Notorious R.O.B.

(Part 1, 2, and 3 of the Lessons from Counterinsurgency Series)

Final Thoughts from Gen. Petraeus

Finally, we always must strive to learn and adapt. The situation in Afghanistan has changed significantly in the past several years and it continues to evolve. This makes it incumbent on us to assess the situation continually and to adjust our plans, operations, and tactics as required. We should share good ideas and best practices, but we also should never forget that what works in an area today may not work there tomorrow, and that what works in one area may not work in another.

Honestly, this needs very little elaboration.

The American military is a huge organization.  It is not known for its friendliness to change.  If anything, the military tends to be conservative, holding onto its hallowed traditions.

Nonetheless, in a counterinsurgency, the doctrine is to continually assess the situation, learn, and adjust plans.

No matter how large a Big Brokerage may be, learning to adapt will be a key factor in whether they emerge victorious or fall by the wayside over the next few years.  CEO’s and other senior leaders must not only be prepared for rapid change but insist on organizational nimbleness across the board.  Bureaucratic barriers must be brought down; resistant personnel moved out; cumbersome processes reexamined to see if they are really necessary.

Senior leaders must also question some of their most hallowed, deeply held beliefs about how the industry works.  “Getting back to basics” may be fatal if the lessons from the last war you fought are completely inappropriate for the current counterinsurgency action.  Is having the greatest number of yard signs really the most important competitive advantage?  Really?  Don’t take the answer for granted: investigate it, and you may be surprised.

Finally, in the new business environment, I don’t believe that any answer remains the answer for long.  As Gen. Petraeus points out, what works in one area may not work in another; what works today may not work tomorrow.  Organizations must be remade, reforged, and retrained to deal with the fluid, ever-changing environment they face today.  Why?

Because the insurgents are constantly changing, constantly adapting, and constantly investigating how they can stay one step ahead of you.

-rsh

(Part 1, Part 2)

Petraeus on Unity

Another major lesson from counterinsurgency is the importance of coordination and synchronization:

It is also essential that we achieve unity of effort, that we coordinate and synchronize the actions of all ISAF and Afghan forces — and those of our Pakistani partners across the border — and that we do the same with the actions of our embassy and international partners, our Afghan counterparts, local governmental leaders, and international and non-governmental organizations. Working to a common purpose is essential in the conduct of counterinsurgency operations.

For the military, counterinsurgency brings all instruments of power to bear on the conflict, from the guns and bombers to diplomats to financial incentives, civil engineers, teachers and nonprofits, and everything else that could help the mission.

The obvious implication for real estate — and one that Big Brokerage already does very well — is to offer the full range of services either under the same roof or by strategic relationships.

For example, as a consumer, I may go see some properties with a real estate agent, then walk down the hall to a mortgage broker and apply, then have the agent find me the home inspector, the real estate attorney, title insurer, and escrow services.  Without my having to go research each of those and shop around.  So it’s convenient for the consumer.

There are, however, two further implications of the unity of effort doctrine for real estate that go beyond this easy, surface lesson of “full service”.

Read the rest of this entry »

In part 1 of this series, we discussed Information Operations and the importance of integrity in counterinsurgency strategy.  I took lessons from the U.S. Military, and the author of those doctrines Gen. David Petraeus, and applied them to the real estate industry.  In this installment, I’d like to take a look at another key principle of counterinsurgency and how those lessons apply to Big Real Estate: Importance of Local.

Petraeus On Local

Counterinsurgency is intensely local, and reflects lessons of Fourth Generation Warfare. Digression follows!

First generation warfare is all about formations, line and column, and massed infantry.  It is what Napoleon was a master of, and conquered half of Europe with, until he ran into better-trained British infantrymen.  [Making this digression even more of one, for a really entertaining look into first generation warfare and what that looked like, check out the Richard Sharpe series from the British historical novelist Bernard Cornwell.]

