Monthly Archives: December 2008

Always Look On the Bright Side of Life

So it appears that commercial real estate isn’t going to escape the imploding economy after all. (H/T: Peter Pays Paul) This is probably not the best time for NAR to be talking up commercial real estate. But that’s another story, for another time.

This is the time to look on the bright side of the coming CRE bust.

As Calculated Risk points out (quoting Reuters):

U.S. office vacancy rose to 13.6 percent, up 0.5 percentage points from the second quarter, its largest one-quarter jump since the second quarter of 2002. The third-quarter vacancy rate was the highest since the second quarter of 2006 and was 110 percentage points higher than its recent low of 12.5 percent set in the third quarter of 2007.

And as we all have heard, U.S. unemployment has hit 6.7%. While that’s pretty good compared to places like, say, France (7.7%) or Germany (9.1%), it is a 15-year high for the United States.

So uh… just where the heck is the good news in all this?

There has not been a better time to start a company in the past decade.

Think about it.

Unemployment is relatively high, which means labor costs will be lower, and you can find some really talented people at very attractive cost.

Commercial real estate is getting hammered, with higher vacancies and delinquencies and the like, which means that you can probably drive rents to historic lows as well if you’re looking for office space, or retail space for your new concept.

If you’re an investor, and you’ve got cash (or rock-solid credit able to overcome higher lending standards), you probably can pick up some incredible deals on commercial properties. Sure, maybe wait it out some more, wait for more landlords to get truly desperate, but… I suspect that the whole fear-driven atmosphere will make it pretty sweet for those who keep their wits about them and have cash to back it up.

So, in the immortal words of Monty Python,

If life seems jolly rotten
There’s something you’ve forgotten
And that’s to laugh and smile and dance and sing.
When you’re feeling in the dumps
Don’t be silly chumps
Just purse your lips and whistle – that’s the thing.

-rsh

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

Fred Astaire, Gene Kelly, and Real Estate Marketing

I’m reasonably sure that none of you currently reading this has ever thought that those three terms belong together. But they do!

Recently, I got into a discussion with the inimitable Teri Lussier about Fred Astaire vs. Gene Kelly. Well… to be fair, it wasn’t much of a discussion. More of Teri beating me about the head rhetorically speaking. So naturally, I went searching for information on the difference between Astaire and Kelly.

And found this:

“People would compare us, but we didn’t dance alike at all!” Kelly said in a 1994 interview, quoted in the Associated Press obituary. “Fred danced in tails – everybody wore them before I came out here – but I took off my coat, rolled up my sleeves and danced in sweat shirts and jeans and khakis.”

It was the natural quality that was so attractive in a Kelly musical. While most of Astaire’s films existed only as a framework for his great dance numbers, a Kelly musical was more likely to pretend to be a “real” story in which the characters spontaneously burst into song and dance, almost to their own surprise.

In fact, here are the differences made visual:

Fred Astaire is just… ethereal. He doesn’t even look like he’s dancing in some cases, as if twirling and tapping his way across the floor were the most natural thing in the world.

And yet, there is something of real artifice in his dancing in a strange way. I simply can’t relate to the man, in some ways because of his perfection. Some of it may have to do with the characters he’s playing, or the time when those movies were made, but there’s really something unapproachable about Astaire, something forbidding in the purity of his perfection. As Rainer Maria Rilke wrote, Jeder Engel is schrecklich (“every angel is terrifying”).

Now, here’s Gene Kelly:

Gene Kelly’s style is much more muscular, much more physical, if you will. I’m always aware that Kelly is actually dancing in his dance numbers, in a way that I sometimes forget that Astaire is doing.

But I’m also able to relate to Gene Kelly in a way I never could with Fred Astaire. This is a man doing something that is unnatural, and doing it exceptionally well. But you never forget the essential humanity of Gene Kelly as a person in his dances. Yes, he’s capable of incredible athletic and acrobatic and balletic feats — but I feel that I’m watching a person do those things.

With Astaire, I sometimes feel that I’m watching a spirit, an angel, a personification of dance, do those things. And it isn’t the same.

