The Swarming Doctrine and Real Estate

I was recently asked by Inman to provide some opinions on a variety of topics, and one of my responses is as follows:

5. What technology trends will change the industry in the future?

Enterprise CRM, married to truly effective, and measurable interactive marketing technology.

In the alternative, third party systems that replicate all or most of the value from a brokerage system may create a whole new paradigm: the Swarm. This is Trulia’s play, in my opinion. I am, however, not certain that these third parties have enough profitability to truly compete with the big brokerages and the power they can bring to the market.

So after I wrote this, I got an email asking what in heaven’s name I was talking about. Swarming? And what’s the connection to Trulia? [Update: My responses have now been posted at Inman News.]

I started to write out an answer, and quickly came to realize that this is one of those things that got stuck in my head years ago, continue to influence me, but that I never really discussed.

So here it is.

BattleSwarm

Swarming is something I borrowed from the U.S. military, where it has been in active discussion (and even quite a bit of implementation) since the 1990′s.

I was first introduced to the concept by an op-ed entitled “Swarming — The Next Face of Battle” by two RAND Corporation strategists, John Arquilla and David Ronfeldt. Their central thesis was that warfare had been revolutionized by advances in information technology and networking, and that threats facing our military in the battlefield were asymmetrical: terrorists, guerilla actions, and so on. (For a fuller background into even the origins of this strategy, you might consider reading this essay that introduced the concepts, but never formalized it into the “BattleSwarm” doctrine.) Arquilla and Ronfeldt:

Swarming is a seemingly amorphous but carefully structured, coordinated way to strike from all directions at a particular point or points, by means of a sustainable “pulsing” of force and/or fire, close-in as well as from stand-off positions. It will work best — perhaps it will only work — if it is designed mainly around the deployment of myriad small, dispersed, networked maneuver units. The aim is to coalesce rapidly and stealthily on a target, attack it, then dissever and redisperse, immediately ready to recombine for a new pulse. Unlike previous military practice, battle management is now mainly about “command and decontrol,” as networked units all over the field of battle (or business, or activism, or terror and crime) coordinate and strike the adversary in fluid, flexible, nonlinear ways.

Right about now, you’re wondering… this is all very fascinating (not really), but what the heck does this have to do with real estate?

Swarming and Commercial Real Estate

Well, a few years ago, I was on a consulting assignment for Coldwell Banker Commercial (which led to my being hired there) on strategies for commercial real estate. Given the nature of CBC at the time (still true to this day) as a national franchise of relatively small, independent, local offices lacking central command and control of larger competitors such as CBRE or Cushman & Wakefield, I thought that the BattleSwarm doctrine might work for CBC as corporate strategy.

Taking down a major corporate real estate assignment is an enormous affair, involving many experts from diverse fields. A firm like CBRE can actually put a whole team into play with various specialists in finance, insurance, land use, taxes, architecture, and so on and so forth to convince a Fortune 500 company to give it the assignment like “Find me 2,500 retail outlets across the United States”.

I thought the only way that CBC could compete is by implementing some sort of a Swarming strategy, where independent offices could smell an opportunity, quickly communicate it along the network, and coalesce rapidly to bring the full range of services that CBRE can offer, but without the CBRE pricetag, in an ad-hoc team created specifically for that assignment and that assignment alone.

As the Sr. Director for Interactive Marketing for CBC, I actually implemented some of the elements of that long-ago strategy, such as an internal social network, long before FaceBook was a phenomenon. I can’t take credit for the idea, though, because it was from brilliant minds in the American military.

Swarming and Trulia

So when I quickly dashed off my response to Inman, I must have subconsciously brought up Swarming. Since the question had to do with what technology trends will change the industry, I saw (and still see) things as a crossroads.

Either the Big Brokerages will master enterprise CRM and marry that to effective, measurable interactive marketing systems, or Third Party Platforms will evolve to provide all of the services that Big Brokerage currently provides.

The latter enables Swarming in residential real estate.

Now, that happens not to be as important as it might be in commercial real estate (because few assignments are big enough to warrant a team of specialists), and elements of Swarming already occurs in residential real estate.

For example, a listing agent who reaches out to a staging specialist she knows, then a painter to repaint the house, a photographer to shoot photos of the house, a home inspector to check out the house, and an attorney to review land use regulations — all of them part of her private network of contacts — is effectively creating an ad-hoc team to service the client.

Nonetheless, if the Third Party Platforms become dominant in the industry, that will enshrine the Swarm as the norm for delivery of services. Consider what services an agent — who is an independent contractor — receives from a broker, for which she pays the broker a share of the commission.

Branding, a nice website, liability insurance, office space, source for yard signs, copy machines, etc.

With advances in technology, I see no reason why a Third Party Platform could not provide every single one of these services to an agent. Even insurance could be delivered as a buying cooperative; if Trulia has 150,000 agents “in its network”, can it not negotiate with insurance carriers for group discounts or group policies or whatever? Of course it can.

Lead generation is already handled by each agent; the existence of a network simply amplifies that. Lead management and routing software already exists. The network as a whole can establish quality standards through things like agent ratings, refusal to work with known bad actors, training offered (for a fee) by network members, etc.

All of this can happen with nary a Big Broker or national franchise in sight. The technology already exists; it’s a matter of integrating it together, and putting in effective processes.

If Third Party Platforms get robust enough, then even the biggest firm can simply be taken down by a Swarm of networked independents attacking it from all angles. With lower overhead made possible by the technology (provided by the Third Party Platforms), an independent can compete with Big Brokerage on every listing assignment on price, with no compromise on quality of service. Indeed, an ad-hoc network of experts could provide a higher level of service to a customer than a Big Brokerage could and at lower cost (4% commissions, instead of 6%, for example).

Meanwhile, Big Brokerage faces enormous pressure on its top line revenues as top-producing agents have every incentive to either (a) leave and join the Swarm, or (b) demand far higher splits and services to stay.

Case Study?

That sounds nice in theory, but is there any evidence to suggest that this will actually happen? There are hints.

In commercial real estate, at this point, I can make a pretty strong argument that CoStar is far more important to a practicing agent than the firm to which he belongs. At the lower end of the market, a pretty strong case can be made that a commercial agent can make a very fine living without affiliation with a national brand, or a local brokerage, but could do very little without Loopnet.

I personally know of multiple examples where a top producer flat out told his broker that if the brokerage does not renew the CoStar contract at exorbitant cost, he will leave, taking millions of dollars in GCI with him. The rest of the services, including the brand name, that the brokerage provided him were worthless in comparison to CoStar.

And those companies, as yet, do not offer the full range of services to its members that a brokerage offers. Once they add robust research, and robust network-driven marketing services… watch out.

The Future is Unknown

Of course, all of this is speculation.  Only the reality of what happens over the next few years will resolve things.  It is likely that the actual future will look quite different from what I’m predicting.

Nonetheless, for students of strategy, the whole Swarming doctrine is an interesting read.  How a network impacts power, force, and maneuverability is not something relevant only to military forces. And I highly recommend checking the theory out… if you’ve got an evening or two free….

-rsh