Edited & published by Rayhan Rafiq-Omar

Prop\Tech Weekly #47 – “Why is there no tech in UK Proptech?”

| Rayhan Rafiq-Omar

Friends, Feudal Landlords, Commoners,

Consumate self-promoter Aaron Block was in the UK to host the MIPIM start-up competition.

In a very brief chat he made a statement that summed up proptech in the UK: “Where’s the tech?”

Almost everything on display could be better described as business model innovation, rather than technological innovation.

The original proptech companies – online estate agents – struggle for profitability, and have to spend their way to scale, precisely because there is so little tech involved in their businesses.

But let’s not be downbeat as there are shining beacons that point the way:

OpenRent – while every other non-traditional estate agent has a call centre, OpenRent don’t need one. Their model is genuine no-frills, yet the technology keeps customers moving through the system efficiently. If you want to see the future of online agency, these guys are it. It’s very clear what they are and who they serve: DIY landlords who don’t want to use an agent. OpenRent don’t pretend to offer viewings or anything beyond listing, referencing and contracting. It’s an authetic tech play.

Fixflo – more simple than OpenRent is the patented genius of Rajeev Nayyar – use pictures to guide tenants into giving property managers the right information. No more exchanging of 10 emails and several phone calls, just to figure out the pilot light is off. If you’re in lettings and don’t use Fixflo, you’re probably throwing money down the drain.

Rightmove – probably the most profitable company in the world by gross margin percentage. Their use of technology is so simple, an insider describes Rightmove as just 4 web pages: homepage, search page, results listings and property details. It is because of this simplicity that Rightmove is so effective at marketing estate agencies – that’s right, it’s not a typo: Rightmove is advertising estate agencies, not property. It’s a key reason why the online agency business model is flawed. Portals don’t sell property. They advertise agents.

Opendoor – is the absolute epitome of simplicity: it’s just a valuation algorithm. So accurate is their valuation of property, that people trust Opendoor. And in case you haven’t taken a look around, trust in real estate makes them seriously differentiated. These guys will be the biggest proptech company out there.

There are others Proptech businesses which are massively funded, so have built tech as shiny, sexy lead generation gimmicks. What I mean is that their businesses could largely operate without the tech. While there are some efficiencies to be gained, there’s a lot of operational cost the other examples above just don’t have – and therefore the margin isn’t the same.

Lendinvest – super branded provider of bridging loans. The tech serves as a big tick in the shiny ‘this is what the future looks like’ box – but their business would be just as big without the tech.

Property Partner – I’m conflicted because I’m a big fan of the tech they’ve built – their secondary market for property shares is a thing of beauty – but their current business model isn’t mass market and therefore the tech is more of an open beta for when their real business model takes over.

The last one is interesting because the future could very well be a tech business – but currently their business is beholden to a very expensive operation to source property. When they achieve the stated goal of being the “stock market for global real estate” and others are sourcing and ‘listing’ properties, that’s when Property Partner could become Rightmove-esque in its profitability.

So when Aaron Block asks where the tech is, I say: follow the money.

Building technology is risky and expensive. And did I mention it’s risky?

And right now, there’s so little money in Proptech – and that’s why there is so little tech.

There are rumblings of Proptech VCs looking to take a view on the sector – but it may be that the next big thing follows the Zoopla model: if you can’t innovate, just create value through M&A.

Next week we’ll look at the potential deals that could excite and light up this nascent industry.

Comments

  1. Trevor Mealham

    Not a bad article. For sure the UK VC’s are not making much effort.

    Future UK prop tech isn’t always about ‘disruption’ any more. Best proptechs help assist existing flow.

    For sure UK real estate needs to embrace greater ‘big/deep data’ models and the sharing economy.

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  2. Trevor Mealham

    Ah. ….. tech also needs to start looking closer at legislation. The recent Uber employment issues in court, and the Airbnb sub let issues are big issues the techs will say get hindered by legislation.

