Sustainability of the real-estate business models in the times of sharing economy

Ownership and property have been in the not so recent past a norm. Business’ were trying mostly to sell either products either services or ideally both. In the new century we have already seen some successful business’ models based on the so called sharing economy. But are these models sustainable? Or are they also going to crash like most of the real estate business’ in the recent crisis. Let’s analyse traditional renting real-estate business model first.

Classical real-estate renting business model analysis

Business model canvas is a proper tool to be used not only to analyse business models. In every business model the value proposition is its heart and soul. In other words how do you create value? What is the problem that you are trying to solve? And what is the solution you are offering? What needs are you addressing?

The question of value is essential for every business. Traditionally business’ have been trying to create value by looking for cost advantages, or locking down the customers or by differentiating their organizations or their brands. Progressive, or as Umar Haque calls them, insurgent organizations try on the other hand to find advantages in less environmental costs, in creativity as opposite to locking down the customers and not least in making the real difference instead of only differentiate themselves with branding. Now, we shall look a bit closer to the traditional real-estate renting agency business model.

Let’s call our real-estate agency, Victoria. What is their classical business model like? Victoria’s value proposition is what? Victoria is a real-estate agency that offers renting of rooms, apartments and houses to wide segments of customers and companies. They are solving a problem of temporary stay for students, businessmen’s and women’s and families. They don’t sell properties (but their owner has another agency). They can offer a wide range of properties in all mayor cities. They take a fee for sharing the property from the customer and from the owner of the property. We can see, Victoria (and all other real-estate agencies) generate revenues from both sides of the business model: from customers and from owners. In that sense, Victoria has a great business model. What went wrong?

BUSINESS MODEL CANVAS: CLASSICAL REAL-ESTATE RENTING BUSINESS MODEL
Classical real-estate renting business model

Usually real-estate agency concentrate on finding customers to rent their properties. As soon as possible. To get the fee from the customer and from the owner . They even advertise their offers. And this is a promise to the owner of the property. That they, as the agency have the capabilities to rent the property as soon as possible at the proper price. Although the agency tries to be the middle man in between the customer and the owner they still believe that the key of business is in finding the customer. That’s where the majority of their resources goes.

Victoria is advertising their offer, taking customers to see the properties… And what does the agency do for the owner of the property? Well, not much. They are even trying to lock down the owner by signing an exclusive deal with the owner of the property. Locking down the customer. Sounds familiar? It has to be admitted that maybe their real-estate agent will take the photos of the property, then use it and publish it on the agency web page. Where, at the agency website they again try to attract new customers. And mostly that’s it. Do you see what this analysis is aimed at? No? Let’s see the sharing property business model.

Sharing property business model: case airbnb

Let’s look at the sustainable sharing properties business model. What is the value proposition in that kind of business model? What is the main value? To empower owners (or other residents) to rent their property as often as possible. To offer them not only their own web page under the umbrella brand but most importantly: to drive customers to their property. And what is the single most important factor when you are renting a property? One single factor? Think! What ads are you looking at when you try to rent a room or even a house? The one without photos? The one with average photos? No. The one with great photos. Yes, exactly. You need to enable the highest possible image of the property. And what do you need for that? A professional photographer, a photo designer and editor of the photos. Do you need a real estate agent? Well. Not really. Who has such a business model? If you didn’t notice it: www.airbnb.com.

BUSINESS MODEL CANVAS: SHARING PROPERTY BUSINESS MODEL: CASE AIRBNB
Sharing property business model case airbnb

On the business model canvas, the airbnb sharing property business model does not look that much different. It has retained all the good sides of the classic real-estate business model. The most important being generating revenue from the both sides. From the property owners (or other residents, don’t forget that detail) and from the customers. But airbnb goes much further. It enables the property owners not a complete administration of the property rental. They send to the owner of the property without any additional cost the professional photographer. Without any exclusive contract. No average photos on the agency website. Instead a great airbnb platform where owner of the property has its own web-presentation with a complete rental management system. With on-line support 24/7. For only a percentage of the renting fee. Is that sustainable or what? Is that creative thinking or what? Does that makes a real difference or what?

Copycats of the airbnb and what are they doing wrong?

Do you see the difference in the airbnb business model? They concentrate themselves with their business partner which are the property owners (and others who wish to sub-lease their rooms). airbnb does not concentrate on the customers who rent the room? Yes, they do advertise their platform. But not aggressively on the billboards like some copycat competitors are trying to drive the business. Because the sustainability of their business is to establish the long term relationships with their partners who are offering the rooms. And not building and investing time and money into mainly one-of-a-time relationship with customers who wish to rent a room.

airbnb hasn’t felt the impact of the real estate crisis. Although it doesn’t do anything completely new. They just did their homework right. You should too. First look at your business model on your business model canvas. Try to spot weak spots and seek improvement. Go out and test them. See what works and what doesn’t. Come back to the canvas and improve your model. The secret lies in how quickly and at what cost are you capable of doing that. The faster the better.

Sources:
+ Umair Haque: The New Capitalist Manifesto: Building a Disruptively Better Business
+ BusinessModelGeneration.com

Marko Savić Linkedin profile

Marko Savić
I’m raising awareness on design thinking and business model innovation. Meet me in person at my next workshop.
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