I realized there’s a rough analogy to be made here between “traditional” marketing and “social media” marketing for real estate. Fred Astaire to Gene Kelly is like “traditional” marketing is to “social media” marketing.

Fact is, in the 21st century, there is no longer such a thing as “traditional” marketing — one would be hard-pressed to find a broker or agent who completely rejects web-based marketing initiatives in favor of only print, open houses, and MLS books. The books themselves no longer exist, after all.

The question, really, is one of perfection vs. authenticity.

The best of ‘traditional’ marketing — for example, sites like Corcoran.com, is reflected in its execution. Something like the Virtual Book is a pretty slick implementation, as is something like My Dream Home. Neither of these things are “social” in any way, but you can’t help but admire the execution. Even if we don’t go so far as to call it “perfect”, fact is that perfection of execution is the goal of these kinds of marketing campaigns.

Done right, they evoke admiration from the user, as well as a measure of, “Gee whiz, I wonder how they did that!”

In contrast, ‘social media’ marketing tries — Gene Kelly-like — to go for authenticity in lieu of perfect execution. The goal with blogs, for example, shouldn’t be to present a perfect face to the world, but to present a human one. It isn’t about the professional quality of the photographs, but about the opinions of the realtor who is presenting the property. It isn’t about the beauty of the market report, but about its genuineness.

Of course, the best ‘social media’ marketing is pretty admirable too — just like Gene Kelly isn’t exactly a slouch in the dance department. The point is that the goal is different.

There is one further point to be made.

Gene Kelly was still a dancer, one of the best of his generation (or any generation). He wasn’t just some random guy who ran around prancing and pretending that was dance. He still put in the time, understood the principles, and practiced being a dancer.

Having a blog does not make you a ‘social marketer’ anymore than simply throwing your body around makes you a dancer. Twittering 24/7 does not mean you’re engaging in ‘social media’ anymore than prancing around makes me Gene Kelly. And ‘social media’ is not an excuse to completely ignore basic rules of marketing.

On the flipside, the true marketers in our industry (myself included) need to raise our game some. If we’re not going to go for authenticity, then by golly, we’d better shoot for perfection of execution like a Fred Astaire & Ginger Rogers number.

Perfection vs. authenticity. Here’s another look — watch and be inspired:

-rsh

UPDATE: Teri Lussier has posted a response that is worth reading in full.  Don’t miss more singing and dancing!

Actions, Not Words (Sex & The Sellsius Edition)

According to Joe Ferrara of Sellsius, charity makes you hot:

In three studies involving more than 1,000 people, Dr. Tim Phillips and his research team from the University of Nottingham found that women place significantly greater importance on altruistic traits than anything else (in all three studies). The findings were published in the British Journal of Psychology. And the results may not only apply to women. When questioning couples, there was a correlation indicating both sexes may consider altruistic traits when choosing a mate. [Emphasis mine]

The trouble with this study is that it listened to what the women said, instead of observing what the women did. So according to Dr. Phillips, women place greater importance on altruism than anything else, eh?

How many of these women dated lepers who happened to be really, really altruistic?

How about dirt-poor homeless shelter workers?

Did these women place altruism above intelligence, looks, ambition, personality, humor, and success?

Sorry, Dr. Phillips — you’ve made a critical error by assuming that what people tell random strangers is the same thing as what they would actually do.

Because here’s a true humanitarian: Dr. Rick Hodes

Humanitarian

Humanitarian

He’s a doctor; he’s Jewish; he’s charitable. And he’s single:

Hodes’ kids unfailingly lobby guests to help find a wife for him. He dates when he can during visits to Israel and New York, but it’s not easy finding a woman willing to marry this most unorthodox single father.

You don’t say! :)

In the meantime, here’s a man who is definitely nobody’s idea of charitable:

Not a humanitarian.

Not a humanitarian.

He, at the age of 62, has been married three times to women who look like this:

Married a Non-Humanitarian

Married a Non-Humanitarian

Doesnt care about charity!

Doesn't care about charity!

Charity NOT most important to her

Charity NOT most important to her

So.

The lesson appears to be that (a) never trust what people say without looking at what they actually do; and (b) to attract women, ’tis better to be rich and hated, than to be poor and admired.

