Digital: threat or opportunity?

Do you see the digital transformation in housebuilding as a threat or opportunity? Magomed Galaev, CEO & founder of Kreo discussed this with James Dearsley, co-founder of Unissu, in a webinar recently – here is what they said

Everyone in construction knows that profit margins are nothing to shout about (unless you're angry about them being so low!). When you compare the largest construction companies' profit margins with those of major developers, the differences are unmitigated. Contractors, who know all about building homes, make the least profit. Developers, who know very little about building homes, make the most.

The benefits to digital transformation become clear when you look at the companies whose business models were "disrupted" by technological advances. The black cabs, advertising companies and hotels had no idea that they would lose business to anyone other than their direct competitors. Everyone was enjoying their profitable businesses, and no one could foresee the change about to happen.

Magomed's presentation made the point clear that based on examples from other industries, disruption does not come from experts within the field. The growth of technology, such as cloud computing and open source software, and venture capital are changing the way companies work. If companies want to avoid disruption, they need to be aware of the need for business change, centred around digitalisation.

Furthermore, the traditional industries who have already been disrupted were mostly targeted because they were profitable. For the real estate industry, that means developers are likely to be disrupted first. The new disruptive businesses will undermine the existing business model in real estate development because they will be loss-making. Take WeWork as an example. The company has been loss-making from the start, but its market value is already greater than many profitable real estate businesses.