How to capture more value on your building as distribution channel

How to capture more value on your building as distribution channel
Published on October 21, 2020,07:20 am by Prasan Kale for

In the initial installment of this two-part series, we discussed how property owners are missing out on a significant opportunity to improve their NOI through incremental revenue related to the transactions of third-party goods and services in their buildings. Understanding the nature of that opportunity, let’s uncover how owners can capture it.

Capturing value from these transactions is fairly straightforward; it just requires the right technology. The critical component, however, is what the technology actually does and what you need it to do. Many technology companies purport to help property owners “monetize the lobby,” and that it is as easy as providing a means for transactions to occur in the building. This principally entails the ability to access vendor offerings and pay for them. 

While having technology that enables transactions is a necessary condition, I don’t believe it's a sufficient one.

Why Enabling Transactions Isn’t Enough

A number of companies provide branded, mobile-first technology to create a two-sided marketplace — a digital space for buyers to purchase vendors’ goods and services — for your building. This software provides the tools for property owners to enable transactions, yielding added convenience for occupants.

As you can imagine, the economics of a two-sided marketplace are pretty good. The owner of the marketplace has the potential to earn high-margin revenue, especially if customer acquisition costs are low, which they tend to be in a captive distribution channel like a building.

High-margin profit sounds pretty good, right?

But there is a problem. Having the ability to make profit from a transaction is, of course, a good thing for marketplace owners, but only if there is transaction volume on the platform. If you have no volume, you won’t see any profit. The only way to make money off of transactions is if they happen on your platform and if they happen frequently. This volume doesn’t happen magically. It comes from driving high levels of user (consumer) adoption and utilization. There must be a reason for people to use your building’s platform instead of another purchasing channel. In other words, you have to change user behavior, moving activity from somewhere else to your building’s marketplace. That is the first crucial and often-overlooked sufficient condition for monetizing the lobby — and it’s very hard to do.

What’s the solution? I touched on this in more depth in a previous article, but I’ll summarize here briefly: The way to create behavior change and thereby drive transactions to your building’s marketplace is to provide value that occupants can’t get elsewhere. 

Think of how Amazon Prime provides two-day delivery. Convenience is one form of value the right property technology can enable for occupants to get their eyeballs to your marketplace. Others include price and selection. Property owners may be better positioned to deliver on some of these values than others. The key point, though, is that behavior change comes from giving occupants value that they can’t get elsewhere. 

So how do you pull it off? It starts with having the right technology in your property. The best technologies do more than just enable a marketplace. These are the technologies that give users functional capabilities within a building beyond just purchasing third-party goods and services.

Additionally, not all technology providers actually allow landlords to monetize their lobbies. Rather, they tend to offer “downstream” benefits such as better engagement or lower turnover. While these are good things for an owner, the best technologies actually share some of the value they capture from the buyers and sellers back with the building, generating real profits for the property owner.

The time has come for real estate owners to get creative in the pursuit of profits from their investments. We live in an increasingly competitive environment where amenities are becoming commoditized and distance is compressing, rendering location less (though still very) relevant. The old playbook of relying solely on rent to deliver a return is being competed away. It’s time to innovate. It’s time for owners to recognize they have a privileged relationship with their occupants, one that can be very valuable for all stakeholders with just a little out-of-the-box thinking.