Home Real Estate Keller Williams' New E-Edge Program and Strategic Fit

Keller Williams' New E-Edge Program and Strategic Fit

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As some of you know, I’ve long been an admirer of Keller Williams as a brokerage model, because of its consistency. I may not be a huge fan of all of their practices, but as a business consultant, I’ve always admired how its strategy fits together so very well. I wrote about KW on Inman last year (subscription required) as I held them up as a classic case of cost leadership.

Recently, however, I’m left wondering what KW is doing with some of its moves. The most recent move, the announcement of a program called E-Edge, has me scratching my head. I thought it worth writing about, because I think it illustrates a core concept in competitive strategy: strategic fit.

Brief Review of Competitive Analysis

If you’re an Inman subscriber, you can re-read this post to get caught up to date. If not, you can read this paper by Michael Porter.

Basically, Porter posits that there are three ways a business competes: price leadership, differentiation, or focus. Focus in turn is broken down into price-focus, and differentiation-focus. Price leadership means that you will offer an acceptable level of product or service, but at the lowest cost in the market. Think Wal-Mart, or maybe Dell.

In real estate, my position was that the cost-leader was Keller Williams, if you consider a brokerage’s true customers to be not consumers but the agents. The combination of offers — a cap on commissions, passive income, minimal services — meant that for productive agents, Keller Williams was offering an acceptable level of service in exchange for the lowest cost. (This was in contrast to some of the “100% shops” that offered a lower cost, but an unacceptably low level of service in exchange.) As I wrote in the Inman column:

As we will see, the KWRI model – of which KW Premier is an example – is built around achieving and maintaining Cost Leadership, while offering a product to the general agent population that is comparable to that offered by competing brokerages. Almost all of its systems are inter-related, and that system is what provides it with the competitive advantage of Cost. (Emphasis added)

Everything in the Keller Williams system, as I understand it, is built around the cost leadership vector of competition. For example, the profit-sharing up to seven levels of down-line revenues incentivized the agents themselves to recruit new agents into Keller Williams, minimizing the need for costly recruiting and retention efforts. The freedom that Keller Williams emphasized in all of its literature and marketing to agents also meant that the average brokerage (or “market center”) did not have to provide costly technology tools and the like. Each agent was free to buy and use whatever she deemed fit.

Because its whole system fit together so well to create a cost leadership competitive advantage to KW, I figured it was just a matter of time before KW overtook the existing leaders. Indeed, apparently, KW just surpassed Century 21 to become the second largest real estate franchise in the United States. Just last year, KW passed RE/MAX as the #3. That’s extraordinary growth.

E-Edge

Since I’m not a KW agent, I’m going by public information on E-Edge. From KW itself we get this description:

KW eEdge is the real estate industry’s first and only COMPLETE lead-to-close agent business solution -available exclusively to Keller Williams associates. It includes lead management and routing capabilities, full contact management, a professional marketing library and a true paperless transaction system.

And here’s a video going into a bit more depth:

The stated intention of E-Edge is to take all of the different, various tools that a KW agent uses and bring them all into one single tool. You’ve got (from what I can tell from a quick overview) lead generation, syndication, lead management, CRM, transaction management, paperless transactions (DocuSign), transaction reporting, financial reporting, and so on. It sounds fantastic.

(Of course, if I were TopProducer or MyRedTools, both of whom are KW partners/vendors, I’d be pretty pissed off about getting called out by name as being too expensive… but that’s between those companies to figure out.)

I have no idea if E-Edge actually is fantastic or not. Early word is that it’s not, but… I suppose that’s to be expected from any massive deployment of any large-scale software solution. At the same time, KW and its vendor partners can’t be happy about things like this:

But even after KW overcomes whatever launch bugs and such, I still wonder about E-Edge from a strategic standpoint, because of two particular aspects of the program: mandatory usage, and mandatory fees.

According to KW agents, usage of the E-Edge system is not yet mandatory, but will be, as it will become the only way to submit transactions to the brokerage. Furthermore, KW itself says that E-Edge is being funded by a $15 per agent monthly technology fee. Looking through the comments on the Internet (for example, here), it appears that a number of complaints are stemming from the fact that some people aren’t happy with what $14.4m per year (80,000 agents x $15 fee x 12) is buying them. [EDITED to correct wrong pricing info, as per Eric Stegemann’s comment below.]

If the usage and the fee are both mandatory, then KW has taken a step away from its hitherto consistent cost leadership strategy. E-Edge does not fit the KW model as I understood it to be.

