When “Real” Estate Meets “Virtual” World
Lianjia, one of the largest real estate agencies in China, combined its online and offline channels to create the most reliable and efficient real estate agency business for suppliers and customers.
As one of the largest real estate agencies in China, Lianjia has strong presence, including more than 7000 stores and 120,000 agents, in top tiers cities like Beijing, Shanghai and Shenzhen [1]. However, as the internet has become prevalent in China, Lianjia is currently facing serious threats from the emerging online agencies like SouFun, Anjuke and Fangtx.com. Based on an internal report conducted by a Chinese local real estate agency, 85% new house buyers have used online information in the purchase process, and the importance of offline information channels have decreased. In addition, with a huge amount of investment from venture capitals and the internet industry, emerging online agencies has adopted a cutthroat strategy to attract new customers by providing super low commission fee (0.5-1%) while traditional agencies charged more than 2% commission fee on every transaction [2]. To compete with aggressive online agencies, Lianjia has launched its digital transformation to create an online to offline omni-channel ecosystem.
Combat the fake information – Dictionary of Properties
To create the illusion of having more sources of houses on sale, online agencies generate fake information to sell houses that do not exist, are the duplicate information of existed information or are not on sale [3]. The fake information problem has substantially increased the searching cost of customers. As a late comer in the online agency market, Lianjia has mobilized its offline stores to have a thorough investigation of all properties in their regions for 8 years and created the online Dictionary of Properties database for 30 cities (as shown in the following video). By collecting more than 60 million addresses in China and assigning a unique code to each address, Lianjia forces all agents to post the real house source information on its website, leading to significant decrease of the searching cost of customers [4][5][6]. With the unshakable credibility in customers’ minds, Lianjia directs online users to its offline stores and helps house providers and customers to complete transaction more efficiently.
Key takeaway: in the digital era, instead of just imitating the first mover’s actions and expecting to win by existing brand equity, companies should think deeply on how to leverage its core competencies (ex: offline network and strong relationship with suppliers) to compete with emerging online competitors.
Lianjia’s efforts on building the Dictionary of Properties
Shorten the endless matching process – Consumer Portraits
House purchase is a highly-involved decision making process, including online searching, offline information collecting, consultancy with agents and lots of property visiting; hence, the searching cost is very high to consumers. On the other hand, without deep understanding of consumer behaviors, real estate developers allocate its marketing budget inefficiently, and real estate agencies are not able to target the right consumers. To shorten the matching process, Lianjia builds up its Consumer Portraits database by inputting data from its website, mobile APP and offline transaction records [6][7][8]. In the new house market, Lianjia provides consumer insights to real estate developers and help them allocate marketing budgets to various online and offline channels. In the used house market, Lianjia supports its agents to quickly identify customer needs and effectively offer recommendations to customers. By understanding its customers better and providing accurate information, Lianjia avoids the battle of cutting commission fee and remains profitable in the competitive industry.
Key takeaway: everyone knows that data is the new gold nowadays, but not many companies know what data they need; by reviewing the needs of both suppliers and customers, companies can identify the most valuable data to improve the overall supply chain performance
The next tipping point – virtual reality and augmented reality
In China, real estate market is heavily driven by investment, meaning that there are many international or cross-cities purchases. For example, people living in the first-tier city might fly to a second-tier city to invest in real estate properties. To reduce the transactional cost for these investors, Lianjia should start to explore the application of virtual reality and augmented reality (VR/AR). Through VR/AR, customers can experience different room types and decoration styles within short time and without travelling, leading to potential increase in transactions on the Lianjia platform [9][10]. Lianjia can also provide the VR/AR service to real estate developers to test on end-customers’ preference before construction. In addition, Lianjia needs to review its offline store operating model – should they put VR/AR equipment in offline stores with agents’ support in time? Should they set up small VR/AR spots in popular areas to increase the interaction with potential customers? By introducing VR/AR, Lianjia will write the history of the most disruptive change in the real estate agency industry.
