On the Open Source MLS

Jeff Corbett, my good friend and former partner at 7DS Associates, recently penned a fantastic call to arms at the RETSO blog in which he got into some depth about the concept of an Open Source MLS:

As a self described ‘Agent of Change’ around the real estate and mortgage space, I’ve sat in the shadows lurking, observing the discussions regarding ‘Raising The Bar’, IDX listing exchange equity, why it’s a bad idea to send listings to the aggregators and the such. All conversations that, IMHO, root back to the 900 some odd MLSs across the nation.

So, what I would like to talk about is the concept of an Open Source Multiple Listing Service.

He goes on to lay out a fairly convincing set of arguments for an Open Source MLS (“OSMLS” hereafter).

As it happens, I personally worked on precisely this concept of the Open Source MLS last year for quite some time. It was a serious effort, that went as far as setting up a company, looking for people, and was on the verge of raising money to fund it. So I do think I have some insights to be shared here. I don’t know that I believe in the OSMLS anymore, but in case someone else wants to take up Jeff’s battle standard, I would advise them to consider some things.

Part of this will be a debate with Jeff, since some of the problems he seeks to solve cannot be and will not be solved with an Open Source MLS. But the larger part of this will be looking at a couple of issues that I found I could not solve with an Open Source MLS

What Is It We Want To Solve?

As the quote above suggests, Jeff believes that the root of all of the plagues of real estate stem from the MLS. He has a number of complaints about them:

The current MLS landscape is full of inefficiencies.  They are fragmented databases with little to no continuity between them.  Most MLSs do not allow the commingling of data between each other.  There is a severe lack of innovation.  Accessibility to insightful data is tightly regulated and heavily guarded.  MLSs engage in monopolistic practices.

…

MLSs are typically comprised of boards that are typically comprised of brokers and some other figure heads. In other words, the inmates run the asylum and are paid handsomely to keep this order in place.

And most importantly, an MLS’s primary paying customer is a licensed Realtor, since you must also be a member of the National Association of Realtors (as well as local Associations) to gain access to their walled gardens.

It costs money to belong to MLSs (and multiple Associations), ergo, MLSs make a lot money. Therefore, it behooves the NAR and the local associations to keep barriers to entry to becoming a Realtor low– very low. More members equals more revenue. Further, this overarching business model perpetuates, even necessitates, the baseline Realtor ~6% commission model… I know it’s not supposed to exist, but it does.

I don’t think it can be argued that the current MLS landscape is inefficient. There are a lot of people, many of whom I speak to on a regular basis, who are working on making the MLS more efficient. But it cannot be denied that the system we have of 900-plus MLS is not exactly the model of Six Sigma efficiency.

They are local monopolies for the most part, but it is important to note that they are organic monopolies, like Ebay, rather than regulatory/legislative monopolies, like utility companies, which derive their monopoly from the government. This will be important below.

The linkage between MLS membership = MLS revenues = NAR and local Associations keeping the bar low is tenuous at best, and actually one that isn’t what Jeff thinks it is. And I say this as someone who is now on record as advocating for a smaller Association on all levels.

The basic issue with this line of reasoning is that there is nothing inherent in the Open Source MLS that would solve any of the above problems that Jeff lays out. That’s what I learned during my months of actually working on an Open Source MLS. The problem with the MLS is political, not technological.

Open Source: What It Is, What It Is Not

To understand why OSMLS cannot solve the problems Jeff is laying out, it is important to at least get a high level understanding of what Open Source is and is not.

Wikipedia’s definition of open source software says:

Open-source software (OSS) is computer software that is available in source code form: the source code and certain other rights normally reserved for copyright holders are provided under an open-source license that permits users to study, change, improve and at times also to distribute the software.

A more refined definition can be found at Open Source Initiative, and there are a couple of critical points there:

1. Free Redistribution
The license shall not restrict any party from selling or giving away the software as a component of an aggregate software distribution containing programs from several different sources. The license shall not require a royalty or other fee for such sale.

