realonomics

Wikinomics is a book by Don Tapscott and Anthony Williams. If you haven’t read it yet, do yourself a favor and get it. It is a good interesting read on how the Web is no longer about idly surfing and passively reading or watching, but how it has evolved into a new dynamic form of community and creative expression, one of sharing, socializing, collaborating and creating communities.

Participation has, according to a Wikinomics, reached a tipping point where new forms of mass collaboration are changing how goods and services and invented, produced, marketed, and distributed on a global basis. Now the perfect storm of technology, demographics and global economics is an unrelenting force for change and innovation.

They pinpoint 2006 has been the year when the programmable Web eclipse the static Web, on every level. For example:

• Flickr beat out webshots
• Wikipedia beat out Britannica
• Blogger beat out CNN
• Epinions beat out Consumer Reports
• Google Maps beat out MapQuest
• MySpace beat out Friendster
• Craigslist beat out Monster

The losers were websites. The winners were communities.

Wikinomics believes that profound changes in the world of technology are giving rise to power new tools based on community and collaboration. We are a new economy – a vast global network of connected people that swap and exchanging ideas, information and an endless list of other services.

And from where I stand I can see it happening to our industry as well. The real estate industry is changing and the thousands of blogs, social networks and the wikis are already laying the foundation for the new world. New business models are already being born, new paths already being charted and new leaders already being groomed.

Real estate over the next decade will change forever and Wikinomics may shed some light as to the path.

Below are a couple of examples of social networking in action:

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As firmly as IBM ruled mainframe computing and Microsoft the personal computer age for many years, so currently Google today rules the Internet. Originally nicknamed “BackRub” in 1998 by Stanford University buddies, Serge Brin and Larry Page, Google has not only become one of the most admired companies of the modern day but has found itself into our every day language, with the verb “google” being added to the Oxford dictionary in 2006. 

The stock price rocketed after its initial public offering price of $85 dollars in August of 2004 to over $720 in November 2007. At that time only Exxon Mobil Corp., General Electric Co., Microsoft Corp. and AT&T Inc. had a higher market capitalization among U.S. companies. Today at around $470, nearly 40% from its high, Google still commands a market capitalization of over $110 billion and continues to battle with giants such as News Corp. and Microsoft. 

Google, with its network composed of hundreds of thousands of servers, Google’s system never ages. When its individual pieces die, engineers just pluck them out and replace them with new, faster boxes. This means the “Google cloud” regenerates as it grows, almost like a living organism. 

At the same time Google at some accounts has become the gatekeeper of all information. Google also advises us that “real estate” is the most searched category on the Web - with the 2000-05 housing boom and the subsequent sub-prime and foreclosure catastrophe, this is maybe not that all surprising. But let’s look beyond that for a second.  

With some 141 million individually identified pieces of property in the U.S., real estate is at the very center of the American way of life – whether living, working, sport or entertainment. As Google conducts more real estate searches it aggregates more real estate information. Potentially with each new property search, each new listing added to its “deep search” database, each virtual street tour completed, each foreclosure filed, and so on Google gains more knowledge of the real estate industry. 

It actually is becoming increasingly harder to wrap your mind around just what exactly Google is – and more importantly what it may become.   

Could Google become the best advertising vehicle of all time to find and to market a house for sale?  

And if it does, could that reduce the need for various traditional real estate brokerage services?  

And if yes, to what extent and in what way, could Google influence the fundamental re-engineering of one of the oldest sales professions? 

What are your thoughts?

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REALonomics spends just about every day talking with Broker/Owners from the Atlantic seaboard to the Pacific coast and from the Great Lakes to the Rio Grande. It’s our business.

REALonomics is one of the few voices calling for Broker/Owners to take their business and markets by the throat and recapture control of their situation by ditching antiquated models in favor of transitioning to new transparent, consumer-centric, open-market models that don’t suck-out what little profit is left, if any.

In the midst of the industry’s mortgage and market chaos a few owners appear to be going fetal and saying “That’s the way it goes…I’m waiting and praying for a turn-around.”

REALonomics is a bit edgy…we ride the rim of the business model discussion orb, hoping to pull owners out of the spinning vortex of financial distruction to the edge of new thinking that tells them, you can make a lot of money in this business but not the old way. We deliberately drag owners into a new universe of thinking, hoping they will jettison the old in favor of the new.