Which means that either E-Edge will fail miserably, that KW has lost sight of its competitive strategy, or that KW has changed its competitive strategy. If the first, that’s a misfortune for KW, but not a big deal. If the second, a window of opportunity has been opened. If the third… well, then it gets interesting.

The Strategic Fit

I feel E-Edge is a turning point of sorts for KW, because of strategic fit. It is a glaring exception to the overall cost leadership strategy that the KW system has built.

To review, once again, I believe that the KW system was built on offering a minimum acceptable set of services in exchange for an extremely low price (in the form of splits) to the agent-buyer. Consider some of the major features of the KW system:

  • 70/30 splits, up to a cap (typically $30K or so), after which the agent goes to a 100% split
  • A cap on royalties to Keller Williams Realty International, the franchisor
  • A fairly complex profit-sharing scheme in which an agent can receive passive income (“downline revenues”) from agents that she has recruited into Keller Williams (This is the so-called “multi-level marketing” that gets such scrutiny from others.)
  • Free training offered by other agents within an office, who are motivated via profit-sharing, and paid training offered through Keller Williams University and other channels (and KWRI considers itself a “training and education company, that happens to run a real estate brokerage”)
  • Almost complete independence on how an agent can run her business, coupled to a near-total lack of tools and support from the brokerage or from Corporate.
  • Near-zero marketing of the brand or the company; all advertising efforts are focused on the individual agent, but paid for by the individual agent
  • Very little recruiting, compared to other major franchisors

The end result, as I wrote in my Inman column, is a system which provides cost leadership to KW companies:

The reason is that all of KW Premier’s activities fit together to create that cost advantage. It isn’t simply that KW Premier offers high splits. Its training program by itself is not an obvious cost advantage. The lack of expensive office space is not the cost advantage, nor is the low staff count, nor the lack of a truly robust technology offering. What KW Premier achieves is a totality of all of those factors working together to create the cost advantage: making the agent all-important leads to flexibility, which leads to not having to manage agents tightly, which leads to focusing on training, which leads to agents who don’t need as much handholding, which leads to low staff count, which leads to not needing expensive office space, and so on. Combining profit sharing based on recruiting, and the financial performance of the firm, reduces recruiting cost, and incentivizes experienced agents to share best practices with less experienced agents, which reduces training costs. And so on. The entire system provides Cost Leadership. (Emphasis added)

Because of the strategic fit among the various elements, I believed that it would be nearly impossible to attack the KW model from a cost standpoint. A competitor would have to employ some sort of a Differentiation or a Focus strategy.

E-Edge represents a real step away from this system. It is a mandatory, company-wide offering, paid for by mandatory fees charged to each and every agent. And it is a truly robust technology offering, which aims to consolidate in a single platform all of the various tools that a real estate agent uses day in and day out, from lead generation to lead management to marketing to transaction management to document management to financial reporting. It is an ambitious project.

The trouble is, the offering simply lacks strategic fit. Already, the additional $15/person technology fee, needed to pay for this institutional technology offering, reduces KW’s cost leadership advantage. And in this economy, in this market, an additional $180 in costs per year is actually not something to overlook. The agents who have built their own technology systems, incurring out of pocket costs, will now have to consider switching (which imposes costs) or somehow integrating their systems with the E-Edge system (which imposes costs). It is not at all obvious that integration could be done.

Usage of E-Edge is also mandatory. (People I’ve spoken with say that it isn’t clear whether usage is mandatory or not, but they expect that it will become mandatory in due time if it is not.) This goes against the overall strategic fit, in which agent freedom is the principle that allows KW to skip on training and enforcement costs. With mandatory usage comes mandatory training, and either (a) KW Corporate will need to incur those costs itself, or (b) agents will be forced to pay for training they must go through. Either way, Cost Leadership will be more difficult to maintain.

It may be that when it’s all said and done, E-Edge will become a wonderful tool that raises agent productivity for KW across the board, and allows KW to recruit even more agents into the fold. KW may become the largest real estate brand by 2012. And the leadership at KW may know something about the limits of the cost leadership model in real estate that I do not. (For example, perhaps they see internal numbers showing recruiting has stalled, because KW does not offer a robust technology platform.)

So this analysis is not, repeat NOT, a knock on KW’s decision. What it is, however, is a look at the initiative from a strategic standpoint. And I’m not sanguine about E-Edge or KW from that perspective.

