A Question: LPS, Marketing, and RPR

As many of you know, I wrote a wee little post the other day about REALTOR Property Resource or RPR.  That was the first post based on my impressions from a webinar held on November 6th.

With some further thought, and with the ability to review the actual webinar/webcast itself, I have some further questions.  And I’d like to keep each post to one question, so every post doesn’t end up being 3,000+ words.

So today’s question:  What else did LPS get besides $12mm to participate in RPR?

LPS, Cyberhomes, NAR, Whee!

LPS, of course, is Lender Processing Services, which was spun off from Fidelity National Financial (NYSE: FNF) and is today a leading provider of mortgage software and services to banks and other financial institutions.  Their target market is basically the top 50 banks.

But LPS isn’t just in the mortgage business.  In 2009, FNRES (Fidelity National Real Estate Services) was merged into LPS to become the LPS Real Estate Group (LPSREG).  And LPSREG makes MLS software:

We have built the platforms that power half of the country’s multiple listings services with brands professionals have relied on for decades, including Paragon™ MLS, reInsight™, LAMPS association management software.  We integrate vital marketing, productivity and business solutions into a one-stop shop for real estate professionals with the rDesk professional product suite, which includes Web sites, IDX, Resource Center; transaction and document management systems, TransactionPoint® and DocCentral, which are known as the most powerful in the industry; and an innovative Real Estate Media Network that connects real estate publishers to some of the nation’s largest and most powerful advertisers, while generating a consistent revenue stream for the publishers.

Given that this is the company’s own words, we can take some of the boasting with a grain of salt.  But half of the MLS’s in the United States run on Paragon.  And rDesk integrates “vital marketing, productivity and business solutions into a one-stop shop”.

It appears from the description so far and certain personnel moves — like Marty Frame, the former General Manager of Cyberhomes (a division of FNRES, which became LPSREG), moving over to RPR as the new President — that NAR essentially bought the assets of Cyberhomes from LPS including the “front-end website” technology probably along with a bunch of data on properties in the U.S.  NAR is on record as having paid $12mm for these assets.

Now, in the November 6th video webcast, Dale Ross, the new CEO of the newly created RPR, LLC, mentions something I find highly interesting.

First, he mentions that the market for real estate related data is between $60mm and $80mm per year.

Second, he mentions that because RPR is brand new, the business plan calls for a five year “buildout” of the business, with losses in the first three years, and then profits in year 4 and 5 to the tune of $10mm ($2mm in year 4, $8mm in year 5).

Third, he says (and I’ve tried to use his exact words here) that: “We have a relationship with LPS, we’re gonna revenue share with them on this model, because we’re going to use their extensive marketing channel to take the RVM numbers and market it through their channels.”

What exactly does this mean?

Marketing RPR Data

At first glance, it looks to me that what Dale Ross meant (because the accompanying slide spells it out) is that RPR’s new REALTOR Valuation Model (RVM) will be sold through LPS, replacing the Applied Analytics products that LPS currently sells.

According to the Q3, 2009 earnings report for LPS, the “Technology, Data and Analytics” segment generated $186.3mm in revenues.  Of that, $103.0mm was from mortgage processing, and the rest — $83.3mm — was due to “strong growth in Data and Analytics Services”:

Revenues for the segment were $186.3 million compared to $139.0 million in the third quarter of 2008 while operating income of $62.4 million compared to $49.2 million in the prior year quarter. Mortgage Processing revenues of $103.0 million were 23.2% above the third quarter of 2008, primarily due to the conversion of the JPMorgan Chase portfolio on to our mortgage servicing platform. Other TD&A revenues increased by 50.5% to $83.3 million compared to the prior year quarter, mainly due to strong growth in Data and Analytics services, our Desktop application, and the impact of the FNRES acquisition completed in the first quarter of 2009. Excluding the impact of FNRES, Other TD&A revenues were up a strong 32.4%. Overall operating income for TD&A was higher primarily due to higher contributions from Mortgage Processing and Data & Analytics.

As we can see, FNRES (now LPSREG) is lumped underneath the TD&A segment, and in the “Other TD&A” (aka, non-mortgage processing) bucket within that segment.

Presumably, when RPR talks about using LPS’s substantial marketing channel to sell RVM and other analytics data (he mentioned a couple of times that the raw MLS data will never be sold to RPR’s customers), and that RVM will replace some of the existing products of LPS, it is this $83.3mm bucket we are talking about.

So one question is… is this ability to resell RPR data an exclusive right for LPS?  Or will others, such as First American, be able to resell RPR data for a share of the revenues?

Speaking of which… Dale Ross mentioned a revenue share; what is that revenue share and on what products?

If LPS did $83mm in one quarter from sale of “Other” Data and Analytics, which excludes mortgage processing, that small piece alone is a $372mm per year business.  Dale Ross is talking about $8mm in net income for RPR after five years, and said that the market for “real estate” data is $60-80mm per year, or 1/4th of the market for “Other Data and Analytics”.  Revenues and Net Income are two wholly different things, and without knowing what the financial pro formas for RPR look like, it’s impossible to guess.  Having said that, it sure would be nice to find out exactly what the revenue share is between LPS and RPR.

As a private company owned by a private organization, RPR is under no obligation to talk about any such detail, of course.  But it does raise some questions on who’s selling what that belongs to whom and for how much.

LPSREG and Paragon

Conspicuously missing from the webcast was any mention of LPSREG or Paragon or rDesk or any of the products that LPSREG (formerly FNRES) currently sell.  Seeing as how more than half of the MLS’s in the country use LPSREG’s products to run itself, it seemed an odd omission.

One question then might be whether RPR’s awesome user interface is an exclusive to RPR alone, or whether some of those features might show up in Paragon.  Was the sale of assets a fullblown sale of all of the intellectual property, or was it a longterm licensing deal with LPS retaining the actual ownership of the code behind the RPR “front-end website”.

Because of how awesome RPR’s user interface is, I simply cannot imagine it not having an impact on Paragon sales/revenues.  At a minimum, MLS customers might wonder why they’re paying full price for Paragon, when its members all use RPR’s free interface.

It doesn’t make much business sense for LPSREG simply to abandon the Paragon business, does it?  Unless the revenues from the data sales will more than make up for any loss of revenues through the now-defunct Paragon system.  Or, unless, the next version of Paragon will incorporate most of the cool features and nifty technology of RPR.  Which is it?

If it’s the former, then there’s something odd about the data sales business since it doesn’t smell like we’re talking about an even 50/50 split.  If it’s the latter, then Paragon will have a massive advantage over every other MLS technology provider out there, since they get to offer the RPR technology tightly integrated into its other technology elements.

Again, as a private company, RPR is under no obligation to share any of this information with me or with anyone else.  But I remain curious.  And I’m thinking some REALTORS, some MLS’s, and some brokerages might want to know some of these details.

-rsh