Property Technology, or Proptech, is one of the hottest areas of technology change and investment right now. Last night I spoke at a dinner for a selection of bankers, investors and property agents in Oxfordshire. It’s unlikely I said exactly the words below, but this is the script I scribbled down in advance.
In it, you will find some new examples of the five vectors of change, as well as some specific ideas of the types of change coming to the property sector.
Technology is the biggest driver of change right now. This feels like a controversial statement in the age of Trump and brexit. But it has always been true. Technology is the application of our understanding of the world to make change. It has been true since the first australopithicus afariensis learned they could sharpen one rock with another. And ever since then technology has done one thing: it has lowered friction. It has made things easier and given those who have it an advantage over those who don’t.
This simultaneous easing and creation of competitive tension is the mechanism by which technology drives change across every market it touches. And it does so across five different areas.
The first thing technology does is ease the introduction of more technology. The more of any particular technology there is, the cheaper it becomes, and the more people there are with an understanding of that technology to help others introduce it.
This is particularly noticeable with general purpose technologies like the microprocessors and microcontrollers that today power everything from kids toys to in-building systems. These things are so cheap now that the marginal cost of making an item ‘smart’ is rapidly approaching zero. It’s sub 50p for large manufacturers now, maybe much lower than that.
This is part of the reason why we are seeing objects across our homes and offices come alive: lightbulbs, music players, thermostats, alarms, locks, vacuum cleaners, washing machines. All of these things are increasingly connected, sucking in commands and spewing out data.
This is also why we are now seeing the rapid adoption of cognitive technologies, loosely termed as Artificial Intelligence. As much as anything else, its a factor of the cheap and readily available processing power we have available.
The second thing technology does is accelerate the rate of change. By lowering friction, technology speeds the flow of information and ideas, and the cheaper it gets the easier it becomes to systematise those ideas. The result is a higher frequency turnover of businesses, products, and services.
This has a role to play in the declining length of rental terms demanded by younger tenants particularly. In this age of high frequency change, two thirds feel insecure in their work. They’re more likely to be single and childless, less bound to any one location and unwilling to accept a contract that might outlive their employment. The ubiquity of technology means that many of their possessions are entirely digital now, so moving is as simple as sticking a bag of clothes and their macbook in the back of an Uber.
When it comes to make that move, those looking for a new flat will be well served by estate agents. There are more now than ever, albeit with many operating on very shaky financials. This is the third effect of technology: that lowering of friction breeds diversity. This is why record numbers of small businesses are starting up across the board. Combined with the current state of the economy seeing lots of people looking for new or additional sources of income, technology makes it easier than ever to start a business. I challenged a room full of salespeople once to demonstrate their entrepreneurial spirit and see how fast they could find everything they needed to start a business: registering on companies house, sourcing suppliers, getting a brand designed, building a website. The whole lot can be done in about an hour on a smartphone, except for one thing. Anyone care to guess what that is? Getting a bank account, though thanks to technology-driven diversity even that has been solved now with Tide, the all-digital business bank.
The last two things that technology does are about performance and business structure.
Technology doesn’t just accelerate the rate of strategic change required, that lowering of friction raises expectations amongst customers as well. Because so many of us interact with our suppliers digitally now, our expectations for completely different classes of supplier are conflated. I found this working with local authorities: the benchmarks they are learning they have to work to aren’t set by other bits of government, they are set by Amazon and Facebook.
This is perhaps one of the greatest areas of opportunity in Property, which remains an incredibly slow business, particularly in the commercial sector. Stories still abound of agents taking days or even weeks to respond. I’ve called agents myself in the past to be told that someone was on lunch but probably wouldn’t make it back that afternoon. Could I call back in the morning? This was someone who I was trying to spend tens of thousands of pounds with. The Zooplas of this world may have created a low-friction front end but there’s still a lot of friction to be taken out of the system.
The way that may happen is with the last effect of technology, what I call disintegration. If you can create a low friction interface between your business and another, there’s less need to replicate functions inside your own organisation. Or if you do, it’s very easy to sell those functions on as services in their own right. This is what Jeff Bezos of Amazon famously insisted everyone in his business do back in the early noughties. He sent out a memo instructing everyone to basically stop talking to each other and wrap their individual functions in a software layer that would allow them to interact on the same level with each other or with other businesses. This was the beginning of Amazon Web Services, essentially part of Amazon’s IT department but now a $20bn a year business.
What does this mean for you all?
Firstly, it’s important to note that proptech remains in its early days. Large swathes of the industry are yet to take proper advantage of the last decade’s technologies, let alone incoming ideas like AI. There are still gains to be made from what my client Accenture calls ‘below the line innovation’ – essentially streamlining existing processes. I would put fixing the speed of response into this category and making it a priority for anyone who is concerned their response times may be a little slow.
But this can’t be the total focus, you need to be considering some ‘above the line’ innovation as well: the genuinely game-changing stuff that is coming down the pipeline. Let me highlight two examples of this.
The first is the combination of connected devices and AI, into what I have come to call the ‘living city’. Imagine places that can dynamically adapt to the needs of the people that use them, both over short and long term periods. For example, imagine a building that analyses the way that tenants use it, and following the dna inscribed in its BIM and architectural models, reshapes itself to better meet their needs. This could start with a system of partitions, but could eventually be done with autonomous 3D printing. Imagine changing room configurations, door locations, breakout spaces etc.
The same buildings could sense the needs of others around them, both humans and other buildings. They will likely share power and heat reserves, minimising their reliance on the grid. And they might choose to use some of that energy for public good, using a bank of office lights to illuminate a dark alleyway, or venting waste heat to warm a chilly bus stop.
This is all about the blending of the digital into the physical, but we will also see the physical blending into the digital. Mixed reality is likely the technology that will replace the smartphone as our primary access point for the digital world. Imagine in ten years that everything you see and hear for ten hours a day is overlayed with a digital reality. Every wall becomes a screen, every space becomes a venue for a digital human, creature or object.
Imagine searching for a new flat in this world. Cycling to your office your personal AI notifies you of a new flat on the market that it thinks would suit you. It knows you like the gym, coffee, and craft beer – forgive the hipster stereotypes – and the style you prefer based on images you and your social graph have shared on social media. Plus through open banking it knows your budget. You stop and jump into VR for a quick tour and to check the details. You like it so you empower your AI to go and negotiate on your behalf. Fifteen minutes later you get confirmation of your rental agreement.
At the end of the day you leave your bike at the office and take a self-driving car home. You load it up with your small selection of belongings and drive over to your new flat. You walk up to the front door which automatically unlocks thanks to the digital signature transferred to your digital devices.
Low friction, high performance, ubiquitous technology.
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