Seriously, I think I could just write a real estate angle to most of Ben Thompson’s articles and updates from Stratechery, and fill the content calendar easily. I just wrote about his public weekly article on Tech and Antitrust and how it might apply to Zillow. Today comes a Daily Update where Ben talks about Dropbox and its new move towards becoming the “operating system for the cloud.” It’s fantastic stuff, and if you’re not a subscriber to Stratechery, I strongly recommend it.
I’m going to put this for VIP subscribers only since the Daily Update is for Ben’s premium subscribers, so to the extent that I’m quoting from it and referring to it, I’m not putting his stuff onto the whole worldwide web. Plus, comments tend to be better from VIP members. 🙂
My basic thesis: What Dropbox did here to try and become the “operating system for the cloud” points the way forward for the MLS in real estate. I know I’ll be recommending some courses of action to my MLS clients, but I wanted to provide those thoughts to you all as well.
Dropbox and the Operating System for the Cloud
Ben starts off by discussing the announcement from Dropbox that it is evolving into an enterprise software portal, quoting TechCrunch:
Dropbox is evolving from a file-storage system to an enterprise software portal, where you can coordinate work with your team. Today the company launches a new version of Dropbox that allows you to launch apps with shortcuts for G Suite and more, plus use built-in Slack message-sending and Zoom video calls. It lets you search across all your files on your device and inside your other enterprise tools, and communicate and comment on your team’s work. Dropbox is also becoming a task manager, with the ability to add notes and tag co-workers in to-do lists attached to files.
He tells us to watch at least the first half of this video from Drew Houston, CEO of Dropbox:
Ben thinks this is a Big Deal indeed:
I find this tremendously exciting, and sorely needed. For years I have been wondering which company will build the “operating system of the cloud”, and this seems like a very credible attempt to do just that. The new Dropbox app is basically a new version of the Finder or Explorer, with communication and collaboration built-in.
Read the whole thing, and subscribe to Stratechery, like I said.
So basically, Dropbox will compete head-on against Microsoft and its Microsoft Teams enterprise platform product. The difference is that Microsoft Teams is more of a walled garden that lets users use all Microsoft products (Word, Excel, Outlook, Sharepoint, Skype for Business, etc.) but not third-party apps that people are already using, like Slack, Dropbox, etc.
The conflict there was between having the best-of-breed app for a specific purpose versus having a platform that weaves various apps that aren’t as good together:
Microsoft’s great advantage relative to each of these products was not simply their built-in distribution channel but also their perspective: while all of these single-product SaaS companies were pursuing a local maxima — be the best file storage service, the best task manager, the best messaging service — Microsoft was thinking about how all of the pieces fit together, which not only aligns with their bundle approach but crucially, with how people actually get work done.
What Dropbox announced is the end of that either-or: best file storage, best task manager, etc. versus how various pieces fit together. If Dropbox can achieve its goals, then it should allow users to seamlessly stitch together all of their “local maxima” apps into a seamless whole.
Yes, if the bells are ringing for you MLS executives, that bell tolls for thee.
The Identity Crisis of the MLS
Fact is that the MLS is undergoing an identity crisis beneath the surface. The core value proposition of the MLS — cooperation and compensation — is under attack both from within and from without. From within, brokerages and agents are resorting more and more to off-MLS marketing strategies, whether explicitly as REX does or silently as Compass and its Coming Soon program or similar strategies being used by thousands of brokers, agents, and agent teams across the country. From without, the Moehrl v. NAR lawsuit and the DOJ investigation into the MLS both portend attacks on the sharing of commissions.
And over a longer horizon, as we think about the rise of institutional real estate, most MLS CEOs and boardrooms are wrestling with this all-important question: what is the value of the MLS to the industry, to institutions, to investors and to consumers?
Dropbox Points the Way: Operating System for the Cloud
One possible answer comes from Dropbox here: the MLS should seek to become the operating system for the real estate cloud. It won’t be easy, and it will come only after immense change and conflict, but it is the only possible future of the MLS that does not involve government action to save it. Let me spell out what I mean here.
Return to Glory
First, let me point out that for most of its existence, the MLS was the operating system for real estate. We might not have called it that, but in the pre-internet days, that’s exactly what it was. Brokers, agents, tech companies, appraisers, etc. etc. had to all somehow “plug into” the MLS (whether electronically, or by buying the printed MLS books). There was no real way to do business without the MLS, except in unique situations (e.g., auctions, high-end specialty properties, etc.).