-rsh

The Gods of the MLS Headings

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

- Rudyard Kipling, The Gods of the Copybook Headings

Brian Larson, swiftly becoming one of my must-read bloggers, posts a thoughtful argument that I’m far too cynical. Which is entirely possible. :)

He posits that my observations about what the recent VOW rules mean for an MLS appear correct:

1) An MLS public website is not subject to the VOW signup requirement.

2) An MLS can create truly ridiculous IDX rules, because IDX was not covered by the NAR-DOJ settlement.

3) An MLS cannot not prohibit brokers/agents from sending listings to Trulia/Zillow/etc. as that would violate Sherman Anti-Trust Act. But the MLS is not required to provide Trulia, Zillow with any data either, unless Trulia signs up as a broker subject to VOW rules.

But, Brian goes on to say, the MLSes are not nearly as evil as I presume them to be, nor are the requirements of VOW such a major deal.  His argument (which you should read in full, by the way) is premised upon three assumptions and recent trends:

First, the “VOW signup requirement” is not all that daunting anymore. So many applications folks use online now require registration. The key is to ensure that the consumer trusts you will not bombard her with crap email after she registers. You cannot use Facebook or MySpace without registering…. In the real estate space, I expect we’ll see more applications that rely on registration, or that at least have an “account” mentality. 1000Watt’s post about Dwellicious suggests that it might be an example.

Second, I think the VOW policy gives many MLSs incentives to make their IDX rules more open. By including more fields and statuses in IDX, the MLSs can make it easier for a broker to deliver information through the more-regulated IDX method, rather than encouraging her to use a VOW, which is harder for the MLS to regulate and monitor. I have MLS clients that have already indicated to me their intentions to take this approach. (In fact, I speculate that restrictive IDX rules will actually make it easier for brokers to get consumers to register for their VOWs. “I can show you X more listings if you register….”)

Third, many MLSs have embarked on “listings syndication,” which makes it easy for their brokers to send listings to places like Zillow and Trulia. We did a whitepaper on syndication this last spring (though it seems hopelessly outdated to me now). MLSs recognize the value they can bring to their brokers with syndication. Some still have “protectivist” tendencies, but I think the trend is moving to more syndication.

On this basis, it does indeed appear that I am merely a huge cynic.  Again, I grant the possibility of that.

However, the Gods of the MLS Headings are not so kind.  Thousands of years of human history have taught us not to overestimate the level of charity and goodwill in your average person, nation, or organization.  It is a rare person, and an even rarer company, that forgoes self-interest in the name of community.

Let me delve deeper into each of Brian’s points.

Signup requirement is not daunting

The problem with this analysis, however, is that it takes an objective stance on something that is entirely relative.  While it may be true that the VOW signup requirement is in and of itself not daunting, the real issue is whether it is easier or more difficult relative to other alternatives.

There is no version of Facebook that does not require signup.  There is, however, a version of the VOW website that does not require signup: the one belonging to the MLS.  So faced with two choices — one, a realtor website where I have to signup and provide my email address, and another, a MLS website where I do not — I am going to select the one that puts fewer requirements on me nearly every time.

Furthermore, a requirement’s ease or difficulty stands in relation to the value delivered.  I don’t find it all that daunting that I have to study, take both a written exam and a roadtest, before I am allowed to drive a car.  The value delivered (driving) is sufficient for the requirement.

Facebook and MySpace, in order to deliver its value (personal space to connect with friends) has to have your personal information.  Plus, the value that it delivers is sufficient for consumers to want to signup.

YouTube, on the other hand, will go out of business if it requires signup before a user can view a video — because a competitor will arise (such as Google Vide0) that will drop that requirement.  The personal information is irrelevant to the value delivered: viewing a video.

In real estate web, having to deliver my personal information to a realtor just to view listing information is a pretty large stumbling block.  I know intuitively as a consumer that you don’t need to know my name or my email just to display photos of a house, or show me how many bedrooms and bathrooms it has.  So I deduce (correctly) that the only reason you want my information is to try and sell me something.

Under these factors, I submit to you that the temptation for the MLS to create a public-facing VOW-powered website freed from the signup requirement — that it must place, by law, on every other participant — is rather huge.

