“You press the button, we’ll do the rest.” That was the advertising slogan used by company founder George Eastman in 1888 to promote his first Kodak camera. The stroke of genius behind it: Instead of heavy glass plates coated with photographic emulsion, Eastman developed rollable film with a gelatin layer. His invention of an easy-to-use cardboard camera soon followed at a retail price of one U.S. dollar. Kodak revolutionized photography by making it accessible to the masses, and rose to become a company that would dominate its industry with countless innovations over the next 100 years or so. In 1991, the company posted record sales of USD 19.4 billion. Kodak filed for bankruptcy in January 2012. The incredible case told in one sentence: Kodak slept through the digital transition. A revolutionary brand had been swept away by a revolution.
Hoteliers on the defensive
In a textbook on the disruptive, destructive potential of technologies for companies, digitalization would serve as a prime example for Kodak, analog to the smartphone that reduced Nokia from a market leader to a has-been. Clearly, it’s not just small companies that are vulnerable. Even market leaders are not immune to missing the boat of technological progress and/or collapsing under the weight of a company’s own ponderous self-importance. This phenomenon applies across all industries, including the real estate sector. In 2008, Brian Chesky, Joe Gebbia and Nathan Blecharczyk founded Airbnb because they could not find any affordable housing in San Francisco. A little more than ten years later, Airbnb lists six million accommodations around the world. By comparison, the largest hotel chain in the world, the U.S. Marriott International group, has 1.5 million hotel rooms, a quarter of the rooms offered by Airbnb. Some would claim this is not a fair comparison because Airbnb does not actually own any of the accommodations it offers and simply reduces supply and demand to a common denominator based on data. Nevertheless, the hotel industry has plenty to be concerned about. According to projections, the number of overnight stays arranged via Airbnb could rise to one billion by 2025. This is equivalent to around 40,000 efficiently run hotels with 100 rooms each – or 40,000 inefficient hotels that are swept from the market! Airbnb is so disruptive because its business model is highly scalable. Traditional hoteliers, in contrast, have to make massive investments if they want to expand their services.
Disruptive dead end
On the other hand: Not every revolution plays out as expected. Some seemingly obvious disruptions turn out to be dead ends. Take the eBook. People have been predicting the end of the printed book for more than a decade now, and yet physical book sales have been rising. At the same time, the eBook’s market share has stagnated around the world, never climbing above 20 percent of total book sales. And, perhaps surprisingly, it is the number one target group – the younger, tech-savvy generation – that is largely to blame. Despite the countless hours they spend on their smartphones and social media, most of them prefer to read printed books. The eBook hasn’t really established itself as anything more than niche platform, and many a market giant has already responded. Microsoft, for example, stopped selling eBooks in April 2019. The business is simply not profitable.
Disruption or evolution
What all these examples show is that the economy is dynamic and vibrant and those who want to survive need to evolve. There are two options: tear down the old and try something completely new; or build on what is already there to stay on the road to success. But which strategy offers a better chance of success: disruption or evolution? The right answer is less a question of principle and more one of in-depth analysis. First, you need to find out which external disruptions are coming your way and how explosive each could be. Whether you need a radical shift or steady evolution will depend on the status quo in relation to the resulting potentials. In order to assess this, you need precise market knowledge, an understanding of dynamic processes and a firm grasp of their potential consequences, detailed observation of trends and their impacts, and a far-sighted vision into an uncertain future. And none of this is possible without the collection and analysis of empirical data that brings hypotheses and forecasts together – which is precisely what the European Real Estate Brand Institute has been doing for many years with regard to the real estate industry and the brand value of its various stakeholders.
Beware of the driving force
As far as the dominant drivers in the industry are concerned, our findings couldn’t be clearer. The most urgently necessary changes relate to innovation, sustainability/ESG, brand management and employer branding. Corporate leaders who fail to recognize the importance of these key areas will face severe challenges. And they will face them sooner rather than later. Companies that fail to appreciate the driving forces behind these areas and underestimate their impact on customers and the market will soon be added to the Kodak-Nokia list. Any company that fails to constantly and critically compare its own perceptions with the perceptions of others in these four core areas will never be able to successfully position themselves and their brand. How about a real estate example? Any company that develops, builds or markets houses today and fail to meet future sustainability and climate standards will not have any customers or investors for even a single apartment tomorrow.
Decisions made on the basis of valid data
It is clear what drives and fundamentally changes the industry. Whether companies can succeed by steadily evolving and improving their business models or whether they need to throw the tried-and-trusted overboard in favor of completely new concepts and strategies needs to be determined on a case-by-case basis. Any anyone hoping for quick or easy answers is likely to be disappointed. Realistically, a company’s most appropriate actions and reactions will contain both evolutionary and disruptive elements. In any case, anyone who wants to overcome challenges sustainably will need to adopt a self-critical, probing and innovative approach. After all, the best strategy for dealing with change involves identifying it early and viewing it as constructive disruption rather than as a threat. If we can all do that, we will save many a house from demolition.
And it is in this spirit that I make the following offer to you: Together, we can examine your concerns in more detail. Let’s not wait, let’s begin the change process today, based on solid data that accurately depicts your market position and the gap between your own and external perceptions of your brand. Whether you need to act disruptively or evolutionary, all will be revealed. We would be delighted to support your change with our expertise and validated data.
With branded regards
Your Harald Steiner