Notorious R.O.B. – Conversations on Marketing, Technology, Real Estate

On November 6th, at roughly 3:15PM Eastern Standard Time, the National Association of REALTORS declared war on the rest of the real estate industry.  To be fair, NAR probably did not realize that it did so.  Judging by the initial responses, it doesn’t appear to me that most people see what I saw.  But, probably because of my twisted nature and my penchant for focusing on the dark side of human nature, I am predicting nothing short of civil war in the real estate industry going forward unless REALTORS Property Resource (or RPR) in its current form is immediately scrapped.

What brings forth such hyperbole?

RPR, or REALTORS Property Resource, was a project shrouded in secrecy.  Brian Larson’s post of October 19th, 2009 is a pretty good pre-unveiling summary of the questions and concerns around RPR.  Brian Boero’s initial take is a very decent summary of the post-unveiling.  But since Brian is a much nicer, much sunnier, much more positive guy than I am, I believe what you’ll get from Brian is the “Glass Half Full” vision.

Strap in for the darker vision.

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Thinking about the dawn of a new day

I had promised in Part 2 of this series that I would tackle the so-called “K-Dub” model in this part.  Well, I’ve decided against it.  Looking at the numbers, it seems to me that from a model perspective, there’s nothing particularly novel about the K-Dub (based on Keller Williams) model.  Its appeal and power lie elsewhere — power of recruiting, passive income streams, etc. — but on paper, K-Dub is clearly inferior to an optimized Traditional model and to the employee-based TerraFirma model.  In the real world, of course, Keller Williams is the fastest growing real estate company in America for a reason.

Instead, I think it might be time to get into a meatier, opinion-based discussion about what the future might look like, based on the models thus far.  So first, for those of you inclined to mess around with spreadsheets and such, I’m attaching the actual Excel spreadsheet I’ve been using for my analysis: Brokerage Models 2.0 (.xlsx workbook file).

Also, before we dive in, please take a moment to go read this post by Nicolai Kolding, the guy who sort of started this all with his prescient post on the status quo.  Some of the comments to that post are just excellent, and this post of mine can be thought of as an extended comment to his post.

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In Part 1, we explored the traditional brokerage model by the numbers and found that there are significant issues with the current model as constructed.  It may be, of course, that my hypothetical numbers are just way off, and therefore, the entire analysis ought to be trashed.  I get the feeling, however, that in the main, the assumptions — and therefore the analysis — were mostly correct based on comments in the thread, as well as the simple fact that traditional brokers aren’t out buying luxury yachts and private planes by the hundreds.

But simply because “traditional” models — and please note that I exclude Keller Williams from the “traditional” model, as would Keller Williams itself — are broken does not mean that other models are sustainable.  We have had a number of discussions within the industry about how to address the flawed model for real estate brokerage, from low-overhead virtual models to heavyweight full-service/low-split models, to employee-based models.  Going forward, all of these models have to be put to the same test of (at least) hypothetical numbers.  If the hypothetical numbers don’t make sense, there’s little reason to think that the real world numbers (which are usually worse) would lead to the Promised Land.

One of the first I’d like to explore is the “brokerage as a law firm” model — simply because it was one of the first I had suggested back in the misty days of bygone memory.  The theory here is that producing agents — the rainmakers — would band together and form a partnership, much the same way that experienced lawyers get together to make a law firm, and employ associates who are on salary.  To test this, let us create another hypothetical brokerage for the purposes of discussion, debate, and comparison: TerraFirma.

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Math is FUN-damental!

One of the more insightful posts on the industry came earlier this week from one of the more insightful people in the industry: Nicolai Kolding, COO of Better Homes & Gardens Real Estate, and former head of M&A for Realogy. This is a man who knows what he’s talking about.

He gave a presentation (PDF) at Inman Connect in San Francisco that I unfortunately missed due to meetings and such but I think his blogpost covers most of his basic points:

- The current business model for real estate brokerage is unsustainable.

- There are four financial factors that drive revenues:

1. The number of homes sold (with each sale having two “sides”),
2. The average price of the sales,
3. The brokerage’s take after the agents’ commission splits (”percent retained”),
4. The amount (in percentage) received per transaction (”average broker commission rate” or ABCR).