Second generation warfare emphasized massed firepower (aka, “massed artillery” and machine guns ) instead of massed manpower.  The idea was that artillery would bombard the enemy into submission, while the rifleman simply mops up the mess.  World War I was mostly a second-gen affair.

Third generation warfare emphasized speed and maneuverability (“blitzkrieg”) to neutralize the advantage of massed artillery.

All of these approaches concerned themselves with taking on an established, uniformed opposing army.  When the enemy disperses and become guerrilla forces or insurgents, then these strategies are of limited utility.

Fourth generation warfare is precisely this sort of war — insurgents, terrorism, propaganda, information operations, where the line between combatants and civilians is intentionally blurred, etc.

With all that said… here’s Gen. Petraeus:

Securing and serving the people requires that our forces be good neighbors. While it may be less culturally acceptable to live among the people in certain parts of Afghanistan than it was in Iraq, it is necessary to locate Afghan and ISAF forces where they can establish a persistent security presence. You can’t commute to work in the conduct of counterinsurgency operations. Positioning outposts and patrol bases, then, requires careful thought, consultation with local leaders, and the establishment of good local relationships to be effective.

Positioning near those we and our Afghan partners are helping to secure also enables us to understand the neighborhood. A nuanced appreciation of the local situation is essential. (Emphasis added)

Conducting counterinsurgency means getting close to the local situation, having boots on the ground in the local community, providing security to the local area, and truly understanding the local neighborhood.

He may as well have been talking about real estate. Read the rest of this entry »

It may be completely inappropriate to compare the life-and-death work of our military in Afghanistan to the buying and selling of real estate ensconced in our safety… but I could not help but read this with interest:

We also must strive to be first with the truth. We need to beat the insurgents and extremists to the headlines and to pre-empt rumors. We can do that by getting accurate information to the chain of command, to our Afghan partners, and to the press as soon as is possible.Integrity is critical to this fight. Thus, when situations are bad, we should freely acknowledge that fact and avoid temptations to spin. Rather, we should describe the setbacks and failures we suffer and then state what we’ve learned from them and how we’ll adjust to reduce the chances of similar events in the future. (Emphasis added)

That is from a recent speech that General David Petraeus gave at the Munich Security Conference talking about the very real, very serious problems of fighting Al Qaeda and Taliban in Afghanistan.

But if he were speaking at just about any real estate industry conference, I don’t know that those words would be any different.

How often have we heard condemnations of NAR, and specifically of David Lereah, former Chief Economist for NAR?  There are even whole websites set up to rant at Mr. Lereah.

And according to at least one real estate professional, David Lereah and the whole ‘head-in-sand’ approach to the RE market hurt her directly by undermining the credibility of the profession, forcing her to un-educate then re-educate consumers, and establish her own credibility as a realtor.

What’s more, not one big brokerage or big brand in real estate was sounding the alarm back in 2005 or so, while individual realtors were starting to get real skeptical of home values, and blogs like Patrick.net were in full bubble-warning mode in 2005.

What has that done to the brand image of all Realtors?  What has the failure to freely acknowledge that situations are bad, the failure of so-called ‘real estate experts’ to warn about the housing bubble, the failure of so-called ‘mortgage experts’ to warn about the credit bubble, and the failure of so-called ‘ethical professionals with fiduciary duty to clients’ to properly advise buyers during what was obviously a bubble done to the industry?

Post-bubble, has there been any major statement by NAR or by a major brokerage acknowledging the “setbacks and failures” and stating “what they’ve learned from them and how they’ll adjust to reduce the chances of similar events in the future”?  If so, I missed it. Read the rest of this entry »

There are really very few voices in the RE.net I respect more than Russell Shaw‘s. I mean, this is a guy who not only talks the talk, he actually walks the walk. His insights and ideas are great in and of themselves, but they are that much more credible in my eyes because he’s a tremendously successful practitioner of the craft as well.

