Post written by
Connell McGill
In March 2009, Uber was born. Over the subsequent decade, the company became more than a controversial transportation company; it proved the scalability of the two-sided market. Though Uber was not the first company to deploy this model, it did so with unmatched pace and veracity, evidenced by its place in common vernacular. Overnight, VC offices were swarming with new startups pitched as the “Uber for [insert industry here].”
The two-sided market is genius in its simplicity. Companies like this exist to dynamically match a labor pool with those who need their services. Built on the back of another major technological revolution, the smartphone, companies were able to use data and transparency to transform how the world gets around.
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Ride-sharing has become so ubiquitous that we take for granted what is happening under the hood. Ride-share apps track and archive the details of each trip, providing transparency for every stakeholder involved, and maintain a rating system to build accountability into the platform and process. On the backend is an enormous transportation data set, the value of which is only beginning to be understood.
When it comes to operating commercial real estate assets, there’s an opportunity to learn from the pioneers of the two-sided market. Today, there is a lot of trust placed in the third-party vendors contracted to install and maintain critical systems. Each portfolio has its “go-to” guy for the various aspects of building operations. There are the boiler guys, the elevator guys, the HVAC guys and so on. Landlords tend to develop strong relationships with a vendor and trust that they will get the job done.
For the most part, the job does get done. At the same time, every building operator has a story about a heat exchanger exploding or elevator entrapments because of skipped preventative maintenance. Vendors tend to come and go as they please; there’s no transparency into when they arrive, what they do while on-site, when they leave or the quality and impact of their work. All that is provided to owners is a list of tickets that specify hours worked with a short description of activities.
As the smartphone did for ride-sharing, new technologies are opening the door to a different way for property owners to do business based on data and transparency.
The Two-Sided Market
The internet of things (IoT) enables building operators to leverage data about physical systems that was previously unavailable or otherwise “locked” in the building itself. There are a wide range of sensors and applications, but there’s no need to dive into the weeds: Suffice it to say that it is now affordable for an owner to digitize their property’s physical infrastructure and track every important workflow.
The real question, which my company and others in the building IoT space are working to answer, is what to do with the data. IoT-based platforms are already mapping patterns in the data to real-world conditions. For example, algorithms can determine that a specific percentage drop in performance for an elevator means that there is an impending mechanical failure.
Currently, these platforms might trigger an alert to the building operators and contracted maintenance vendors. This workflow, known as predictive maintenance, has been shown to eliminate 70% of equipment breakdowns.
But Uber did not merely make it easier to call your trusted taxi company: It created a dynamic marketplace that constantly adjusted for supply and demand.
Imagine if next time a chiller or boiler suddenly shut down and required maintenance, a platform could match the specific piece of equipment with pre-vetted vendors in the area, dynamically price the repair and coordinate a site visit. Imagine if the visit was tracked and archived automatically using mobile apps and IoT sensor data. Imagine if stakeholders were rated on their performance — perhaps speed and effectiveness for vendors and accessibility and documentation for owners. Ultimately, this data at scale could produce informational asymmetries that deliver superior asset value relative to the market and a stronger return for investors.
How We Get There
Real estate technology isn’t there yet, but the prerequisites for a two-sided market for building operations are already in place. Companies are unlocking granular asset performance data and mapping various anomalies to reality. The more data is collected, and the more the industry buys into the technology, the smarter the platforms get and more predictive and actionable their analyses become.
There are a couple of surmountable hurdles here. First, there are certain to be technological obstacles that need to be overcome before a two-sided market can be implemented. For example, while every taxi ride is essentially the same process, there is a wide range of issues that can occur in a commercial real estate property. In addition, unlike the labor pool for potential drivers, there’s a much smaller pool of technicians capable of repairing an elevator braking system.
The second hurdle is cultural. The commercial real estate industry is quickly bucking the stereotype that it is slow to adopt technology. Still, the successful technologies to date have been platforms that streamline existing workflows. The idea of fundamentally altering how business is done will take some getting used to, not to mention opposition from the incumbent maintenance contractors who are invested in the status quo.
The technological hurdle is sure to be overcome, likely much sooner than would seem possible. The question is which real estate portfolios will be willing to invest in innovation and all the risks and rewards that come with it. It may sound crazy today, but so did getting in a stranger’s car not too long ago.