- Three of these four factors have been going in the wrong direction over the past decade or so. The deterioration was covered by rising home prices during the Bubble, but sides, percent retained, and ABCR have all been headed down.

- Even if home prices recover, without changing these fundamental dynamics, the current brokerage model is unsustainable.

- The sustainable model of the future will, in Nicolai’s view, do four things:

1. Maintain (or increase) ABCR by constantly updating and improving the value proposition to consumers;
2. Increase average agent productivity;
3. Increase percent retained through brokerage-generated business;
4. Generate a far higher output per square foot of office space.

Nicolai recommends a bunch of action items in his presentation.  For example, he talks about reducing office space to 50 sq.ft. per agent, restructuring commission plans and compensation plans, consolidating certain functions such as accounting and marketing, and eliminating technology/office items such as printing, copying, extra landlines, etc.

As it happens, I think Nicolai is right on target in many many respects.  In the comments to his blogpost, there are some heavy duty thinkers weighing in on how to fix the status quo and structure a business model for brokerage that makes sense going forward.

One of the things I wanted to do — and I’ve asked Nicolai for some help on this, which he was kind enough to supply as he could — was to contextualize the discussion by looking at the numbers involved.  A lot of the talk about business models feels to me like a bunch of hot air unless we can start looking at numbers, even if manufactured/fake, just to have some basis for discussion.

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Marc Davison (@1000wattmarc) of 1000watt Consulting is one of the top thinkers and one of the most compelling writers in our industry, and his latest posts on the future of brokerage are examples of why one might think of Marc as Master Yoda of the Real Estate Jedi Academy.  You can read part 1 here, and part 2 here.  Marc takes on topics that are near and dear to my heart — real estate brokerage models, the future, and branding — and it goes without saying that I have to add my two pennies to the conversation.

As this post is likely to get long, let me summarize briefly at the outset.

I take Marc’s premise at face value (and agree with him), but then extend the solution beyond what he proposes.  Our difference in approach lies in our different backgrounds — Marc was trained as a copywriter, and comes out of the branding/advertising world.  I trained as an attorney and an entrepreneur, and come out of operations and marketing arenas.  As a result, where he sees the need for a complete and effective repositioning, I see the need for a complete and effective reengineering.  At the end of the day, we end up at the same place, since repositioning is impossible without a level of reengineering, and reengineering is impossible without a new understanding of brand.

Nonetheless, I believe there are valuable insights to be had by comparing and contrasting our different approaches, so to some extent, I’ll be focusing on differences between our approaches and viewpoints.  Again, I think it’s important to keep in mind that Marc and I likely agree far more than we disagree, and that our agreements are fundamental while our differences may be stylistic and relatively minor.

Having said that, let us dive right in.

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In a time lost in memory, in a world far far away, I openly hypothesized that the future of real estate brokerage might look more like a law firm than brokers of today:

Everyone else is an employee. They get a salary, they get benefits, and if business is good, and they’re good, then they get a bonus. If they’re not, then they get fired. The firm is legally responsible for their actions in the course of work (respondeat superior) but in return, the firm clearly directs the how, when, what, and where of the employee’s activities. And the firm takes 100% of the revenues, with no splits, no commissions, and so on.

Junior agents in particular are valuable to the firm only insofar as revenues generated > money spent on that agent. What could a junior agent do to prove such value?

1. They can do the actual work, freeing up the partners to go out and bring in business.
2. They can bring in business.

It is a waste of the firm’s time to have a senior partner spend time showing houses; that’s for his associate, who may in fact be better at doing that. He might spend that time either calling on more potential sellers, or speaking at local Chamber of Commerce events, or writing blogs proving how much of an expert he is in investment real estate in the Modesto, CA market.

I went on to theorize further on a bunch of things, and have had some really interesting conversations with realestistas about whether this model was possible.

Now, I see this come across my RSS reader — Independent Contractor Model Outdated; Mimic Teams Instead:

If you could re-invent your company in any way possible, what would it look like?

