The changing impact of Blockchain : a proposition of guidelines to implement Blockchain in the real estate business model

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MSc Business Administration Digital Business

Master Thesis

The changing impact of Blockchain

A proposition of guidelines to implement Blockchain in the real

estate business model

by Camilla Biamino 11620382 June 22, 2018 Final Version Supervisor:

Prof. em. dr. ir. Hans J. Oppelland

Assessor:

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“Always go with the choice that scares you the most, because that's the one that

is going to require the most from you.” – Caroline Myss

Acknowledgement

I would first like to thank my thesis supervisor Prof. em. dr. ir. Hans J. Oppelland. He was always there to give me advice, led me in the right direction if necessary and allowed this research to be my own work.

I want to profoundly thank my family for its continuous encouragement and for being there for me during all this time. All this would not have been possible without their support.

A big thank also goes to all my friends for all the times they were there for me and listened to my troubles, motivated me to keep going and believed in what I did.

Camilla Biamino

Statement of Originality

This document is written by Camilla Biamino who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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the same time a lot of businesses struggle to deal with it or to fully understand it. The following research seeks to investigate on the question of how the Blockchain technology impacts the real estate industry and how the businesses need to react as a consequence. In addition to consulting literature and presentations, interviews with experts in the fields of real estate and Blockchain are conducted. With the knowledge gained from the primary and secondary data and with the use of several models presented, guidelines are elaborated. Following these should make it easier for real estate companies to approach the Blockchain technology and use it in a beneficial way.

Key words: Blockchain, innovation, technology, information, efficiency, trust, internet,

business model, middleman, knowledge, real estate.

1. Introduction

“Immutability, transparency and the elimination of intermediaries are some of the most cherished attributes of the blockchain upon which a lot of disruption is happening across various industries” says CCN author Iyke Aru (2018). The introduction of the Blockchain technology brings a lot of threats but also benefits to several companies. Especially companies that take the role of a third party, an intermediary, will be affected and need to react.

Similar to the reaction of the Internet’s introduction back in the 1990s, everybody hearing about this new kind of technology seems to be suspicious first. The introduction of the World Wide Web (www) was a technological aspect that companies initially feared. They did not know how to react or how they could adapt to it in a proper way (Iansiti & Lakhani, 2017).

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Businesses have changed dramatically since then, and certain companies are not even needed anymore as they were (partially) replaced by the Internet like for example certain retail stores (Lakhani, 2017). Nearly thirty years later, nobody could imagine living without the internet anymore. Nobody would have thought that it would change our lives that drastically. With the Internet, also other innovations came along, and the current emphasis lies on the Blockchain technology. Even if millions of people are already using Blockchain (Ammous, 2016), still, not everybody is aware of this new technology, or could exactly explain how it works. Even managers of companies that are mostly affected by this innovation have still not entirely figured out, how to handle this technology appropriately, in what way they can profit from it instead of being disrupted, and risk being eliminated from the market (Lakhani, 2017).

The goal of this research is exactly that: To find out how managers should adapt best to this change and what steps they should take to benefit from the use of Blockchain technology. They should not look at it as a threat, but embrace it. Resembling the introduction of the internet, when business people were not sure how to deal with the new technology, they should not totally be mistrustful about it. This research is aiming to close the gap of not knowing how to deal with this innovation so that intermediaries will not have a hard life going with the introduction of Blockchain.

1.1 Research problem

The main topic of this research is Blockchain. The Blockchain technology is a rather new technological development and as such, there is still a lot to be discovered and that calls for understanding it more profoundly. Hence, the first step of this research was to find a specific research gap of this general subject.

After a profound reading into the topic of Blockchain, it appears that companies are slowly approaching this new technology. Companies are experimenting with the new Blockchain technology: On one hand to understand what it actually is and what is at the bottom of this

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slowly emerging technology; and on the other hand, companies are interested in getting to know what it might offer them in the end and how they can benefit from it. It is a very new technology, and for some companies still a rather unexplored one. This means that they are still unsure on how to use it and how to profit from it in the end.

Especially companies taking over the role of a trusted third party are affected by the introduction of Blockchain to the economy (Nakamoto, 2008). Blockchain might be a serious threat to this kind of companies, because it could substitute them. But this will also be further explained in this research.

Several papers and articles discuss what Bitcoin and Blockchain is. But the majority of these papers put their attention more on Bitcoin than on Blockchain (Yli-Huumo, Ko, Choi, Park, Smolander, 2016). The articles discussing Blockchain are rather about what it generally is; for example Witte (2016), Gupta (2017), Ammous (2016), describe Blockchain’s major features. In the end they are all falling back on the white paper of Satoshi Nakamoto which introduced Bitcoin and its driving mechanism Blockchain in 2008. Other papers already mention the threats of Blockchain and also the affected middlemen, like Lakhani (2017), Beck and Müller-Bloch (2017) or Gupta (2017).

There are several industries where third parties are affected by the Blockchain technology, like lawyers or accountants for example (Lakhani, 2017), but this research focuses specifically on the real estate domain.

1.2 Research objective

The research problem, as mentioned in the previous paragraph, lies in the novelty of the Blockchain technology. Also, Blockchain might be a threatening technology, which means it could substitute certain third party companies. Businesses will have to react and change their business models (Beck & Müller-Bloch, 2017; Matt, Hess, Benlian, 2015).

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The objective of this research is to provide guidelines that should enhance a successful implementation of the Blockchain technology that, in the case of this research, will be relevant for real estate companies. By doing so, they should not be affected negatively by the Blockchain technology, and should be instead just profiting from it.

Blockchain is still very new and companies are not aware of how to use it. Therefore, companies are still investigating and experimenting a lot with the Blockchain technology (Kith, 2018; Lannquist, 2018).

The elaborated guidelines can also be seen as advices for managers on how to make use of Blockchain in a most profitable way. It could for example help them to see if they should implement the innovation or not at all.

