Copyright: David Lawson - Property Week, Sept 2000Home page
After years of apathy and neglect, property firms and consultants are suddenly throwing millions of pounds at projects aimed at exploiting the Internet. The latest batch include property listings, e-procurement exchanges, FM services and co-investment consortia. But some insiders are beginning to question how much of that money will stick and how much could disappear into a black hole.
Giants like Jones Lang LaSalle and Insignia REStQ are quick to defend their spending plans, pointing out that huge figures are spread worldwide and often across several partners. The $135m quoted for Constellation for co-investment in technology projects is spread across a consortium including CB Richard Ellis, US property companies such as Simon and Trammell Crow and banks like Morgan Stanley.
UK analysts take little interest in consultants but in the US, Deutsche Bank Alex Brown called Constellation a ‘defining event’ for the industry. Insignia’s EdificeRex web service is almost universally praised as a path to the future. It is among services which will be the saviour of brokers rather than toll their death, according to a study by BancAmerica.
But not everyone is convinced. ‘Listed firms are forcing the pace and announcing services well in advance because analysts demand they play some kind of e-commerce card to keep their share prices up,’ says a senior partner in one top international firm.
‘Lots of big numbers are being tossed around but there is precious little evidence of any being spent,’ says another. ‘Many firms are still struggling to work out a business model that will work. Should it be a listing service, a professional tool or a transaction system?’
One doubter points out that some firms are adopting what US management gurus call ‘the donut syndrome’: a circle of partners gathers to generate ideas but there is a hole in the middle where the buyers should be. He quotes examples such as home shopping, which appears a surefire winner but is struggling to take off. The huge picking warehouse built by Sainsbury in north London, for instance, is said by one former employee to be barely ticking over. The food group has just launched an intensive campaign to get Londoners online.
In the property sector, Trevor Miles, a consultant with PricewaterhouseCooper, says the market is still in hype mode and forecasts a big fallout in proposed Internet services. E-procurement proposals do not, for instance, seem to consider whether tenants want to buy services from landlords and property managers – which many consider the traditional enemy.
Bob Potter of Pikenet, rapidly becoming the online bible for the global property industry (www.pikenet.com), conjures another colourful analogy called the kitchen sink syndrome. An elite team of ‘e-officers’ selected within a group inevitably promises ‘the Internet will change everything’. Under this sort of pressure they throw everything - including the aforementioned domestic drainage facility – into their web pages.
But incentives for field staff generally do not include e-business, so they have little reason to promote the operation. Meanwhile, potential clients are put off because they can’t find what they want quickly among the clutter.
He recommends four economy rules to justify any e-idea. It must:
· acquire new customers
· retain existing customers
· add revenue per customer
· or cut costs.
Most big spenders insist they have run potential schemes through this filter but refuse to reveal key figures such as how many customers, how much revenue and what proportion of costs have been set as targets to justify the spending. Knight Frank is one of the few willing to give even headline figures. Richard Crosthwaite says £2m has been committed to online projects like Fastcrop, Propertylink, PRIDE and Propex. Another Fastcrop member, FPD Savills, is investing a similar amount. GVA Grimley and DTZ, however, both insist that even these broad figures are commercially confidential.
David Steventon, group e-commerce director for DTZ Debenham Tie Leung, was might not be able to give out figures but fiercely defends the way money is being spent. ‘It is nonsense to suggest we are driven by the stock market. This is a change driven by client needs,’ he says. And every venture is carefully filtered. Pathway, the European listings service, has an 80-page business plan and was researched by consultants.
Even the smaller players are sensitive to snap judgements on what they are getting for the money. ‘You can’t expect to generate business overnight,’ says Chris Armon-Jones of Drivers Jonas. He and fellow partners and staff have put £1m of their own money into a service called groundbreaker.net, which will offer online expert advice on property and legal issues. ‘It is not like opening a new office, where you are trying to attract customers already buying a service. We are trying to create a new way of doing business.’
There are also technical reasons for postponing judgement on how much business has been generated. This won’t take off until there are more computer screens on desks linked by broadband communications, he says.
Groundbreaker has generated 400 registrations in two months but the number of subscriptions will be more crucial. If they fail to materialise, more capital will need to be raised when the £1m runs out, as the service was insulated from claims on the main Drivers Jonas partnership.
But this is part of a business plan which Armon-Jones says has already been reassessed a couple of times. New partners are expected to come in from other professions so the costs will be spread.
JLL’s new European e-commerce overlord Peter Mantle says some proposals may not break even for years because they are loaded with set-up costs. He also stresses the way costs will be spread across partnerships – and countries. ‘We frankly don’t know what it will cost because different partners will take different stakes at different times,’ he says. Some services will be funded by local offices, some by regions and some will be global.
Octane, an e-procurement portal set up with CBRE and Trammell Crow, and the Constellation consortium are not a single global service as some commentators seem to suggest. Different partnerships may emerge in Europe, such as the Pathway listing portal which has drawn in DTZ. Trammell has also teamed with FPDSavills over here. This is predictable, considering the problems of cross-border procurement and difference in landlord-tenant relationships and makes it ecven more difficult to p[in down exactly what these projects will cost each national office.
Healey & Baker typifies the bigger players by pointing out that there is little choice about whether to think up e-initiatives if it wants to remain a top-ranking international consultancy. ‘But it is impossible at this stage to identify all the right routes,’ says the firm. E-commerce partner Colin Hargreaves says one great advantage is that H&B and its US parent Cushman & Wakefield are both private companies. There is no pressure to ‘create traction’, or be a first mover to satisfy analysts. Plans are made to enhance client services.
H&B pulled out of Pathway but is looking for European initiatives based on the partnership with Business Integration Group for web-based portfolio management, a transaction platform with Zethus backed by Goldman Sachs, and an e-procurement service called Zeeborg. One crucial factor is that H&B will be putting in no capital, however. ‘We will use sweat equity – our time and expertise – rather than hard-earned cash,’ says Hargreaves.Mantle has no disagreement over the need to focus on clients but also recognizes ‘what the Web can do and actually making this happen’ are two different things. He denies rushing in without clear commitments from buyers. ‘Anyone tempted to jump on the bandwagon without the resources to carry through ideas would, be crazy,’ he says.