When Web 1.0 appeared and the landgrab for consumers began, the MLS completely missed the boat, because most of them were merely appendages of local REALTOR Associations who saw the MLS as a member benefit. Why would they want to build consumer portals, or agent websites, or any of that stuff? Besides, this whole internet thing was a fad, wasn’t it?
Even after the portals began walking down the path of Aggregation Theory (another Stratechery insight), the MLS remained local, thought of as a member benefit, controlled by its customers, and entirely provincial in reach and in thinking. There are exceptions in terms of individuals — certain executives like Art Carter of CRMLS and David Charron of MRIS — who saw that the MLS had to start thinking of itself as something apart from the REALTOR Association(s). But on the whole, due to a whole lot complicated factors, progress was and still remains very, very slow.
Along the way, the MLS remained important to brokers and agents, but more and more people started to realize that the MLS was no longer the operating system for real estate: the internet was. And companies sprouted everywhere to help brokers and agents operate their businesses outside of the MLS (although connected to it).
What the new Dropbox strategy allows the MLS to do is to return to its former days of glory as the enterprise platform for real estate, across the length and breadth of the industry, at least as far as professionals are concerned.
Instead of logging onto the MLS just to search properties, enter listings, or do a CMA, the future real estate professional (and possibly consumers) will logon to the MLS in order to have a single platform that seamlessly integrates whatever best-of-breed app he or she wants to use, from storage to productivity to marketing to communication to whatever else.
Many Are Already Doing This, But Imperfectly
To be fair, let me point out that this idea of a “single sign-on platform” has been something that the MLS and various tech vendors have been working on for years now. We can go back to Clareity’s dashboard from way back, and FBS’s Spark API platform to Corelogic’s Trestle and Zillow’s Bridge API and MLS Grid and Project Upstream and so on and so forth to see all of the attempts to become the operating system for real estate.
In my view, these projects are all imperfect and all doomed to failure for a wide variety of reasons, most of them political. Because at the heart of most of these projects is the real estate industry’s obsession with control. Each of them wants to control the real estate process, the real estate transaction, the real estate professional and the real estate consumer. By getting apps and people on their platform, then locking them in somehow, the thought is that they can control the industry in a variety of ways.
Politics enters at the first breath of such an attempt, because brokerages want control (Upstream) and the MLSs want control (MLS Grid) and tech vendors want control (Trestle and Spark API) and Keller Williams wants control (Keller Cloud) and Realogy wants control (Realogy’s “open platform”) and so on and so forth. Everybody wants to rule the world, so everything will be dictated by politics, which is par for the course in real estate.
Meanwhile, there are only a few serious contenders for the Iron Throne: Zillow, Redfin, Opendoor, possibly Compass, and the Big Whales of technology (Amazon, Facebook, Google, etc.) who may or may not enter the real estate sector. Combination of capital and engineering talent makes it well-nigh impossible for any of the real estate industry projects to content seriously. Yet.
So why are we talking about this at all? Isn’t the MLS over, and we should just prepare for the day that Zillow ascends the Iron Throne and becomes the platform for real estate?
The Way Forward: Set Them Free!
The key, to me, is in Dropbox approaching this question of the operating system for the cloud in a completely open-ended way.
In the video above, Drew Houston is asked about working with competitors, and whether the ecosystem could support all these apps. His answer is that at the end of the day, users want choice. He notes that people aren’t going to stop using Slack or other apps, so Dropbox simply wants to make it easier for users to use them, whether they are competing against Dropbox or not.
To me, this is the way forward, and why I think the MLS has a chance to remain relevant into the future.
In theory, everybody else competes against everybody else in real estate… except for the MLS. In theory, the MLS can be that neutral arbiter that doesn’t actually make money from one app being used over another. In theory, the MLS is neutral to business models of brokerages, neutral to what kinds of software a user wants to use, etc. etc. All that the MLS cares about is data integrity and the rules of the road (at least today).
In practice, that isn’t the case… but that’s because of politics and the particularities of how the MLS is organized and governed. The MLS doesn’t have to be organized that way or governed that way. Another major part of the puzzle is the fact that the MLS does not have its own technology, and depends instead on third-party tech vendors such as Corelogic, Black Knight, and FBS to be the technology infrastructure… and all of those guys want to be the operating system, too.