We would begin with employee agents only, not the out-dated “independent contractor” model currently in place. The premise would be that these brokers can make more money per hour than under the current model, have more time off than current agents do, have more regular hours they could count on, have a team of specialists to assist them, in the form of transaction managers, marketing specialists, etc., leaving the agents free to do what they do the best, i.e., interface with willing buyers and sellers. In this model, employee agents could handle many more transactions than any current agent can, because others on the team handle the ancillary details.

The profile for the employee agent does not exist typically in the current “independent contractor” brokerages; the pool is external, perhaps younger, needing income, prospects in place, and perhaps benefits. The business in this model is created by the brokerage and retained by the brokerage, affording the broker/owner the control of business created and closed by the employee agents. The model for this is not new; we need only to look within our brokerages at the “teams” that exist there and mimic that model right in our own offices! This new model requires a shift from the “agent-centric” past to the “consumer-centric” present and future, which is where our consumer really lives! We need to show up. [emphasis added]

O.O

The writer here is not some random blogger like yours truly spouting off theories.  Nancy Rusinak is the broker-owner of a successful brokerage company in Colorado.  She has the actual ability to make this happen.

The blog she posted this on to share with the world is not some random blogger’s personal playpen either; that’s the official blog of the Leading Real Estate Companies of the World, the largest network of independent brokerages in America.

Dare I think that we may see the whole “Firm as Model” actually happen?

-rsh

I recently discovered Brandie Young, a fellow marketer, via her first blogpost on Agent Genius.  That post is interesting in and of itself.  And I’ve added her blog to the blogroll here.

But this comment from a Barry Cunningham on that post is really interesting to the whole Robnecks v. Kristians debate:

You have described my business model EXACTLY. I do all the marketing, I drive SERIOUS traffic via opt-ins and registrations to our various points of entry, and each day I see loads of buyer regs coming in ASKING to be show property. So what do I do? I’m not interested in doing grunt work…I have found 25 HUNGRY almost starving agents and if they are real nice and do EXACTLY what I tell them, I shove them ready , willing and able buyer manna under the door for them to feed upon. Oh yeah…we take in EXCESS of 50%..WAY in excess!

If an agent doesn’t like it..then fine..go away. I run one ad, and have a bevy of agents to choose from.

So… if this works so well with 25 agents… why wouldn’t it work with 250?  With 2,500?  Backed up with actual enterprise technology and professional teams?

Anecdote is not the plural of evidence.  Still… seems to me controlling the customer relationship leads to everything else.

-rsh

Do Not Wake Sleeping Gorilla

As some of the commenters on my original thread have already surmised, Aybaf is not a real company.  It is a thought experiment that came about as the result of my hours-long conversation with an executive at one of the top web real estate companies.  My first thought was to call this new concept Trillow, but thought that would be too obvious.

The initial question that Mr. Executive (who wishes to remain anonymous for a variety of reasons) and I were tossing back and forth was this:

“Suppose this Trillow were to launch a virtual brokerage, backed up with all of the tools and resources currently available.  How does a traditional big broker or big brand compete?”

Hence, Aybaf (All You Brokers Are F***ed).

I do thank many of you for your thoughtful comments, and apologize for misleading you.  It was for a good cause.

Analyzing the Threat

Contra some of the commenters, I do believe that a Trillow Virtual Brokerage would take an enormous bite out of numerous brokerages as they are today.

I have on good authority that the vast majority of agents are more than happy to pay for actionable leads, as long as they are paying upon close.  Most people are much happier with a “pay-per-transaction” model than they are with any other, whether pay-per-click, or pay-per-lead, or pay-per-impression.  15% is not too high for a broker to charge for “house leads” because I know of several that are doing it, and their agents aren’t complaining — they’re happy.

Mr. Executive and I looked at the “desk fees” of a completely virtual brokerage, and they are negligible.  $19.95 a month easily covers the cost of a data center (which Aybaf would need to have in any event) and some of the software involved.  Liability insurance was the biggest line item, but at about 15,000 agents (about a tenth of what the NRT has today), that cost is easily covered.  Plus, transaction analytics coupled to risk management systems means you can continually prune the ones who pop up as a high-risk.

