So it seems my little tweet the other day has engendered a bit more discussion — you can find the fascinating back and forth here on AgentGenius. One of the more interesting comments there comes from Russell Shaw, who says:
REALTOR.com is cluttered on every page with banner and tower ads that endlessly attempt to “distract” the shopper (who was attracted there in the first place with our listings) to click on the banner ad and wind up on that agent’s site. In short, our listings are nothing but bait for MOVE to sell ads to other agents so they can attempt to poach the client that would have naturally been ours.
Setting aside the utterly idiotic fees they charge, if it weren’t for NAR’s original bungling of REALTOR.com (*giving* it to Homestore, aka, MOVE) all these “other sites” like Trulia, Zillow, etc. would not even exist. Not at all. They were created because NAR gave away our name.
In Canada, http://www.realtors.ca/ is FREE, as in included with their dues to Canadian Realtors. Enhanced listings and all. (Emphasis added)
Verrra interesting… so here’s some unpaid, free “consulting” for Move, Inc. It’s worth every penny you’ve paid for it.
The first place to begin, of course, is where Move gets its current revenues. According to Move’s 2008 Annual Report, Move generated $217M from “Real Estate Services” which includes Realtor.com and Top Producer. The company describes it thus:
Real Estate Services consists of products and services that promote and connect real estate professionals to consumers through our REALTOR.com ® , Move.com and SeniorHousingNet.com web sites, in addition to the customer relationship management applications for REALTORS ® offered through the TOP PRODUCER ® business. The Company’s revenue is derived from a variety of advertising and software services, including enhanced listings, company and property display advertising, customer management software and web site sales which are sold to those businesses interested in reaching the Company’s targeted audience or those professionals interested in being more effective in managing their contact with consumers.
But from that $217M, there were various expenses:
|Cost of revenue||$38,394,000|
|Gross profit (loss)||$178,839,000|
|Sales and marketing||$75,956,000|
|Product and web site development||$21,763,000|
|General and administrative||$27,851,000|
The two that appear to be giving various REALTORS agita and heartburn are “Cost of Sales” — those pushy salespeople making phone calls — and “Sales and Marketing”. Related is the $21.8M spent on “Product and web site development” — REALTORS are unhappy with the features and benefits provided by Realtor.com.
Making Real Estate Services Part of NAR Membership
So as Russell suggested, what if the NAR Membership simply included all access to Realtor.com, as Canada does with Realtors.ca? While you’re at it, you can throw in Top Producer and whatever else is in “Real Estate Services” as part of the cost of being a REALTOR.
To do this, of course, you can’t simply give up $217M in revenues; what would it cost to replace it?
Turns out, there were some 1.197M REALTORS in 2008; we don’t know how many there were in 2009, but let’s assume a slight decrease to 1.1M members of NAR. We know that the dues for NAR membership is $80 for the 2009-2010 period.
To make full access to Realtor.com (and Top Producer) part of the benefit of being a NAR member, dues would have to go to $277 for Move to maintain its revenues at $217M. Whether NAR members would welcome more than tripling their annual dues for the benefit of full access to Realtor.com or not is unknown.
However, it isn’t that straightforward. Turns out, if Move is able to replace the $217M from its Real Estate Services operations from dues payment by NAR members, it can wholly eliminate advertising on Realtor.com, entirely eliminate “enhanced listings” (since everyone would have the ability to enhance the listing as part of their NAR membership), and eliminate any need for direct sales. Move can also eliminate much of its Realtor-oriented marketing, as that audience is simply paying over the $197 per year in revenues it wants to generate, and focus the marketing towards consumers (buyers and sellers) to visit Realtor.com.
What this means, practically speaking, is that the profits for Move would be much higher, even at a lower revenue base if the Cost of Sales and Sales & Marketing lines could be dramatically reduced. In turn, some of that money can be reinvested into Product Development, to offer new features on Realtor.com (and on Top Producer). Here’s one scenario:
|Cost of revenue||$-|
|Gross profit (loss)||$176,000,000|
|Sales and marketing||$37,978,000|
|Product and web site development||$43,526,000|
|General and administrative||$27,851,000|
If we assume that there are 1.1M members of NAR, and that $80 per year is necessary for NAR’s operations, then dues would need to triple to $240 per year. $160 of that goes to Move for annual revenues from the Real Estate Services division of $176M.
Cost of revenues can be entirely eliminated, since there is no longer any need to employ salespeople to make phone calls to sell enhanced listings packages or whatnot. In fact, all ads on the site can go away too.
Sales & Marketing is halved, while Product and Web Site Development is doubled, reflecting the reinvestment that can take place.
Even while keeping G&A the same (maybe all those desks currently occupied by telemarketers get used by Customer Service?), and keeping in the $301K for restructuring, we can see that the ultimate operating profit is higher than under the current system: $66.3M vs. $52.9M.
Free Consulting to NAR
What’s even more interesting is that Move’s current market cap is only $412.41M. This is about 1.7x of Move’s 2008 revenues of $242M. We also know that the NAR license is absolutely critical to Move’s continuing viability, as discussed here by the management of Move.
So here’s a thought for NAR: Buy Move, then offer its suite of services for real estate professionals as a part of the dues of NAR membership (which, incidentally, triples). Keep it separate, as a wholly-owned for-profit subsidiary of NAR, if you’d like.
Suppose you can buy all of Move for $450M; if the Move unit can generate somewhere in the $65M to $70M in profits, that’s payback in about 7-8 years. But, once you eliminate the unhappiness of Realtors, and eliminate distracting ads from the site itself (as you don’t need those anymore under this business model), it’s entirely possible that Realtor.com comes to dominate the real estate search space.
Plus, by most accounts, only about 1.1M of the roughly 2.4M real estate licensees are members of NAR — there are another 1-1.5M people who could become members of NAR. Those licensees can be offered subscriptions to Realtor.com at (let’s say) $30 per month — or join NAR for $240 for the year, and get all of the benefits of Realtor.com and TopProducers, etc. at no additional charge.
Seems to me that the NAR membership rolls would swell quite nicely, which in turn pushes up the profits that NAR would realize from its Move-based operations.
Win – Win – Win
So this scenario seems to me to be a Win for Realtors bitching about how horrible Realtor.com is, a Win for Move who can achieve higher profitability at lower cost of operations, and a Win for NAR who can grow its membership base while keeping its existing members happy(er).
The only obstacle is the dues, so I’d like to hear from the REALTORS reading this: How willing are you to go from paying $80 a year to $240 a year?