So when Russell speaks on something I’ve written, and criticizes it, that criticism is something I take seriously. He writes:

In some of the posts on various blogs and also on Inman there has been discussion of IDX vs. VOW and how perhaps a national MLS is needed and that some fantastic company using really wonderful technology is going to attract loads and loads of business, pay the agents less and sort of take over. I contend that if such a thing were possible it would have already happened. Zip or Redfin would be making a ton of money (instead of endlessly feeding their companies with investor capital that is not likely to ever come back to them). I don’t think it makes any difference to any big company if only IDX or only VOW is used. About the only people who it will ever make a significant difference to are those agents (not “companies”) who primarily work buyers. They use other people’s listings (via IDX or VOW) as bait to attract buyers who aren’t working with any agent yet.

Desk-fee agents are not only not going away, they ARE the future of our industry. Don’t believe it? Look at the actual trends for the past decade. Our industry is shifting from a totally broker-centric model to 100% companies. Right now, in most parts of the country it is the big national 100% companies who dominate (in terms of numbers of agents). Take a closer look at where 100% started (Phoenix) and you see a very different picture: most of the agents are with 100% companies and the “traditional” companies have changed their splits to the point that they may as well be 100% companies. But it is the less well-known 100% companies that have the largest number of agents. Hint: they charge less. A lot less. My prediction is that these companies and teams of agents (with a rainmaker, mentor) are the future of our business. We will have fewer agents and I believe that is a good thing. A very good thing.

My only defense to this powerful line of criticism is that “past performance is no guarantee of future results.” Let’s get into depth a bit.

IDX, VOW, and Bait

I think Russell is surely correct when he says that buyer agents use other people’s listings, whether over IDX or VOW, to attract buyers. But I submit that if you go a level deeper into this “bait” concept, the difference between IDX and VOW are significant, and that the incentives as currently structured point the way towards a very different future.

It is worth noting that very knowledgeable people think I’m nuts. I say, time will tell.

But this whole discussion is being driven at base by the continued shift of consumers to the Internet. That trend is not likely to reverse, as the demographics of the consumer continually changes.

And while Russell is right that buyer agents use other people’s listings as bait, I believe that the trend even for sellers is to look at effective online marketing programs by the listing agent. I mean, could you even walk into a listing presentation today without an integrated online marketing strategy?

So whether you’re talking about bait to attract buyers, or bait to get sellers to list with you, you’re still talking about the Internet and effective online marketing.

Now, throw into this volatile, changing environment these facts:

1. IDX, while tremendously successful, is a pain to implement due to variety of local rules.
2. VOW, while tremendously open, has that “signup” provision that is a major barrier to consumer engagement.
3. Only public facing MLS websites (and possibly Realtor.com) are free of either restriction, under the NAR-DOJ settlement.

What is the likely outcome?

To me, it appears that the future looks something like this:

• Public-facing MLS websites become the primary consumer destination sites, with perhaps Realtor.com (depending on how the NAR-DOJ settlement is interpreted vis-a-vis Realtor.com) being the primary national real estate portal (possibly to each MLS site).
• Brokers (and agents) have enormous marketing advantages if they can convince consumers to signup with them in some way.
• Ergo, brokers (and agents) who have extremely robust, powerful, and consumer-useful CRM systems married to an effective, consumer-friendly, and content-rich online marketing strategies win the battle for consumers. And winning that battle leads to wining the listings battle, as those brokers (and agents) are able to tell the seller, “We have a database of 95,000 homebuyers, married to our awesome website, and an integrated marketing approach.”

Perhaps it won’t happen this way, but I think the logic is valid.

End of Desk Fee Brokerage?

For what it’s worth, I didn’t come up with the title for my Inman interview. I’m not sure if desk-fee brokerage is going the way of the dodo bird. What I do wonder about, however, is what stops a Third Party Platform (such as Trulia or Homegain or whoever is left standing) from getting brokerage licenses, and leveraging their overall lower cost of operations (from economies of scale) and rolling out a national, desk-fee model, but featuring lower fees for all services that desk fee agents currently receive from their brokerages.