Finally, liability and screening are much less of an issue when you go after the experienced top producers who are already on 90/10 type of splits, already have their own operation setup, and already are disenchanted with the services they are receiving from their brokerage (or brand).  Sperry Van Ness has done this successfully in commercial real estate, an industry where big brand matters far more than it does in residential real estate.  They don’t need to “manage” their agents, because their agents are proven self-starters who “manage” themselves and their staff just fine, thank you.

2 million unique visitors a month is about the average between Trulia, Zillow, and HomeGain.  15,000 actionable leads is less than 1% conversion rate from that traffic.

This can absolutely happen.  Do not think it can’t.

So the question for brokerages and brands is, “How will you compete?”

Institutional Disadvantage

What Aybaf points to is the significant institutional disadvantage that brokerages and brands have in today’s real estate industry.  As Kris Berg points out, the old economies of scale do not work anymore:

It seems like only yesterday that I needed a company brand for credibility. I needed the resources of a big company, both the fixtures and the systems, because there was an economy of scale which I couldn’t touch on my own. Today, I can work from anywhere. I don’t need the desk and computer bank and copiers; I have my own. I don’t need the listing feeds; I can place my listings any place my broker might, and in doing so all roads lead back to me. I don’t need the brand; I long ago branded myself. Group print advertising rates which used to be a huge benefit of associating with the 1000 pound gorilla are now an antiquated concept. [Emphasis added.]

So the current brokerages of all stripes are stuck with the costs of operating an institution that generates economies of scale that don’t matter anymore to the experienced, producing agents.

So... About This Disadvantage Thing...

I spoke with the Director of Technology for a very large brokerage operation who told me flat out that the facilities costs for his offices are crushing their P&L and balance sheets.  The annual rent for 15,000 sq. ft. of office space no longer makes any sense when 80% of agents are working from home, or better yet, working from their local Starbucks using mobile communications and laptops more powerful than the computer that sent Armstrong to the moon.

Plus, as any organization grows in size, there is inevitable overhead from bureaucracy.  Jay Thompson may be able to hand-route leads to his small team of agents, but once the agent count gets to a couple of hundred, and the lead count gets to hundreds a day, he’s going to be spending all of his time hand-routing leads.  So someone (human or machine) has to do that work for a large operation.

In my analysis, part of the institutional disadvantage that many brokers face today is the result of investment decisions made during the Roarin’ 00’s when real estate started to bubble.  I touched on this topic at some length on this post on OnBlog.  When you’ve spent years investing three-and-a-half times as much on dead-tree advertising instead of on your web operations, while the new generation of real estate players were investing 100% into the most powerful marketing and communications medium since television, you are going to end up with an institutional disadvantage.

Why?  Because technology improves productivity; dead-tree advertising has never, does not, and will never improve productivity.

So let’s come back to 2009.  Numerous large brokerages have thousands upon thousands of agents, but the smart, productive ones have figured out long ago that the broker isn’t providing enough value to them.  They’ve gone out on their own, followed gurus telling them to brand themselves, and to leverage social media to build their own following, and realized, “Hey, I can make more money doing this myself, with cheap or free technology tools!”

Result: the big brokerages are inefficient, behind in productivity, saddled with costs from the old economies of scale days, burdened with masses of unproductive, unprofessional agents who continually degrade the firm’s brand, and are watching their consumers transfer their loyalty to either Big Web or individual agents.

Tasty, But Not Me

I Ain’t No Chicken Little McNugget

Enough with the doomsaying and the sky-is-rapidly-descending talk.  As regular readers of this blog know, I am a believer in Big Brokerage as the future of real estate:

Robnecks hold that Big Brokers are not dinosaurs doomed to extinction as much as they are sleeping giants.  Some will never wake up, and end up being devoured by the Swarm; but those who do wake up have established business models, established brand, established infrastructure, and most importantly, have the resources to invest in to technology.

It is not too late for brokerages and brands to turn things around.  Decades upon decades of success have built a cushion for Big Brokerages.  But it’s getting there, and the clock is ticking, and the forces of Kristiandom are not resting.  You cannot survive eating into the brand endowment that your predecessors have built up; you’ve got to start replenishing it.