All in all, this research intends to give advices and indications on a managerial level, by providing these guidelines that should help to decide whether to implement the Blockchain technology in the first place, or the guidelines should facilitate the implementation through a step-by-step approach. Using this should make it possible to solve the problem of Blockchain being a threat and a disruptive technology; and show how to use Blockchain as a profitable technological tool.

1.3 Research method

The research is qualitative; it is not quantitative, because nothing measureable is examined. It is the impact that Blockchain might have on the middleman that is observed. For this, the research uses a qualitative research strategy, namely interviews, to collect data.

By interviewing Blockchain experts and focusing on the domain of real estate, knowledge will be collected and then analysed in a further step. The aim is to come up with advisory guidelines for the affected companies in this domain to change to a new business model. By adapting these, the impact of this new technology should have positive and also profitable

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effects. Companies can follow a new action plan and use a Blockchain - integrated business model.

1.4 Structure of the research

After the introduction to the research in general, a look at the actual state of art will follow. This part first explains the Blockchain technology, its components and how it generally works. Then the parallels and differences between the introductions of the internet and the Blockchain technology will be discussed. After that the impact of Blockchain on businesses will be made clear, how they are affected and what could possibly change. The final part of the literature review is about the research gap and concludes by formulating the research question.

In the third section of this research the conceptual model is drawn. It explains the variables and their relations and which propositions can be drawn from these. In addition, the concept part will illustrate some models which will be used to come up with the final guidelines on how to approach this new technology.

After the research concept follows the method part. This section of the research explains the method used for this research. It also describes why the selected method has been chosen, its sample size and how the latter has been selected.

The fifth part contains the data collection. It demonstrates the gathered knowledge and how it is categorised. This will then be analysed in the following part, the research results. The results will be interpreted after that. By using all this information the advisory guidelines will be elaborated to convert into a Blockchain-integrated business model.

The final part consists in an explanation of the limitations and strengths of the whole research and the conclusions. The limitations explain the reasons that might make the research results fragile, while the strengths show features that support the results. The conclusion wraps up the whole research and finishes with the research gaps that are still to be analysed and what could

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come up next regarding the Blockchain technology. It is followed by the bibliography and the appendices.

2. Theoretical Background

In the first part of the literature review Blockchain will be introduced by explaining generally what this new technology is and what modules it contains. After that, parallels between the introduction of the Internet and the Blockchain technology will be discussed. The third part of the literature analysis will go deeper into the topic and give details about how certain parties are affected by the Blockchain technology. As a final part of the literature review the identified knowledge will be connected to the main topic, explaining how Blockchain affects certain business, and from that, the main research question of this research will be derived.

2.1 Introduction to the Blockchain technology

Along with the rise of the cryptocurrency Bitcoin in 2008, Blockchain was created as the fundamental mechanism behind the trade of Bitcoins (Iansiti & Lakhani, 2017). The idea behind this new technology is that it makes use of a shared ledger that records all transactions between the trading parties. The shared ledger is available to all users that are granted access to it and are called nodes. More specifically, this means that all users that are allowed to access this ledger can see the transactions that have been performed, but not by whom these were carried out or any other details about the trade itself (Lakhani, 2017).

There are different attributes illustrated in the literature that make Blockchain work the way it does. Some have different names but share the same or a similar meaning. According to Iansiti and Lakhani (2017) it starts on one hand with the network made up by all access granted users. It is a shared database, controlled by all parties involved. Each of these can see the ledger. Transactions are validated by a common consensus. The second key attribute is the

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peer – to – peer transmission, which means that two parties that trade, are connected directly

and there is no need of any intermediary who must verify the transaction. The third core attribute consists in transparency (Ianisit & Lakhani, 2017). The real identities of the trading parties are unknown to each other as the Blockchain system provides the user with a pseudonym. At the same time all the traded assets can be traced back through the common ledger. Only the trading parties can see details about the transaction; this includes details about what has been traded to what price and which pseudonyms where involved. The fourth key attribute is the fact that transactions cannot be changed, manipulated or deleted (irreversibility). This works due to the fact that all transactions are linked to each other, their precedent and following.

From this we also derive the expression “chain” (Iansiti & Lakhani, 2017). While the name “block” comes from all the records that are kept in the shared ledger (Gupta, 2017).

As mentioned before, the names of all these attributes differ in the literature but mean the same in the end. Gupta (2017) for example uses the term consensus to describe the shared ledger that is working through all involved nodes. For the attribute regarding irreversibility he uses two terms, finality and immutability. He also adds another term: provenance. It entails the fact that the parties always know where the traded value derives from.

Additional very important characteristics of Blockchain are the ones of being public and anonymous at the same time. This also makes it so successful in usage and at the same time a threat for third parties. As already mentioned only the parties involved in the trade can see the details of the transaction and are at the same time unknown to each other by using pseudonyms (Lakhani, 2017). The trust factor is not delivered anymore by a bank for example, but through the Blockchain and all its connected nodes that confirm a transaction (Witte, 2016).

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2.2 Parallels between the introduction of the Internet and the Blockchain technology

Similar to the introduction of the Internet, also Blockchain will have a major impact on companies and their business models (Beck & Müller-Bloch, 2017).

If we consider retail stores, music labels, or the mail delivery for example, all of these were hugely affected by the introduction of the Internet. Retail stores nowadays have become more of a showroom than a place where people go shopping (Rogers, 2013) – almost everything can be done online. The same goes for record labels. While musicians nowadays can take initiatives on their own, promote and offer their new songs online, record labels are just another intermediary that have suffered from the introduction of the Internet (Milton, 2016). Another example can be seen in the traditional mail – delivery. People have to wait for days to get their mail or it can even be lost. Furthermore, it is costly to buy stamps for each letter or it is even more costly for overriding mails. This also has been easily replaced by e-mail providers, at least to some extent, as mail delivery is still very used. But you do not need a pen, paper, or a stamp to send a message for an e-mail. You simply enter your text on your computer screen, enter the e-mail address of the receiver and press a button to deliver it. And within seconds the addressed person gets the e-mail without any complications or further gambles.