Sperry Van Ness has tried to do this in commercial real estate to some success, and that’s a business that isn’t all that friendly to a desk-fee model. Why it wouldn’t work in residential is something I’m waiting to find out.

Furthermore, as I mentioned above, what happened in the past is not a great indication of what is likely to happen in the future. At some point, especially in what appears to be a historic down market, the extremely thin profit margins of these various brokerages are going to catch up to them. Do they maintain the 100% desk fee model that is yielding less than investment into Treasuries? Or do they at some point decide it’s not worth all the hassle and the risk?

The Connection to Brand

What’s even more interesting is that Russell points out the unfortunate truth: real estate brands have lost so much equity, so much brand identity, that most of them don’t stand for anything:

Take what is currently, factually, the really biggest real estate company in the world, Realogy: other than Sotheby’s what brand do they have that matters? Try none for an answer. What meaningful difference does the general public or even the agent public see between Century 21, ERA, Better Homes & Gardens, or Coldwell Banker (just to name a few)? Which one of those is a “good brand”? (yes, yes, I know, Coldwell Banker is supposed to be their “premier brand”)

Is Coldwell Banker a better brokerage firm to the public than Century 21? Do people across the nation think to themselves, “It would be so great if we could buy our next home from a Coldwell Banker agent”? Ever? Does anyone, anywhere, ever think that? How about, ERA? Does anyone say,”I only want to do business with an ERA agent”? If not, what are those “brands” worth? Not much. Why? They don’t stand for anything. To matter, a brand must mean something in the mind of the public and few national real estate firms have ever done that and then managed to hold on to their position.

So, to start off, general agreement on all points. The big brands in real estate have lost most, if not all, of their brand equity.

Brand awareness is not the same thing as brand equity. So for Century 21 to claim that they are #1 in brand awareness, as they recently did, is actually somewhat meaningless unless the brand itself is connected to a real identity.

However, brand awareness is important. It takes years, decades, and really serious money to build up brand awareness in the minds of consumers. To even get people to recognize a particular logo and see it as being familiar takes real effort. And it does provide tangible benefits. In the case of C21, it meant that at least in a survey, consumers responded that they were most likely to choose C21 to buy or sell a house.

Furthermore, if you have a familiar brand, it takes far less effort to turn it around and give it a real identity. It isn’t easy, but it is doable.

What Russell does not take into account, however, in the brand story is how the brand equity was lost. Perhaps the full story will require far more study and research than my little blogpost here, but I submit that the main way that brand equity was lost by Big Brands was through loss of control over the agents.

Best Buy can put out all the TV ads in the world showing smiling, friendly salespeople talking about some sweet holiday story. I set foot into a local Best Buy, deal with one Best Buy salesperson, and all of that branding effort is wiped out if the salesperson is rude, surly, and a moron. It’s happened to me often enough that I no longer shop at Best Buy unless I absolutely must.

Same thing applies to retail. Bloomingdales was once seen as the creme de la creme of American retail — a true luxury with incredible customer service. Yeah… have you set foot in a Bloomingdale’s recently? Do you feel catered to? Special? Luxurious?

All the branding in the world cannot overcome a bad customer touchpoint, and the people who wear the brand is quite possibly the single most important customer touchpoint.

Take a look at the care with which service-driven industries, such as luxury hotels, select, train, and monitor their frontline staff from the check-in clerk, to the over-the-phone reservation people. If I feel that I’ve been treated less than perfectly at a Westin, I’m pretty sure I can get that employee fired. But at a Best Western? I seriously doubt it.

So in the world of real estate, which big brand really enforces brand discipline down through the ranks to the agent level?

For that matter, how many large brokerages — especially the 100% desk fee models — truly enforce brand message and brand discipline?

If the official brand statement is that “our agents are truly knowledgeable experts”, how many brokers fire agents who aren’t?  How many even test agents to see just how expert they are?