The key lessons that Big Brokerage must learn in order to turn things around are these:

1. Technology gives an institution the ability to control the consumer relationship.
2. Institutional advantage is built on productivity and brand.
3. You reap what you sow.

The full discussion of these is probably going to have to wait for another 9-million word post, but let’s briefly touch on these.

Consider Home Depot.  As a homeowner, I have a relationship with Home Depot, not with the contractors who show up to install the windows I bought there.  If I need to have new doors, I’ll go to Home Depot, and never even think about the independent contractor who shows up to install the doors.

For a services business, technology gives you the ability to know consumers, to relate to consumers directly, to build feedback loops with consumers, and to drive the entire consumer relationship cycle.  Look at Amazon.com and what it has accomplished — though they are in retail, so caveat lector.

Rather than outsourcing your consumer relationship efforts to your agents, you need to take ownership of that effort, and be responsible for it.  That will certainly mean more than software; it will mean reforming your customer relationship process, customer service philosophy, and perhaps finding resources to handle service.  It is critical to your future survival.

Productivity and brand — these two thing dictate institutional advantage.

Productivity simply means more units per unit of labor — more sides, more revenues, per agent/employee.  Every single piece of technology you implement must improve productivity or it’s a waste of money.  Enhanced productivity leads to increased profitability which leads to cost-structure advantages.

In today’s economy, this means finding new economies of scale.  The old “group discounts on dead-tree advertising” isn’t cutting it.  Listen to your best agents, watch the industry, and understand where the new economies of scale are.  They will be, I’m guessing, in areas of CRM, content generation and management, and web-based productivity tools.

Keeping in mind that your brand is in the hands of your worst agent, consider how that changes the way you would approach recruiting, training, discipline, and brand enforcement.

In concert, these two things yield lasting institutional advantage.  At least until things change again, and you have to adapt or die again.

Finally, and you know this already, you reap what you sow.  Continue to invest in print over web on a 3:1 ratio, and you will reap the rewards of that.  Continue to ignore your brand equity in favor of short-term revenues from “more bodies, more desk fees” and you will reap the rewards of that.

Renouncing Aybaf

At the end of the day, I renounce Aybaf.  For much the same reason that Keith from the comments mentions:

Brokerage is not about being cheap, or about providing web leads, it is about oversight and policy.

Where he says “oversight and policy”, I hear “total consumer experience”.  A broker who understands not only the past of the industry but the future as well, will be a major force for positive change.  They will drive customer benefit, while enforcing discipline required to build true brand equity.

Aybaf (or any model like it) may make a ton of money, and may be the low-cost solution for a variety of independents.  It may even win the overall war, as has happened in the travel industry for example.  But it cannot, in my view, help to improve the industry as a whole.

Renunciation, of course, is not the same thing as denial.  Aybaf can happen.  Trillow can happen.  And that fact should raise the original question for those responsible for brokerage companies and real estate brands today:

How will you compete?

-rsh

Onward to Victory!

The Setup

The talented and lovely Kris Berg is but one of the able spokespersons on the vanguard of a movement I have whimsically dubbed the “Kristians”.  This is an important movement, with very important points to make, and even as I disagree with them on points, I take their arguments seriously.

Essentially, the Kristian position appears to be (and please, feel free to correct me) that the future of real estate lies in The Swarm — small independents, high quality agents, and boutique firms, empowered by technology and social media.  The technology will be provided by third party firms, third party consumer websites, and the like.

Big Brokers, in the Kristian view, are anachronistic dinosaurs stuck back in the days, who provide no meaningful support to high-quality agents.  There is a role for Big Brokerage in the Kristian worldview, but it’s limited to some sort of a training factory to churn through the ranks of inexperienced newbies who aren’t serious about the business of real estate.  A nursery, if you will, for realtors who will go independent as soon as they are able.

In contrast, you have those who believe that the future of real estate will be dictated by Big Brokerage (including Big Franchise, such as Remax, Coldwell Banker, and the like) which I have dubbed The Robnecks.