A major commonality is that both technological innovations, Internet and Blockchain, were/are seen as a disruption. The Internet, as previously described, changed many businesses and forced them to either become digital or fall out of the market. This was also the case for some newspaper companies that either did not react fast enough or too aggressively (Gilbert & Bower, 2002).

When the Internet became available for the public, it took some time until businesses adapted and got used to the new technology. But in the end, businesses understood how many benefits it can offer to them if used in a correct manner (“Networking Health: Prescriptions for the

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Internet”, 2000). It seems that nowadays, for most of the companies, and also our daily live, it would be unimaginable to live without the use of the Internet (Ito, Narula, Ali, 2017).

According to Lakhani (2017), it will be the same for the introduction of the Blockchain technology, but it will happen much faster. And he advises managers to act now and to not hesitate to try it out.

2.3 Impact of Blockchain technology on businesses

Blockchain presents various beneficial aspects. As explained in a previous paragraph, Blockchain eliminates the need of an intermediary who would be needed to validate the transactions (Lakhani, 2017). Blockchain will be more cost – effective than former transaction systems (Beck & Müller-Bloch, 2017). Also, by eliminating the intermediary role, Blockchain offers time reduction. Where intermediaries needed days to verify the reliability and solvency of the trading parties, Blockchain might only take minutes (Gupta, 2017).

Another advantage coming along with Blockchain is efficiency. The common ledger records all performed transactions. These transactions are all available at the same time and at the same level of detail to the whole network. Only the trading parties can see more details (Gupta, 2017). Furthermore, Gupta (2017) explains that the aspect of irreversibility makes Blockchain more secure. To hack a transaction is as good as impossible as it is connected (“chained”) to a previous and a following transaction. What is more, the security aspect is also backboned by the common consensus of all nodes as previously mentioned. Along with security, also privacy is a key benefit of Blockchain as trading partners use pseudonyms to keep their real identity safe (Gupta, 2017).

Coming back to the aspect of the shared ledger, Gupta (2017) states that Blockchain also removes a lot of redundant work. In Figure 1 on the left, a regular business network can be seen and on the right, a business network using Blockchain.

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Figure 1: Regular business network and business network using Blockchain. Taken from Gupta, M.

(2017). Blockchain for Dummies, p. 7.

Regular business networks have to update all the single databases that are connected if changes are made. But this involves a lot of work and there can still be redundant data. Another risk is that data that was not updated properly, does not deliver the right data anymore, leading again to frictions and possible mistakes in future transactions. Through Blockchain, such a risk is eliminated, because there is just one place where information about transactions is saved, namely the shared ledger (Gupta, 2017).

So far so good, but the next important question regarding the rise of Blockchain is, what negative impact it has on companies. Especially companies that have the role of an intermediary will be affected by the Blockchain innovation. Such companies are for example banks, accounting firms, lawyers, music labels, logistic companies or real estate companies (Lakhani, 2017).

Referring to the previously mentioned argument about the two trading parties being directly connected, this means that the former institution that guaranteed a safe transaction so far will not be of any need anymore. The once centralized power is now decentralized. It does not lie in the hand of one single institution anymore but in the hand of a whole network (Cuccuru, 2017).

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The risk that rises with the introduction of Blockchain concerning banks for example is that Blockchain deletes the need of some services that a bank offers. For online payments banks usually take the role of the intermediary who consents the transaction and makes sure that both parties are trustworthy (Yli-Huumo et al., 2016). That is the point where Blockchain comes in again. Through the common consensus of the network of all access granted users, there is indeed the security that the other trading party is reliable and we do not need the bank anymore to ensure this for us (Witte, 2016).

Another aspect regarding banks concerns the counterfeiting of money. When we trade with cash we can check the security measures on the banknotes and have a certain security about it. The security measures make it also more difficult to falsify cash. But when we use online payment systems, we cannot say if we are dealing with a real or a false account on the other side of the operation. Hence, we have no security about our opposite trading party. Witte (2016) says that this is also one of the most risky aspects affecting especially banks, while Blockchain can guarantee a reliable trading partner.

But banks are not the only ones that will have to change their business models to adapt to the Blockchain technology. The same goes for lawyers and notaries that play an important role as they are needed to draw up error free and secure contracts for two parties that are doing business together. As Lakhani (2017) explains, once a template for a contract has been put up, containing all legal criteria, there will not be any need for a lawyer anymore to put up a new contract each time. He claims that also contracts can be automated until a specific point, where details can then be adjusted.

Lakhani (2017) also believes that Blockchain will advance faster than it was the case for the introduction of the Internet in the nineties. Managers need to react now. They need to invest in the aspect of Blockchain and find out how they have to do this. There are still gaps in terms of how affected intermediaries can properly react and adapt to the Blockchain technology so that they are not wiped out of the supply chain (Kith, 2018). The economical system is about

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to change along with the increasing use of Blockchain. Blockchain will open up a lot of new opportunities (Ito et al., 2017).

This research is facing this knowledge gap on how companies can tackle this new technology. The idea is to find out how to approach this burden of staying and keeping up with the competition. What measures will intermediaries that will feel the impact of the Blockchain technology have to take? And how is their business model going to change? These are also the ideas that lead to the research question:

How does the business model of the real estate industry have to change through the

introduction of Blockchain?

Intermediaries will have to rethink their complete business model or at least change something in their strategy. Otherwise it might be likely that they will not be needed anymore. As it was the case with the Internet, it is important for a business to react to an emerging technology. It should see how it works and how to make the best use of this innovation. This research suggests a direction on how to approach the application of the Blockchain technology.

3. Conceptual Research Model

This part of the research introduces the different variables that play a role in this research. By drawing a conceptual model, the variables and their relations will be further explained. The conceptual model builds the basis for the propositions that are made in this part.

The Blockchain technology affects several third - party companies like banks or insurance companies (Beck & Müller-Bloch, 2017), but can also have major impacts on other sectors like the health care system (Heston, 2017; Engelhardt, 2017) or the supply chain management for example (Aru, 2018). This focus of this research lies on the real estate industry.

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3.1 The Blockchain technology and the real estate

As the research focuses on the real estate business and to get a clearer vision about the actual situation of the affected companies, the first part explains the real estate business briefly and more especially how it is connected to Blockchain.

