Brokerage Models, REALonomics, Technology in RE
The Principle of Extraction
January 27, 2007 by REALonomics · Leave a Comment
My original document entitled The Ten Commandments of the New Real Estate Economy sets forth a set of new economic principles…laws, if you will, which will need to be adhered to in the Third Economic Wave of the real estate industry, known as the Consumer-Centric Era. This blog, Extract, is a derivation of the 9th Commandment which reads:
Thou Shalt not Self-Capitalize but Extract
“Technology,†said Paul Zane Pilzer, in his 1990 book, Unlimited Wealth, “defines a resource…and determines our ability to find, obtain, distribute…â€Â
Pilzer defines so very well how technology enables extraction (my word) and is therefore, the economic alchemy that turns what was previously viewed as lead, into gold. Technology, and particularly the Internet, is redefining how the real estate industry’s economic models can now locate new assets, obtain them (extract), covert them to capital and redistribute them to the bottom line.
REALonomics agrees with Pilzer, technology produces new wealth and creates new economic models. Our industry’s antiquated retail model is simply too heavy (like lead) to enable Broker/Owners to expand rapidly into new market frontiers.
However, all is not lost! The Internet is the primary technology (the alchemy) that enables us to extract resources from multiple markets (horizontal development) rather than simply fueling our limited vertical markets (bricks and mortar) with more capital.
Through the strategic use of various technologies we can now:
- rapidly deploy our brand(s) into multiple horizontal markets
- extract capital associated with real estate transactions
- create new relationship models with consumers
There is simply no sustainable or relevant argument for total self-capitalization for the purpose of market penetration. The extraction of transaction revenue can be developed faster and at a fraction of the cost of traditional market models utilizing store-front real estate offices as the primary expression of market presence.
The Oil Extraction Model
The REALonomics principle of capital extraction is illustrated when we think of the development of the Alaskan pipeline. Technology enabled us to penetrate a remote market (Alaska frontier), locate a resource (crude oil), extract that resource and deliver the heretofore-unavailable capital potential in the form of oil to the lower 48 states.
The Alaska pipeline is a parallel example to our new-found ability within the real estate industry to utilize technology to extract ancillary revenue from market areas where our labor models will no longer work.
The Loading Dock Model
In his book Re-Imagine!, Tom Peters tells us that in 1970 it took 108 men five days to unload a timber ship at the London docks…540 man days! Thirty years later, it took eight people one day to unload the same ship…8 man-days.
Net economic gain:
98.5% Reduction in Human Capital for the Same Economic Task
Specifically, what was it that changed the economy of scales in the unloading of timber from ships in London from 1970 to 1990? In a word, the answer is technology. In a sentence the answer is that technology when appropriately applied to the cumbersome labor methodologies used to unload ships has increased the amount of capital a company can extract from the same function.
The New Real Estate Economic Model
The real estate industry’s operating models can now be transformed so that it is entirely possible for us to penetrate more market, extract more capital, reduce the labor costs per transaction, accellerate the transaction process time (paperless tools), have fewer agents, close more transactions and increase profitability.
Brokerage firms are going to have to flat-out, learn how to use technology and the Internet to tap into local markets without putting up buildings and engaging in the risky, marginal-ROI capital schemes of the industrial age.
Profit margins are now thinner than ever before. We are in a rapidly evolving Third Economic Wave of the real estate industry…a Consumer-Centric era . This is forcing us to seek and adopt technologies that can replace our self-capitalization of our outdated, intensive labor models and give us the ability to extract more from the markets at a fraction of the cost, even if commissions decline.
Owners can now penetrate new markets (perhaps hundreds of them simultaneously), extract transaction related revenue, manage the process with technology at a fraction of the cost of bricks-and-mortar operations, and ultitely maximize ROI.
This is the ninth commandment:
Thou Shalt not Self-Capitalize but Extract
Read more about the principle of capital extraction. Find out more about e-Partner.
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