Over on Facebook, Sam Debord (regular readers are familiar with Sam) asked a really, really good question:
Sam DeBord Rob, give us your take on AMP benefiting small MLSs. Does better software slow consolidation, or are other issues driving it?
AMP, of course, stands for RPR’s Advanced Multi-List Platform, a project with which I’ve been intimately and personally involved. Since I didn’t immediately know what I thought about it, I figured I should write this post. I often don’t know what I think about something until I’ve read what I’ve written about it. So here goes.
First, What Is Small?
A threshold question is what “small MLS” means. In Internet terms, the entire MLS industry is small. We’re talking about a maximum of maybe 3 million possible users (1m+ REALTORS, maybe another 1-1.5m non-REALTOR licensees, some assistants, some appraisers, etc.) and the web tends to count things in terms of tens or hundreds of millions. But the MLS is a specialized B2B application, and from that standpoint, we need to get our heads around what is Large vs. Small (and in-between).
I recall reading somewhere that the average MLS fees in the United States are in the mid-30’s range; call it $35 per month. So $380 in annual revenues per user… with 10,000 users, the MLS generates $3.8m in annual revenues. I know agent teams that do double that in revenues.
One place we could start is with NAR’s definitions of “large” vs “small” MLS, as well as its definition of Board/Association sizes. NAR Legislative Meetings hold separate forum sessions for “Regional or Cooperative MLSs”, for MLSs with 1,500+ members, and for those with fewer than 1,500 members. So one definition of “small MLS” would be fewer than 1,500 members. We might as well go with that, lacking any better definitions.
AMP Benefits for the Small MLS
There are clear benefits of the Modular MLS for the small MLS, depending on how things are executed. Since I don’t know right now exactly how AMP will be rolled out, except that it will follow the Big Iron/VAR model I’ve advocated, let me speak not of AMP specifically but of the “Modular MLS” more generally, except where known facts about AMP apply.
In the above post I’ve linked to, I listed four benefits to the MLS, all of which apply to small and large MLSs:
- Contract the level of support the MLS needs
- Rapid development and response times
- Avoid vendor lock-in
- Lower cost, with shorter contract terms
To some extent, I guess we can allow that the small MLS is more likely to enjoy these benefits than the large MLS due to differences in bargaining power and in resources.
The large/mega MLS with 30,000 users has the market power to negotiate the very best terms with existing vendors. The average cost per user from an existing vendor can be extremely low (like $2 per month per user) for the very large MLS, while the small MLS faces average costs that are multiples higher (I’ve heard of $15 per month per user).
And if a vendor is going to slip on support to a MLS customer, it’s more likely to slip on servicing the smaller customer who generates far less in profits for the vendor than some mega-MLS. That’s obvious.
From a development standpoint, again, the mega-MLS will get preferential treatment from the vendor. Plus, the large MLS has the revenues to go hire professional technology staff, including developers of its own, while the small MLS simply cannot.
Moving to a Modular MLS, even the small MLS can get most of these benefits. The cost of the “backend system” should be the same across the board. Think about it. Most of the costs on the backend are storage (size of database), bandwidth, and CPU cycles; on a per-user basis, those should be pretty much identical for the mega-MLS as it is for the tiny-MLS.
The high-cost areas — the front-end, the localization/customization, and the ongoing tech support — are offloaded in the Modular MLS to a VAR who works directly for the client MLS. The VAR gets paid for its time/services, which means that even the smallest MLS can contract for exactly the level of service it can afford. Maybe a 100-person MLS can only afford to hire the local high school computer whiz to be its VAR, but so what? It’s getting exactly the level of service it can afford, which is a damn sight better than signing up with a national vendor only to have its requests be placed at the very bottom of the list of priorities.
Front-end, Apps, and Developers
The other major benefit of the Modular MLS, particularly to small MLSs, is the single developer API. In all likelihood, any such API will be RESO-compliant and try to implement the vision of a single real estate data standard. The entire concept turns on this: a developer only needs to code to one API, and have its products work across every MLS which is part of the Modular MLS platform.
A mega-MLS is an attractive enough market for a developer to produce software for its tens-of-thousands-of-users. If an MLS has 30,000 users and you sell your product for $30/mo, that’s a $10.8 million annual revenues opportunity. I’ll develop software for that MLS, sure. But a 300-user MLS is a different story.
But if my product that I develop for the 30,000 user MLS can seamlessly work in the 300 user MLS? Why the hell would I not do that as a developer?
Same goes for the “front end of choice” deal; code against a single developer API, and that front-end can be used across MLSs. The small MLS benefits far more than the mega MLS in that scenario.