    With property legislation changing, tech needs industry knowledge as much as coder knowledge to roll out lawful models.

    The next biggest case will be Agents mutual/OnTheMarket. A RM2 clone, so tech for agents. However its anti-competitive membership restraints on agents and other platforms,could again see legislation taking away the cats cream.

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  3. sellingup

    “Rightmove is advertising estate agencies, not property. It’s a key reason why the online agency business model is flawed. Portals don’t sell property. They advertise agents.”

    How do you come to that conclusion? Wouldn’t it be more accurate to say portals advertise properties on behalf of agents (of any type)?

    Yes the agent often gains a new registered buyer as part of the process (is this what you mean by ‘they advertise agents?) but online agents benefit from that too.

    I don’t see what Rightmove’s mechanics have to do with any potential flaws in online agent business models but would be interested to hear more.

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    1. Trevor Mealham

      Rightmove and zoopla are media models, their income comes not from being the agent, instead enabling agents to have a prime presence.

      The bigger flaw to RM and clones such as Z and OTM is that by design the RM schema that all RM2’s adopt is single directional in that it takes and doesn’t give listings back. As such the info relating to a property that may best suit a buyer or tenant is only on the agents smll website or optimized where the bigger gathering of agents are promoted. RM/Z

      The day different brand agents collaborate via prop tech, is the day that starts breaking the portals happens.

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  4. Hillofwad71

    Wouldnt it be  a simple side shuffle  for Rightmove to  compete with Purplebricks allow the private vendor to list for £600  and  the real local experts  their agent  clients can   provide the   initial apprasial and assist in the details Im sure at £300  a pop  sharing the fee with Rightmove the  local agent would  be happy and confident once his foot is through the door  that he can offer his own tariff of services  to beef up the offer .  He probably would get called around anyway for a free valuation!

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    1. Trevor Mealham

      @Hillofwad71 – If RM or Z were to offer a FSBO – 1. £600 isn’t enough. 2. It would pee off every other agent.  3. AND the biggy. RM/Z under FSBO would likely come under CPRs and BPRs and face fines if details were wrong.

      All the time budget cheap agents list for £700 – £600 – £199 and likely one day at £99-£49, RM and Z would be crazy to enter the fools game in the race to ground £zero fees.

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    2. Rayhan Rafiq-Omar

      Hi Hillofwad71 – thanks very much for the comment.

      If Rightmove changed business from advertising platform (high margin, high volume market domination) to agency (low margin), it would be the end of the company.

      It’s a different business model, which needs different people.

      And this goes to the point about Rightmove advertising agents and not property. It’s very easy to serve 20,000 agents. It’s a hell of a lot harder to serve millions of consumers.

      Is there more money in agency? Of course.

      Is there more cost and complexity? Absolutely.

      And here’s the kicker: is there any certainty that Rightmove would be people’s preferred choice to sell their home through?

      Right now they’re number 1 by an embarrassing margin. And equity analysts point to Rightmove being able to increase their prices between 2x-3x current revenues – without needing to change anything in their business.

      Rightmove will never be an agent. It would be the worst thing they could do.

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  5. Hillofwad71

    I am not suggesting that they would be an agent -advertiising  only with vendors  contact details (or their agent if instructed on an increased tariff).Rightmoves  existing clients the agents would take that  role  The vendor merely starts the ball roling with a request to  advertise  their  property on Rightmove. Rightmove then farms it out to their nearest client agent or agents for the inspection  . Any agent worth their  salt would once they are through the vendors door offer other services,on a tariff  accompanied  viewings add ons   negotiations checks etc If the agent is unable to sell their services then its down to them As stated the agent would probably have been called out for a free valuation in any event

     

    The beauty is for the vendors considering  using Bricks  is they have  some real experts on the job

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    1. Rayhan Rafiq-Omar

      Hillofwad71 – if it’s complex to explain, it’s probably too complex vs ‘pay someone else to sell my property for me’.

