Magazine article Real Estate Issues

Preface: Case Studies on the Interface of Technology and the Real Estate Industry

Magazine article Real Estate Issues

Preface: Case Studies on the Interface of Technology and the Real Estate Industry

Article excerpt

The purpose of this preface is to provide a briefing for readers who do not have an extensive background in the technology/real estate interface and to supply updated statistics and observations for those who do. A brief history of how we got to where we are is followed by a discussion of the opportunities inherent in the successful implementation and use of new technology and how well the industry is responding to these challenges.


In the mid-1990s, the United States experienced an unprecedented increase in economic growth, employment, and personal financial wealth. The growth in the economy was based on a major expansion in corporate earnings, largely fueled by unprecedented increases in worker productivity. These increases emerged primarily as a result of a confluence of technological innovation, which had been in the development process for many years but finally came on stream in the 1990s.

In the late 1990s, all of these seemingly independent technologies became increasingly integrated through the evolution of the Internet or "World Wide Web." The Internet allowed individuals and organizations to communicate instantaneously through electronic mail. E-mail has subsequently become so ubiquitous that it is now the preferred means of communication for a large part of the world.


Sensing an opportunity, business firms began developing commercial applications for the Web. These generally fell into one of two categories: business to consumer (B2C) and business to business (B2B).

B2C: A wide range of B2C applications proliferated in the late 1990s and early 2000s. Several of these were "portal" websites, which attempted to provide users convenient access to the myriad of offerings on the Web and thereby (hopefully) collect advertising, transaction, and other revenue. Other applications focused on selling products such as books, computers, CDs, clothing, food, drugs, and even furniture to individual consumers. Still others targeted service areas such as stock brokerage, commercial banking, mortgage banking, travel, insurance, and real estate. A few connected individual buyers and sellers through auction-based systems. By 2000, B2C commerce had reached $28 billion annually, up 62 percent over 1999, but still less than 2 percent of total retail sales. (1)

B2B: While the B2C market received most of the media attention, the vast market for business firms to sell to each other represented a much more significant opportunity. Increasingly, business managers were learning that the Web could dramatically reduce operating costs through higher employee productivity, the need for fewer employees, better inventory control, and more direct distribution channels, which promised the opportunity to reduce or eliminate the need for a "middle person."

In fact, the Web was revolutionizing the manufacturing process itself. Firms, unable to finely tune customer-purchasing needs, have traditionally had to produce large amounts of inventory that don't sell during the business year. This not only increases inventory-holding costs but also results in heavy discounts as unsold inventory is liquidated. Utilizing the Web, it was believed that manufacturers could now allow the customer to design, order, and pay for the product that they want, often before it goes into production.

Many believed that the economic benefits of the Web could be further enhanced by the use of auction-type "exchanges" to facilitate information flow between firms and to execute the transaction at the lowest possible price. Several industries such as autos, airplanes, energy, building materials, and others considered organizing exchanges to tap this opportunity.


While most of these assumptions were based on some elements of truth, it soon became clear that (1) the volume potential for most applications was vastly overestimated; (2) the execution requirements were dramatically underestimated; (3) too much emphasis was placed on "cool" technology rather than hard-headed business realities; (4) the proposals were generally over-hyped; or (5) all of the above. …

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