Back in 2000 a company name Zethus tried to disrupt the CRE industry. Developed by a former lawyer/real estate executive, the company started out as an online discount broker. The intention was to create a real online marketplace with electronically managed transactions – a real alternative to and competition for the current broker model.
Zethus caught the eye of Cushman & Wakefield who believed that electronic transactions were a logical progression – not to mention a huge efficiency booster. At the time, many of the national brokerages had separate technology investment groups so C&W put their money on Zethus.
Perhaps due to the blow-back C&W experienced and some subsequent arm twisting, Zethus altered its model to court brokerages instead of trying to compete against them. But even with backing from Goldman Sachs, Zethus was unable to attract brokers or skittish owners and ultimately failed.
A few years later, the national brokerages got out of technology investing altogether. They were, after all, not in the technology business. Back to Sales 101.
There are two types of innovation – incremental (AKA sustaining) and disruptive. Incremental innovation improves on or adds value to core processes for the company’s “value network, i.e., their clients, their employees and the company’s investors.
Disruptive innovation creates new criteria by which performance is judged – in other words, a new and different way of doing business that’s typically simpler, cheaper and more convenient than existing processes.
For CRE, standardized electronic transactions are the big disruptor. Why? Those championing electronic transactions believed they would lead to electronic markets that would displace the agent’s role in the supply and demand proposition: agents would not be needed to pair buyers/tenants with sellers/landlords. Those displaced agents would convert to real estate consultants much like the way stockbrokers operate now. Those who got in at the bottom would be in the best position to pivot and survive.
But postmortems of Zethus pointed to the involvement of larger brokerages as a contributing factor in its failure. Disruptive innovation doesn’t start at the top. It is borne or purposely tested in under-served, ignored or emerging markets where people can’t afford, can’t use or don’t have access to whatever product or service other people normally use. It enters the mainstream when it’s deemed useful, different and in demand.
What if Zethus had gone it alone, hovering around the fringe working out the bugs and building demand? What if Cushman and Wakefield had slowly nurtured the system on its own without the need for industry buy-in? At the time, most critics of the electronic transaction felt it would at least be suitable for small space leasing. What if it had been set up that way? After a decade, wouldn’t the process be perfected and scalable to large transactions?
Since the demise of Zethus, online apartment rentals cropped up. Companies have automated their own lease transactions. Youthful start-ups eschew traditional office space in favor of the Regus’ of the world. Maybe the disruption everyone in CRE has been waiting for comes from the outside – from places that look like small potatoes but are shaping the way people find, acquire and maintain where they live and work.
Photo by mharrsch