The Robnecks believe that despite the current buzz being generated by social media, “Web 2.0″, and the like, the fundamental realities of business and the industry will reassert themselves and in the not-too-distant future.  Robnecks hold that Big Brokers are not dinosaurs doomed to extinction as much as they are sleeping giants.  Some will never wake up, and end up being devoured by the Swarm; but those who do wake up have established business models, established brand, established infrastructure, and most importantly, have the resources to invest in to technology.

The Robneckian theory posits that there are technology solutions available in the market today — such as enterprise CRM — that are enormously expensive to implement and to operate, but provide lasting institutional advantage.  Given that some of these Big Brokerages have billions in sales, and hundreds of millions in revenues, they will not go gentle into that dark night.  They will fight and rage against the dying of the light.

We believe, therefore, that the future of real estate will be charted by those Big Brokerages who have woken up, seen the light, and have begun to streamline their operations, understanding the critical levers of power in the industry.  Marrying their institutional expertise with infrastructure with significant investment into productivity technology will provide these Big Brokerages with a profit advantage over big competitors and a brand advantage over The Swarm, which will lead to their changing the industry.

The Question

The Talented Ms. Berg

With that background, consider that Kris Berg recently posted a very thought-provoking, and important, article on this topic entitled “Innovation in Real Estate: Are we really different or did we just change clothes“.  I urge you to read it in full.

It continues the debate that began here.  And Kris asks important questions and makes important points.  The most salient, I think, is this:

It seems like only yesterday that I needed a company brand for credibility. I needed the resources of a big company, both the fixtures and the systems, because there was an economy of scale which I couldn’t touch on my own. Today, I can work from anywhere. I don’t need the desk and computer bank and copiers; I have my own. I don’t need the listing feeds; I can place my listings any place my broker might, and in doing so all roads lead back to me. I don’t need the brand; I long ago branded myself. Group print advertising rates which used to be a huge benefit of associating with the 1000 pound gorilla are now an antiquated concept.

Admittedly, many agents may not want to think that hard, so there will always be a place for the high-overhead brokerage. But as we march forward in our social evolution, the numbers who will need help grasping technology or will need to be spoon-fed a business plan will diminish. As virtual office space becomes more the norm and less the exception, I believe we will be finding more agents concluding that the shiny office supported by company voice mail and e-mail systems and an administrative staff a dozen deep are “wants” and not “needs.” And when that happens, there will be more resistance to paying for something that is not truly necessary in conducting our business.

So we are left with the true value of the brokerage being in the areas of training and “lead generation.” Training is another topic entirely and for another day. As for lead generation, I see it becoming a footrace of sorts among the competing brokerages to generate the most “leads” (consumer contacts and inquiries) to placate and feed the largest number of agents. More agents equal more money. But then, haven’t we come full circle? Aren’t we back to what we are now? And just where did the customer go in the equation?

Again, read the whole thing in full for the proper context.

Kris is surely correct as things stand today.  I want to stress this point.  As the industry is today, Kris Berg is absolutely correct, and the Kristians have the field.

If Big Brokerage of today is essentially a office-park operation that has gleaming office space and dozens of admins who add little value to the transaction, and they just charge rent (aka, “desk fee”) to the agents, then yes, the savvy agent will see that they don’t in fact need anything that the Big Brokerage provides.

Third party vendors do in fact supply the savvy agent with everything she needs to be successful.

The only value of brokerage, then, in the Kristian vision is “training and lead generation”.  And her question is poignant indeed: “And just where did the customer go in the equation?”

The Answer

The Robneckian answer is un-simple.  Furthermore, it is counter-factual, because I am essentially arguing that the future will be different than the recent past, and the present day.  But I believe this.

To start, we must begin with First Premises — assumptions that underlie the answer.  In this case, they are:

• People love money, but people hate losing money even more.
• He who controls the consumer relationship controls the money; he who controls the money controls the future.
• Real Estate is the longest of Long Tails.

From these first premises, what I derive is that Big Brokerage has greater incentive to act than pretenders to the throne.  It’s one thing to want to make $150m a year by becoming a third party technology provider to millions of agents.  It’s another thing altogether to lose $150m a year by sleeping on the job.

