Mike Wurzer, CEO of FBS, was good enough to write up a summary and highlights of our debate in Ohio at the Central Ohio Real Estate and Development Summit hosted by Columbus REALTORS.
You can find his post here.
I like to think that Mike and I did a good job of showcasing how two reasonable people can disagree and debate without things turning rancorous or nasty. And his writeup was fair indeed with none of the drama or the nastiness that has crept into our industry dialogue of late. That doesn’t change the fact that Mike was wrong and remains wrong, however. 😀
I thought it worth continuing the debate here in print and who knows, perhaps another round of discussions in the future. This is a public post, because his writeup was also public. Once again, I’d like to express how appreciative I am of Mike’s engagement, his knowledge, his expertise, and his courtesy.
Treating Symptoms, Not the Disease
Mike thinks that my proposed solution to end IDX is “flawed in multiple ways.” He writes:
First, the main point I made during our debate: Ending IDX would only shift the war to VOWs, which Rob conceded are not likely to go away given they originated from the settlement of a lawsuit by the DOJ. Imagine for a minute that Rob got his way and all IDX feeds were turned off tomorrow, requiring everyone to switch to VOW feeds to continue to display other brokers’ listings. Given that the portals are already operating as VOW sites, who do you think would win such VOW wars to sign up as many customers as possible?
What Mike leaves out, of course, is my response to him at the Columbus event.
Yes, VOW does not go away even if every MLS listened to me and eliminated IDX, because VOW is not about marketing or lead generation but about online delivery of real estate services. However… Mike does not answer my question:
If portals could so easily switch to VOW, why haven’t they? If VOW were the answer for the portals, then why is Zillow bothering to sue MRED instead of just moving to VOW? Mike thinks that everyone would just switch to VOW feeds, but he’s somehow leaving out the key requirement of user registration that VOW requires.
I have already acknowledged that it likely is not that difficult for the portals to make the switch, especially in the era of smartphones and single-sign-on everywhere. And yet, they haven’t. Why is that?
Because they know, like everyone else recognized back in 2008, that requiring registration dramatically drops user engagement. There is a reason why the entire industry adopted IDX instead of VOW, which was protected by the DOJ and the Consent Decree. If what you want to do is not deliver brokerage services over the internet but do lead generation, then IDX is much superior to VOW.
Mike’s answer is to preserve IDX, but “adapt data licensing to today’s realities.”
That to me is treating the symptoms, rather than the disease.
The Sickness
Mike left out a bit of context in his writeup, so allow me to add it here. I started off by stating that I was concerned about the survival of the MLS system due to self-inflicted wounds. I believe my precise words were, “The MLS is busy committing suicide.”
The reason I believe that should be familiar to most of my readers, but let me summarize:
- The MLS was created as, and was for most of its existence, a cooperative of real estate brokerages.
- Those brokers competed for clients, but once they got clients, they collaborated to get the deal done.
- The MLS not only made that collaboration possible, it provided an enforcement mechanism for shared compensation.
- Prior to the advent of the internet, no one who wasn’t an actual broker or agent cared about the MLS. (Sorry, appraisers always cared.) Lead generation was newspapers, magazines, telephone, physical office locations, yard signs, and so on.
- The internet changed all of that by creating the most powerful lead generation platform we had ever seen.
- IDX was a short-term response born out of the pragmatic realities of the technologies of the early 2000s: maintaining databases and data feeds was expensive and difficult. The data is in the MLS; just put that on the internet.
- As IDX became more and more important to brokers and agents, the MLS focused more and more of its attention to IDX and IDX rules and IDX policies, and less and less attention to the inter-broker cooperation that was the central value of the MLS. As an example, I recently analyzed a large MLS’s Rules and Policies. I found that there were twice as many words devoted to IDX rules than there were devoted to brokerage cooperation.
- Brokers tolerated the top-down micromanagement and the monopolization of listing syndication by the MLS because the MLS still guaranteed compensation. They put up with the annoyances of data licensing regimes because guaranteed compensation was worth the pain.
- Sitzer Settlement eviscerated compensation from the MLS. Now, its value proposition is in cooperation and in the database.
- Also, technology has advanced by leaps and bounds since 2000. Today, it is neither difficult nor expensive for brokerages to manage databases and data feeds (i.e., APIs).
One result of the focus by the MLS on data distribution instead of inter-broker cooperation is that the brokers themselves have come to increasingly view the MLS primarily as a database and a data syndication platform rather than as a vehicle for cooperation with other brokers.
