So now that Zillow is officially in the listing business it’s the topic of the hour . Some have compared Zillow.com with WebMD, a once promising startup with a now discredited business model. In my opinion this isn't a good comparison - a doctor spends somewhere between 10 and 15 years in college, medical school, and residency before she can operate on you. And the internet, no matter how good it gets, will never be able to remove your appendix.
A much better comparison is with a stockbroker - a skilled profession that offers a more similar service. The stockbroker profession hasn't been eliminated, but it has changed radically, and margins have plummeted. I use a realtor, but I don't use a stockbroker. I go online, log onto vanguard.com or etrade.com, check my stocks, read the research, buy, sell, and manage my own portfolio. Ten years ago they told us this would be financial suicide - but now it's commonplace.
Remember E.F Hutton - the stock brokerage firm? "My broker is E.F. Hutton...and E.F. Hutton says"...then everyone turns around and listens w/ rapt attention. Hutton and their ilk sneered at the internet startups. Financial suicide for foolish investors, they said. Cheapskate clients...we don't want 'em.
Well, E.F. Hutton is gone. Bankrupt. People stopped listening, and they stopped paying those fat commissions. Meanwhile, E*Trade, Ameritrade, Fidelity, Schwab, and the rest of the online guys survived the dot.com collapse and are churning and burning. The point being that all competitive landscapes change...and market participants who don't go with the flow - those that stick to their guns with a religious fervor - are doomed to the dustbins of history.
Has real estate gone that far? No. Not yet. But it will if the response from the National Association of Realtors is simply to point out Zillow's flaws, insist that the public will always pay 6% commission to sell their house, and that technology isn't a threat.
Six percent has been a rule of thumb that the National Association of Realtors has done everything in its power to protect (just as any industry - auto, energy, consumer products, whatever - will always try to protect its margins).
Problem is: in the long run this strategy simply won’t work. The New York Times ran a great article on this. A quote from the article: Traditional agents still firmly control the M.L.S., which allows all participating brokers, including Redfin, to view almost every home for sale in a particular area, even those being offered through competitors' agencies. But the typical 6 percent commission, paid out of the seller's proceeds and split between the seller's and buyer's agents, is under attack because, as economists note, it does not serve consumers well.
Disruptive technologies are notoriously hard to predict. Zillow may be a flash in the pan. But eventually – soon – something will come along that isn’t. There are some stockbrokers and travel agents who survived the onslaught of e*trade, Ameritrade, Orbit and Travelocety, et al – but many didn’t. The ones that made it adapted found a niche where they added a special kind of value. But the bread-and-butter business will soon go away.
