Drivers of Consolidation in Proptech

Consolidation has always been a significant force in computer technology for a variety of reasons. It has also been something mythologized to promote the winners as visionary geniuses, even when someone else had the brilliant idea.

One such story: Microsoft would sell a personal computer operating system to IBM, kickstarting the former’s path to economic glory. First, the mother of Bill Gates, who knew the then-chairman of IBM through mutual charity work, made the introduction. IBM wanted an operating system. Gates, co-founder Paul Allen, and others at the startup said, “No problem,” and then bought from Seattle Computer Systems what would become MS-DOS and ship on all of IBM’s desktop computers.

Advertising giant Google? Founders Larry Page and Sergey Brin had interesting ideas about ranking individual search results by prominence and also advertising. But AdSense, the commercial hit that lets third-parties in on Google ad sales, came with the 2003 acquisition of Applied Semantics.

You could go on with examples. More important is why this happens. Here are a few factors:

• Ideas and products aren’t the same as winning business strategies.
• Capital accumulates and not always in the most rational ways, which lets some players buy advantage that they couldn’t develop. Which is fine. But it can become a concentration of investment in a small number of vendors, whether they are ultimately the “best” or not. They can’t all be, and big investors can make pretty big mistakes.
• Capital traded out for intellectual property, assets, and entire companies often works because the most innovative people often don’t to keep doing the same thing, so they take the exit and think about something they’d find more fun than running a large company.
• There isn’t necessarily enough room in a market for a stream of competitive products, at least not when it comes to something other than simpler commodity products that are in wide use and largely interchangeable.
• None of this has ended. Even with a troubled proptech industry, money flows in because investors have money in funds and the VC and private equity firms that have raise capital can’t sit on it indefinitely. Investors want to see return.

All this can complicate the use of technology. It’s why for so long that the legendary tech giant’s biggest sales argument was “Nobody got fired for buying IBM.”

However, nothing lasts forever. Today, IBM is a shadow of what it once was. Companies disappear, small and big. When your business regularly uses certain technical products, you have to consider regular evaluation of where they stand, the chances of their being subsumed or running out of funding and crashing. Whether the application you use might disappear.

Yes, it’s more work and you have enough to do as it stands, but not doing an initial analysis and then keeping it up is also a version of going the analysis, and one that is more likely to lead to bad outcomes.