I can’t tell you how many owners and operators of real estate assets I’ve talked to that are working on some sort of “proprietary” software that they believe will give them an edge against their competitors.
For every company pouring millions into their own operational software, there are just as many attempting to spin out or commercialize similar projects and to sell them to third parties.
These two phenomenon create what I call the “Rumplestilskin Paradox” of Real Estate Technology. “If you know how to turn straw into gold why would you share how to do that with others?”
This paradox is among the most serious problems stifling innovation in the real estate technology field.
I once spoke to a company that was raising venture capital for a tool they created to identify the best possible sites to build new self-storage facilities. The problem was that they realized that not only was it very difficult to sell real estate technology to other owners and operators, but also that they could use their own tool as a differentiator to raise a fund and at least in the short term, make more money.
This is not a unique anecdote. There is a tremendous amount of waste in the real estate technology industry caused by dozens of firms spending real R&D dollars on products that will never see the light of day. Perhaps it will become a useful internal tool, but most likely the costs of maintaining and updating the software and data sets will lead to diminishing returns and likely the abandonment of the project all together.
While there are some exceptions, as a general rule, real estate professionals are not software entrepreneurs. Over time capital has a way of getting allocated to the best uses and I believe that the end of this first era of real estate tech is upon us. As more owners and operators come to the conclusion that their capital is better used buying third party tools rather than building their own or that their investments will go father in a company developing a technology to meet their needs, the paradox will start to unravel.
This should usher in an explosion of software solutions in the world’s largest asset class and produce a much more efficient market overall.