- Upstream could limit consumers' market knowledge and choice, and if there's any hint of limiting marketplace options, the DOJ will likely take action.
- The impact of Upstream strategically is nil, but it will likely harm the industry.
- Brokers can't gain market advantage through sharing data distribution software.
Upstream has two potential outcomes:
- Redistributing the power of home listing information on the Internet from Zillow Group and realtor.com to the National Association of Realtors, franchises and large brokerages
- Streamlining the clerical task of disseminating house listing information (its stated purpose)
Neither can make a strategic impact as the first is impossible, and the second is a low-level administrative function.
As software that allows listing information to be dispersed to various MLS or Internet locations, Upstream is probably a great tool for the staff and assistants performing those tasks.
However, an instrument applied to such low level chores offers no strategic advantage in the marketplace. Therefore, the $25 million or more of investment needed to create this software and system appears unjustified.
What’s the advantage?
Yes, having home listing data in a standardized format could allow software developers greater ease in designing new applications, but that is what Real Estate Standards Organization (RESO) is already doing. Redundancy in formatting data does not generate innovation.
Perhaps if a single large franchise developed this software and was able to patent the process, it might gain some fleeting advantage over competing companies. But because many major franchises and brokerages are sharing in this project, no one has an advantage.
It’s a non-event for consumers, and it’s not set up for success
For Upstream, to fully succeed at its stated purpose is a non-event for consumers. They won’t care about it, and for practitioners, it’s simple support function software.
The other potential outcome of Upstream, redistributing power from Zillow Group and realtor.com back to NAR and the larger franchises and brokerages, cannot succeed for at least two reasons.
First, if Upstream concentrates housing information to broker-controlled locations on the Internet, then the project harms homebuyers’ market knowledge and choice, which in turn damages sellers’ values. Should this happen, there will be backlash from the marketplace against all brokers.
Secondly, if there’s any hint of limiting options in the marketplace, almost assuredly there will be legal action by the Department of Justice. The prior DOJ action will seem like nothing to NAR if the government requires full access to MLS data to anyone providing any kind of home sale information to the marketplace. The NAR and brokers will be obliterated if this occurs.
The Department of Justice has been watching the entire real estate industry closely since 2007: “The Agencies [DOJ and FTC] should continue to monitor the cooperative conduct of private associations of real estate brokers, and bring enforcement actions in appropriate circumstances.
“While cooperation among brokers through a multiple listing service can provide consumers with important efficiencies, cooperation used to adopt rules that hinder rivals can be anticompetitive and, as recent Agency actions indicate, may violate the antitrust laws.”
Upstream therefore can gain no strategic power from the project. Zillow Group will ensure that the DOJ understands how any limiting of housing data harms the marketplace, as the management and lawyers at Zillow are much smarter than the NAR’s and the large franchises’ attorneys.
What is the defense of a cartel — of the largest trade group in the industry and the largest franchises and brokerages — forming to create software to streamline a basic administrative tasks? Zillow will easily demonstrate how any hindrance of information caused by this group harms the marketplace.
And then there’s the FTC
Zillow’s aptitude in Federal Trade Commission (FTC) and DOJ matters was proven absolute when it convinced the FTC that the acquisition of Trulia did not create a near monopoly of Internet advertising in the real estate industry. These guys are smart.
When the FTC investigates a high-impact horizontal merger, it’s the commission’s task to ensure: “The unifying theme of these guidelines is that mergers should not be permitted to create, enhance, or entrench market power or to facilitate its exercise.”
Yet the Zillow-Trulia deal accomplished exactly this through intelligent arguments to the FTC by Zillow Group management and attorneys.
As part of its pre-merger investigation, the FTC takes all of the steps outlined in the Horizontal Merger Guidelines above, including calculating the market share density of the proposed merger — the percentage of market share the merged entities will control.
Share density is consolidated in real estate
Of the top 10 real estate portals, one is for commercial properties and two are for apartments. This leaves only seven residential real estate websites with greater than 1 percent market share:
- Zillow and Trulia at 32.1 percent
- Realtor.com at 10.7 percent
- Redfin at 2.9 percent
- Homes.com at 2.8 percent
- Movoto at 1.6 percent
- HotPads.com at 1.4 percent.
In an ongoing and unpublished analysis in September 2015 by Experian Marketing Services, 10 million Americans were polled, and Experian’s results showed 3,441 real estate websites recalled (Experian does not count app visits). If you add up every portal, franchise, brokerage and agent website, there are, perhaps, 1.5 million on the Internet (I could find no company actually tracking this statistic).
If the 1.5 million estimate holds true, this means that 1,496,559 real estate websites essentially receive zero traffic. They hold no market power — they don’t exist.
Thus, our entire set of potential real estate websites consists of seven holding 51.5 percent of all Internet traffic and 3,441 sites each holding an average of .014 percent market share (48.5/3,441). This latter group holds no market power because it virtually doesn’t exist.
The people at Zillow Group are so smart, in fact, that they were able deflect the arguments by market participants such as NAR and the largest brokerages and franchises against the Zillow-Trulia merger. And even though Zillow Group holds 62.3 percent of relevant market power, it convinced the FTC to allow the merger (32.1/51.5).
Zillow Group’s attorneys and management will immediately apprise the DOJ of any potential information control that might harm the marketplace and take full advantage of any repercussions that spawn from legal actions.
Therefore, the strategic impact of Upstream is zero, yet the probable harm to the real estate industry for its implementation is equal to that of nuclear winter.
In summation, brokers cannot gain any market advantage through sharing data distribution software. They can only gain market power by offering the marketplace vastly superior innovations beyond anything the buyers and sellers see today.