The process involving real estate agents and companies starts when a person is interested in buying a house for example. After signing an offer, the same person deposits an “earnest money”. This shows that the intention to buy the house is serious (Stewart, 2015). The money will be sent to the title company which keeps all the certificates of the house titles. This company takes over the role of a judge. Its job is to check if the involved parties are following the rules. The same company checks if the earnest money has been deposited to an escrow. But it also makes inspections on the side of the seller, like if payments linked to the house are still unpaid (Zillow, n.d.).

There are different parties involved in selling a house via a brokerage: the seller, the buyer, real estate agents for both parties, and the real estate company (Folger, 2018). The different parties all have to pay a certain percentage of money to the real estate company and in addition to that, there are also closing costs (Evans, 2017).

But besides a general transaction between a real estate company and an interested buyer, a real estate has interactions with far more parties: The owner of the house that is for sale, and a broker and a financier to assist the owner in the selling process. In some cases a company that owns a building for sale is represented by a developer that provides the smooth processes. If a house is just newly built, an architect, or a civil engineer to maintain and adapt the infrastructure are involved as well. In addition, electricians are needed, a general contractor employing all needed subcontractors and suppliers; tenants if the property is just for rent, the legal counsel (Hedlund, 2015), notary, bank, insurance and many more that at first sight might not be considered to be involved.

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From this brief description one can deduce that there are several roles involved in the process of a transaction regarding the sale or construction of a property that play merely a middleman. The introduction of Blockchain might influence the relationship between all these parties. The following conceptual model shows the relationships between the just mentioned parties that meet in the case of selling/renting or constructing a property, and how Blockchain might impact these relations.

As this research is of qualitative nature, there are no hypotheses that could be measured in any way. Therefore, the conceptual model in this case makes merely some propositions. These concern the relationships between the involved parties that were previously described.

Blockchain is the independent variable that impacts the real estate companies, while the dependent variable is the real estate company. At the same time Blockchain is also the mediator of the relationships between the real estate companies and the various parties that are involved as well in a real estate trade.

The different parties are the following: The Broker/Agent is the one between the real estate company and the person interested in buying or renting the real estate. The task of this intermediary is to show the property to the client. Finance includes banks that are needed for the trading parties to deposit the earnest money for example. But also the insurances are included in this block. The Seller, Buyer or Tenant are the main trading parties that are interested in a property. The Maintenance block includes all subcontractors and task forces that are needed to maintain the full usage of a property. Here, electricians, craftsmen or caretakers, for example, are taken into account. The Legal Entities include all legal parties like notary, lawyer or a general contractor. The Construction Team is mainly involved if the property is to be built and includes an architect and an engineer for example.

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Figure 2: Conceptual Model. Blockchain's possible impact on the real estate sector The real estate companies might profit from the introduction of the Blockchain technology to their business as it might enhance the relationship with stakeholders and clients. The general introduction of a new digital technology might contribute positively to the business. These benefits could consist in a better communication, higher productivity and in an advanced value creation (Matt et al., 2015). On the other hand, a real estate company is a typical intermediary and might in that case be affected negatively by this new technology. This leads to the first two propositions of this research:

Pa1(+): The introduction of Blockchain and its application in the real estate sector has

positive effects on the processes in this industry.

Pa2(-): The introduction of Blockchain has negative impacts on the real estate sector.

In another case, even if it might not affect the real estate sector directly, it might affect it indirectly, meaning that the relationships a real estate company has with all involved parties would be affected in some way. As described above, there are several more companies involved for a real estate transaction and some of these are again mere middlemen (Hedlund, 2015). This leads to the following two propositions:

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Pb1(+): The introduction of Blockchain and its application mediates the relationship between

real estate companies and trading partners in a beneficial way.

Pb2(-): The introduction of Blockchain and its application mediates the relationship between

real estate companies and trading partners in a detrimental way.

3.2 The Models

3.2.1 Digital transformation framework

One framework discussed in the matter of the Blockchain technology integration, is the Digital transformation framework. Matt et al. (2015) explain the Digital transformation framework and say that a digital transformation impacts different business processes and must

coordinate with all of them. Inferring from this statement, it can be said that there will surely be some kind of change when the Blockchain technology is applied to the real estate sector. But it is still called into question whether this change will be positive or negative for the mere business processes of a real estate company and/or also the relationship the company has with its stakeholders.

Matt et al. (2015) discuss the four transformational dimensions that need to be equally considered in this framework:

Use of technology, Structural changes, Changes in value creation, and Financial aspects. These are represented in Figure 3.

Figure 3: Digital transformation framework: balancing four transformational dimensions. Taken from Matt, C., Hess, T., & Benlian, A. (2015). Digital transformation strategies. Business & Information Systems Engineering, 57(5), p. 341.

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On top of the arrow they show the Use of technology. This dimension stands for the notion a company has towards this new technology and whether this technology should add value to standard business processes or if the company wants to become a market leader using this new technology. The Changes in value creation, in the case of real estate companies, can be referred to the fact that costs can be cut down by using a new technology, while the Structural changes can be referred to the aspect of communication improvement with the stakeholders. The dimension of the Financial aspect indicates that companies need to plan this implementation well. On one hand, it can be seen as if it is not necessary to implement the new technology as there is no financial pressure, while on the other hand the financial pressure could indicate that the implementation is too costly (Matt et al., 2015).

3.2.2 Maturity Model

In their paper about the Capability Maturity Model, Wang, Chen, Xu (2016) explain how this model could be applied to Blockchain. This model provides a guideline to follow certain steps on five different levels of maturity. By doing so, a constant progress is ensured. Wang et al. (2016) use the five stages of the model on the Blockchain technology to see how mature the technology itself is regarding these features. The five maturity stages are as follows: initial, when a technology is new; repeatable, the technology shows similar features to other technologies; defined when the technology has reached a certain standard; managed stage, when the technology offers qualitative measurements; optimizing, when the technology gets regularly improved.