Simply put, the existence of E-Edge now provides an entree for the Differentiation competitors. Prior to E-Edge, a KW broker (or in its system, one of its agents who wants a downline recruit) would never compete on the basis of its technology platform. Some competitor might tout its “integrated technology platform”, but KW would simply ignore the issue and focus on its systemic strength: cost. Now, at the very least, a KW broker has to have a conversation with an agent-buyer about its integrated technology platform, instead of keeping the agent-buyer’s mind focused on the strength of KW’s proposition (cost). Perhaps KW will find that its technology is superior to everyone else’s, and win more agent-buyers that way. But KW has opened the door for a competitor to come along and offer an even better solution, which it is better positioned to do because it charges more to the agent-buyer.

Unless there has been a change in KW’s competitive strategy, straying from the core competitive system will often prove disappointing. And if there has been a change in the strategy, there are real questions as to whether a tiger can indeed change its stripes.

Considering Initiatives Within a Strategic Context

Fact is, companies and organizations make similar mistakes all the time. They take on initiatives that sound fantastic — in fact, they are fantastic. But those initiatives lack fit with the rest of the company’s competitive strategy.

Such initiatives end in three ways:

  1. The initiative fails
  2. The competitive strategy gets corrupted
  3. The competitive strategy changes for the better

Of these, only one can be considered a positive, and #3 rarely “just happens”. Usually, changes in strategy are effective only when driven from the top, throughout the organization, in a painful, laborious process in order to adapt to new market conditions. And even then, it doesn’t always work, because competitors are better positioned to take advantage. Look, for example, at Microsoft’s attempts to put the Internet at its center since 2005 after Bill Gates issued his now-famous “The Internet Tidal Wave” memo. Then consider whether Microsoft really is a major player on the Internet, given Google, Facebook, Amazon, and the like.

Of course, it must be said, as it comes to our industry… before one can stray from a competitive strategy, or get it corrupted, or get it changed… one has to have a competitive strategy. Sadly, this is not a given in our industry. But one guy can only do so much. 🙂

Time Will Tell

Again, I know very little about E-Edge itself, the thought process that went into its deployment, and cannot speculate on its ultimate success of failure. Given the thus-far demonstrated competence of the team at KW, it may be that this is a conscious first step to change the competitive strategy, and the KW executives likely know far more than I do as to what they’re trying to do. Time will tell whether E-Edge was the start of something new and fantastic, or the end of something compelling and competitive.

But the E-Edge initiative does serve as a wonderful example of how specific initiatives do or do not fit within a competitive strategy, and for that alone, it is worth looking at in more depth.

Your comments, as always, are welcome.

-rsh

21 COMMENTS

  1. Adding a technological tool that simply systemizes work flow, at a cost of three Starbucks visits annually, is a change in strategy? You know much more about this topic than I do, so help me here. Even if an agent opts for another CRM, they merely need to ‘submit transactions’ through the company’s CRM.

    One of the many factors that makes KW so successful is its relative superiority at systemization. Though I use REST as my CRM, it does everything theirs does, and much more. That said, I view it the same as KW apparently views E-Edge — systems, systems, systems. I suspect this move will improve agent performance, streamline corporate handling of agent transactions/pay, and end up being a net plus in their recruitment efforts.

    What am I missing here?

    • I think what you’re missing is “competitive strategy”. KW is a Cost Leader, or was. This takes them away from Cost Leadership. It would be akin to Walmart introducing personal shoppers: very nice to have, perhaps, and perhaps ultimately successful, but not how they have competed in the past.

      • Thanks for the great article, Rob. Disclaimer: I am a KW Agent. I currently use REST and do not use E-Edge. From my understanding – use of E-Edge will not be compulsory, at anytime. But, paying for it ($15) will be — cost of doing business, I guess. I’m not going to complain too loudly about $15/month because KW has given me a great RE education which, in turn, has driven me to succeed in this business. I started at two other top RE companies whose education process was “Go get a deal and we’ll discuss what to do, then.” . E-Edge was developed to give a simpler/cheaper platform to agents who needed one. If you like your current platform (TP or REST) you can keep using it.

      • John,
        From what I was told by representatives of the eEdge system, turning in your transaction will be compulsory at some point late this year or early next year. The green sheets will be created by the system and you won’t be able to turn them in manually.

      • We’re already there — we use Transaction Point for all paperwork – which I believe is going to be tied into E-Edge. Technically, you’re right – I guess what I’m saying is you won’t have to use it for contact management.

