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The future effects of the Internet

What effects will the Internet have upon real estate markets? This complex question cannot be answered in a short column. However, I will set forth some thoughts about how to approach answering it.

Basically, the Internet greatly speeds up and potentially universalizes people's access to information from a huge variety of sources, unfettered by geography or boundaries. This permits anyone with a computer and modem to access unlimited numbers of data sources. It also allows each source to broadcast to unlimited numbers of potential recipients at very low cost. However, users of data from any source have no direct way of determining the reliability of that data without using alternate sources for confirmation.

These characteristics will have a major effect upon real estate. The Internet enables users of data to bypass many former intermediaries whose function was to collect data from many sources and make it available to end users. This renders many "experts" obsolete. For example, persons moving into a metropolitan area can obtain reams of information about it, and its housing markets, from the Internet rather than from local real estate brokers. This narrows their searches for homes considerably, saving a lot of time.

This impact does not wholly eliminate the need for data intermediaries. End users of data still need advice about the reliability of information they get over the Internet, and how to apply it locally. But the intermediaries' function is changed from primarily providing data to interpreting it.

Also, since information available on the Internet is not easily verified, users' faith in the honesty of data providers is critical. Therefore, the Internet enhances the importance of each data provider's reputation for credibility. So established firms in each field with proven reputations for content expertise and reliability will attract and retain more customers than newcomers whose skills are only technological.

The Internet makes it possible for multiple agents engaged in some common production process to coordinate their activities faster, cheaper and more effectively than ever before. The owners, architects, construction firms and subcontractors, lenders, managers and tenants of a new shopping center may integrate their participation in its creation more efficiently through the Internet than through in-person meetings, phone calls, faxes or e-mails. Each agent can post drawings, messages, schedules and change orders on a Web site where the others can access them instantly, and respond in turn. This can reduce costs of production and may change how these agents relate to each other and which have dominance.

Traditional ways of processing complex transactions - such as buying commercial properties - are being challenged by novel approaches. Brokers have long dominated the property acquisition process, coordinating buyers with others involved such as lenders, appraisers, title companies, lawyers, etc. Innovators are now trying new methods of aggregating these participants into groups linked through the Internet to offer competitive options to purchases of homes and commercial properties. These models change the relative market shares of previously separate firms. But almost no models completely eliminate the need for intermediaries. And so far, few such models have produced profits.

Many firms carrying out complex processes can procure supplies more efficiently over the Internet than by traditional purchasing. This is why major automobile manufacturers are creating large Web sites to procure most of their raw materials and services. Suppliers can make offers in response to specifications posted by the manufacturers, and transactions can be consummated at record speed with minimal administrative costs, thereby enabling larger economies of scale and just-in-time deliveries. The New Economy has spawned many such B2B ventures, but materials still need to be delivered physically and checked for quality in old-fashioned ways.

Another Internet impact is an immense increase in the total amount of communications each person or firm can carry out in a given time period. End users of data can tap into more sources, and sources can reach more end users per day than ever before. This is illustrated by the current proliferation of e-mail messages. Some people predict this huge increase in messages will drastically reduce the need for in-person contacts, but I believe that conclusion is wrong.

The telephone was the single biggest technical change ever in communication, because it made instant long-distance interactions possible for everyone. This hugely expanded the number of interpersonal contacts anyone could make each day, compared with meeting people face-to-face. Yet the result was also an enormous increase in the desire for of face-to-face meetings - even though they were a much smaller percentage of all communications. So the telephone greatly stimulated demands for in-person meetings and travel, and so will the Internet.

In America, the Internet will probably lead people and activities to spread out even farther across the landscape. Most telecommunications improvements enable whatever basic spatial trends already exist in a society to occur more strongly. In less developed nations, telecommunications innovations helped speed population concentration through rural-to-urban migrations. But in industrialized nations, the same improvements accelerated outward suburban movements. Greater spatial decentralization in America since 1950 has been rooted in rising real incomes, improved roads and vehicles, and better communications through telephones, radio, television and computers. The Internet will probably lead to further geographic dispersion of American families, firms and other organizations. So the Internet should generate a whole new round of opportunities for real-estate related activities.

The Internet may also influence the internal organization of real estate and other firms. It enables people at all levels within a large organization to directly access immense amounts of both proprietary and external data. This reduces centralized control, thereby empowering lower-level individuals at the expense of hierarchical organizations.

Finally, the Internet speeds up operations of all types by reducing the time required for specific communications. But it also increases the need to filter and interpret the much greater amounts of data it can deliver each day, and that takes more time. These countervailing forces create a tension that will raise blood pressures and increase neuroses everywhere. In such a dynamic world, everyone's motto needs to be: keep moving!

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