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Citation
[1] Lianjia official website, http://cq.lianjia.com/, assessed on November, 2016
[2] “房产中介O2O平台颠覆传统线下中介恐怕没戏？！”, http://www.jiemian.com/article/223172.html, assessed on November, 2016
[3] “南京：严查房产中介发布“虚假房源”等违法违规行为”, http://tv.people.com.cn/n1/2016/1109/c39805-28848860.html, assessed on November, 2016
[4] “链家“楼盘字典”的大数据”, http://house.people.com.cn/n1/2016/0407/c164220-28258443.html, assessed on November, 2016
[5] “無大數據還敢自稱中介？以鏈家為例看大數據如何驅動中介”, https://kknews.cc/house/m66zgg.html, assessed on November, 2016
[6] “用大數據估價對付房價虛高，關鍵在於7000萬樓盤字典數據保證的「房源真實」”, https://kknews.cc/tech/zz98ll.html, assessed on November, 2016
[7] “VR+房产||体验随时随地看房”, http://www.vrzy.com/vr/60521.html, assessed on November, 2016
[8] “2015链家房产大数据报告出炉”, http://house.ifeng.com/detail/2016_02_04/50690757_0.shtml, assessed on November, 2016
[9] “時髦的VR看房，除去噱頭還剩下什麼？”, https://read01.com/nD2Dno.html, assessed on November, 2016
[10] “科技全面入侵房地產行業 除了VR看房還有這些”, https://read01.com/ANd6zN.html, assessed on November, 2016
This is such an interesting industry in which to study the impact of digital transformation! Thanks for enlightening us about the housing realty industry in China. Buying a house is the largest purchase most consumers make in their life, and no two houses and properties are exactly alike. Thus, Lianjia’s role is to provide reliable online information about properties and match customers to properties based on their displayed preferences. Could they go a step further by influencing the preferences consumers have about houses in the first place and better match demand and supply of houses? For example, by providing online content displaying interior design trends and property features, Lianjia could increase customer mind-share when they start looking for a home or an investment property. By creating online content about real estate investment, they could expand the market of consumers who use real estate as a financial tool. Lianjia’s existing network of brick-and-mortar agencies helps set them up for market dominance, and creating an equally strong, trusted online brand will reinforce their position.
This is very interesting to me particularly when I compare this business model to what exists in the US. Today, many individuals in NY rely on Streeteasy or even Craig’s list to supplement any effort provided by a real estate broker and in many cases to avoid using a broker entirely. We have also seen the rise in other platforms like UrbanCompass to disintermediate the broker but what you are discussing here with Lianjia is completely different and something I still don’t think exists in the US. The idea that it can create a consumer profile and suggest to buyers what they may want without buyers explicit targeting is very interesting and I wonder how that could be applied in the US. I also wonder how Lianjia may be able to take some insights from their US counterparts to improve their own online process.
Really interesting read! I completely agree that there is potential to further digitalize the home buying process through AR/VR. I remember reading about a startup called Matterport that can capture an environment in 360 degrees targeting realtors looking to show off homes for sale. As the cost of this type of technology goes down, I think both realtors and homebuyers will be the beneficiaries of transitioning more of the physical due diligence process online. Homebuyers will be able to greatly increase the efficiency of their home buying process by only physically visiting their top choices, rather than the whole set of homes they are considering. On the other side of the same coin, Realtors can save a great amount of time by targeting more informed homebuyers in a later stage of the home buying process. I wonder as the frictional costs of the home buying process go down, how will that affect the industry? Will we see homes changing hands more frequently, or prices going up due to more international and cross-city purchases?
Great post! I actually worked as a real estate developer for two years and matching the product offering to consumer demand is an extremely unreliable process and one were a lot of value is lost for both the developer. For instance, a simple decision like determining the number of one, two or three bedroom apartments that should be built is based on past experience and customer surveys. However, this information is not very precise and it is not common that the developer has to discount certain apartments because they are not selling. With real-time market information available, the developer could make design decisions to closely match the what the consumer wants, thereby increasing their value proposition and beating the competition.
Yi-Chen. This was a very enjoyable post about a market making tool used in Chinese Real Estate. I completely agree that one of the key differentiators in the digital age is reliability of information. It is now a days so hard to track back to whether or not a website is providing credible information, By eliminating fake posts, as you discuss above, Lianjia is able to offer a superior real estate product. I believe the integrity of their postings will be able to sustain their business for years to come.
This is a great post and offers interesting online real estate verticals’ opportunities and challenges. I used to analyze online real estate verticals such as Soufun and Leju to assess how such offline to online transition would transform the industry and impact the traditional models. Surprisingly, online real estate players such as Soufun which started the model online and aggregated huge internet user acted more as a marketing agencies for the real estate developers and secondary real estate agencies. However, it took them several years to realize that the pure online model was not sustainable, as the house-buying transaction was a mostly offline experience. The online platforms themselves barely offered much value beyond a discovery channel. Opposite to Lianjian’s strategy, Soufun started to build offline agency business. It is so much harder to transition from online to offline (asset-heavy) versus the vice versa. On the other hand, we are seeing the traditionally offline player like Lianjia built its online presence and created a lot of synergies from its online business to complement its offline agency business. I am wondering if the online model can further shape internet users’ behaviors and move the transactions online? If this is the case, then there is also a great potential to expand into online payment/credit lending business as well?
Incredibly interesting, thanks for sharing. I especially enjoyed the part about using AI to reduce investment costs. Could Lianjia also implement such technology to specifically target the large segment of house buyers/renters who aren’t able to make time to see as many homes as they would like in their search? This could be a way of differentiating themselves from the likes of emerging online agencies that you mention – thereby reducing travel time for working customers during their search.
Great post! Very interesting. I really admire how Lianjia is using data to improve the supply chain. I love your recommendation of using VR/AR to aid in the development process. Having worked in real estate before, there is a large disconnect between developers and consumers desires. Consumers think they would like certain designs and features until they see them constructed. I believe leveraging VR/AR could create immense value for both the consumer and developer.