And the 100% desk fee models contributed directly to, and was simultaneously symptomatic of, that loss of control.  With a 100% desk fee model, the broker doesn’t care so much about the consumer, or his brand, except insofar as it would help him bring in agents who pay him fees.  The real customer is the agent, not the consumer.

Sort of tough to “control the agent” and “enforce brand discipline” when that’s the case.

The Gorilla Cometh

So when I predict the future coming of the Big Brokerage, it is based on certain fundamental assumptions and observations.

Brokers will not stay in a 3% profit business forever; either the profit has to go up, or they will get out.

We are currently at the tail-end of an agent-centric industry model pioneered by Remax.  The current shift is away from an agent-centric model towards a web-centric model, because the key to the whole industry is Who Holds the Consumer Relationship?

If Third Party Providers win that battle through superior technology, superior marketing, and superior web-based applications, then they will enable the “desk-fee’ing” of the entire real estate brokerage industry.  At that point, the brokerages might as well go out of business, because the agents don’t need you; they need the Third Party Providers far more.  This is the CoStar/Loopnet future of real estate.

What argues against this outcome is the simple fact that most Third Party Providers are losing money in a rough investment environment, and may not survive to see this beautiful future (for them).

If Brokers win that battle through real investment into technologies that enable a web-centric model, then they can and will absolutely reduce the cost of labor.  They have to in order to make back their investment on the one hand, and to raise the profitability of the business on the other.

What argues against this outcome is that most Big Brokerages do not yet seem to understand this, and in the current market, are likely to be very gunshy about investing in anything.

My current stance is that it is easier for the guys with the money — Big Brokerage — to make the investment, gain control over their agents, gain control over their brands, drive brand discipline through the ranks, and emerge far stronger than they ever have been, empowered by technology, than it is for the guys with the technology to find ways to make money.  Hence, I believe the 900-lb gorilla cometh.

But… I could be wrong.  And it could be the 900-lb bear that cometh instead.

(The agent, by the way, is simply not a player in this battle.  They don’t have the money, and don’t have the infrastructure.  They will use whatever tools are provided by whomever, and decide who the winner will be, but they themselves are not in this fight.)

-rsh

Joel Burslem at FOREM (mildly) puts the hammer down on Seth Godin’s SquidZipper:

I think he (and Squidoo) may just be a little late to the party on this one.

I’m just not sure Agents really need yet another place to blog hyperlocally. And Squidoo, for all its promise as a destination for user generated content, has never really taken off.

Dustin Luther follows up (again, in a really nice way):

Anyway, I only remembered this story after reading Joel’s post about Seth Godin’s new product: SquidZipper.

Even two years after my call with Dan, the market for providing a free, quality, and local marketing platform for agents is still largely undeveloped… and while one of the real estate focused verticals like Trulia or Zillow could theoretically fill this niche, it still seems like such a no brainer for one of the big guys like Google, Microsoft or Yahoo to take a page from Seth’s playbook and create a niche-specific platform for their various tools!

Seth’s platform is a great idea… but it is still missing the one thing that could really make a platform like this work: an abundance of consumers!

Funny how that one little thing makes a lot of otherwise crappy platforms work (see, e.g., LoopNet).

But this isn’t a post about SquidZipper necessarily.  Nor is it a post really about Trulia.

Instead, it’s a post about HomeDepot.

A while back, the wife and I noticed a pretty significant draft coming through our windows.  Considering the house had been built in 1940′s, and hadn’t really had a renovation since then, we thought it wise to invest in some new windows.  So we went to HomeDepot like millions of Americans, and looked into getting windows installed.

Everything pretty much went according to plan.  We bought the windows, talked to the nice people at HomeDepot, and on the appointed day, a contractor showed up at our house and started work.

I noticed, however, that the contractor’s van didn’t look like a HomeDepot van; it didn’t have any colors.  It had some guy’s name on the side (like Joe Romano & Sons or something like that) with no hint of the ubiquitous HomeDepot orange.  Turns out the HomeDepot installation technician who was in my house wasn’t, strictly speaking, a HomeDepot employee.  He actually had his own company that installed windows, and did assorted contractor work specializing in decks and patios.  He was just one of the numerous independent contractors who had agreed to have HomeDepot send them work, presumably in exchange for some fixed rate, and for agreeing to certain HomeDepot rules and standards.