This is suicide. Because the MLS does not have the staff, the technology, the expertise, nor the infrastructure to be a true data management company. Most MLSs lease their entire tech stack from a vendor, like FBS or Cotality or Black Knight. Real data companies do not rent their core technology from vendors. The number of actual data scientists employed by the 500ish MLS’s in the country can be counted on one hand. At least two individual brokerages I know of – Compass and eXp – have more software engineers on payroll than the 500 MLSs put together. It goes without saying that actual tech companies like Zillow and Redfin and CoStar and Move have orders of magnitude more expertise, talent, and resources to be a data company.
I believe that if the MLS is seen primarily as a data utility, then it will soon be replaced by companies and organizations that have actual competence in data management.
So the sickness to be treated is not a data license issue; it is that the MLS itself has forgotten where it came from, what it is, and who it serves. Every MLS has a sentence or a paragraph right at the front of its Rules & Policies saying something about how it is a broker cooperative. But every MLS acts like it is a data company. MLS boards will spend orders of magnitude more time discussing IDX rules, talking about technology, and debating data syndication policies than they do inter-broker cooperation or how to be more accountable to the brokerages who make up the MLS cooperative.
My recommendation was not “eliminate IDX.” My recommendation was, “MLS, get out of marketing and data distribution to focus like a laser on broker cooperation.”
“Just Make Big Sites Pay More”
I think it should be obvious how “data licensing” is a wholly inadequate response to “stop focusing on data distribution and refocus on broker cooperation” but… just in case, let me illustrate by looking at Mike’s core recommendation.
He writes:
Instead of ending IDX, I suggested that MLSs address the cooperation disconnect by pricing IDX and other display licenses based on usage so that high-traffic sites pay more than low-traffic sites. Usage is how data is licensed in most industries, and it also can work in real estate. In addition, consider how MLSs could experiment with coupling such usage based licensing terms with broker reward programs like the one created recently by NTREIS and MetroTex. This kind of balanced initiative has the potential to create a positive feedback loop rather than the negative one that looms and threatens today.
Seeing as how I tried to launch an MLS based precisely on this kind of data monetization and brokerage payback mechanism, I understand the play being made here. I tried to do it, so obviously I believe in it.
However… the MLS is going to have to grapple with a strategic issue I had to grapple with. Given the ease and cost of data technologies today, why would a broker not go direct to the big sites and demand payment? Or more precisely, just how much of the revenue could such a data monetization MLS keep as a pure middleman?
One way to illustrate this is to rewrite something Mike wrote, replacing the word “MLS” with the word “brokerage”:
Once brokerages start licensing around use case instead of requester category, a lot of today’s fights become unnecessary.
If I am a portal, one of these high-traffic sites, would I not investigate getting the data directly from the source and maybe not paying the middleman markup?
The middleman – the MLS in this case – would need to provide enough value through aggregation and normalization and license management to justify whatever percentage it is taking. It cannot possibly be that high since high margin naturally leads to, “Let me go direct.”
Which then leads us to the other major issue I brought up during the debate.
I have already cited why the MLS is ill-positioned to becoming a data utility focused on data licensing. But there is one more key reason.
If the average MLS board operated like a board of a tech company focused on doing data management, that would be one thing. But the average MLS board acts far too often like an overactive HOA board instead routinely getting into the most nitpicky nitty gritty of a broker or an agent’s business. We all know about the IDX rules that require a certain font size for display. THAT organization is going to be a great data middleman?
Plus, there is the merry go round of directors who have one year terms based on how popular someone is in the REALTOR Association. So a great MLS with a great Board of Directors can transform overnight into the East German commissariat.
I know Mike agrees with me on this. After all, he wrote:
As The Realty Alliance letter says, MLSs should “stay out of business practices by enabling fierce, efficient competition but not regulating how brokerages operate.”
They should do that, yes, but when you have placed data syndication in the hands of the MLS… it’s going to be very difficult not to try to regulate how brokerages operate.
Do Less, MLS
In closing, I also wish to thank Columbus REALTORS for the in-person debate opportunity, and to thank Mike for both the fun times in person and the reasoned debate afterwards.
I suppose if I take a step back, the difference between Mike’s worldview and mine may be that he believes the MLS to be fundamentally healthy but in need of some minor tweaks around data licensing whereas I believe that the MLS is fundamentally sick unto death and in need of major intervention to survive. Chances are, he’s right; it always pays to bet on the status quo in our industry. But if he is right, then whether the MLS does or does not do data licensing differently won’t matter because the MLS is fundamentally healthy.
If I am right, then the consequences are catastrophic. If you think about risk management, investigating, studying and thinking, and potentially taking action… weigh the consequences and probability together.
All I can advise the MLS to do is to talk to their brokers more, particularly the bigger ones who have the capability to do data distribution directly themselves. Ask them if what they want is an MLS that does even more data licensing and pursues “ten different licensing use cases” with ten different regulatory regimes attached. Maybe what they want is an MLS that does less and focuses on being a brokerage cooperative.
-rsh