Furthermore, the model includes four indicators to examine the new technology: “networks, information systems, computing methodologies, and security and privacy” (Wang et al., 2016, p.2). Figure 4 summarizes their findings on the Blockchain maturity level.

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Figure 4 Blockchain maturity model. Taken from Wang, H., Chen, K., & Xu, D. (2016). A maturity model for blockchain adoption. Financial Innovation, 2(1), p. 4.

The overview shows that the network is at a good point. The disadvantage here is that it takes a long time to process a transaction as it is performed over the whole network. The information system has some features that are still not fully clear, like if the architecture of the Blockchain technology goes back to the private intranet or the public Internet.

For the integration of Blockchain, two crucial steps need to be taken beforehand: previous transactions must be brought in, and the new technology must be organized with the legacy system. A good point concerning the information system is that Blockchain will contribute to the business efficiency.

The computing methodology has not reached a high maturity level, because Blockchain has not yet had any standardized management. Also, as the data processing involves all connected parties, it is a rather complex process. On the other hand, the Blockchain technology shows a high maturity level regarding security and privacy.

Wang et al. (2016) also propose a three - step “safe adoption procedure” (Wang et al., 2016, p.4), which will also be considered when evaluating the research findings and for coming up with an action plan.

In the first step the feasibility of the technology is tested. There are several conditions that should be true for the company, and if at least four are met, the technology is likely to be successful in the business. These conditions concern aspects like if multiple parties share the

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same data, or if processes could be facilitated without an intermediary, or if a more fluent work without delays is important. The second step compromises the development and concentrates on the requirement analysis and the architectural design. The last step deals with the new technology, Blockchain in this case, and the legacy system. Here, the first step is to just implement Blockchain as the backup system for the legacy system. If this is working without any problems, the second step would be to move on with Blockchain as the operational system while the legacy system is the backup system. The final step would be to use Blockchain as the stand alone system (Wang et al., 2016).

3.2.3 Disruptive Change

The framework presented by Gilbert and Bower (2002) tries to explain how a company affected by a new technology should react. In their article about disruptive changes they explain that a company aligns its strategy according to how the innovation is perceived. If it is perceived as a threat, the company tends to allocate too many resources, even though it should first see where the new technology is leading. If it is an opportunity, the company does not feel threatened and is likely to not scrutinize the innovation at all, while just waiting that someone else tries it out and leads the way.

In their paper Gilbert and Bower (2002) also state that if there is an innovation that might affect your business, the business model has to adapt at some point. In their model about how to deal with an innovation they propose to first look at it as a threat. Their model is presented in Figure 5. If it is seen as an opportunity the business will not be focused enough to properly plan an adequate strategy for it. But when the business comes to the point where it needs to build a new business model, it is important to look at the disruptive innovation as an opportunity. If the company does so it can find unique use cases for the new technology.

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Figure 5 Managing the Motivations of Threat and Opportunity. Taken from Gilbert, C., & Bower, J.

L. (2002). Disruptive change. When trying harder is part of the problem. Harvard business review, p. 2-3.

3.2.4 Hype Cycle by Gartner

The hype curve of Gartner (Gartner Hype Cycle, 2018) explains five different stages a new technology might go through over time until it reaches a stable market position. The hype cycle is shown in Figure 6. Usually, the innovation is more likely to stay on the path than it is to reach the last stage.

The hype curve should help the business to see where the new technology is on the market and what promises it holds. Depending on the risk attitude of a company, it can be the one to make the first move and be the early adopter. But if the risk adversity is very high and there is too much uncertainty about this new

technology then it is more reasonable to wait until other businesses will make the first step. A moderate approach would be to get a proper knowledge about the innovation and

Figure 6 Gartner Hype Cycle. Retrieved June 8, 2018, from

https://www.gartner.com/technology/research/methodologies/hy pe-cycle.jsp#

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make a correct analysis on the costs and the benefits the innovation holds for your company. The five stages start with the Innovation Trigger, which means that through the media and advertisement the innovation becomes publicly known. But usually at this point there are still no usable products available and it is not proven that the innovation will stay on the market. The Peak of Inflated Expectations is the peak of the whole curve where the anticipations for the innovation are so high that it is normally followed by a disappointment. As a result, the Trough of Disillusionment follows. The investigations done so far for the innovation, have failed and the company either steps out or a second product generation follows. In the fourth stage, Slope of Enlightenment, the innovation is becoming more clearly, there is more knowledge about it and also more products emerge. In the last stage, Plateau of Productivity, the innovation is becoming part of the existing market (Gartner Hype Cycle, 2018).

4. Research Design

As already mentioned a lot of papers discuss what Bitcoin and Blockchain is, or mention the threats of Blockchain and the affected middleman. This research tries to answer the following research question: “How does the business model of real estate industry have to change through the introduction of Blockchain?”. In order to answer this question, supportive guidelines for a successful implementation of Blockchain are formulated.

The research has chosen this specific innovation, because Blockchain is a highly discussed innovation at the moment. Even if it has already been present for about ten years (Nakamoto, 2008), companies are still struggling to really understand the technology. Different industries are affected by the Blockchain technology. For this research the real estate industry has been chosen as it is one of the oldest and also because a lot of money is involved in this business and where Blockchain might show an interesting change in the entire sector.

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By following the elaborated guidelines, real estate companies shouldn’t be affected negatively by the Blockchain technology, but should instead just be profiting from it in the end.

4.1 Research Approach

With theory as background, this research is deductive (Saunders, Lewis, Thornhill, 2009). The research uses several business models as a background, which also helps to come up with a new business model when evaluating the results. Furthermore, based on the found literature, a conceptual framework is drawn (Saunders et al., 2009). Typical for a deductive research is to test the found theory; this will not be done in this research. At the same time it’s inductive as new guidelines are drawn through the collected data (Saunders et al., 2009). This also indicates that the research is exploratory as it tries to get new insights from the data (Robson & McCartan, 2002). The research is cross sectional because it inspects people at one time and not over an extended period (Cherry, 2018).