We had a nice chat, this contractor and I.  He installed our windows, and left.  I can’t remember his name, and I couldn’t pick him out of a lineup.  I don’t remember the name of his company.

What I do remember is that HomeDepot installed my windows.

What the )(@#*$ does any of this have to do with real estate, Trulia, SquidZipper, and so forth?

Well, since I asked what an agent needed a brand for, it seems more and more to me that various companies out there are targeting at disintermediating not the agent, but the brands.

Let’s suppose for a moment that SquidZipper or Trulia or Zillow or any of these guys do manage to launch some sort of a platform to help a real estate agent do local marketing extremely well.  All of the tools are there: maps, listings, content, data, etc.  Let’s further suppose that one of these platforms manage to acquire an abundance of consumers such that the agent can see leads coming in day in and day out.

Said consumer then has a relationship (or at least an experience) with Trulia or whoever; it’s how they found the house, and found the real estate agent.  Presumably said consumer would have a relationship/experience with the agent himself, since they worked closely with the agent in the whole acquisition/disposition process.

But the brokerage?  Or the brand?  Just like I couldn’t remember the name of the contractor that did my windows, would any consumer remember RE/Max or Coldwell Banker or whatever?

Would said consumer, upon resurfacing seven years later (on average), remember the agent who took such good care of him the first time around?  Or would he remember the really useful website where he found a house and someone to “install” the house for him?

Where exactly is the brand, or the brokerage company, in all of this?

-rsh

It appears that Zillow has broken the 100,000 real estate agent milestone:

Sometime last Friday, real estate agent number 100,000 (yes, one hundred thousand!) registered on Zillow and posted a listing for sale in Niceville, Florida. I’d like to say; “Welcome to Zillow!” to Jamee Graff (pictured at left.) Jamee is a Realtor with The Real Estate Market Inc in Destin, FL.

This is a huge milestone for Zillow but the first 100K agents to register are just the tip of the iceberg. There are in fact another 135K agents who are ‘beneath the surface’ – if you will let me drag out the iceberg metaphor. So, who are these secret agents? They’re agents whose listings are advertised on Zillow but who haven’t registered as a user. Their listings were posted via a data feed supplied by their brokerage, MLS or website.

The good people at Zillow go on to invite these 135,000 subterranean agents to surface by registering at Zillow, and briefly mention some benefits of unmasking onself:

When you do, buyers will not only be able to find your listings on Zillow, they’ll also find you (or at least your profile page) and because your profile is linked to all of your listings, they will easily find your other listings as well. Your profile on Zillow tells a buyer more about you and it can link prospective clients to your website or blog.

Interesting.  Cool even.  I think it’s very smart of Zillow to offer this, and to encourage it.

Having said that… my question: If your listings are all on Zillow, and buyers can find you via your profiles to all your listings, and your profile tells buyer more about you and can link to your website or blog…

What do you need your brand (or broker or MLS) for again?

Okay, I know most states require a full broker’s license — so maybe you just need to park your real estate license at some brokerage and pay them their split.  But… does it then matter whether you’re at a Century 21 or a Keller Williams or a Re/Max?  I’ve had one top producing residential agent tell me at an industry conference that the only reason why she’s with Re/Max is because of liability insurance.  Is that the future of these mega-brands in real estate?  Becoming essentially professional liability insurance cooperatives?

For that matter, if your business is coming from Zillow… how long before you begin to wonder what you need the MLS for?

I’m not a real estate agent, so I don’t know the answers.  But seems to me that Zillow is befriending the agent, but commoditizing the heck out of the big brands and the MLS.  I’m frankly surprised that the big brands, website companies, and MLS’es aren’t going apeshit over this post.

But then, maybe they know something I don’t.

-rsh