Harvard professor and businessman Clayton Christensen defines the innovator’s dilemma as: “Precisely because firms [your franchises; your brokerages] listened to their customers [you — agents], invested aggressively in new technologies that would provide their customers [agents] more and better products of the sort they wanted, and because they carefully studied market trends and systematically allocated investment capital to innovations that promised the best returns, they lost their position of leadership [in the real estate industry] — doing the right thing is the wrong thing.”
These exact steps taken within every industry as each face disruptive technologies, always lead to the same outcome: The incumbents fail to embrace change quickly enough and are displaced.
4 things you need to know
- Your CEOs are building sustaining technologies because you want them
- New entrants into the real estate industry are building disruptive technologies because they think buyers and sellers want them
- Zillow came from nowhere to market dominance through disruptive technologies
- History proves you will absolutely lose this war to service homebuyers and homesellers through sustaining technologies regardless of how much money you spend on them
Sustaining technologies foster incremental improvements over prior methods. CRMs are incrementally better than paper calendar books; electronic forms and signatures are better than driving 100 miles in a big circle; applying data analysis to determine the market’s needs is better than guessing.
The technologies you are building right now will not solve your problems because they are the wrong technologies being built for the wrong customers and for the wrong reasons.
Every franchise is creating a new CRM, new team collaboration systems, new database structures and new automated social marketing propagation software.
Some technologies might tell you who and when to call, some might text with your potential customers, some might even chat with you about some rudimentary market statistics — but none of these incremental improvements will give you a competitive advantage over disruptive technologies being introduced into the real estate marketplace.
With all the incumbents building versions of the same stuff you simply perpetuate competitive parity between existing companies at huge expense.
You are not gaining a competitive advantage over the other incumbents; you are not creating an advantage over entrants in the marketplace offering disruptive technologies; and you are not offering any buyer or seller a 10X jump in better meeting their desires. All of this is precisely what Christensen states will happen.
Why Zillow dominates the real estate industry
Zillow did not enter the real estate market by forming a real estate brokerage, hiring agents, joining hundreds of MLS systems and banging on doors. If it had, it would have lost to you. Everyone knows not to attack the dominant player at their stronghold.
Instead Zillow bravely offered the marketplace disruptive technologies, and many new market entrants today are following its formula.
According to Christensen, disruptive technologies are typically introduced to a “few fringe” customers in the market and “underperform established products in mainstream markets.”
Zillow offered a moderately erratic automated valuation model (AVM) when real estate industry incumbents refused to do so.
Zillow also opened as much real estate data as possible within the confines of having only public records to use. Both greatly underperformed what skilled agents could do with vaulted MLS data.
During this time NAR, franchises and MLS systems would not allow you to have an AVM on your site and defined exactly what you could say and do with your website. The entrants into the market and their investors thank your leadership for creating these opportunities for them.
But this captured the interest of an underserved portion of the market desiring greater information and autonomy. Christensen calls this group “fringe customers.” Geoffrey Moore refers to this tiny portion of the marketplace as “innovators” in his book Crossing the Chasm.
What was the response from industry incumbents? Mockery of Zillow’s offerings.
Why? Because it underperformed what skilled agents could do.
What happened? The industry ignored Zillow until it slowly built up its information from MLS systems, improved its AVM and captured 188 million unique monthly visitors to its various websites.
This is exactly what Christensen predicted would happen. Your CEOs could also have predicted this 12 years ago and aggressively acted to thwart it. But they did not. Again, exactly the inaction of incumbents Christensen predicted.
Now what is happening? Agents spend close to a billion dollars a year competing for buyer leads at Zillow. Expect that billion dollars spent to quadruple if Zillow controls seller leads.
Once Zillow succeeds with homesellers at a high rate, it is no longer an advertising venue — it becomes a true platform — the naturally occurring monopolistic marketplace where most real estate transactions occur.
It moves toward being an Amazon, eBay or Google. It sounds like that’s the plan.
Zillow is in the perfect spot to capitalize on iBuying.
It vastly exceeds all other sites combined in traffic; it wins when it gets to pick up and cash out 5 percent of instant-offer inquiries; and it wins when it gets perhaps 40 percent referral commissions from the other 95 percent of instant-offer inquiries that reject their offers and are fed back to Premier Agents.