Consolidation and Technology
Sam’s question is whether AMP/Modular MLS provides a lifeline to the small MLS so that they can resist consolidation for longer.
See, today, one of the major motivations behind MLS consolidation is that the small MLS simply cannot provide the products and services its subscribers need and want because they don’t have the money. And they pay far more per-head for vendor technology than the larger guys, which then allows the larger MLSs to provide more goodies to its subscribers. A big part of “consolidation” efforts by small MLS is to form what is essentially a buying cooperative (see, e.g., Indiana Regional) to get better prices on technology. The other big part is for the Large MLS to absorb the small MLS because the brokers and agents of the small MLS are pissed off and want what the people across county line has.
Post-Modular MLS, though, the small MLS isn’t as far behind the large MLS in terms of its technology offerings. With the single developer API, whatever the large MLS has, the small MLS also has; its users can get the same front-end, same mobile apps, same tools that the large MLS’s users have, because those software tools are written against the same API. There will still be advantages to the large MLS because it can spend more money on VARs and custom software, but those are not as evident/obvious to the rank-and-file agent.
From that standpoint, yes, AMP/Modular MLS slows down consolidation.
But I think AMP/Modular MLS actually speeds up consolidation. Why?
Barriers to Consolidation
I think about the barriers to consolidation. I mean, what exactly keeps a 500 person MLS in business? Roughly speaking, there are four reasons why an MLS remains small and independent.
- Ego-strokin’ for insiders
- Keep competition out
- Job creation
- Pain of change
Those are pretty much the barriers to MLS consolidation.
Ego: Having a local MLS provides more opportunities for insiders to get positions and goodies, especially if the MLS is operated by one local Association. You served your term on the Association Board? Well, rotate to the MLS Board. Then back after a couple of years. Oh, and here’s an iPad for your service on the MLS Board, or an all-expenses paid “strat planning retreat” at the local golf course. Frown if you want, but it happens. Consolidate, and those things go away.
Keep competition out: We see this more in certain luxury markets, like ski resort towns, but it applies to just about any market. The local brokers have a good thing going, and they don’t want brokers and agents from the next town or next county coming in and competing with them. So we hear about the absolutely unique markets, and why “outsiders” simply can’t understand it, and so on and so forth. Maybe there are certain unique markets where this is really true, but most of what prevents consolidation is trying to keep competition out. If you are part of or can think of such a “truly unique market”, please let me know in the comments.
Job Creation: Basically, the MLS CEO has to keep getting paid, because he’s been there for 30 years, and we all love him and don’t want to see him lose his job. Real estate is about relationships, after all, and some of the small MLS staff have been lifers; the Board isn’t going to threaten that. (This explains why so many MLS consolidations result in zero layoffs.)
Pain of Change: Today, consolidation means having to change MLS platforms. And ask any MLS CEO of any size about what it’s like to have to go through a systems migration from one vendor to another. We’re talking about months of prep, months of training, agents who have been using one system for ten years suddenly having to re-learn where everything is located, etc. etc. and so forth. Plus, we’d have to figure out how to merge the data from two different systems with two different databases, and that’s an expensive proposition. (RESO standards will help greatly with that problem, but it doesn’t address the “relearn where the Edit button is” problem.)
AMP/Modular MLS, I think, solves that last problem. The whole “pain of change” issue goes right out the window since everyone has front end of choice and apps running on one developer API. RESO data standards (and NAR directives) help with the databases merging, but the Modular MLS solves the “relearn where the Edit button is” problem completely. As an agent, you don’t have to change from Innovia or Matrix or Flex or Tempo if that’s what you’re used to using; just keep using whatever front-end you want, even if the MLS merges with another one.
What Modular MLS does not affect, and indeed, no technology could affect are the other three barriers. Ego, anti-competitive motivation, and job creation are human problems and only human beings negotiating with other human beings can solve those issues.
Put another way, hardware and software cannot solve the bioware problem.
So now I know what I think. AMP/Modular MLS actually helps, not hinders, consolidation as it removes one major barrier — the pain of changing systems. AMP/Modular MLS does benefit the smaller MLS more than the mega MLS, but that’s a feature not a bug. It is the future of MLS technology and one that couldn’t come sooner, as the ultimate beneficiary is the on-the-streets broker and agent who frankly deserve a lot more flexibility and innovation than they are getting today.
Consolidation is not a technology issue; it’s a human issue. It’s a business and politics issue. Solution will have to be grounded in business and politics, not in technology.
Yeah, I’m working on that too. 🙂 Consolidation, business, politics — the human factor. I’m on it.