residents.

Achieving these lofty business objectives,while championing adoption,implies 1) startup firms and innovators must have in-depth industry knowledge translating into a holistic understanding of their target audience’s business model 2) real estate companies must ensure internal resources have appropriate technology and subject matter expertise to evaluate PropTech solutions and 3) all parties must transparently collaborate to develop a strategic vision incorporating today’s comprehensive digital ecosystem. Simply developing or implementing wow factor technology, without achieving these goals will greatly reduce the likelihood of success. 

We live in a digital age consumed with instantaneous access to information, where data is the new oil powering success. With billions Internet of Things (IoT) devices connecting our properties, and countless transactions generated from digital marketing channels, the global data sphere’s growth rate dwarfs Moore’s Law.Agile PropTech firms will unlock these bits and bytes of data leveraging Machine Learning (ML) and Artificial Intelligence (AI). As a result, visibility into real-time trends will emerge, fostering an accelerated pace of change, disruption, and a true competitive advantage to adopter.

As PropTech solutions provide insight into our business, adding to the ocean of information, they must also be engineered to exchange data in a secure bi-directional fashion. Too often cyber security risks are ignored exposing sensitive proprietary data, intellectual property, and perhaps a firm’s competitive advantage. When constructing system interfaces and data connections, PropTech firms should incorporate a few simple precautionary defenses against cyber-attacks by 1) encrypting data at 256 AES, both in transit and at rest 2) implement strong password and account lockout policies 3) create secure point to point VPN tunnels restricting unnecessary traffic using firewall rules and 4) monitor systems for potential intrusion leading to loss of corporate assets.

Another key fundamental metric PropTech firms must build into their business model, to ensure survival and improve odds of success, is a solid revenue model. It about understanding the perceived value, market pricing, and Return on Investment. This is one area where we see a big disconnect, with startups believing their product will sell itself. Currently, very few, if any startup firms are profitable, or have a sustainable revenue stream as they burn through multiple rounds of funding. Without a foreseeable return, new investors will shy away, capital will not be available, and consolidation or attrition will follow.

Today’s intoxication and perhaps a touch of euphoria surrounding PropTech is warranted, so too is a modicum of caution. This is simply a reminder that sound business judgement should always prevail and be at the forefront of any decision process. Innovators and adopter will unlock today's digital first paradigm and PropTech will ultimately provide transformational results to the Real Estate industry on a global scale.

Weekly Brief

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