So, the way forward involves three things. Not one of these three is easy to do, but they have the advantage of being simple and clear.
1. Reorganize the MLS
First, the MLS must be reorganized away from its REALTOR Association roots. This is something I’ve been working on for years, and honestly, this isn’t the place to go into details. Most of my MLS audience already knows my spiel about how there needs to be a divorce for the sake of both the MLS and the REALTOR Association.
Included in that reorganization must be governance reform, such that the MLS is no longer controlled by its subscribers and users. No company can actually make real business decisions if its customers control its board of directors. This will be one of the hardest things for brokers and agents to come to terms with, as they really do feel that the MLS is a broker cooperative and that the MLS only exists to serve its brokerage Participant members, but… the only thing I can say to that is… the alternatives are to lose all control. (See below for more on that.)
2. Open Source Software & Common Data & Rules
Second, the MLS must get on an open source software system. It doesn’t matter if that open source system comes from a vendor, because one or more of the big MLS vendors get religion, or if it comes from some disruptive movement of code poets from real estate. But this is a pre-requisite for the MLS to go after trying to do what Dropbox is doing, to become the operating system.
The reason is fairly simple: due to the overwhelming amount of politics in our space, no vendor anywhere wants to help another vendor become rich and powerful by joining their platform… unless they simply can’t help it.
Furthermore, the vendors in real estate are fairly small entities without enormous amounts of capital or engineering talent to devote to things like platform APIs without trying to make money from it, which then naturally makes the platform less attractive. (Corelogic’s Trestle wants to charge a fairly steep fee from developers to access data through it, as an example.)
The only solution to both of these problems is to embrace open source software, such that there is no single vendor who will benefit at the expense of all the others, and such that the cost of development of that platform is spread widely across the entire real estate developer community.
In addition, the work that RESO does in trying to come up with common data standards, data schema, and common business rules is critical. There are issues with RESO, of course, as there are with any other company or organization, but the core work that RESO does is necessary for there to be an operating system for real estate. (My issues with RESO have to do with politics and the fear that one or more of the entities involved in RESO will try to use it and use the data standards and rulesets as yet another way to control things.)
3. Get Big
Third and finally, this whole “operating system for real estate” is completely and simply unrealistic with 600+ MLSs in the country. It just can’t happen. We have to have massive and rapid consolidation beyond what anybody in the industry, including consultants who work on MLS consolidation, thinks is reasonable or realistic. I’m talking maybe a dozen MLSs total, whose operating systems collaborate and communicate.
Without scale, even if you do have reorganized MLS and an open source platform with common data standards and common rulesets, developers just don’t have much of an incentive to build on that platform. Spend time integrating with MLS XYZ to get access to 900 users? No thanks. At 40,000, maybe it starts to get interesting. At 400,000 it gets essential.
So the MLS has to get big. And fast. Reorganization and recapitalization has the side benefit of making that growth easier, but that doesn’t mean it’s going to happen. It will still be a slog with massive amounts of politicking and fighting over jobs and titles and positions and so on.
And again, that kind of consolidation does not seem possible to me until and unless the “acquirer” lets go of the obsession with control. If consolidation means common platforms, common benefits, common schema and common rulesets, without all of the focus on control and power and domination, then it is far more likely to happen… versus the traditional model of fighting over who gets how many board seats in the new entity because nobody wants to be dictated to.
Let’s dream a little and say that what I describe above happens. A few MLSs see the vision, have progressive leaders who understand what must be done, and all of the above happens. What then? What does that ultimate endgame vision look like?
To me it looks like the MLS is a neutral platform for real estate business that favors no one and punishes no one. It is open source, so all developers can integrate onto it very easily without fear that they are making some competitor rich and powerful. Yes, it makes the MLS itself rich and powerful, but everyone in the ecosystem wants that (or should want that) as it makes everyone’s life easier.
It means the user logs onto the MLS and can choose from a wide variety of apps, the best of breed for him or her, that is stitched together seamlessly. Maybe you’re a KW agent and love some of what Kelle does, but you also want to use stuff from booj (owned by Re/Max); KW would never let that happen, nor would Re/Max, but perhaps the neutral MLS would and both KW and Re/Max would be okay with letting their apps be integrated into the MLS’s neutral open source platform.