Following the distinction of Saunders et al. (2009) between a basic and an applied research, the present research is the former kind. Saunders et al. (2009) define this by saying that the purpose of such a research is to increase the knowledge of business processes, which is true for this research. They add that the context of the research is a university or that the topic has been chosen by the researcher, which are again true conditions for this research.

The conducted interviews are recorded and then transcribed to provide transparency. One of the interviews can be found in Appendix A. 1

4.2 Sampling

Interviews are conducted as the data collection method. The units of this case study are Blockchain experts and people working in the real estate industry investigating and experimenting with Blockchain.

1

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Following the scheme of Saunders et al. (2009, p. 234), that the data cannot be collected through the whole population, no statistical conclusions are needed, and the purpose is exploratory, the sampling of the interviewees is a non – probability sampling. The interviewees were contacted via a professional online platform. If the subjects had an appropriate background, meaning that they were working with Blockchain, in the real estate sector or a combination of both, they were contacted to ask for the interview.

In a second step, if the contacted person was willing to do the interview for this research and share his/her knowledge, an appointment was arranged. The sampling number is limited to four interviews conducted by the author herself and two additional interviews conducted by colleagues. The interviewees that agreed to do the interview are listed in Table 1.

Company Background of the

interviewees Appointment

Blockchain2RealEstate Real estate, Banking 2018, April 19th Bloqhouse Bloqhouse, IT-internship 2018, April 20th Dutch Blockchain

Coalition/TNO IT, consulting 2018, May 3

rd

Re-Form Real Estate B.V. Real estate 2018, May 4th

NVM Real Estate, programming 2018, May 16th

ABN Real estate 2018, June 1st

Table 1 List of interviewees

The Blockchain experts are contributing valuable information on how businesses have to react and how Blockchain might develop, while latter interviewees give insights about observations in the organizations and what they are doing already or planning to do, regarding this new technology. As the interviewees do not have the same background and expertise the sample is heterogeneous.

Additionally, secondary data is used, which consists in presentations from a Blockchain event and supplementary material provided by some of the interviewees. These involve a document

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analysis (Bowen, 2009). Therefore, the data collection is multi – method (Saunders et al., 2009).

4.3 Method

The research uses case studies as research strategy and interviews as the method for the data collection. It is a single case study focusing on one industry, namely the real estate sector. As the research is exploratory, semi-structured interviews are performed (Saunders et al., 2009). The specific method of semi – structured interviews helps to develop the discussion in more directions and it also offers more opportunities to ask for further information if additional questions arise during the interviews. The qualitative research method has been chosen, because the objective is to contribute to managerial knowledge.

The questions for the interviews are prepared to a certain degree prior to the interviews. The questions are about the current situation in the companies, how they have been dealing with Blockchain so far and what the actual action plan looks like. Regarding the interviewed Blockchain experts, the questions are more specific and rather just Blockchain - oriented. The interviews last about an hour. They are recorded, then transcribed, coded and analysed. This will be further explained in the data analysis part.

With the knowledge gained through the analysed information, the new business model is drawn, together with presented models from the literature.

5. Data Analysis

This part will deal with the analysis of the collected data. First the strategy is described, where the coding process is explained in detail. After this section, the results and their interpretation are discussed. To make this more visual, different tables and figures are drawn.

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Following Miles and Huberman (1984), the data analysis is conducted accordingly. In the first step, data reduction, the interview is coded in order to focus on the parts that really matter for the research question and the objective of the research. Through the coding the fragments of the interviews are reduced and organized, but not torn from its context (Miles & Huberman, 1994).

The coding approach is a combination of inductive and deductive (Fereday & Muir-Cochrane, 2006). Some codes were already elaborated along with the structure of the interview and aligned with the research question, selective coding (Böhm, 2004; see Appendix B Interview example). During the analysis these are merged or separated, but still keep the structure of the

interview. While analysing and coding several new and more specific codes were added, open coding (Böhm, 2004). For example was the theme internet parallels split up into similarities and differences to Blockchain in a following step; or the opportunities that Blockchain holds were subdivided into efficiency and financial opportunities. Also the theme challenge was further split up into readiness, fears and knowledge about Blockchain. This ensured more specific findings that concerned these codes. On the left-side column of Table 2 the different themes and codes that were used when doing the

analysis and coding are shown; the right-hand column explains what they specifically look at. For the data reduction the software NVivo 12 Pro® was used. This helped keeping a better overview of the codes and the transcriptions at the same time. The program also allows generating a word cloud which gives a first insight on the most mentioned terms during all the interviews. After the selective

and open coding, the nodes of the interview are again checked to see if there are relationships among all the codes, axial coding (Böhm, 2004).

Figure 7 Word Cloud generated by NVivo 12

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6. Results and Interpretation

The following part will display the data findings (Miles & Huberman, 1994). First the coding is explained and evaluated. Then a cross – case analysis is done to get a better overview of the answers of the interviewees. In a next step, the findings from the six interviews will be confronted with the propositions made together with the conceptual model in section three of

Nodes Description

1. Background

1.1 personal background Background from the interviewee himself

1.2 technical background Concerns the knowledge that co-workers and employers have regarding BC

2. internet parallels

2.1 similarities Common ground between Internet and Blockchain 2.2 differences Differences between Internet and Blockchain

3. Blockchain features “Commonly” known features of the Blockchain innovation 3.1 Opportunity

3.1.1 efficiency opportunity

3.1.2 financial opportunity

Possible chances that interviewees see in the technology

Making processes in the business more efficient through Blockchain Lowering the costs of processes or increase the profit through Blockchain

3.2 risk Possible threats that interviewees see in the technology 3.3 barriers for the change Hurdles that might prevent an implementation of Blockchain 3.4 challenges

3.4.1 readiness 3.4.2 fears

3.4.3 knowledge about BC

Challenges that slow down a (potential) implementation If the company is ready/willing/open for Blockchain What the company is scared about

How much the employees know about Blockchain 4. impact on middleman How the middleman are affected by Blockchain 5. change in the business so

far

What effective use cases with Blockchain were found so far 6. real estate taking action What the sector is already doing concerning the innovation

7. the future of real estate Where interviewees see real estate in the future through Blockchain Table 1 Nodes and explanation

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this research. The last part consists in the formulation of supportive guidelines that a real estate company might consider in order to implement Blockchain in an advantageous way into their business model.