Lest we forget, some of the people who own these Big Brokerages are folks who have spent their entire lives building up a company from the ground up.  I met some of these people during my time at Realogy.  They may be fatcats now, but not one forgot the struggles they went through as a young man or woman scratching and fighting, building their company one customer at a time, one agent at a time, facing bankruptcies, having wins, and finally breaking through.  They are one motivated group of folks.

Is it really safe to assume that people like that are content to let their brokerage value plummet while third party tech vendors pick off their top producers?

I wouldn’t bet against those people as a group.  Sure, some will be too tired, some will be too set in their ways, some will simply be content to fade away — but most of those successful broker owners are extremely driven, competitive, smart people with a track record of success over the decades.

Second, once those people come to understand that he who controls the consumer relationship controls the business, and that web technology lets institutions control that consumer relationship (see, e.g., zappos.com)… I believe that they will see what this means for their business.  Going from the currently prevailing 3% profit margin to say a 10% profit margin when you’re doing $2B in sales means you achieve massive institutional advantage.

Finally, because real estate is the longest of long tail industries — due to the fact that each and every house is unique and not movable — even the superest of super agents can only occupy a small part of the long tail.  Yes, they can make a very nice living while there (see, e.g., John McMonigle) but as compared to Big Brokerage, these super-teams or boutique brokerages simply lack market power.

Only someone who can aggregate all these different pieces of the long tail into a significant enough chunk can make real money from real estate.  The only two contenders are Big Brokerage or Technology Providers (such as Zillow).

Can Tech Providers win that war?  Of course they can.  Too much arrogance, too short-term vision, or too little nimbleness on the part of Big Brokerage will naturally lead to the Tech Providers winning.  In large part, this is what has happened to commercial real estate in the United States.

However, the Robnecks hypothesize that it will not happen in residential real estate, because here (unlike in CRE), an institution can own the consumer relationship.

Caveat Lector

The caveat: they cannot do it with technology already available to the agent.  No way, no how.  The cost advantages of someone working from home, using Trulia for listings, Google Apps for software, and the like are too enormous.  Big Brokerage can never be the lowest cost provider.

Rather, they have to do it with technology that is yet unavailable to the masses.  Two examples: enterprise CRM, and dynamic content management coupled to anonymous user profiling.  Imagine those deployed cross the NRT.  And that’s just pure technology.  Imagine competing with a Big Broker that has an actual, professional marketing and customer relationship team (again, see Zappos.com) empowered with enterprise software.

Furthermore, the Big Brokers simply cannot do it when loaded down with overhead that isn’t leading to owning the consumer relationship.  Those 20,000 sq. ft. offices have to go.  $15,000 per year desk costs per agent have to go.  Multi-million dollar print ad budgets have to go.  You cannot compete, even with small independents, burdened with useless overhead.

Big Brokers have to adapt many of the techniques of the smaller, nimbler Kristians, then layer the Big Technology on top of that.

And finally (at least for this post), Big Brokers must understand that their brand is what separates them from The Swarm, and that their brand is in the hands of their worst agent.  Without serious focus on quality control, without serious concern about fulfilling the brand promise by every single person who is associated with Big Brokerage brand, it will be impossible to establish lasting institutional advantage over The Swarm.

Without that advantage, you die.  Just a matter of time.

Enter the Customer

While I concede this is counterfactual, consider… imagine, if you will… what happens to the consumer when a fully awake, fully invested, and fully operational Big Brokerage aims to own the relationship with him.

From the moment the consumer goes on www.BigBroker.com, the company knows something about him based on anonymous IP tracking, user profiling, geo-targeting, and the like.  As he interacts with the site, fully realized with something like the Lifestyle Listings Engine, the company knows more and more about his preferences, his life decisions, his economics, and the like.

From the minute he presses “Submit a Question” button, the system routes his information to the appropriate expert on the topics he is interested in, and the CRM system gives the agent 5 minutes to respond by phone or email before moving the lead on.  End result: consumer is contacted within 15 minutes.

Throughout the entire transactional process, the Big Broker system is tracking every interaction, the customer service department is following the consumer’s twitterstream, sending out satisfaction surveys, and sending links to helpful articles, vendors, and the like depending on the phase of transaction.

