Observations on Onion Peeling: MLS 5.0, Single Point of Entry, and Revolutions

I’ve been thinking a bit about the whole MLS 5.0 issue ever since Saul Klein’s post appeared. The reactions have been interesting. Greg Swann of BHB was somewhat cool to the idea, as evidenced by the title of his blogpost: The “MLS 5.0″ Manifesto: Everyone working in hi-tech real estate must oppose this vicious plan with every fiber in your being. Don’t be shy, Greg — tell us how you really feel. And now, Danilo Bogdanovic has posted a serious of questions (most of them rhetorical, I think) in which he “peels the onion of MLS 5.0” as it were.

Because I’m not an expert in MLS issues, some of the topics they bring up are beyond my ken. However, some of the questions and opinions are, to say the least, interesting.

Let us start with Greg’s take:

Here is the naked essence of Saul Klein’s so-called “MLS 5.0″ proposal:

The MLS of the future will bring a marketing service and benefit to the industry by being the single point of entry for listing data and then, based upon the election of the broker, distribute that information to web portals, newspapers, even radio and television, handheld devices and applications.

The emphasis was in the original, which is a nice illustration of how much Klein trusts you not to see what he’s up to.

What does that sentence actually say?

It says that Klein’s idealized “MLS of the Future” will be a national monopoly system controlled by real estate brokers and the NAR — to the immediate and permanent detriment of independent MLS systems and vendors, Web 2.0 listings aggregators and — most especially — individual real estate agents.

And Danilo’s take:

Call it what you will…MLS 5.0, Gateway, TREC, the greatest thing since sliced bread…I believe that this could potentially be the single worse thing to ever happen to the real estate industry (except for the very few elite at the top of the food chain and those that get into bed with them). If you’re an agent or small to medium-sized broker like most of us, then you should be seriously worried about your livelihood and future should this project materialize.

My take/question: What’s the problem exactly? Is it NAR’s involvement in this “MLS of the Future”, and the dislike that folks (and for the record, as a Hayekian Friedman acolyte, I’m very sympathetic to Greg’s principled position) have for NAR?

For one thing, the idea of a single point of entry did not immediately make me reach for my torches and pitchfork. Maybe it’s because that was a holy grail for me personally, and for my old company, Coldwell Banker Commercial, when I was responsible for dealing with that sort of thing.

Stripped to what it actually does, a single point of entry simply means that some poor human being doesn’t have the enter the exact same listing data multiple times. At RE Bar Camp in San Francisco, I had a very enlightening conversation with Stacey Harmon, a real estate agent and blogger, who told me that she enters her listing into something like ten different places: her local MLS, her office database, Trulia, Zillow, Google Base, her company website, etc. etc. That’s an enormous waste of time. Even if we posit that entering a listing only takes 5 minutes, that’s 50 minutes — nearly an hour — of Stacey’s day taken up with the repetitive chore of data entry.

At CBC, I know when we researched the topic, we were finding that some of our offices had employed multiple “marketing specialists” whose job was just to enter listings into all of the different commercial databases and websites. That means each office was spending tens of thousands of dollars just to do data entry.

Furthermore, human error always creeps in when you do data entry by hand. Maybe it’s a typo. Maybe a misplaced decimal point — that’s always a fun one when price goes from $500,000 to $50,000.  Or better yet (because you’ll catch mistakes like that when the phone starts ringing off the hook), when your rent/sq. ft. goes from $1.50 per month (reasonable in that part of California) to $15.00 per month — and you wonder why you’re getting ZERO leads.  That last example actually happened to a CBC affiliate; they didn’t catch the mistake for three months.  The client, understandably, thought his broker was singularly ineffective at marketing his property and pulled the assignment.

Anyway you slice it, reducing the number of times that a person has to enter data by hand is almost always a good thing.

How you go from that simple time-saving device to global mind control by NAR is a bit beyond me.  This is especially the case when NAR doesn’t get mentioned much (if at all) in the original document.  Sure, Saul goes on and on about REALTORS® which strongly implies the National Association of REALTORS®, but one could conceivably think he meant “real estate brokers and agents”.  Even if Saul himself meant REALTORS® and explicitly wants NAR control over everything, the concept itself isn’t tied to NAR in any substantive way, and should be evaluated on its own.

