The Intoxication of PropTech: Boom, Bust, and Survival

The Intoxication of PropTech: Boom, Bust, and Survival

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

Notwithstanding being a trillion-dollar industry, the land has been a laggard in technology spend, counting on the adage “If you build it, they're going to come.” PropTech, an acronym describing the intersection of technology and land, is looking to vary that mindset. From 2015 through 2018, $30 billion has been invested within the PropTech industry worldwide. Intoxicated by visions of fortune and glory, vendors try to maximize 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 like the dot-com boom and subsequent bust of the late nineties. Industry leaders try 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 stop major financial losses, each failure must accompany a lesson learned.

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

When done properly this may 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) land companies must ensure internal resources have appropriate technology and material expertise to guage 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 sleep in a digital age consumed with instantaneous access to information, where data is that the new oil powering success. With the billions of Internet of Things (IoT) devices connecting our properties and countless transactions generated from digital marketing channels, the worldwide data sphere’s rate of growth dwarfs Moore’s Law. Agile PropTech firms will unlock these bits and bytes of knowledge leveraging Machine Learning (ML) and AI (AI). As a result, visibility into real-time trends will emerge, fostering an accelerated pace of change, disruption, and a real competitive advantage to the adopter.

As PropTech solutions provide insight into our business, adding to the ocean of data, they need to even be engineered to exchange data during a secure bi-directional fashion. Too often cybersecurity risks are ignored exposing sensitive proprietary data, property, and maybe a firm’s competitive advantage. When constructing system interfaces and data connections, PropTech firms should incorporate a couple of 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 resulting in loss of corporate assets.

Another key fundamental metric PropTech firms must build into their business model, to make sure survival and improve odds of success, may be a solid revenue model. It about understanding the perceived value, market pricing, and Return on Investment. this is often one area where we see an enormous 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 recoil, capital won't be available, and consolidation or attrition will follow.

Today’s intoxication and maybe slightly of euphoria surrounding PropTech is warranted, so too may be a modicum of caution. this is often simply a reminder that sound business judgment should prevail and be at the forefront of any decision process. Innovators and adopters will unlock today's digital-first paradigm and PropTech will ultimately provide transformational results to the important Estate industry on a worldwide scale.

Weekly Brief

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