6.1 Coding

A first understanding of the findings has been done through the coding. After the coding, the overview of the nodes in NVivo gives a first insight into which fragments are mentioned most. From the overview (see Appendix C Overview of Codes) one can already see that according to the interviewees, Blockchain holds a lot of opportunities, mainly regarding the efficiency. But on the other hand the technology is restrained to be implemented by different challenges. The latter one especially concerns the lack of knowledge about Blockchain. Also, one can see that the real estate industry is trying to investigate Blockchain and experimenting (the node “real estate taking action” shows 22 fragments, Appendix C Overview of Codes), but that so far there are no results (“change in the business so far” showing only 7 fragments Appendix C Overview of Codes).

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An additional display of the data was made to show the relationships between the aforementioned hurdles, opportunities, the real estate company and the implementation of Blockchain (Figure 8).

6.2 Cross – Case Analysis

A further step for a better evaluation of the findings is made through a cross-case analysis. This helps to get a better overview of the distinct cases without aggregating them (Yin, 2009). A data matrix is drawn to show the different attitudes of the interviewees towards a theme (Table 3). By taking a closer look at it, different patterns can be observed. On one hand, the interviewees gave overlapping answers to some of the questions. An example is the question regarding the opportunities that Blockchain would hold, where all interviewees mentioned transparency, trust, efficiency, and lower costs. Also regarding the barriers and challenges,

some points were mentioned more frequently than others (Interview 2 “the law … at the moment doesn’t support that”, Interview 3 “the ministry of justice wanted to know more about what was going on”, Interview 4 “…the government is also a big problem”). Tracing this back to the research question, it is important for a real estate company to get more expertise on the field of Blockchain and be aware of all the risks that could come along. But if the hurdles can be overcome, the business might benefit in several ways by including Blockchain in the business model. This could mean that transactions can be performed faster (Interview 4 “can make faster transactions”, Interview 6 “the whole transaction speed can go up considerably”, Interview 5 “transaction speed can increase”), costs could be lower (Interview 2 “but especially it’s cheaper”, Interview 6 “costs are reduced”) or that people are less risk adverse (Appendix A line 450). But this will take its time and does not fully lie in the hands of real estate companies as the government still plays a big role in this all (Interview 4 “it takes a long time to do“, “main barrier…the government”). On the other hand, an outlier can be seen among the interviewees. One of the interviewees for example believes that

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Theme/

Interviewee Interview 1 Interview 2 Interview 3 Interview 4 Interview 5 Interview 6

Background Bank, entrepreneur IT internship IT, innovations Real estate Programme manager Bank, real estate

Internet parallels

Both are new, but through Internet we

already have a structure

Both drive the hype curve

Hype curve, .com bubble and Bitcoin bubble, scams, have

already the infrastructure

Both are transparent - Both follow a protocol

Opportunity

Trust, digital assets, better data flow, flexibility, proof, higher business value,

standardization, efficiency, transparency, better communication, less

failure costs, lower risk aversion Transparency, security, efficiency, standardization, lower costs, international investments Trust, efficiency, smart contracts, transparency Transparency, efficiency, faster transactions, smart contracts, better image

(for real estate), international investments Efficiency, faster transactions, transparency, reliability, no corruption, cost reduction Less errors, no redundancy, efficiency, faster transactions, traceability, standardization, lower

costs, time saving, opportunity for developing countries, higher liquidity, better

data

Risk Risk aversion, hacks Missing human factor

Uncertainty about how it will evolve, missing

human factor

Hidden costs, missing investments, risk aversion, negative image, fatality of the

coin Missing understanding of the technology Uncertainty if it will deliver what it promises, hidden defects, possible restrictions coming up,

missing professional advice, Blockchain as

overhyped

Barriers Company culture Mystery around

Blockchain, law Government

Government, differences across countries - - Challenges Missing focus on digitalization, market needs to grow, change way of working, silos, standardization, not

Need an evolving process, find the right use cases, overcoming the fear, is it just a

buzz?, missing

Lack of profound knowledge, find the

right use case, complex technology,

pilot needed

Missing collaboration, missing human aspect, missing standardized rules, pilot is needed,

missing knowledge Missing knowledge, complexity of the technology Collaboration is difficult, standardization, time

and money needed, silos

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enough knowledge, find the right use case,

where to start?

knowledge

Impact on the Middleman

Not only the real estate but all involved parties, more complex

administration

Notary highly affected and real estate agent,

human being still needed

Need to loosen up, middleman is vulnerable, main existence reason of

some businesses, automated processes,

redefine real estate agent’s role,

Human being always needed, companies taking over the jobs of

the actual middlemen

Possibility to disappear (broker)

Be left out in the chain if not adapting, broker’s role will change or disappear

Change in the business so far

Nothing so far, are at the beginning point

Example of Annexum, it’s still too young

Still in the early stages, too new to see

impacts

Example of Annexum, “we are still in the

baby-shoes” Example of Annexum and Bloqhouse - Real estate taking action Trying to understand BC, investigate, explore

experimenting Researching, find the

right use cases, Still at the beginning

Working on it, in the research phase

Working on it, outsourcing

Future of real

estate Inflow of capital

International investments improve, middlemen either gone

or their rules will change

Either adapt or fall back, automated

processes, professional advice will still be needed, technology will take

over in the long run

Blockchain but a human being will still

be involved, more honest pricing

Difficult to say, “it will turn things upside

down“

Get rid of middleman to be peer-to-peer, housing market will

generally change, automated processes,

brokers might maintain a private

market

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Blockchain could be rather overhyped (Interview 6 “I think Blockchain is currently being hyped over”). The interviewee further explains that at the moment there is too much “buzz” around the innovation. It will go down to the trough of disillusionment and it will take some years until Blockchain can show some benefits according to interviewee 6. This again conforms to the answers of interviewee 2 and 3, who say that companies have to pay attention to not only follow the hype cycle. Another diverging answer is given regarding the aspect of the barriers for the implementation of the Blockchain technology. Interviewee 1 considers it as important that the whole company is involved when changing the business model. The other interviewees consider the main barrier to be the government, because legal aspects are also responsible for the fact that Blockchain is not that implemented effortlessly. As stated by the interviewees, some legal adjustments are needed.