2. Source Code
The program must include source code, and must allow distribution in source code as well as compiled form. Where some form of a product is not distributed with source code, there must be a well-publicized means of obtaining the source code for no more than a reasonable reproduction cost preferably, downloading via the Internet without charge. The source code must be the preferred form in which a programmer would modify the program. Deliberately obfuscated source code is not allowed. Intermediate forms such as the output of a preprocessor or translator are not allowed.

What open source means is that anyone can modify the software, as long as those modifications are themselves freely distributed, modifiable, and available in source code form. The point of open source is to develop software collaboratively, as a community. One person looking at the same code might come up with a solution that others haven’t seen. Groups of programmers criticizing each others’ efforts, making changes, and going through various iterations can achieve something that a private company may not be able to.

Without getting into too much detail, there is much to recommend open source for software development.

What open source is not, and what it happens to be pretty bad at being, is a system of rules and procedures. The whole point and intent of open source, to some extent, is to free up talented developers from rules, business requirements, and other restrictions, to see if they could come up with a better mousetrap.

Open source is also not some technological neo-Marxist state where happy workers contribute according to ability and take according to need. It turns out to be far more complicated a story than that.

Why Open Source MLS Cannot Solve The Problems

The first major issue to point out is that an Open Source MLS would deal with only the underlying software that runs the MLS. So if your MLS runs one of the major MLS vendor systems, such as Paragon by LPS, all that OSMLS would do is to replace Paragon with something else.

(If what Jeff wants is for the data contained inside the OSMLS database, then he’s arguing for something more than OSMLS; he’s arguing for Open Source Data, which is a whole different proposition, and one that the industry is absolutely dead-set against. Look at the Sindication Kerfuffle.)

The point is that there is nothing inherent in OSMLS that makes access to data any easier, any more efficient, or any more logical than it is today.

OSMLS by itself does nothing for efficiency. There may be some cost savings, but even that, it turns out, is somewhat doubtful, depending on the level and amount of tech support the MLS would need. OSMLS would do nothing to eliminate fragmentation of data, since data ownership is quite separate from the software it runs through. OSMLS would do nothing to remove the organic monopoly of the MLS, since that’s based on the network effect: all buyer agents go there because all the listing agents advertise there because all the buyer agents go there because… voila, positive feedback loop.

OSMLS would help with innovation since anybody with some coding skills could get into the source code and mess around with it… but that ain’t a simple thing either, as it turns out.

The Difficulties of OSMLS

Despite the above, the fact that OSMLS would help drive innovation to some degree might make the venture worthwhile. But there are some real difficulties you would need to consider, if you choose to tread where more foolish men (like me) have already trod.

The first major one is that there will be a lack of standards. You might call it diversity of code base if you’d like, but the point is that one version of the OSMLS will differ from another version of the OSMLS in quite significant ways. Jeff brings up WordPress as an example of open source software; it’s a good one. But so is UNIX, which has dozens of variants. (And UNIX has an organization that certifies certain flavors as being authentic UNIX; if you can think of a similar organization in real estate, I’d like to know about it. RESO is on its way there, but it’s far far from what The Open Group is.)

That diversity (or lack of standards) means that technical support becomes an absolute nightmare. You could implement some flavor of OSMLS, and your CTO may know all about it. Then he leaves for greener pastures, and a new CTO comes in, who knows a different flavor of OSMLS. Depending on how much variation there is, you may be in for a world of headaches.

That diversity is one reason why companies like Red Hat exist. Red Hat’s whole business model is providing tech support to companies that have chosen to implement its particular flavor of LINUX. My business plan, back when I was pursuing the OSMLS concept, was to provide tech support for a particular variant of OSMLS, much like Red Hat does.