We espouse “New Real Estate Model Math” because the old traditional economic model will no longer a financial return commensurate with the risk owners must take. The bulbous anotomical component of an owner’s physique has been flapping in the wind for some time…just ask them. Yesterday’s ecomomic model for real estate brokerage produces RED spreadsheets at almost every level.

Our industry is fraught with issues that harm owners and run counter to consumer needs. However, the amazing thing about this is that we can actually control most of these issues but it will take enormous will power and determination. We cannot succumb to the paralyzing influences of the C-est La Vie mentality.

Have owners been too good to their agents, too patient and tolerant with their franchisor’s lack of delivery, too involved in their local network to build effective business models that work? The anwer is yes, owners have given too much and tolerated too many industry policies and practices that cut them off at their financial knees. For a long, long time, owners have been singing the C-est La Vie anthem. But now it is time for owners to start demanding something for themselves from the industry.

What should owners demand and from whom?

• Increasingly strict educational and business qualifications for agent entry and continuance in the industry.
• Higher costs and fewer agent members of NAR and local associations. There are simply too many of us and we need to create labor-market balances.
• An end to the model control policies that create DOJ lawsuits we finance. We create market control models that inevitably get struck down.
• Franchisor warranties that deliver real ROI to broker/owners in exchange for their risk and financial investment.
• Transparent 24/7/365 national property data delivery models for all consumers. Transparency will create more wealth than control.

This is but an embrionic list. Each item contains many facets and between the lines are myriad financial, operational and administrative details.

Many owners are flat worn out! Tapped! The oil has been drained from their financial engine and they are running metal-to-metal. Some owners are expended and extended beyond their physical, emotional and financial limitations! Yes, some are even disallusioned, disparing and dispressed to the degree that the only response they are giving is C-est La Vie.

While the whimper of some is C-est La Vie-like, other owners are waking up each day mad as hell and screaming, “I’m not going to take it anymore! I’m going to do what’s in my best interest because if I don’t, I’m dead in the water.”

The downturn is good, forcing self-autopsy on the industry. Tough times produce required innovation. When we are pushed to the edge our natural survival instincts kick-in and the will to survive ultimately overcomes what once seemed insurmountable.

Yes, I hear the whimper of acquience. At the same time, there is an increasingly growing number of others who are raising their trumpets in a battle-blast that calls owners to rally around the cause of industry change. I hear the whimper of trumpets.

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My real estate brokerage ownership and management experience involved two companies. I’m one of the fortunate ones, having got out of both with proceeds from the first and a cash sale of the second on April 22, 2005, at the peak of the market. In short, I came out somewhat sane and lived to talk about it.

My ownership experiences created the foundation for REALonomics, new real estate model math. I’m no longer a believer in the traditional brokerage business model. It cannot sustain owners and provide them with the return on the investment they need to justify their risk and certainly in most cases provide them with an exit strategy. More importantly, the model is increasingly being rejected by the consumer, who favors less control and much, much more transparency.

The fickle markets, all-wise consumer, transaction complexities, capital and legal risks and the arcane nature of the industry itself have rendered the notion of a broker-centric business model nearly obsolete. Want the unvarnished truth? Of the dozens of broker/owners I speak to each month, almost none of them believe in their model, not with the passion necessary to an ongoing and profitable business endeavor. My broker/owner friends are just stuck knee deep in the cement of a dead model.

Power brokering is becoming highly irrelevant. My broker/owner colleagues, nearly to the person, shake their heads and mumble, “…not worth it…I’m keeping the doors open so my agents can make money…and even they aren’t making money any more…”

Our Quickening March toward Obsolescence

Has the pace of change created an every quickening march toward functional and more importantly, economic obsolescence? Yes, it has! To a large degree the idea of opening a brokerage, complete with agent office space, desks, computers, copiers, coffee room and the assortment of industry trinkets that have little or nothing to do with providing consumers access to property information and homes, seems frightening and very risky.

Ours is an industry where owners just won’t let go of themselves, even after staring into the mirror of obsolescence, where we see ourselves, tired, lonely, frustrated, isolated and economically challenged.

The Broker-Centric era (the first economic wave) and Agent-Centric era (the second economic wave) business models are in a final march toward obsolescence. In effect, neither owners nor agents can afford to push the model much further into a future where liquid property information will abound, consumers will bask in the democratization of real estate and we will service transactions from wholly new vantage points.