Zillow is a secret-franchise without the overhead expenses, the bureaucracy or the risk associated with brokerages.
Nearly all other iBuyers are greatly disadvantaged to Zillow, including offerings by franchises.
True single-model iBuyers are rapidly flipping houses with minimal returns at perhaps 5 percent. Any flattening or decline in the market will increase demand for these services, but the exponentially increasing risks will cause iBuyers to increase their fees and decrease prices offered.
Zillow creates income with or without many successful direct flips, capitalizing on both flips and high referral fees to Premiere Agents.
Franchises could also — but every franchise website is minute compared to Zillow’s flow of incoming interest.
The CEOs’ biggest mistake
The thing to note here is Zillow first built a system to better serve buyers, and now perhaps sellers. The cause of its success was focusing on meeting the desires of the market; the effect of its success is such high use of its websites and technologies that it earns a lot of money from agents unable to accomplish this on their own or through their franchise offerings.
The biggest error your CEOs are making is defining their customers as real estate agents within their company (you). Until they focus 100 percent on the marketplace (buyers and sellers) and take the required actions and sacrifices to truly meet their needs, they cannot create disruptive technologies and dominate the market.
You think you are personally sacrificing to meet the needs of your market already?
Here’s what sacrificing for the marketplace looks like:
- You give them 100 percent of the information on homes and markets and values and trends possible. This does not mean providing your boring-ass-generic IDX website, a database dump into Excel, or a bunch of charts, graphs and heat maps; it means spending a few-hundred-million-dollars on artificial intelligence (AI) interpreting the data and offering concise and instant knowledge and advice any moment any buyer and seller desires it — without ever speaking to you — all for free.
- To accomplish step one, you must know the selfish desires of the marketplace. Selfish is not a derogatory term. Everyone wants what is best for them at the cheapest price possible — if not completely free. You cannot serve a market until you acknowledge this and think through how a buyer or seller would completely get rid of you if they could. They want everything easy, fast, perfect and risk free. Risk scares them, and that is your opportunity to still earn their business — once you have given them everything else upfront for free.
- It means NAR and your franchise/brokerage gets rid of 75 percent of all agents, leaving only the agents with superior knowledge, skills and desire to service the marketplace. The marketplace does not need 2 million agents to service 5 million home sales per year. This also means your business volume triples, the average agent earns $100,000 per year, and you are a true respected professional.
- The quality of the AI system you have built meets 75 percent of the market’s needs so well you can slash your commission rates to 3 percent (50-50 split).
- You become the extraordinarily skilled and trusted adviser, consultant, psychologist, problem-solver and inferred insurance against errors, and you quit harassing and guilting people into doing business with you.
- If you can’t do this on your own, and really sacrifice for the marketplace, you will see that Zillow and the latest round of disruptors pretty much have all this in mind, and you would join them and help them.
NAR is not going to make these sacrifices for you, and neither is your brokerage. And you already know your franchise is running down the wrong technology trail.
Do not lull yourself into believing the real estate industry is different, that it can’t be completely changed through technologies better meeting the needs of buyers and sellers, and what you are doing today is all you need to stay in business.
Christensen places a 99 percent likelihood you will do exactly this based on 50 years of research across diverse industries. The new entrants with disruptive technologies place a 99 percent bet you will do exactly this in the real estate industry.
How agents disrupt the disruptors
This is not your industry. The real estate industry is up for grabs to whoever offers the marketplace what they most desire.
Disruptors attack from underneath the incumbents’ market position offering benefits incumbents see as unneeded. But the disruptors keep improving their offering until in an “instant” what they offer is exactly what the marketplace (the true marketplace of sellers and buyers) exactly wants.
You are now the disruptor. Where can you attack from underneath those now dominating the marketplace?
You, not your franchise, not NAR, not your brokerage, will either form an alliance with other like-minded agents nationally and across company nameplates to create the technologies the marketplace desires, and you and your alliance will make the sacrifices to truly serve the marketplace, and you and your cohorts will drive 75 percent of the other agents from the marketplace, or entrants in the market will do all this for you.
Pooling your money and resources with like-minded entrepreneurs will allow you to create your own platform.
You’re an entrepreneur, and you will not be complacent while NAR and your franchise follow the predictable path to failure. Remember: First-movers disseminating a successful disruptive technology historically reap 90 percent of the rewards in the marketplace.