Login to the MLS, and it’s not just somewhere you enter listings and do searches. It becomes the operating system for everything real estate, from CRM to marketing to printing flyers to buying ads on Facebook to soliciting offers from Zillow to communicating with other agents to setting up showings. It becomes the underlying platform to access and communicate with mortgage and title people. Your own brokerage’s intranet can be integrated into the MLS, so that the entire experience is as if you’re on your brokerage website. The MLS doesn’t care; it exists to make its users lives easier, and if that means that the experience is a white-labeled MLS platform, so be it.
Integrating with the MLS is a simple process, a push-button process where a developer just gets an API key and the integrates in. Data licensing is handled separately, but you don’t even need that if your users have a data license via membership in the MLS. If there are tricky bits, you don’t wait for some vendor to fix it for you; the code is open source — go fix it yourself and contribute that back to the open source community.
Like any other operating system, you only notice it when something goes wrong. I’m writing this on a Chrome browser, using WordPress. I don’t think about the MacOS that it’s running on, until and unless there’s a problem of some kind. And that’s how the MLS should be: something nobody thinks about, until and unless there’s a problem.
In fact, the MLS could even integrate into the larger Dropbox platform and become a subset of the operating system for the cloud. Agents wouldn’t mind using Slack and Dropbox for storage; let them! Why would that hurt you, the MLS, which still provides two essential services that people want: data accuracy and completeness, and (for now) offer of cooperation and compensation.
Let go of the need to control shit, and I think the MLS could become a safe haven for everybody in real estate. Keep trying to control everything, and the MLS will find it all slipping away, like trying to hold onto quicksilver.
The Alternative Dystopias
I mentioned above that this is the only way forward for the MLS I can think of now that doesn’t involve government action to save the MLS. I also said that brokers and agents need to understand that they can either lose their obsession with control now and retain some level of control, or hold on for dear life like Gollum to its Preciousssss and lose it all. Let me explain.
Should either legal changes or regulatory changes or business changes (i.e., off-MLS marketing) change cooperation and compensation, the MLS is finished. There is precious little incentive then for brokers and agents and particularly the new breed of institutional real estate to have to play along with the MLS rules and games. Negative network effects (people leave because fewer listings, and that results in fewer listings, so more people leave, etc.) take care of the rest.
Now, the country and the overall economy cannot allow that to happen. They don’t care about the MLS per se, but they do care about having accurate and timely data on real estate, which is one of the largest asset classes in the economy anyhow. Trillions of dollars in investments are involved in just residential mortgages alone, and those investments are often held by things like pension funds and insurance companies. The government simply cannot allow that kind of disruption.
Which means they’ll figure out a way to make the MLS into a public utility, regulated by some government agency, but with de jure monopoly power. That keeps the MLS around, but likely not 600 of them, and likely not with any kind of control by the brokers and agents who feel like they are entitled to control it.
The other alternative is that even without government action, regulatory changes, or a successful lawsuit, companies will start creating their own databases, their own cooperation and compensation schemes, and in effect, create a new “MLS outside the MLSs”. That is much easier to do when you are iBuyers who are principals in the deal, not just brokers, but large enough brokerages (see, e.g., Compass) can do the same. Again, negative network effect takes care of the rest.
So all of those brokerages who insists on maintaining a tight grip on the MLS like a jealous husband suddenly finds that they have control over something that is shrinking by 30% year after year, until the Board of Directors are the only Participant brokerages in the MLS with some 3% of the listings. Congratulations, you have total control over absolutely nothing!
Those are the two alternative dystopias on the current path. If there is some other way, I’m happy to entertain them, but I don’t see one myself.
Light, not Darkness
I don’t want to end on that note, because this post is fundamentally a hopeful one, triggered by Ben Thompson’s excellent piece on Dropbox. There is a way out, a way forward, that involves neither government takeover nor fading into obsolescence and irrelevance. There is a way for the MLS to reposition itself and reinvent itself as the neutral, trusted arbiter and platform for real estate and become (once again) the operating system for real estate. There are obstacles to conquer and many, many, many hoops to jump through, but at the end of that process, we could have something better than we have ever had.
True, not every one of the 600+ MLSs will survive that journey. But that’s just something we’re all going to have to come to terms with as an industry. What remains will be stronger, bigger, better, easier to use, and more valuable to brokers, agents, institutions, and consumers than what we have today.
I think that’s a positive bright and hopeful vision for the future. We just have to come through the fire and the flames to carry on into that future.