  2. Hey Rob. There are a few items in your post that should be pointed out:

    1) It’s not $15 a year / agent, it’s $15 a month / agent. So it’s $1.2 million a month.
    2) They aren’t using docusign, they are using DotLoop

    The document system of this will be compulsory to get paid. You’ll have to turn in your paperwork etc using the system. I think this is a huge hurdle (even though I’d love to see it one day) I would never recommend any broker working with us to force people to use our transaction management system all online to get paid. As I’ve stated before I think this piece alone will be a major failure in the eedge system. How many 60somethings do you know that will be happy being told their check isn’t coming until they learn how to scan documents?

    But your overall point is well taken. When KWRI put out a call for bids last year, many companies didn’t participate. (Our company included) Having agents pay the $15 / month is a mistake in my opinion because of your exact point. If I was a competing broker I’d have a field day with this. I’d start saying sure, you have a cap and this and that, but you’ve also got $200 a year in costs. For an agent in CA who makes $100k or more a year, no big deal. For the full time agent in MO making $35,000 a year. $200 is a lot of money that they are now forced to pay. If I was still a full time broker I’d get a competing product (Like Tribus of course 😉 ) and offer it for free to my agents and now have a competitive advantage. To me the added data, and watchful eye you could keep over agents would be worth the fee alone.
    The question I have yet to see answered. Does KW get access to all of your information? Or is a lead and contact in the system in your system and they can’t see it?

    • I corrected the pricing information above; thanks. So this system is $14.4 million per year, eh?

      Well, my point isn’t about E-Edge itself; I haven’t used it, and I know a lot of the folks involved, and they’re smart and good folks. My point is about strategic fit of seemingly attractive initiatives. A broker who goes out and buys Tribus to compete with KW had better think about what exactly _his_ competitive strategy is, or he’ll get eaten up by stronger competitors.

      • Don’t you think technology can be a competitive advantage? Basically offer everything KW does + free technology or better support or something else? It’s still a cost competitive strategy don’t you think, you’re just not responsible for the $15. In the scheme of things $15 should be pennies in terms of recruiting quality agents. And if you look at the Facebook page you can see many of the agents are angry about having to pay it. I understand 14 million is a chunk of change, however, I think if they wanted to continue their strategy would maybe have been better if they paid for it, then took all the leads and took a referral fee. Wouldn’t that still fit in with your cost competitive strategy?

      • You really should read Michael Porter, Competitive Strategy….

        The short answer is, technology can be a competitive advantage, but only insofar as it advances the competitive strategy: cost, differentiation, or focus. And my point is that businesspeople often fall into the trap of “in the grand scheme of things” and lose sight of their competitive strategy, assuming they had one in the first place.

        The hardest thing to do in strategy formation is deciding what NOT to do, no matter how attractive.

  3. I’m also a KW agent…I’m not too happy about paying more for eEdge, but think with the FULL implementation of this technology, it will turn around business for just about every agent. The main problem agents have is following up on leads. If you can take a brand new agent, plug them into a proven system that will work and get 5-10 transactions/year out of them, it’s a no-brainer.

    I believe the goal here is to boost the quality of the agent and have the ability to take any person off the street, have them follow the model and turn them into a successful agent. Will eEdge be that tool? It remains to be seen and only time will tell. I do believe KWRI took into consideration all the potential issues and has a plan…they didn’t get to #2 in the US by flying by the seat of their pants.

  4. The IDX link for E-Edge doesn’t work with the system in Canada and we don’t use digital signatures on our board. I have had a fabulous, completely programmed CRM solution for years (Agent Office) and see absolutely NO NEED for a mandatory $15 fee for something I will NEVER turn on, use, or even look at. My wife, a licensed assistant who manages our real estate office has NEVER sold a home and NEVER will yet she’s forced to pay the E-Edge fee. A seemingly POINTLESS money grab from virtually every perspective. But try taking that to your local ALC or Market Center. Might as well just pound sand…

  5. We had 3 hours of E-Edge training today at the office, it was packed. I had set mine up last night so I could only focus on what I couldn’t figure out.

    The only thing I couldn’t figure out was the Brokers IDX number to bring in the listings of all the other Brokerages in our area. Well, no wonder I couldn’t figure it out…it’s not active yet. So only our local KW listings are on there. Not good for being partly a lead generation site.

