Once again, I find myself in the curious position of praising the good folks at RPR while at the same time ending up on a negative note. On the one hand, RPR’s posting their Content License Agreement (complete with redlined corrections) is by far the most transparent thing that I’ve seen a company do in real estate industry thus far. Kudos not just to Reggie Nicolay, the Social Media director of RPR, but also to Marty Frame and to Dale Ross, the executives in charge of RPR. These guys talk the talk, and walk the walk of being open and transparent. Thank you guys, and I really mean that.
Some of the critiques already on the web may be entirely valid, but I think they largely miss the point. For example, Mike Wurzer’s post suggesting that the new License Agreement allows RPR to sell listing-level data to various customers may be accurate (or may not be, as Marty Frame points out in the comments), but… this falls into the category of missing the forest because you’re too busy looking at whether the tree is a douglas fir or a pine tree.
There are three major, fundamental issues that the License Agreement does not address — primarily because those issues stem from RPR’s business model and its basic value proposition. If the goal is to nitpick the language of the Agreement in the hopes of finding a provision on which one can base a future lawsuit, I suppose the detailed analysis being done now is interesting. If the goal, however, is to understand the fundamental challenge of RPR, then we need to raise our eyes up a bit.
The language of the License Agreement is very clear: RPR will not compete with a participating MLS. Indeed, the changes to the document adds even more stringent non-compete language, indicating that the non-compete will survive the termination of the Agreement if RPR is the one doing the terminating:
3(g). Restriction on Competition. During the term of this Agreement, RPR shall not, directly or indirectly, carry on or engage in the business of providing a Multiple Listing Service to licensed real estate brokers or salespersons in Provider’s market area in competition with Provider’s MLS business. Licensed Content shall not be used to compete with Provider. RPR’s use of RPR Offerings is not subject to this restriction. In the event that RPR terminates this agreement, this Section 3(g) shall survive for three (3) years.
Sounds pretty darn clear, doesn’t it? Except that it isn’t. Further up, under the Definitions section, the Agreement defines “Multiple Listing Service” as:
…an organization or association that collects information directly from real estate professionals and then aggregates, compiles, displays, maintains and distributes that information principally for the benefit of those same real estate professionals and includes the use of related or peripheral information and technology needed to support the information technology and business operations of the MLS.
I suppose if you think of an MLS as the above, then it makes sense to say that RPR will not compete with a MLS directly or indirectly. This is the tree-view that attempts to isolate and list the activities of the MLS, then says, “we won’t do those activities”.
The forest-view, however, is that the modern MLS is far more than an organization that collects information then does stuff to it for the benefit of its members. The modern MLS is where the real estate professional goes to get work done. In a very real way, the modern MLS is the “office” of today’s realtor.
Since RPR in essence proposes to replace the MLS as the place where the real estate professional goes to get work done, it is hardly necessary to “compete” with the MLS on the direct collection of information, the aggregation, compilation, and even most of the distribution. Once the MLS becomes just a place to which the realtor goes to do the tedious task of data entry, after which she waits for the feed to kick over to RPR which is where she runs CMA’s, neighborhood analytics, runs reports, maintains the mailing list, and so on, the value proposition of the MLS becomes more-or-less non-existent.
Dressing up the License Agreement language doesn’t change the essential fact that RPR shifts the locus of a realtor’s day to day work from the MLS to the RPR. That’s the forest.
The second issue, which the License does not solve, is that of governance. Yes, there are plenty of restrictions on the use of data. Yes, there are numerous contract provisions about what the RPR is and is not allowed to do. Yes, some of the language is imperfect in its precision; but then, a smart attorney can probably find ambiguity in the statement, “The sky is blue” so imprecision is not quite the serious problem some make it out to be.
Because the issue is governance: control over the RPR.
Suppose that the MLS objects to the creation of some RPR Offering that is within the scope of the License. Now what? MLS can suspend delivery, perhaps even terminate the Agreement in case of breach followed by a failure to cure, as per the contract. But it doesn’t truly control the RPR and its policies the way it controls its own database and website.