But Danilo does make an astute point:

There are about 15 major brokerage firms that comprise the majority of control of the US real estate market because they have the majority of the agents and transactions in the US. To give you an example, Keller Williams International which has 70,000 agents only has 4 percent market share. It’s really the top 3 or so brokerage firms in the US control the majority of the market and agent count.

Within these 15 major brokerage firms, there are about 50 top brokers that have the most say (aka control and power). In essence, it’s these 50 brokers that control the NAR and the RE industry in general. Since NAR will have control of the “MLS 5.0,” it will in fact be these top 50 brokers that have control of it.

Is NAR concerned about money or about control? Control. And controlling the flow of data is just as important as controlling the data itself. The MLS 5.0 gives the NAR not only control of the data itself, but the flow of that data. This is exactly what the big brokers want because it helps ensure their survival.

Then a little later on, he writes:

• Once agents see that they’ll make 3 times the money by switching to the larger brokerage firm(s), they will. That will cause the small, up and coming (and typically revolutionary) brokerage firms and brokers to go out of business almost overnight.
• This is a horrible proposition for the RE industry because it’s typically the new, forward thinking people and companies that lead the way into the future and revolutionize industries. Without them two things will most likely happen – the larger firms will have all the power and say and there will be much less innovation within the industry.

Unfortunately, I believe Danilo is simply wrong here in both a technical sense and a substantive sense.

Perhaps he’s 100% correct that once agents see that they’ll make three times the money by leaving the small, up-and-coming brokerages, those small brokerages are doomed.  But then, those can hardly be described as companies that will revolutionize industries.

Short of government action — which is really where so many of the problems facing real estate industry have their roots, starting with licensing schemes — if a company is truly revolutionary, it will crush the old dinosaurs.  That is the nature of capitalism and change: creative destruction.  It’s simple really.  Either you are meeting customer demand, or you are not.  Either you are better at serving the needs of customers, or you are not.  if you are better, then customer will flock to you, and you will not be a small, up-and-coming company for long.

Action by competitors doesn’t stop this natural evolution — either they have to offer something to customers that is at least as compelling as your offering, or they have to undercut your price, or do something to compete.  If your company is truly revolutionary, then you should have no trouble beating your competition into paste.

I have worked with entrepreneurs for at least half of my career.  I still know a bunch of them.  Do you know what they think about Big Competitors for the most part?  They laugh at them; they hunger for the chance to compete with the big boys, who they all think are fattened cattle ready for slaughter.  Entrepreneurs do not fear big companies, even the Top 15 major brokerages.  Indeed, they feel slightly sorry for their future victims, because they feel that their secret-sauce is so overwhelming an advantage that they can’t help but beat the living tar out of these big, slow dinosaurs who have no clue of the coming disaster and couldn’t move out of the way even if they did.

That’s the technical sense in which Danilo is wrong: if a company can be driven out of business by larger competitors, it is by definition not revolutionary.

The substantive sense is that the business of real estate brokerage is not providing data, but providing real estate services.  Whether you have a million independent MLSes or one giant national MLS, the customer is not coming to you for data.  The customer is coming to you for services, for advice, for help with an important transaction, for support and assistance.  The data helps you deliver those services, but especially in the aftermath of the DOJ litigation, I think it is error to believe that the only reason why consumers use a realtor is to have access to listings data.

Put differently, let’s imagine a world where all buyers and sellers can be perfectly matched by an automated system.  Some super expert-system with fuzzy logic and so forth put out by Google that instantly matches buyer to property with no human intervention.  I need not use a real estate agent at all to buy or sell my house.  I would still want to use an agent if she provided value to me — whether with her advice, her experience, just her time spent on doing things I’d rather not do (like showing my house), and so on and so forth.

Just because I can buy shoes online doesn’t mean I don’t like going to Nordstrom’s and working with a sales associate.  People like, people want, indeed people need service.  Data is important only insofar as it helps with service, no more and no less.  (Again, in the absence of government interference, I believe this to be true.)

Revolutionary thinking will come, I believe, from focusing on the service delivery — not on data flow or control over data flow.  Only litigation will come from that path.

As it happens, I have a number of queasy feelings about Saul Klein’s MLS 5.0 manifesto.  I’ll have to get into those in a later post.  (Let’s just say that I thought Saul drank too deeply of the Web 2.0 Kool-Aid.)  But I thought some of the negative reaction to what appeared to me to be a relatively benign, if hyperventilated, suggestion for improving what is surely an asinine state of current affairs.

-rsh