There are a number of life lessons one can learn from historically set pieces like Game of Thrones (GOT). A solid (albeit dramatized) look at the past can give a clearer vision for the present and the future.
For example, we can use medieval Europe as an analogy, looking at the fact that most societies were primarily organized around agriculture.
In that system, a lord controlled a certain area of land that was awarded to him by a more powerful lord or king. Peasants would reside on that land and were politically and economically subject to the lord. Many of those peasants were serfs, who were obligated to work plots of land for their lord for little or no direct economic benefit.
Under serfdom, those who toiled on the land had basic rights but, in order to live and produce enough food to sustain themselves, the serfs had to bow to the production requirements and financial constraints (i.e., taxes) set forth by the lord. In many cases, serfs were regarded as simply a productive feature of the land itself, much like a fruit-bearing tree or herd of deer.
As with most hierarchical social systems most serfs were locked into their social class, with little to no social mobility.
There were some ways to escape serfdom, but serfs usually lacked the mechanisms or resources to fulfil their obligations to the lord of the manor.
Okay, what does that analogy teach us about today?
In the 21st century, agriculture has been replaced by a digital society that relies on “information economies” like the internet.
Going back to the GOT backdrop, today’s “lords” in this new information economy are the owners of the platforms which deal with data.
The Internet is the first thing that humanity has built that humanity doesn’t understand, the largest experiment in anarchy that we have ever had.
Eric SchmidtClive Humby stated, “Data is the new oil.” Indeed, the growth of computing power is increasingly being harnessed by all companies, big and small in building data – driven solutions.
However, to provide better solutions for the more difficult aspects of doing business today, data efficiency is paramount. To clarify what Humby said, data is not oil, but efficient data is. To enable data efficiency, data needs to be cleaned, normalized, stored securely and made accessible, and this is normally silo-ed data.
Segue to the real estate sector, the world’s largest asset class where data continues to be deeply fragmented, which means accessing and disseminating that data comes with a hefty price tag.
In real estate, the “digital lords” are a far cry from the lords of medieval Europe because data owners also own the physical real estate assets. The large owners rely on “proprietary data” to compete, and small and medium owners struggle to create that competitive advantage.
There are a number of well-known platforms to buy, sell, and lease homes, offices, and apartments, such as Redfin, Zillow, and various proprietary realtor sites. All of those platforms store data about the various entities, perfect information or not.
In digital feudalism, platform owners have a strong incentive to sell individual data, for a hefty fee. The most valuable data is usually in private data silos, which platform owners control. However, for decades, data selling companies collate that data and resell the insight gained back to other big or small platform owners.
Much of the concern when it comes to storing data has to do with privacy. For many industry sectors, Personally Identifiable Information (PII) has long been off limits for collection and tracking. That has led to significant efforts to draw a line between PII and non-PII. Only recently, Google surprised everyone by focusing on privacy at the I/O 2019 conference.
Non-PII data is shared regularly, but not through technological platforms, resulting in aberrant outcomes. One classic example is the case of rent controls for multifamily dwellings, which is a recurring theme in residential real estate. However, governments around the world, do not capture accurate rent information and use stymied analysis for policy making. In the US, BLS uses a methodology to collect rent samples, which is set in 1990, and Internet Listing Services do not capture real rent changes.
Data sharing is a theological debate in real estate, since information has generated alpha for many generations. However, those who safeguard information are the bigger “Lords”, for whom information is the only way to safeguard their turfs. To that end, data sharing becomes transformative for anyone who does not have “platform” leverage enjoyed by the Big Tech firms in the eCommerce and Advertising sectors, that is, the “serfs”.
That is why data sharing can be so important — it creates a level playing field, between the Lords, the peasants and serfs.
Why real estate?
- Real estate is fragmented, with multiple platform owners and data silos.
- Information in real estate is recorded by multiple entities, and is frequently incorrect.
- Real estate is developing information systems and analytics rapidly, requiring more data efficiency
- Due to the point 3 above, there is even more reticence to share data, with a focus on building data monopolies which are unlikely due to point 1
Aggregated data can bring about liquidity and the growth of an information driven marketplace. In addition, real estate is undergoing tectonic shifts, with new liquidity and new business models. In many ways, small and medium sized owners may face existential issues.
Ring back to GOT, in the face of White Walkers, the armies of the 7 kingdoms came together, in the Battle of Winterfell. As a certain co-working company becomes an investor, and a couch-sharing company potentially goes public, it is clear, real estate is at a similar juncture. Winter is coming.
Efficient data can underpin liquidity too, as demonstrated by the mortgage backed securities market.
What would it take to build the first real estate derivative? Buyers and sellers? A data exchange? A belief in the bid-offer on an asset? The answer is somewhere in between, and we won’t know the right solution until we actually get there.
But efficient data will need to be the first step, and data sharing is the only way to achieve that outcome.
Are you ready?
Going back to one of our favorite GOT episodes, we’re told by Ms. Targaryen that, to affect real change, one must “break the wheel”.