Volodymyr Bandura, CEO of Innolytics Group, speaker and member of the SingularityU Kyiv leadership team.
Innovations make a very unique impact on business and the economy.
For example, let’s consider Kodak. This company was the world leader in photography products. At its peak in 1997, the company was valued at about $30 billion and employed more than 140,000 people. In 2012, the company filed for bankruptcy. Why did this happen? Did a stronger manufacturer appear in its niche? No, it didn’t. Ironically, the company was destroyed by digital photography invented by an engineer of Kodak back in 1975 but ignored by the C-Suite. Here is another example: in 2010, several young people created Instagram using the same technology — digital photography. In 2012, a young company with 13 employees and even without a clear business model was sold for $1 billion, and by 2018, Instagram was worth over $100 billion.
Here is another example, which gives us the idea, how corporations can and are advised to treat innovations.
If you ask which real estate business is the most difficult and requires the highest qualification, most experts including myself will say it as a hotel business. And who would have thought that the idea of sharing a free room in their apartment or house could create the biggest hotel operator in the world in just a few years? However, this is exactly what AirBnB did. Literally, young people with no experience in the hotel industry did that. While professional operators, for example, Marriot, are just beginning to implement the model created by AirBnB.
In my opinion, the AirBnB example gives us a very important lesson.
How much would the “AirBnB experiment” cost for a large company like Marriot in 2007-2008? Almost nothing! It is just a matter of idea, company policy, and the desire to run the experiment.
How much can the AirBnB test cost for a company like Marriot in 2019-2020? If we take this competition seriously, the cost will reach billions of dollars. The key to the success of AirBnB’s business is its network effect. Customers are interested in AirBnB due to millions of offers in thousands of cities. It is extremely difficult and expensive to collect promptly this market of offers — especially when there are already strong established players on the market.
To know the new tech coming and be ready to implement innovations, run experiments, work with new ideas, technologies and startups are what companies should do in all sectors in the 2020s. They should not be afraid of mistakes, as a failed test is not a mistake for which one must be punished. It is a source of new insights and business opportunities, as well as an essential part of culture open to innovation.
What should an “open” company pay attention to? What technologies should it study and what should it test? Here is what virtually all real estate companies should monitor:
1. Development of autonomous electric transportation. Such vehicles are already on the roads of the United States and China. There are all prerequisites for the explosive growth of autonomous transportation as a service and the significant displacement of private car ownership. To put it simply, imagine that you have a great car with a driver, convenient and safe, at a price 3-5 times cheaper per mile than your gasoline car. What are the implications for real estate?
A. Significant horizontal redistribution of value. Just as an elevator has created the penthouse apartments and made them the most expensive, so autonomous transportation will move a significant share of the real estate value on the market. If you don’t really care how far you’ll be getting to work, then why live in an inconvenient, noisy and polluted downtown?
B. Different planning standards for individual properties and cities. There is no need to set aside huge parking spaces because autonomous cars are servicing people, not standing 95% of the time.
C. Therefore, the planning of cities and real estate transforms into planning for people, not for cars, as it happens nowadays.
2. Development of artificial intelligence (AI) technologies. What about reducing the project’s construction budget by up to 15%?
Do you want to design more convenient, cost-optimal and operationally efficient buildings faster? Do you want to create unique architectural objects with smart, interactive design elements? New technologies provide these opportunities even today and will become transformative in the next decade for the industry. AI will also help develop new technologies, for example, innovative materials, energy collectors and storage and help manage development projects, properties and cities.
3. To continue the AI topic, we should mention drones and robotics. Drones are now a fully working and useful tool for on-site technical supervision and accurate measurement of work in progress. Autonomous machines are just starting to be implemented in construction sites, but we understand that its impact on construction will grow very quickly.
4. Virtual Reality (VR) becomes an indispensable tool for designing new properties and sales. For me, it was a great discovery several years ago. For many years, we have been designing a large object, thought to the details every room and every floor. We created hundreds of visualizations. But only when I saw it in virtual reality, I understood its true proportions, its scale, and the impression from the building. And yet, VR allows doing much more, for example, to train employees, simulate and optimize an object, cooperate with remote teams and specialists. And it gives us a possibility even to expand our properties, decorate and promote them to customers. And even today people successfully organize grand events and meetings in virtual reality. We also need to think about new legal frameworks, rights and limitations. For example, who is authorized to create AR and VR objects linked to a specific private building (imagine AR advertising on a real shopping mall)? Can a private user post a negative feedback in AR linked directly to the door of a restaurant he didn’t like? Can Google charge for its advertising and show to the user looking at a specific pizza restaurant a competitor, located on the opposite side of the street?
Now these questions seem rather remote. But imagine the world coming in just few years, where smartphones are replaced with AR glasses and nearly every person can see the digital world linked to the physical one every second. In this world the question of AR content, property, rights, fair competition, user feedback etc. become the most important for nearly any B2C business. And traditional outdoor advertising becomes obsolete.
5. The new architecture of buildings energy. It is now commonplace to install local solar panels and other energy generation and storage systems. We can design buildings that need virtually no energy from the grid, except for “insurance”. Moreover, such buildings can generate additional revenue due to their energy efficiency, providing additional services (for example, charging electric vehicles) and selling excess energy to the grid. This trend will only intensify. With new technologies, such as, for example, efficient and transparent solar panels that can even cover windows, we expect the complete reconstruction of energy design standards for new buildings, and of the whole electricity market.
These are just some of the innovations anticipated in the next 5–10 years. So, I need to repeat myself: it is now more important than ever to keep a close eye on innovations, to be able to choose the best and most suitable ones and implement efficiently them in our business.
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