After the transaction, full customer satisfaction surveys are conducted, and if problem spots arise, a customer service rep — perhaps even the owner of Big Brokerage himself — is on the phone with him finding out what went wrong and how they could fix it next time.

This is all possible today.  It is roughly the experience I had buying a Honda.  It is absolutely possible in real estate.

Far From the End

This is not the end of the discussion and debate, of course.  If anything, it is merely the start of the Grand Debate that I believe will be sorted out by realities on the ground over the next 2-3 years.

The Kristians have a strong argument.  Because their version of reality is in fact what exists today.  Most brokers do too little for too few for too much money.  Consumers are left as an afterthought.

But that can change.  And quickly. And all of the incentives are lined up on the side of the existing players who have far, far too much to lose.  Once awake, they have the resources to make things happen awfully quick.

I for one am not betting against them.

-rsh

I just heard of this new company that is planning to launch in mid-2009, called Aybaf.  It is a new virtual brokerage model with the following pertinent points:

• A world-class consumer web portal, currently generating north of 2 million unique visitors per month
• Roughly 15,000 web-based leads every month, growing at 10% on average month over month (adjusted for seasonality)
• Full suite of online agent tools, ranging from a baseline free set to premium tools from Aybaf partners that the agent will select on an a-la-carte basis.
  • Free will include: Agent Profile Page, Email Marketing Engine (including weekly CMA reports automatically generated), full-on listings syndication, Agent Website (agent.aybaf.com) with multiple templates featuring the agent’s own listings and a WordPress blog included.
  • Options include: IDX feed, VOW site (with state-specific registration pathways), independent agent site (www.agent.com), Custom design (through Aybaf’s network of web development partners), Search Marketing (Aybaf has tools from AdWords to Omniture, where any agent can go purchase keywords easily), Featured Listings (on a competitive bid basis on geographies), and PR (through network of PR partners).
• Full social media support, included in the above suite of tools, from group blogs on blog.aybaf.com to individual blogs (hosted and managed on Aybaf’s Class-A datacenter) to premium paid services (all at agent’s discretion).
• Enterprise CRM platform, with social media tools.  As I heard it, Aybaf is looking at the Zappos.com model of leveraging social media as a customer retention and relationship tool, and deploying that out to both an internal customer-service call-center as well as member agents.  Every customer is tracked, leads are distributed according to proprietary algorithms, and performance tracked to ensure that leads are going to productive agents who respond quickly.
• Customer surveys after each and every interaction, to ensure that only the best agents remain affiliated with Aybaf, and to let agents know what they did well and where they can improve.  Continual quality improvement is their goal.
• A range of partnerships with service providers, as well as a simple online resource center for agents to order services.  For example, if you need a yardsign, Aybaf offers partnerships with six different yard sign companies at discounts ranging from 5% to 15%, and an online order center to easily expedite ordering yard signs.  Same for any service an agent might need, from direct mail to SEO consultancies.
• Training will be available 24/7 through Aybaf’s automated Agent Resource Center, featuring WebEx, pre-recorded sessions from top names in training, as well as a network of coaches, consultants, and trainers on topics from business planning to social media. They’re incorporating BlackBoard software for enabling online education for all of their agents.
• Full range of professional services through partnerships.  They are signing up real estate lawyers, mortgage companies, title companies, etc. at a rapid clip and integrating them as much as possible into the Agent Resource Center.

There were some other details, but the above are the main points.

The most amazing thing about this is that every agent will be on a 100% split, and because Aybaf is a purely virtual brokerage (except in states where they must have a physical office, in which case it will be the smallest possible “storefront” with a single desk, or even just a PO Box), the “desk fees” are only $19.95 a month.

Aybaf’s business model is premised upon making money upon delivery of actionable leads (they haven’t figured out the precise rate, but thinks it’ll be in the 10-15% of GCI, and only if it leads to an actual closed side for the agent), and taking a piece of any premium services the agent purchases.

What do you think?  Could this work in real estate?

-rsh

UPDATE: You might want to read this, the followup to this post.