Trouble is, real estate — especially the MLS sub-segment — is not your ideal technology playground. Let me suggest that the market for corporate LINUX installation is quite different than the market for MLS software. Maybe you can make those numbers work; I know I could not without enormous sums of venture capital. Even if the free-spirited developers who work on open source projects do so without payment, the people who have to work the phones with MLS tech staffers to figure out why their system just crashed will not do it without getting paid. The business model supporting that is thin indeed.

The second major difficulty is that each MLS has its own set of rules that govern the actual conduct of the subscribers/members. Software exists to serve the business needs of the organization, and there is little doubt  in my mind that OSMLS would end up with as many variations as there are MLS’s.

Jeff writes:

Yes, yes… I hear you.  There are still a lot of granular details to consider.  Data formats, API’s, user access and editorial control rights to levels of data, other revenue models, equitable revenue distribution. . .  rules need to be written.

But who would write those rules? The existence of free, open source MLS software does not by itself create some rulemaking body that can impose its will and standards on the individual MLS. The issue of data formats has been something the industry (through groups like RESO) have been working on since before I came into the industry. We’re getting close, but we’re nowhere near the finish line. Jeff does offer one possibility:

Who writes these rules and how they are implemented requires a novel approach, moving away from the aforementioned traditional committees and organizations who get bogged down in the politics and self serving agendas.  Fresh blood must be infused using truly innovative methods like open source, agile, community-based development.

I love the optimism and the idealism, but… even supposing that this novel approach without layers of committees and such does produce a set of rules… who would enforce them? Expecting open source methodology, volunteerism, and unstructured processes to do the grinding work of enforcement is simply asking too much. Again, technology offers no answers to that dilemma of rules enforcement.

Organization and Talent

This would be a good time to take a look at the example of WordPress, which Jeff cites as successful open source software platform par excellence. That is true. But WP is not exactly the uncontrolled wild west. For all intents and purposes, the core WordPress source is tightly controlled by a company named Automattic, which has quietly become a software powerhouse with $45m in projected revenues in 2012. Yes, Automattic has open source in its DNA, and anybody could create whatever variation of WordPress he’d like. But much of the work (QA, core product updates, etc., for example) to ensure that the WP platform is as rich as it is goes on behind the scenes at the for-profit, money-making venture of Automattic with 106 paid employees.

I don’t know that there is a single MLS vendor with 106 employees (in the MLS division, at least).

This is the third major problem I ran into squarely as I was trying to get the OSMLS concept funded. Simply put, finding the right talent became prohibitive because I’m not one of the “right talent”. That is, if I were as connected into the global open source developer community as a Matt Mullenweg (founder of Automattic) is, then yes, I probably could have built up an organization. If you’re not one of those guys, good luck finding a CTO who is, and isn’t already working at some major tech company or startup.

Open source projects demand far more from managing its development than does traditional development, simply because you’re not paying anybody. So the CTO can’t order the chief architect to turn in code by some deadline; the chief architect might be working for free, and could (and would) tell you to go pound sand. It can be done, of course, but it requires a particular type of management talent, and one that is completely missing in real estate, as far as I know.

Great Ideas, But Be Warned

Reading back through this post, I’m disheartened that I sound like a nattering nabob of negativism. It is not my intent. I absolutely love the idea of OSMLS; I love it enough that I invested tens of thousands of dollars of personal capital into exploring it. I agree 100% with Jeff when he writes:

There are real ideas here.  The greater industry needs to change at foundational and fundamental levels if it ever hopes to ‘raise the bar’, ‘increase professionalism’ or any other euphemism that is today little more than lip service and noisy chatter in the social media echo chamber.

Maybe an open source MLS is a part of that overall fundamental change. It might even be a necessary condition for fundamental change. But it is by no means a sufficient condition for real structural change that is needed.

The lesson that I learned, which I impart to all you doers (h/t: RETSO), is this:

The problems of real estate can not be solved by hardware or software; it can only be solved by wetware.

-rsh