How digital technologies are turning the real estate industry upside down

Many people use platforms like iTunes and Uber on a daily basis. What makes the business models so attractive, how do they differ from traditional business models, and to what extent do they impact the real estate industry beyond Airbnb?

February 4, 2019

Gerald Kremer

Chief Digital Officer Global Real Estate, Credit Suisse Asset Management

Handelszeitung special supplement „Immobilienwirtschaft“, January 30, 2019

Platform business models

While the 1990s saw the advent of the internet as a sales channel, over the last ten years platform business models have overtaken pure online sales of products and services. With the rise of Facebook, Airbnb, and similar sites, platforms have become an indispensable part of our lives.

Unlike pure e-commerce, a platform is a virtual marketplace that facilitates beneficial transactions between producers and consumers. In contrast to traditional, linear business models, the value added here is not created solely by the producers and then provided to customers at the end of the value chain. Instead, producers and consumers come into contact with one another during the creation of the value added.

Platforms as digital infrastructure and a marketplace

In this model, platforms serve as digital infrastructure and often as an intermediary as well, enabling and facilitating the interaction between two or more groups: customers (tenants, buyers, sellers), service providers and suppliers (facility management, property management, asset management, etc.) and physical objects (smart devices from the internet of things). 

The data generated during these interactions are generally only available to the platform operator. Google, for example, has based its entire business model on such data. An important source of income for platforms often comes from transaction and commission fees, which are paid by producers and consumers to the operator of the platform as compensation for being able to find one another.

The key features of successful platforms include quick and easy access for all users as well as the immediate availability of an extensive offering on both the supply and the demand sides. Platforms benefit from positive network effects: upon reaching a critical mass, participant willingness to pay and participate increases exponentially as the number of users on the platform rises. This implies that the demand of a user is dependent on the demand of other users. 

And this is precisely the difficulty when developing platform business models: creating supply and demand, and achieving a critical mass of active users on both sides. This is exactly the case with real estate transaction platforms for the institutional real estate industry. What can be done to achieve the necessary critical mass? One important element for keeping users on a platform involves a wide variety of lock-in effects, which make it very difficult, for example, to switch from one social network to another.

Tenant app platform business model

In the real estate sector, there have been so-called tenant platforms for some time. These platforms allow tenants to contact property owners in order to discuss technical or commercial matters, access or upload documents related to their property, call up property-related services and book rooms or parking spaces. Electronic concierge services, smart-home connections and other services are also offered. Many other applications, such as an interface to a "Smart City," are also conceivable. One exciting possibility in this connection is the vision of expanding and integrating such a platform to form a comprehensive real estate industry ecosystem that includes other partners involved in value creation, such as facility and property managers, tradesmen, government agencies and public authorities. 

The key is the key

But how can companies keep their customers and tenants connected to such a platform? In other words, how can they strengthen the demand side? Digital building technology could provide impetus here. Electronic key systems that provide access to properties and rooms via smartphone have shown excellent user acceptance rates in pilot tests. Among other things, such keys give users the ability to control who enters the apartment or office at all times, and they also allow users to grant or revoke access rights at short notice, for example, to provide neighbors or service providers with access for a limited period of time.

Digital keys can be provided via a tenant platform that provides access to the aforementioned services at all times. Such digital keys will be discarded no more often than good old apartment keys. Instead, they will likely be used several times a day. And if these keys are able to do more than simply open the door, the tenant app may become the iTunes of the real estate industry for platform business models – and the key to the key.