Talk to anyone with experience in PropTech, and they’ll agree: selling software to real estate and construction companies is hard. Despite a surge of new PropTech companies on a mission to improve the way that real estate is bought, sold, built and managed, the industry has not seen a widespread adoption . We can boil that down to a couple of key reasons: fragmentation, “sticky” legacy systems, and most importantly, trust.
Fragmented Industry
The real estate market has a long tail, made up of a large number of small, often unsophisticated players. Even when you look at some of the largest purchasers of software, property managers like Greystar or RPM Living, the properties they manage have many different owners. This fragmentation presents a challenge to PropTech companies which must execute on a large number of small sales, all of which have similar sales cycles to one big sale.
Sticky Legacy Systems
Real estate's existing software and services are notoriously "sticky," making it difficult for customers to transition to new solutions. Whether dealing with property management systems like Yardi or construction project management tools like Procore, companies' data and standard operating procedures are deeply entrenched in these systems. As a result, persuading firms to adopt new technologies becomes an uphill battle.
CRE Skeptics
Commercial real estate (CRE) is uniquely a relationship-based business. Property transactions, and procurement decisions hinge on personal connections. Software sales do not innately operate the same way. To make matters worse, CRE professionals have been burnt by PropTech in the past. They were promised innovation that fell short and reverted to their spreadsheets and old ways. For disruptive firms to secure a foothold in CRE, they must first build and maintain trust with their existing customer base, establishing a reputable presence in the market.
Focus on Trust
While fragmentation and entrenched legacy systems pose significant hurdles, they are not insurmountable. The industry is gradually consolidating, and even smaller owners are becoming more tech-savvy. Legacy systems, while sticky, are increasingly open to integrating with new solutions, and new platforms are emerging to challenge incumbents. In the interim, PropTech founders should prioritize cultivating trust with their clients and the wider network their clients operate within.