    One question asked was how are they bringing the leads in? Our trainer didn’t even know.
    When I was at RE/MAX we had lead street and it was set up that if a consumer signed on to RE/MAX.com it flipped them over the local office. From there the leads went out in a round robin. Our office in Ann Arbor voted to accept the lead in one hour or it moved on to the next agent til after 3 tries went to the Broker.
    I still like to know “how” they are going to drive traffic to these 180 agents sites in A2?

    The $15.00 a month doesn’t bother me.
    I already use Docu-sign at 19.95 a month so after DotLoop is up and running I will drop it.

    The training was mostly over folks heads that have never blogged, they didn’t understand hyper-linking, text editing of the pages etc. I offered to help them out.

    Of course you can upgrade to Pro (via Market Leader) which will eventually be 99.00 a month but I won’t as I am not wowed by “that” cost or what you get for it.

    In essence, I don’t think the $15.00 is a big deal to most agents and I have been following along on E-Edge Facebook and seen the complaints there, but our training room was packed to the gills, so much no one could really get on their laptops as it was too many.

    My business and the tools and systems I use was fine;but I can see how this will be a huge help for the majority of the agents in my office.

    Interesting comments on the green sheets I had not heard that. Again, no big deal, we do them online now anyway in A2.

  6. Disclaimer: I’m not a KW agent, but my brokerage, through Real Living, now offers a similar “platform.” Perhaps this is so obvious that it doesn’t need to be stated, but these kind of “platforms” are really about agent retention. Think about it: if you’ve been promoting yourself through a brokerage website for a number of years, and your lead database is on a company platform, all that info disappears (or can be really, really hard to recreate) when you leave the brokerage.

  7.  KW is collecting 14.4 million a year from their agents and they are only paying Market Leader 2 million a year for five years. I’m not sure how much is being spent on Dotloop but I can’t imagine it’s 12.4 million.
     
    http://biz.yahoo.com/e/110110/ledr8-k.html
     
    To provide the whole package to KW ML had to go into an agreement with Imprev to provide a marketing center.   They have agreed to pay Imprev 1.2 million a year for their marketing center product.  This agreement is for 3 years.
     
    http://biz.yahoo.com/e/110224/ledr8-k.html
     
    I think it’s safe to say that ML is taking a huge gamble on this and they are hoping to upsell as many KW agents as possible.  Selling them on the $99 version of this product is crucial for them to be successful.

  8. You’re wrong.  It has strategic fit….very strategic fit.   It follows the Millionaire Real Estate Agent model…so it gentle eases agents who are not following the model, into it.    It also better sets the agents up to focus on lead generation, which is so tough for many to do.   This plug and play system is very different than anything out there.  Sure it uses some of the ML and Imprev technology, but we’ve improved and continue to improve on their base systems.  There’s also plug and play for many different other vendors.   Top Producer was likely given a shot and didn’t want to play.  Understandable.  If even 1/2 the agents embrace it,their business will significantly change.  If the majority of the agents embrace it, the whole industry will be changed.

  9. I am a Keller Williams Agent and I must say that I am VERY DISSAPOINTED in Eedge. I would say that 80% of my office is dissatisfied with Eedge. Not only did KW start charging money BEFORE THE PRODUCT WAS EVEN RELEASED, It does nothing for an established agent. I have been building up my site branding for 7 years and I have worked myself up into the top 3% of Google search for my local real estate market. I have been with KW for 4 years. I have been on the ALC for three years. What “Keller Williams” presented us, was NOT what we received. I was told that it was group friendly. I have 6 primary agents in my group. I was told that Eedge would have a feature similar to the Top Producer Wiggit – Market Snapshot, which I use on my site. I can only use the Eedge lead capture if I purchase their CRAPPY site. PATHETIC! I need a lead capturing wiggit that allows round robin to be emplimented. I need for the program to also allow documents to be deleted from the admin. My assistant spends time putting files into a transaction “cloud” and when a document is not needed or if she by chance uploads the wrong one – forget it… its starting from scratch with the trasaction cloud…. REDICULOUS! I can go on and on about how tacky, illprepared and a complete waste of money for top producers. This might be a great training tool for green agents to play with, but for mega agents – forget it! I am not concerned about the money they are sucking from all of us, I am upset over the principle. Aparently, KW dropped the ball and their standards on this project. Any more like this from KW and I see more agents walking… if not for the working relationship I have with my broker – I would have walked and not looked back, just over Eedge.  

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