Tag Archives: business model

Is There A Future For Brokers And MLS? I Think So.

I recently read a post on the WAV Group Blog speaking about former broker Alain Pinel’s opinion editorial about future of MLS and common broker complaints. I felt compelled to share some of my opinion, and optimism, that with the right leadership both can prosper and coexist with less animosity.

People blog their ideas (OpEd) all the time but it doesn’t mean there is a problem.  That said, I believe with a clear vision and focus on execution, there’s plenty of opportunity to not only survive, but thrive both for brokers and MLS.  My “OpEd” would suggest instead that brokers and MLS redefine their relationship and MLS clearly define their business model.

Relationship:

MLS should be a technology company, and not a member organization.  Many spawned from member organizations, and are “stuck” in this dues-based revenue model.  The MLS should define itself as a technology company, and clearly separate from the member organizations who are typically shareholders.  The brokers and MLS shouldn’t play tug-o-war over listing data and instead brokers should look at MLS as a technology “buyers group”, a technology “service provider”, and a commercial “marketplace”.  All three should be separate business units (products).   Changing this relationship can allow both to work together to align goals to their respective customers, the agents, and prosper when their customers prosper.

Business Unit #1 (marketplace):

Think NASDAQ, Ebay, and add a retail buyer group (volume purchasing power).  The MLS business model should be both subscription-based and transactional.  Their core businesses should not be about data, but instead about the “marketplace”.  Everything should align with simplifying access to and integration with the “marketplace” and the objective should be aligned with agents’ to increase transactions.  MLS, like NASDAQ, should have minimum certification or education requirements for participants and have a reasonable base annual or monthly support  fee (like Costco).

MLS, like EBay, should charge a publishing fee to list something for sale in the marketplace, and a fixed fee for the back end transaction and compensation split.  Instead of a % of sale like Ebay, a fixed price transaction charge would be simpler.  This could be $50 publish, and $25/transaction for each party ($50 if buyer and seller agent).  Heck, title companies almost standardize $750/transaction nowadays so fees could be higher and potentially part of closing costs, but I’d lean to a small and easy to compute fee.  If 4+ million homes sold/year, and only $100 extra/transaction ($50 publish + ($25 + $25 close)) they instantly grew MLS market from it’s shrinking $500 million/year to $900 million.  The mistake I see most make is focusing on cutting costs or beating up vendors (their lifeblood), or trying to get commission revenue from vendors; they should instead focus on increasing revenue from customers.

By focusing instead on providing the “marketplace” and less about the data, you solve that resentment and bickering over who “owns” data.  The data is not the valuable asset, it’s the organized “marketplace”.  I fear too few MLS and brokers get this and while bickering over data, other entities are trying to move the marketplace away from them.  MLSs should actually reduce barriers for 3rd party integration because the more “buzz” promoted by others to use the “marketplace”, the more transactions run through it, and more money both agents and MLSs make.  Do you see NASDAQ restricting ticker quotes and bid/ask data?  Answer is “no” because they know the more people excited and educated about their customers’ products, the more transactions will process (why they track daily volume of stock buy/sell).  Everything they do is to attract companies to list with them (instead if NYSE), and drive as many transactions as possible.

Business Unit #2 (buyers group):

Think Groupon and Crowdsourcing.  MLS should have separate opt-in subscription business  where participants may join the MLS buyer’s group.  This is an opt-in group and likely requires research how retail buyers groups work.  The subscription covers expenses for MLS staff or consultants to “vet” products and services that may be considered, and offering incentives or guarantees to vendors on minimum purchase levels in order to earn tiered discounts in volume.  Instead of an App Store that offers very low value proposition to vendors (high upfront costs, no guarantees, small potential market [compared to 200 million+ with Apple and Google’s and standard platform]), MLS should instead form “teams” that may opt in to negotiate volume discounts for purchases of products.

Almost like crowdsourcing, or Groupon, each “deal” can announce to subscribers the products being purchased and agents can join in to bring down the overall price.  Once price agreed, participants get that deal and pricing.  This solves the “leveling the playing field” argument by brokers because vendors can have tiered pricing plans based on units, so the largest brokers may get the biggest deals for their agents in sheer numbers, but for some tools by aligning with other brokers they further drive the costs down.

Another feature they could do is kick off a “private or invite only deal” where perhaps they rally only their agents to get in on a product purchase and secure their company a better deal than smaller companies.  They really should differentiate and compete by hiring the best people because they too should be focused on increasing transactions.  If their customers are successful, then they are successful.

Business Unit #3 (products and services):

MLS can be a provider or reseller of technology tools.  This should be considered completely separate from other business units.  The marketplace should just be the back end “exchange” and API, and the products and services division offers various approved client solutions, or purchase and resell 3rd party solutions.  The MLS front-end is one example product.

Similar to MRIS in Maryland (DC area), MLSs could also market their own products like market reports, etc.  MRIS even built a new business for their RBI product, and several progressive MLSs are selling their solutions to other MLSs.  To attract the best vendors for the “directory”, the MLS products should be treated as equal to other products and pay same fees to promote its products as the vendors it aims to attract.

Business Unit #4 (Advertising):

This is where the “App Store” fits in, but instead I’d recommend the MLS become an affiliate and earn different revenue share based on their participation.  They can either participate in affiliate relationship like CommissionJunction.com, or charge for advertising, or both.  For example, if a product is one of many in a group then for every order the MLS generates, they earn 10% commission.  If the MLS promotes a product as the category featured solution, they could earn 15-20% commission.  If the MLS promotes an exclusive product for a category, they could earn 20-30% commission.

It’s completely fair to ask for affiliate commission if they indeed reduce a company’s acquisition costs.  If the company must generate orders themselves, then no commission is earned.  If the company wants to participate in a directory, it’s fair to ask for a listing charge (think Yellow Book), but the MLS should only expect a cut for revenues it drives to the company.  This aligns goals and incentives so the the MLS actually sells and not just lists, otherwise there is little value proposition to vendors.

There’s no reason not to provide a public-facing portal and collect advertising revenues or featured listing revenues, but this is shaky ground.  Brokers’ complaint on this is that the syndication of their listings reduces their expensive website’s traffic and SEO efforts.  I would analyze how HAR.com solved this problem in Houston and the value far outweighs the issues.  Regardless, just in focusing business units above and tweaking the model, the MLS could more than double it’s market size (to over $1 billion/year) very quickly and not on the backs of the very companies they rely on.

Summary:

I see MLSs and brokers have the right ideas on what they must do, but no one has laid out a clear road map to get there.  The first thing they must define are their business units (like above), eliminate the myopic focus on the data, and then work backwards with a tactical plan with milestones and dates to get there and track progress along the way.

I commend people like Michael Wurzer of FBS Systems for having the vision that the “front end of choice” will become an eventual truth.  The only mistake I see in the execution of the Spark Platform, for example, is the business model.  Currently it is confused for the app directory when in fact it should be the “exchange” or “marketplace” product.   MLSs should pay a hosting & support fee for this of possibly share in transaction revenue.

By redefining the relationship with brokers and agents, and focusing on the transactions and marketplace (prime asset), the MLS can significantly increase their revenue and support the vendors they rely on instead of the current cannibalization and price pressure on every contract renewal.  It’s not too late, but leadership, vision, and execution are required to get there.