      It’s really easy to say yes to a traditional agent.

      I don’t doubt Rightmove would be awesome lead gen for ‘uber’ style agency. But that world isn’t normal right now and if it was, I doubt it would be Rightmove leading that charge (different business model, very profitable, much to lose by trying something new).

      But I must say you’re on the right track – the current crop of online agents will die away and be replaced by more tech-enabled franchise agency. Ewemove was definitely too early, but that model I reckon is where many agents will find themselves in 10 years time.

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  6. Hillofwad71

    I am not suggesting that Rightmove  would be an agent -advertising  only with vendors  contact details (or their agent if instructed on an increased tariff) .Rightmoves  existing clients the agents would take that  role  The vendor merely starts the ball rolling with a request to  advertise  their  property on Rightmove. Rightmove then farms it out to their nearest client agent or agents for the inspection  . Any agent worth their  salt would once they are through the vendors door offer other services,on a tariff  accompanied  viewings add ons   negotiations checks etc If the agent is unable to sell their services then its down to them  As stated the agent would probably have been called out for a free valuation in any event

     

    The beauty is for the vendors considering  using Bricks  is they have  some real experts on the job

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  7. Hillofwad71

    Its such a good idea Ive said it twice!!!!

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  8. Hillofwad71

    Cant see how Rightmove or their client Estate Agents will lose   Bricks customers use Bricks based on pricing and access to the major portals which they cant do themselves Their main  gripe is the  quality of the local property expert and being shoehorned in to their substandard conveyancing services  I would guess anybody contemplating uisng Bricks would have called in the local agent who is moret han likley to be a Rightmove client  for a free valuation to check out the Bricks valuation in any event At least the minimum they get for it is £300 and  an opportunity to sell themsleves Good agentss hould riseto that challenge

     

    I am not suggesting that Rightmove do anymore than allow the advert and pass the enquiry on to their esate agent client Its a win win  and pretyyy simple to implement  The  customer service that Bricks theoretically provide  wil be handled by the estayeagent if required Thats something between the evndoran dthe esate agent to sort out   Rightmove benefit as they will be receiving a higher “fee”from the vendore than from Bricks Cutting out the middleman and likely to consign Bricks and their  current £300m valuation into the long grass I cnat sehow Rightmove would alienate their client base to do it

     

     

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  9. Moolamarkie

    One of the key reasons why there is a lack of technology is that those who drive change through technological advancement are yet to be engaged with the trials and tribulations that can be associated with buying or selling or even being a landlord or tenant.

    This year, for the first time, the Baby Boomer generation, fell to 28% of the UK population and because this is obviously age-related, can only fall further.  This is actually the generation that the tradition estate agent appeals to.   The high-street presence, personal service, a name and face they recognise.  What you need to understand is, that in five years time, Generation X and the Millenials combined will be the majority of the population.

    These are the people who have never played any vinyl (certainly not the first time around!), who have no concept of a ‘phone box’ or that a phone or computer was ever physically wired into a network.  The Millenials, well 60% of them, would happily have a ‘tech implant’ – imagine mailouts being sent directly to people’s brains!!

    These are the people who when something doesn’t work in the way they expect and want, will just code a solution.  Their peers will also be in finance and legal, which is actually where I believe the property industry changes are more likely to come from.  With Apple Pay only last week claiming to have their highest purchase yet, that of a $850,000 sports car, how long before the new payment methods are applicable to property?  Who’s going to come up with real-time land survey’s delivered by drone and streamed direct to the client?

    So here’s my view.  The people who are likely to drive the PropTech industry are yet to experience what it’s currently like to be involved in property and therefore have not yet proposed a solution.  That may sound weird but in the example of Vodafone, their annual report states that “…70% of their revenue in five years time will come from yet discovered products and services…”

    It’s typically only when we experience a problem to we find ways to change it.  Let the Millennials experience our property industry and boy will they change it!

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