Let us not forget that MLS organizations these days are not exactly rollin’ in the cash.  Many of them are facing fundamental questions from their membership about the value being delivered to them for their annual dues.  There is a growing trend of real estate agents electing not to be part of the MLS, or paying absolutely the minimum for access to listings, and complaining bitterly about the dues being charged because the MLS doesn’t “do anything for me”.  And companies like Trulia are only helping to accelerate that trend.  No wonder that MLSes are heavily investigating public-facing websites then — being able to deliver consumer leads to its membership may be essential to the very survival of the MLS.

The incentive is large; the tempation is huge.

VOW Improves IDX

Brian’s next point, that the VOW rules may lead MLSes to relax their IDX rules so that their members can manage listings via the controllable IDX feed instead of the uncontrollable (by law) VOW feed simply doesn’t take incentives into account.

The MLS has major incentives to tighten IDX rules (as above) to make it a very unattractive option.

All participants have an incentive to display as much information as possible on their own website, in order to drive leads and conversion.

The listing broker might have incentive to try and control how its listings are displayed on competitor sites via IDX, but no broker is a pure listings broker who doesn’t take buyer inquiries via its own site.  So their incentive to want to control listings is canceled out by their incentive to want not to get controlled by others.

The incentive for brokers is to use IDX as bait to get a consumer to signup, so that they can show them the VOW data.  The trouble is, there’s already a website out there that shows consumers the full VOW data without signup: the MLS public website.  Do brokers truly care, if they are receiving rock-solid leads without charge from the MLS site?  The experience of companies like Houston Association of REALTORS suggests that they do not.

I submit that Brian’s clients who have indicated that they plan to relaxing IDX rules will either (a) swiftly scale back those plans, or (b) go out of business when a competing MLS implements the cash-generating cynical strategy I outline.

Trend is Towards Syndication

I agree with Brian that the trend was towards listings syndication.  It benefited the agents and listings brokers (and their clients) so much to be able to market listings to dozens of websites with the push of a button.  The MLS, in effect, was charging its members dues to provide the syndication service.

However, that was prior to these particular incentives setup by these particular rules.

After these VOW rules are fully implemented, I believe the incentives have changed.  Because now, the MLS can absolutely control third party sites like Trulia, whereas they could not do it effectively beforehand.

First, for third party aggregator sites to take VOW feeds, they have to become a participant in the MLS, subject to all of the rules of that MLS.  This rule now has the force of law.

Second, since the VOW settlement doesn’t address IDX at all, the MLS can provide an incredibly obnoxious IDX feed to the third party syndicators, say they are providing syndication (which is true), but at the same time, really build out its public facing VOW-powered website.

Third, the MLS can simply cease providing syndication to its members.  Instead, it will provide cost-free leads direct from the MLS public site.  Which service is the member more likely to value?  The lead, or the chance to get a lead from a third party aggregator?

Idealism vs. Gods of the MLS Headings

I actually like to think I’m an idealistic fellow.  I care about my fellow man.  I care about this industry.  I care about the many wonderful professionals I’ve had the pleasure and privilege to meet.

But at the same time, I can’t ignore the economic incentives now at play thanks to the DOJ-NAR settlement, which gives the VOW rules the force of law.  I can’t ignore the fact that MLSes are losing membership — partly because of the market, but partly because their value to members has been decreasing for the past several years.

Since MLSes are not government entities run without care for covering costs, but are private companies that must generate enough revenue to pay for its costs, I have to think that making money (through membership or other means) by providing greater value has to take priority over every idealistic principle any MLS executive.

Indeed, even if the MLS executives want desperately not to take advantage of these rules, the economic realities may force them to do so.  It’s hard to be idealistic if you’re dead.  Survival is the first moral principle, after all, and that applies both to individuals and to organizations.

I hope that Brian can continue to be an influence in the industry, and that not all of his clients go down my cynical path.  That would make Brian sad. :(  Which would make me sad. :(

On the other hand, is it really such a bad thing for the industry, and for consumers, if there were at least a few websites (all of them owned and operated by MLSes) that provided people with the full VOW listings information without requiring signups, jumping through hoops, and the rest of it?

-rsh