6.3 Propositions

The following part inspects the propositions from the conceptual model. They are compared with the answers of the interviewees and the secondary data to see if the propositions are supported or not.

Regarding proposition a1(+), the data shows that the respondents are all agreeing on the fact that the Blockchain technology will bring positive effects to the real estate sector. The various positive features they mention during the interviews also correspond to the found literature. As stated by Matt et al. (2015), a better communication or an advanced value creation can be achieved through Blockchain. Also Interviewee 1 for example believes that there will be a higher business value (Appendix A line 642), generally more efficiency (Appendix A line 465) as well as a better communication (Appendix A line 115-116). But by taking a closer look at the constructed cross-case analysis and the row indicating the opportunities, there are several overlapping answers. One can also observe that these positive effects that Blockchain might entail according to the interviewees and the literature (Gupta, 2017), are at the same time the

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commonly known features that are promised by the Blockchain technology: trust, transparency, lower costs and an increase in efficiency and in security.

Since the technology is still very new and has neither shown any impacts nor has been fully implemented so far in any real estate company, as stated as well by the interviewees, it might as well be important not to rely too much on these opportunistic promises.

Interviewee 1 also mentions that a standardization of the data (Appendix A line 718) would be a positive effect of Blockchain. Everybody that is part of that chain uses the same data display and format. This could again lead to better communication, less errors and less friction in the processes. Also the second and sixth interviewee share this thought (Interview 2 “standardization of data, I think … but a very important one”, Interview 6 “That we at least look at the same data and we interpret this data in the same way“).

In addition to the commonly known promises Blockchain might hold, the interviewees mention some further potentials that Blockchain might bring. These include for example that the technology might make it easier for developing countries to make investments in the Western countries through the access to the decentralized and shared ledger (Appendix A lines 758-759). Interviewee 1 explains that nowadays one can already have access to the market

with just a mobile phone (Appendix A lines 765). But it would also be a good solution for developing countries regarding legal aspects, because usually there is a higher rate of corruption and through Blockchain this could maybe be corrected or improved (Interview 5, “But I think the application is particularly good in countries where there is a lot of corruption.”). Summing up all these statements, proposition a1(+) can be seen as supported. Proposition a2(-) assumes that the introduction of Blockchain has negative impacts on the real estate companies. On overall, the interviewees do not consider that there will be a concrete negative aspect. One aspect they all agree on is that the technology is still very new and that there is not enough knowledge about this innovation (Appendix A lines 209-211, and Interview 2 “this party actively tries to gather information on what is Blockchain”, Interview

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3 “they have difficulties to understand the concept and … the technology behind”, Interview 4

“there's also research necessary”, Interview 5 “many people do not know what it is“). This makes it hard for a real estate company to implement it in the right way. Some additional aspects that the interviewees consider to have a negative impact are for example that the real estate sector is a business that is not that familiar with digitalization (Appendix A line 18). Real estate companies should not wait to try things out with Blockchain, as otherwise the company will risk to not be market resistant anymore, similar to the case of Kodak in 1996 (Gilbert & Bower, 2002), or to miss out a maybe big opportunity.

The fact that the Blockchain technology is still rather new and that there is not too much expertise available yet, makes it a very risky innovation. The interviewees mention a certain risk aversion that not only the real estate industry has when thinking about using a new technology, but also other industries show this aversion when they are facing a new technology. Some of the interviewees mention that it might also be risky, because there is no certainty that the technology will hold what it promises, how it will evolve or if there are hidden costs or restrictions behind it (Interview 3 “can’t really plan it, you can’t really organise it, can’t really eh, how to say? … give it direction”, Interview 4 “What are the hidden costs?”). Also Witte (2016) mentions some possible problems that could come up through Blockchain. These include the size of the network, the depth of the Blockchain, that the system could be attacked, or thefts.

The interviewees all agree on the argument that each company has to look for itself if there are reasonable and suitable use cases where the Blockchain technology can be used for (Appendix A lines 680-681, Interview 2 “…you really try to be honest. Is this use case…really helping with the Blockchain?”). If there are no use cases where Blockchain adds an appropriate value to the business processes, it might be worth to reconsider its implementation. Two interviewees also mention the hype curve by Gartner and compare it to the introduction of the Internet. They state once more that it is important to look at what the

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technology can contribute to the business and if it is really profitable to make use of it in the end (Interview 2 “or am I just eh sailing the hype?”). Interviewee 6 even says that the technology is overhyped and, referring to the hype cycle, says it “is definitely going to make a trough” and that just in five to ten years possible benefits could be seen (Interview 6). Also Mellink (2018) points out that the Blockchain technology is driving the hype cycle. He explains that companies tend to just apply a new technology because it might be “cool” to do so. As already stated in the literature and by the interviewees, also Mellink (2018) says that the Blockchain technology is still very new and deeper knowledge is needed. Otherwise one is just sailing the hype curve and not really knowing what is going on for real with the innovation. The hype curve, published each year by Gartner, shows at which stage the technology currently is. In his presentation, Mellink shows that in August 2017 Blockchain was already coming down from the Peak of Inflated Expectations and believes that it will go further down to the trough of disillusionment. That point will show that the Blockchain technology might not be the almighty solution it promises to be. Figure 9 shows the hype curve used by Mellink for his presentation.

Figure 9 Gartner Hype Cycle for Blockchain Business (Aug 2017). Retrieved from Mellink, B. (2018,

June 7). A reality check: How does Blockchain influence the board room discussion and corporate IT portfolio? Presented at the 5th Blockchain Innovation Conference at the Rabobank headquarters in Utrecht. Hour 4:28:45

The changing impact of Blockchain : a proposition of guidelines to implement Blockchain in the real estate business model