When licensing away the most valuable assets under its control, it is reasonable to expect that MLS’s will want some significant say in how the business of RPR is conducted. But the structure of the RPR, the value proposition to the MLS, the RPR Offerings, etc. simply do not allow for local governance to any real degree. Sure, a Board of Advisors or some such can be created that has no binding authority, such that Cooperating MLS’s may make suggestions to RPR. But that isn’t real governance.
A lengthy list of delegated authority, specific grants of license, etc. are good things; they are the trees. Governance, the ability to direct how RPR conducts business, the ability to hire and fire the staff of RPR if it comes to that, is much more than contract terms. That’s the forest.
Finally, although absent from the License Agreement, the blogpost on RPR makes it clear that intentionally missing from the Agreement is any mention of revenue share with the local MLS:
No less importantly, what has not changed: there is no formula for revenue sharing with an MLS provider. While the reasons for this have been described and discussed in dozens of forums since RPR was first announced, our thinking behind this remains that as a NAR member benefit, in which NAR members have already invested, it is critical that RPR be able to sustain the services that we will provide to the members without charging them for access, enhancements, advertising, or services. Recently, we have begun to engage large brokers – both individually, and in several brainstorming groups – who have generally supported the rationale behind this approach. Also, there is now a competitive offering which compensates the MLS providers without offering anything to the members, and we are pleased for the line between the two to have been drawn as brightly as it has been.
Plainly put, this is a red herring.
If the real goal of the failure to share revenues is to enable “RPR to be able to sustain the services” at no cost, then RPR could have offered sharing of profits. Since profits are revenues net of all expenses, including the expense of offering RPR services to NAR members, RPR would be able to sustain all of the services at no charge and still share with the local market. For that matter, given that NAR itself is a non-profit, and RPR is characterized as a NAR member benefit, it is not clear why the RPR, LLC must be a for-profit enterprise.
That large brokers are generally supportive of the rationale is irrelevant. After all, I doubt that RPR is ready to say its rationale is not valid if large brokers generally turn against it.
Finally, the idea that one can compensate the MLS without offering anything to the members is a curious one. What else would the local MLS do with extra money in their pocket but do stuff to benefit members? Even if that ‘benefit’ is not raising the price to its subscribers, because they have a revenue stream from the data partner, isn’t that going to the members themselves?
If the answer is, “Well, the MLS executives could just pocket the money”, two responses exist. First, those local MLS executives are subject to local governance; the Board can fire such irresponsible executives, or refuse to give them pay raises or whatever. Second, are we to be suspicious of local MLS executives while not questioning the RPR executives at all? So local execs are corruptocrats who just want to line their pockets, but the folks at RPR are saints who would subsist on cup ramen while pouring all the profits back into member benefits?
Combine the local governance issue with the lack of revenues to the local markets, and you have a toxic brew. Now you’ve got profits (that’s net of expenses) going to a group of people who cannot be held accountable by the local MLS or by the local members at all.
I emphatically am not suggesting that the people at RPR are crooks or something; if anything, they’ve proven that they are upstanding, trustworthy, transparent human beings. I am saying, however, that if sending money to the local MLS is not sending money to the members of that local MLS, then the same suspicion has to apply to RPR as well.
The argument over revenue share or profit share or whatever, statements of principles, member benefits vs. non-member benefits, and so on are the trees. Why the RPR is a for-profit venture that plans to keep all of the money for itself is the forest.
So let’s not get hung up on what section 3(b)(ii)(A) says about 7(c)(iii) or what this word or that word might mean in the new RPR License Agreement. Fact is, until the big issues of Loss of Relationship, Local Governance, and Local Benefits are addressed, such in-depth hairsplitting is an amusing exercise for attorneys to do. (Speaking of which, I’ll be over later Brian.)
The forest emerges, and this one is dark and full of shadows. Stay focused on the big picture, because that remains hazy still.