The property market in the UK has been buoyant in recent years leading to generally positive financial results for the major residential and commercial property services groups.
The past 24 months has borne witness to the rise of what has been coined as “PropTech” – businesses which operate in or around these businesses’ value chains but use technology to challenge incumbent businesses or solve consumer problems that incumbent businesses have not tackled.
Incumbent businesses in the sector, enjoying good trading conditions, have yet to act in response to the threat posed by these new entrants.
The most widely discussed threat is that posed by so called “online” estate agents – businesses that claim to use technology to provide customers with a low cost alternative to typical estate agents. However, startups have sprung up across residential, commercial and other parts of the property ecosystem and they are determined to change the status quo.
The burgeoning PropTech space is focused on London. The city has recently come to be seen as a leading location to establish such businesses as part of a wider strategy to attract technology businesses across all sectors. Significant money is now being deployed in PropTech as can be seen in recent investments raised by, in particular, the online estate agents.
There has been a flurry of small investments in PropTech businesses led by Pi Labs and Seedcamp, which has made 13 investments in Prop:Tech businesses to date. There is also some public awareness of the potential for the sector as evidenced by some successful crowd funding campaigns by online estate agents.
It has been demonstrated across multiple sectors – including property – that consumers are inclined to use technology solutions that address their needs or wants, usually at a lower cost than incumbent solutions. This can be seen very clearly in the search part of the customer’s journey through the residential property transaction value chain.
Consumers are very happy with only two service providers – Rightmove and Zoopla. These businesses have created in effect a monopoly position and generate supernormal profits as a result. This has been to the detriment of the incumbent in that space, namely traditional print media.
It is entirely likely that property services businesses will come under threat from new entrants that have the potential to create similar monopoly positions at all points of their businesses in the next few years and therefore it is entirely sensible for those firms to consider a defensive, yet proactive strategy.
The first firm to act in this sphere will either prevent competitors from acquiring or investing in the best businesses or, if they do invest later, they will have to do so at much higher valuations. Either way, this creates competitive advantage for the first mover.
The market today is accessible for a strategic investor. Although some significant money has entered the PropTech vertical, it has focused primarily on online estate agencies, driving valuations much higher in that specific market than in others.
However, although those businesses have high valuations, they do not have large cash piles. Instead, they are reliant on regular and further fundraising rounds to grow their brands and their technology. This means that they are not in a position to acquire competitors or complementary businesses – yet.
There are two key things on which an incumbent property services firm must keep a wary eye if considering investing.
Firstly, many of these businesses are very narrowly niched and have not generated any traction yet.
Secondly, their business models may not be designed to work in concert with incumbents which may make it very difficult to generate traction in future.
Institutional money has not yet been deployed in this sector to any meaningful level but, when it comes, valuations will soar even higher, making it very expensive to enter the market in as little as six months’ time.
Incumbent property services groups have a chance to act now. Failure to do so will be extremely costly because as soon as a PropTech startup finds itself sitting on a cash pile due to investment or IPO it will go on an acquisition spree, locking incumbents out of the market and sealing their slow and painful death.
Eddie Holmes is chief executive at Launch22, business mentor & PropTech Specialist. @eddieholmes84
At last. Some sense on the subject of where the property industry is going. It’ll be denied by the haters on here, no doubt, but if the establishment (for that is what it is in all respects) sits on its hands and watches the world go by without orchestrating a defensible position that is somewhat tech enabled, they will be left behind. And will have no one to blame but themselves for missing the boat. It isn’t ALL about the tech but it’s a significant element and, frankly, without acquiring the enabling core to this, the incumbents will be left staring at the headlights.
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How many of these prop tech firms are in profit? How exactly well are the Caan, Butt projects going? What about the sure fire “this is going to be massive” Facebook property places?
Not sure where this regurgitation came from or why it wasn’t independently verified but this sounds like what Ros Renshaw would dismiss as a plug.
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I doubt any of them are making a profit save for those that haven’t been venture funded. Butt must be on at least 20x his money (on paper) after the Emoov crowdfund, which I assume you are referring to, as that is one of only two “proptech” businesses he invested in directly.
Profit is sanity, unless you can get out early
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I wasn’t thinking of Emoov, that is just venture adventure, those with a memory for vexatious farce will recall several sure things Digital Del and Rodders have promoted as certs.
My opinion is it’s all rather unpleasant and Rakfisk!
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What were you thinking of Robert
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I was thinking I won’t be any more specific than that! I manage to be a bit outspoken when it comes to the false, exaggerated or vexatious claims.
The whole thrust of this story that Proptech is all about London and the shouty folk maddens me.
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It gets more and more painful reading these things.
Good Tech we all adopt
Bad Tech we avoid
Agents have the choice, most agents i know are all for good tech, they embrace it.
The tech agents have a problem with is taking business away from them, why would they embrace?
A story today on a website using agents stock (without permission) to then generate properties for sale and then charge the agent 0.25% to sell – Wonder why agents are against that!
Don’ t get me wrong if the company managed to get these “leads” through adwords or PPC without using my stock, i would have no problem but why am i going to let him charge me for using my stock? too many agents dismiss this and upsets me no end!
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Tech adoption is more about consumer preference than agent preference. Ultimately the consumer always decides what is adopted on not. Hence why OTM is going to fail as it doesn’t solve any consumer need
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