What A Difference A Pandemic Makes – The Winners And Losers In Real Estate Technology
In a little over 3 years of our Real Estate Industry Venture Capital Fund we have looked at over 550 companies. The large majority of these are, of course, technology companies. The common theme across these companies is that they are born of the idea that the current process for renting, selling, or providing one of the many other services around real estate is either broken, inefficient or too expensive. We often hear that the sales agent or property manager are part of the problem – that people want to inspect, buy, manage, or engage real estate services without the friction of engaging with an agent.
Whilst COVID-19 has presented obvious challenges to so many sectors and businesses across the economy, what is interesting is that it has presented some conditions – inability to attend open homes and auctions, inability to meet face-to-face, remote working, online transacting – that are actually ideal for many of these companies to prove their business models.
So, who will emerge as pandemic winners and losers in real estate technology? And what are we learning?
Starting with the obvious, surely the biggest winners would be the remote real estate viewing or inspection technologies. Right? No, not necessarily. Whilst I don’t believe they belong outright in the ‘losers’ (horrible phrasing, I know) column, a business solely focused on remote viewings or inspections may have just had a moment of realisation that they could be working on a product that the market already has a solution for – Zoom. For the uninitiated (where have you been?), Zoom is a video conferencing technology, but I use ‘Zoom’ figuratively here to represent any form of remote viewing. Whether it is Zoom, Facebook live,
FaceTime or WhatsApp, agents have cycled very quickly to deliver remote access to property through cheap, highly accessible solutions that most consumers already carry in their pockets or can access on their desktops.
On top of this, the entrepreneurial spirit that is the DNA of any technology company has led to those companies already providing products to agencies expanding their product (or feature) range to solve for remote viewing. PieLAB portfolio companies HappyCo and ActivePipe now offer remote inspection and private inspection booking features respectively and have seen tremendous take-up. Gavl, an Australian based live auction streaming platform has pivoted their focus to live inspection streaming and have seen tremendous take-up both in Australia and the UK. Interestingly, Gavl have reported that the number of inspections per sale in the UK has reduced from 16 to 6 by introducing live streaming and, agents are leasing properties directly and solely from remote inspections.
Lastly, I expect that a number of entrepreneurs will have had their lightbulb moment and will now be building brand new solutions to present and view remotely as well, which will further crowd the space.
So, sure, the remote viewing and inspection solution may be validated, and the size of the proverbial pie may now be bigger, but the size of the available slices will be smaller and the ability to charge for these solutions is highly questionable.
Whilst Gavl is seeing strong traction in live streaming of property rental and sale inspections, they actually began their life as (and still are) an online auction platform. They are one of many of these platforms we have seen in the Australian market over the past 3 years. This should seemingly be a good model in the current environment, but again, ‘Zoom’ spoils the party for all the reasons discussed above.
The conclusion on the online auction platforms is going to sound familiar – the solution is validated but the ability to monetise it, the ability to build a large technology company solely focused on online auctions has in our view just had the proverbial rug pulled.
I have written previously on the iBuyers – technology companies banking on their belief the agent isn’t core to the sale of a property. iBuyers, such as Opendoor in the US, offer instant offers to vendors, lightning fast settlement and cash into a vendor’s bank account. All of this managed online without the friction of dealing with agents. In an environment where agents cannot readily get face-to-face with vendors or purchasers and cannot host their traditional open homes or auctions, surely the iBuyer model flourishes? Again, seemingly no. In March, alongside their competitors, industry leaders Opendoor and Zillow suspended their home buying. Whilst they continued to sell the stock they held, they cited local government’s shutdown of ‘non-essential’ businesses as the reason for suspending buying. I would speculate though that this may actually have something to do with a model whose success or failure is so heavily determined on being able to extract margin from algorithmically determined market prices. Getting the algorithm wrong can have a dramatic impact on the success or otherwise of the model (maybe ‘pandemic’ wasn’t one of the variables built into the current algorithm). Interestingly, Opendoor (and large competitor Offerpad) have both launched traditional real estate agency listing services in early June – converging the iBuyer and traditional agency business models.
So, are there actually any obvious winners? Something that will never change in real estate is the need to generate and nurture leads. Traditionally, the agent relies on open homes, auctions, listing enquiry, cold calling and canvasing to generate the bulk of their leads. So what happens when these activities have been so dramatically impacted on? The answer actually lies under the agent’s nose, with the reality being that most agents actually already hold or have access to more raw lead data than they could ever hope to exhaust – their CRM database.
Agents are actually pretty good at collecting contact data. After collecting, they then put it into their databases and.. well.. complain to their principals about not having enough leads. The last few months we have seen first-hand the value agents place in technology that can surface and nurture leads in the absence of face-to-face contact. Aire, who’s product Rita uses smarts to generate database leads for agents, have doubled their new agency customer numbers in the June quarter. On top of this, the connection rate for outbound calls by agents has risen more than 20% as consumers have shown more of a willingness to engage over the phone in a period where they cannot meet face-to-face.
ActivePipe, who’s automated real estate email platform enables an agent to nurture their database relationships, saw agents connect through 69 million emails sent from their platform in May (up from just 42 million in January) at an open rate exceeding 30% (long term real estate industry average for email open rates is ~19%).
Technology companies that can generate or nurture leads – or can empower an agent to do so – have seen their stocks rise in the pandemic.
Other winners are the providers of digital solutions for common tasks (eg digital signing such as DocuSign) and providers and distributors of online content. Other potential losers (I stress potential here as success can be dictated by pivoting product and/or a strong recovery from the pandemic) include the Airbnb Host Management companies who manage short term rental accommodation on behalf of Airbnb hosts. We have seen a proliferation of these in Australia (following a global trend) off the back of the rise and rise of Airbnb in our major cities. The decimation of the short-term accommodation market has had a significant impact. However, in true entrepreneurial style, we have seen early signs that moving into medium-term accommodation solutions may see some of those that are quick to learn and quick to execute navigate through the present crisis.
If there is one thing the pandemic has demonstrated, it is the unpredictability of what can and will happen. While we have identified the real estate technology business models we see as potential winners and losers from COVID-19, the follow-on effects of it have a long time to run. Consumer behaviour and habits are also something very hard to shift so the length of time we experience these unusual trading conditions will have an impact on whether behaviours revert back, or are here to stay, and these too will have an impact on who the longer term winners and losers are in real estate technology.