To Hunt Elephants, You Need An Elephant Gun
The conversations continue. It appears there are a whole bunch of folks who want to talk about the future of listings. And rightfully so — listings are important to the modern practice of real estate.
David begins with a brief overview of the major points over the past couple of years on what the “MLS of the Future” might look like. Then he points out a very important fact — what he calls the “elephant in the room”:
The “MLS” exists for the benefit of its dues paying members, drifting from that core concept will get you confused with the Zillow / Trulia gang (an exciting party until the money runs out).
And those dues paying members want what? To make more money faster by using the MLS. And if you look at it from that perspective, almost everything from listing data quality, system security/reliability, IDX, etc either play to the speed or value aspect.
This is, in a way, an important fact that has been somewhat overlooked in all the futurism talk — including, by me: an “MLS” has to make money.
It seems so obvious now that David has mentioned it, but I’m sorry to say I overlooked the whole thing in my enthusiasm for and starry-eyed vision for some MLS of the Future. He’s right — an MLS exists because people think the service it provides is valuable. They express that value through their wallets — they pay for it. David calls it “dues” but generically speaking, it’s a subscription fee of some sort.
The rest of David’s post is concerned with the speed/value question, and thoughts on what features and benefits the MLS of the Future (hereafter, “MOF“) could offer. I will take things in a different direction, by looking at the implications of “must provide value to subscribers”.
The MOF Will Be A Monopoly
Once I start thinking about money, the elephant in the room, I am more convinced than ever that the MOF will be a monopoly or an oligopoly. Either we will have a single national MLS operated by a single entity (e.g., FBI fingerprint database), or we will have a national system comprised of two or three major players (e.g., NYSE, NASDAQ, CBOT).
The reason is economies of scale.
Technology development is very expensive. Even the most seemingly trivial feature could take weeks or months of expensive developer time to make reality. You may need to hire dozens of developers, software and hardware engineers, systems architects, and all the support staff to keep them productive and happy. But creating technology is in some ways the easier task.
Since the MOF like any MLS is financed primarily through subscription fees, and the subscribers see value in terms of “help me make money faster”, the MOF has to continually invest in technology to help its subscribers make money faster. Note that this precise business relationship is what a number of subscription based “web tools vendors” have with their subscribers. If an MLS does not invest, because of a lack of funds or lack of skill or lack of will, someone else will.
Today, each “MLS ” is simply far too small to sustain the sort of technology development necessary for breakthroughs. Even a large and powerful MLS such as HAR only has about 25,000 members. Given that revenue base, even HAR is limited on how much it can invest into new innovations.
A monopolistic or oligopolistic MOF, however, that specifically intends to capture the entire national market has a much larger pool of “buyers”. Its market is simply larger, and can justify and sustain a larger investment into the product. Spending $25m on a new social-networking feature is much easier if your customer base is 500,000 realtors in all 50 states, vs. 25,000 realtors in one state. It’s the difference between having to charge each subscriber $50 or $1,000 for the feature.
While it is important to recognize that rulemaking is a key value to some of the participants at an MLS, as David wrote, I don’t believe the politicking, sitting on boards and committees, and writing up rules is as high up on the value chain as “make more money faster” for most of the members. Even if a hardcore cadre of realtors want to preserve the local independent MLS for the sake of controlling the local market, the MOF will simply take all of their non-political (meaning, not interested in association/MLS governance) realtors away by offering a superior product/service at a far lower price point.
We already see examples of this. Trulia, Zillow, HomeGain, Roost, Estately, and others roll out innovative UI, innovations in search, innovative tools (like the iPhone search tool), that individual MLSes simply cannot. Because those companies have a much larger market base than a local MLS with 350 members, they can afford to hire the engineers, to buy the big servers, and to put in the time to develop cool new tools.
Barring government interference (which is unfortunately far too real in our industry), it is simply a matter of economic law that the MOF will be large, national in scope, and be one to three major companies that provide the highest caliber of tools and service to every realtor in the country. I personally believe it will be three players, simply because so many other data-driven industries seem to top out at three, maybe four, big players. For example, credit reporting (Experian, Equifax, and Trans-Union), or title insurance (First American, Fidelity, LandAmerica), etc. They all compete, but also cooperate in many ways to form a single industry.
A corollary effect will be that the local MLS as we know them today will go away. They may become regional interest groups, social networks, business referral networks, etc. within the larger MOF construct that provides the data, the technology, and the tools. But the laws of economics dictate that the small, low-value, low-investment organizations must give way to large, high-value, high-investment groups.
MOF Will Be A Company, Not a Membership Organization
I further believe that the MOF will not be a membership organization, like NAR, or a local Realtor association. Rather, it will be a company — either for-profit or a nonprofit — but a company, run like a company with executive management, salaried staff, and customers. The reason is that you must have executive power in order to cope with the challenges of providing a technology-based solution to a wide base of subscribers.
Committees are great for some things, but for getting things done quickly, for being nimble, they’re probably not the vehicle you want to choose. You need leadership that is able to get things done — cajoling and politicking with hundreds of thousands of individual members is simply too unwieldy.
The company may be nonprofit, and may be owned by a membership organization, such as NAR. But it cannot be run like one if it is to be successful. Any wannabe MOF that is run as a collective will soon have its head handed to it by the competitors who can make decisions faster, bring products to market faster, and execute on strategies faster.
The example of OSCRE in commercial real estate and RETS in residential are provocative here, especially as compared to industries where a standard arose because of a single dominant company that satisfied the needs of a huge base of customers. Although both OSCRE and RETS are doing some good work, even those deeply involved with both “membership-driven” programs will admit that oftentimes, it’s taking two steps forward, and one back — and sometimes, two steps back. After years and years of work, consultations, working group meetings, and the like, both commercial and residential real estate industries still do not have a single common standard.
In contrast, after a period of competition, Microsoft Word has become a de facto standard for electronic documentation. Word processing software must provide a way to save in Word format, or face rejection by the marketplace. Most of them must offer a way to read the popular Word formats, such as Word 97/2003, or face rejection by the marketplace.
It is possible to contemplate a situation in which a company like Move, Inc. ends up becoming more important as a MOF than as a consumer portal, simply because they provide value to its national customer base, and provide a single, working data standard. You can easily substitute Trulia, Zillow, HomeGain, or Realogy, or Re/Max, or whoever else for Move in that previous sentence.
An enterprise MOF must, of course, continue to work with the industry — it is, after all, providing a service to members of the real estate industry. Microsoft is involved with all manner of industry groups, for example. But there is a substantial difference between an organization with a CEO who can make decisions and move things forward, and a membership group that needs to convince at least a majority of its members to do X, Y, or Z.
Big Guns for Big Game
The issue of data standardization, of providing value to real estate professionals who work in a highly competitive industry themselves, of creating and maintaining technology that makes processes more efficient and provides useful consumer benefit — these things are all major tasks and major challenges. They cannot be solved adequately by amateurs playing at “working it out”.
It will require the vision, the dedication, and the hard work of professionals working to get paid, to make a profit, by satisfying the needs of as many realtor customers as possible to bring about the MLS of the Future. Because of money, the elephant in the room.
And when you go to hunt the elephant, you do not bring a .22 with you. You bring the big gun.