This “march toward obsolescence” is a not an industry death knell. More accurately, it could be described as the introduction of a new “script” that charts the direction for highly innovative blueprints that finally redefine how we interface as an industry with people in the Consumer-Centric Era (the third wave of our economic development).

Exorcising the Resident Demons and Myths

Like Emily Rose, we are possessed by many demons. In order to build a neo design we will need to cast out the old counter-productive forces that have taken up residency within our business models and whose negative influence permeates the industry. We are possessed of many…most must go…some will be allowed to remain, temporarily, due to necessity…others can be tamed and trained, perhaps.

The long held notions, superstitions and fairy tales about real estate brokerage will need to be addressed, as these have long held sway over our creative capacity to reinvent, paralyzing us and placing us in an economic stupor.

We must cast-out the idea of property information control and open a transparent portal for the consumer to enter into new conversations with us about real estate investment, where we are truly qualified, trusted and knowledgeable about their investment strategies.

We must expunge the idea that bricks-and-mortar retail models in fixed and defined metro market service areas can continue to produce adequate ROI. We must drag the demon of overhead, kicking and screaming out into the open market where it can be exposed for what it truly is, the enemy of owners and franchisors.

Our demons are legion…they do not come out easily and when they finally do they leave a mark, a dent, a scar that says, “We once lived here.” Our resident guests impact our economies of scale, our market agility and most importantly, our long term survival.

Etch-a-Sketch®: a Neo Design

In 2008, REALonomics will etch concepts for the creation of a neo design. We will put it on paper (well, in the blog) and make the model ideas accessible to you. We will interview brokers, agents, industry leaders and of course, real people who buy and sell real estate. Novel, eh?

Changing our industry’s design is daunting. We need to take a look at our sprawling geographic markets, such as California, Florida, Phoenix, Las Vegas, Chicago, Atlanta and the rest and ask “what can work here, now and tomorrow?” Our industry should deliberately engage in designing the optimal consumer-centric, consumer-partnered, brokerage services model, replete with features necessary to the era in which we live.

Baseline business modeling begins with unfettered access to property information…sketch it in!

Baseline business modeling includes a renewed commitment to standards of practice that please the consumer and create a new, more comfortable reality…sketch it in!

Baseline business modeling marries cultural realities to the real estate transaction prototype…sketch it in!

Baseline business modeling has something to do with expunging the ego-centric expressions and components from the industry that continually project a self-serving, money-grabbing image…sketch it in!

Baseline business modeling is predicated upon a model for all participants, one with the highest possible qualifications for entry…sketch it in!

Baseline business modelling requires rigorous adherence to qualification standards for owner/operators, agents and core service providers…sketch it in!

Finally, baseline business modeling demands adequate ROI when measured against the risk of capital, creative and intellectual investments of the players and principals…sketch it in!

Our impending obsolescence is merely temporal. Our model is being replaced, part-by-part. Can we, those of us within the industry, shake the demons that possess us and sketch a new, highly productive model that will propel us into the future? REALonomics thinks so…sketch it in!

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Merrill Lynch downgraded their opinion of the financial strength of Countrywide Mortgage Corporation and in the process dropped the “B” word on the market…Bankruptcy. Second “B” word; Bummer!

Not so fast! The market bummer is going to set the stage for another cycle of broker/owner opportunities in the real estate industry ranging from new buying cycles, business consolidations, expansions and new brokerage development strategies.

REALonomics has said real estate company owners should re-tool their thinking and their models, engage in aggressive development of cost-effective market management models that utilize consumer-centric, transparent technology and finally, penetrate more new markets by recruiting Liquid Agents who are fluidly operating in multiple markets while tethered to broker/owners via Internet management.

What not to do, in six easy steps:

• Don’t diminish Internet investment, expand it;
• Don’t depend on your vertical market alone, go horizontal;
• Don’t stop recruiting, change agent profile to fee-based and experienced;
• Don’t ignore overhead, cut physical labor fast in favor of technology;
• Don’t retreat to yourself, absorb smaller firms in new markets;
• Don’t rely on transation revenue alone, develop ancillary revenue streams;

Do you believe the current market bummer is an owner opportunity? Comment here.

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