by Matthew Lynch, Global Head of Research, Woods Bagot
To celebrate the launch of Microsoft Corporation’s Windows 95 operating system on Thursday 24 August 1995, free pizza was dished out in Manhattan, the Empire State Building flashed Microsoft-coloured lights, Jennifer Aniston starred in an hour-long instructional video, and issues of The Times were given out for free across the UK for the first time in the publication’s 307-year history.
The New York Times called it ‘the splashiest, most frenzied, most expensive introduction of a computer product in the industry’s history’.
Over the course of the next year, Microsoft would go on to sell 40 million copies of Windows 95 at USD 210 each.
Skip forward 20 years, and Microsoft has just announced that Windows 10 would be the ‘last version’ of the company’s operating system.
Wait… what happened?
Put simply, Microsoft has turned away from a revenue model of selling boxed copies of software to a model of subscription – so-called ‘software-as-a-service’, or SaaS.
Microsoft is responding to a broad shift in consumerism away from the ownership of physical and intellectual property and toward a model of access.
So, what is the fundamental driver behind this change? And why now?
‘The post-recession global landscape has created ideal conditions for disruption,’ says Nigel Jankelson, director at Macquarie Group.
‘Market deficiencies have created opportunity for innovation; broken sectors have been exposed for reform; market disequilibrium has created the opportunity for arbitrage. And the ‘as-a-service’ model is presenting the world with options that are easier, solutions that are faster, and subscriptions that are less capitally-intensive than ownership.’
‘This is Netflix on-demand instead of programed TV. This is “goodbye” to car ownership and “hello” to Zipcar. This is a subscription to Spotify instead of buying a CD. This is accessing legal services from Plexus instead of retaining an in-house counsel. This is a world that now sells the ongoing experience of NikeFuel instead of the one-off commodity of a Nike shoe.’
But the challenge, says Rosemary Feenan, international director and head of global research programmes at JLL, is that the property sector has not been as ‘fleet of foot’ as other industries in this new era of ‘as-a-service’.
The property industry continues to construct permanent infrastructure. Unlike the transience of software or music or legal services, buildings are static capital assets. What is built now will still be used in 100 years. And buildings are still being shaped to suit a legacy of single-use investment vehicles – residential funds, commercial funds, retail funds.
‘This could be the wake-up call we need,’ says Feenan. ‘Many of our cities are built on a model anchored in the 20th century.’
‘That means car-based, often with a poorly planned footprint, and dominated by real estate assets that are backed by big institutional investors. But this is changing. The industry is starting recognise the need for change, and is beginning to work out how to adapt to a PaaS model.’
The good news is that there are a few trailblazers paving the way forward for the property industry.
The phenomenal success of WeWork demonstrates the potential upside of tapping into this monumental shift.
Valued at USD 15 billion after another 50 percent jump last month, WeWork is a subscription-based workspace provider that makes money on the difference between the cost of its leases and what it charges members for rent.
The equation stacks up from both the supply and the demand sides: WeWork operates as an anchor tenant for developers and asset managers; and a WeWork subscription enables members to access a portfolio of 50 work spaces around the world instead of signing up to a fixed-term lease at a permanent location.
Applying the WeWork model to the residential sector, Roam seeks to be the next pioneer.
As a global co-living provider, Roam replaces the traditional residential lease by providing its subscribers with a global portfolio of spaces from which to live in monthly increments. Roam locations will also include coworking spaces, shared kitchens, locally-operated coffee shops, bars, and restaurants along with daycare for travellers with children.
In this context, hoteliers could also be uniquely positioned to capitalise on the ‘as-a-service’ opportunity, says Feenan.
‘In a world of flexible, on-demand services where alternative accommodation sources account for 1 in every 50 room nights,’ says Feenan, ‘global hotel brands are well placed to tap into the shifting economy that’s favouring subscription.’
‘One way they can do just that is through serviced apartments and aparthotels which combine the convenience of hotel rooms and services, with the cost savings and independence that guests now crave.’
Hilton Worldwide’s global portfolio of Conrad Hotels & Resorts, for example, could be tweaked in product and service offering. On-demand, like Netflix. Accessible, like Zipcar. Subscription-based, like Spotify. Value-oriented, like Plexus. Experience-rich, like NikeFuel.
Likewise, retirees offer another demographic that could reshape the global residential marketplace.
‘An entire generation is facing retirement,’ says Joëlle Klassen, business manager for retirement living at the Property Council of Australia.
‘And this is a generation with more personal wealth than before, plenty of discretionary time, and a strong desire to travel.’
‘So there is a potential for a subscription-based model of retirement living,’ says Klassen.
‘One that would allow the flexibility to live in different communities, experience different places, and stay for different lengths of time. In practice retirees could access the activities, events and services that they want, and would allow isolated retirees to feel social fulfilment and engagement with the wider community.’
‘And therein lies great opportunity’, says Klassen, ‘to take the WeWork model to other sectors to drive massive urban innovation.