Upstream is a Non-Event

shutterstock_339923330Upstream is a non-event to consumers, but the nuclear fallout could kill brokers

Upstream has two potential outcomes: 1) redistribute the power of home listing information on the internet from Zillow Group and Realtor to NAR, franchises, and large brokerages, or 2) its stated purpose of streamlining the clerical task of disseminating house listing information. Neither can make a strategic impact as the former is impossible and the latter is a low-level administrative function.

As software allowing 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 at 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.

Yes, having home listing data in a standardized format could allow software developers greater ease in designing new applications, but that is what 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 give them some fleeting advantage over competing companies. But since many major franchises and brokerages are sharing in this project no one has an advantage.

For Upstream to fully succeed at its stated purpose is a non-event. Consumers won’t care about it, and for practitioners it is simple support function software.

The second potential outcome of Upstream, redistributing power from Zillow Group and Realtor back to NAR and the larger franchises and brokerages, cannot succeed for at least two reasons.

First, if the result of Upstream concentrates housing information to broker-controlled locations on the internet, then the project harms home buyers’ market knowledge and choice—which in turn damages sellers’ values. Should this happen there will be a 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 very 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.

Brokers therefore can gain no strategic power from the Upstream project. Zillow Group will ensure that the DOJ understands how any limiting of housing data harms the marketplace, as the management and lawyers at ZG are much smarter than 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 task? ZG will easily demonstrate how any hindrance of information by this group harms the marketplace.

ZG’s aptitude in FTC and DOJ matters is proven absolute by how they were able to convince the Federal Trade Commission 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 their 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 ZG management and attorneys.

As part of their pre-merger investigation the FTC takes all of the steps outlined in the “horizontal merger” link above including calculating the market share density of the proposed merger—the percentage of market share the merged entities will control—its market power.

Of the top ten 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% market share: Zillow + Trulia at 32.1%, realtor at 10.7%, Redfin at 2.9%, Homes at 2.8%, Movoto at 1.6% and HotPads at 1.4%.

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. If you add up every portal, franchise, brokerage, and agent website there’s perhaps 1,500,000 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% of all internet traffic and 3,441 sites each holding an average of .014% market share (48.5/3,441). This latter group holds no market power; they don’t exist.

To demonstrate just how smart the people at ZG are pertaining to the FTC investigators and the deflections of any arguments by “market participants” such as NAR and the largest brokerages and franchises against the Zillow-Trulia merger, even though ZG holds 62.3% of relevant market power they convinced the FTC to allow the merger (32.1/51.5).

ZG’s attorneys and management will immediately apprise the DOJ of any potential control of information that may harm the marketplace and take full advantage of the repercussions of any 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.

 

Comments

  1. demon says

    Hi Paula,

    If you are familiar the DOJ lawsuit against NAR regarding the IDX/VOW stuff about a decade back, that’s a large part of my underlying consideration for how the DOJ may well react again. The links are part of the main article.

    Here brokers/MLS’s/NAR simply tried to control MLS data that was going to “discount” brokers or other inventive brokers via the IDX. The NAR and MLS’s tried to arrange that brokers could block or not allow certain other brokers from using their listings information via the IDX feeds if they didn’t like them trying to offer the marketplace new concepts and pricing outside of the standard broker model.

    Now if NAR and a group of the largest franchises and independent brokerages (and there’s a few MLS’s in the Upstream group also) compile their data “upstream” from the MLS’s, and do anything to stop innovative brokers or companies like Zillow from accessing that information, you have a very similar situation to a decade ago. If the MLS’s don’t get the data, then the brokers and other companies like Zillow can’t get the data via the IDX feeds, then there’s control and manipulation of vital information from the marketplace. And this time the marketplace (buyers and sellers) are used to having full information about homes–back then it was still a relatively new concept. So the DOJ’s tolerance may be even less than what it was.

    It’s one of the DOJ’s jobs to protect the public and they are charged with monitoring company actions in the marketplace and investigating anything potentially harming the marketplace.

    In economics “perfect knowledge” for buyers about what is for sale and pricing is optimal for sellers. If anyone controls or filters that information it harms the buyers’ knowledge and thus harms the potential maximum exposure of a property for a seller–thus harms the maximum potential price they could have received.

    Do I make any sense? Thanks for commenting.

  2. says

    “First, if the result of Upstream concentrates housing information to broker-controlled locations on the internet, then the project harms home buyers’ market knowledge and choice”

    That’s a pretty big leap you make in your assertion. Could you detail how you arrived at that conclusion?

    I always enjoy reading your posts!
    Paula

Leave a Reply

Your email address will not be published. Required fields are marked *