Om Malik recently wrote about companies that aren’t necessarily associated with technology buying up other companies that were. For example, Avis purchasing ZipCar and Athena Health buying Epocrates.
The thrust of his piece is that digital technologies are becoming the norm. Possessing digital capabilities isn’t just for hot new startup whatevers. It’s becoming table stakes.
How might this sort of trend play out in the real estate industry?
When you think about it, it might seem surprising that more straight-ahead technology acquisitions haven’t happened at the brokerage or franchise level. The real estate industry must be more lucrative than the car rental business, right?
Of course, there are really only a few national players in car rentals, and the small, local shops are just fighting for scraps. Perhaps in real estate, the busines is divided among so many different players that none of them can afford to acquire companies with interesting and useful technologies.
So maybe it’s a money thing. Let’s hold that thought for a moment as we exam the demand side of real estate technology acquisitions.
Another possibility is that perhaps there just aren’t any interesting technologies that a brokerage would want to acquire, even if it had the resources. Perhaps all the yammering about "blahblah percent of people start their search for a house online" hasn’t spurred the development of enough useful technologies. Perhaps real estate isn’t sexy enough to attract the kind of top-notch talent that conceives and launches something like Instagram, Sparrow, Gowalla, Siri or Zipcar.
But somehow I doubt that. Partly because in writing this column I have seen a lot of fantastic and interesting technology over the years that was devoted to real and imagined problems in the real estate customer use case. There are scores of companies and entrepreneurs out there making things big and small that would be acquirable by a brokerage that wanted to achieve strategic advantage in real estate.
Just for the sake of argument, though, let’s say it could be a supply thing. Maybe no one is making technology that is worth locking up at the brokerage level.
A third possibility is that maybe no one has the right set of skills to evaluate whether a technology acquisition is viable or not. Maybe everyone who’s in a position to purchase a technology firm lacks the skills and familiarity with the medium to know whether that promising new technology is actually useful, or if it’s just a bag of wind.
Maybe the people who would be examining potential technology acquisitions don’t understand enough about meshing together cultures. And let’s be honest: a tech startup firm’s culture is quite likely to be significantly different from a real estate brokerage culture. Aligning cultures is always one of those areas of gaping misery and failure in acquisitions. Just ask Foursquare nee Dodgeball.
Perhaps a lack of leadership is to blame for a dearth of acquisitions by established real estate companies. Don’t take it personally, if you’re reading this column I’m probably not talking about you.
But you get what I’m saying here. The skills for running a brokerage might not be the same as the skills for evaluating technology and culture. And if you decide to loop in your director of IT to help, are they likely or unlikely to approve of a technology that isn’t built in house or by their new friend at the brokerage tech partnership?
Three reasons, then, we’ve covered for why brokerage hasn’t been snapping up useful technologies: brokerage is too poor to play that game, no one is making anything useful, and leadership lacks the tech or culture skills to pull it off. That’s worded a little harshly but you get where I’m at with this.
Now there’s a fourth possibility as well. The fourth possibility is that brokerages are buying technology firms. Some examples include M Realty in Portland Ore., and Beangroup in N.H. buying the firms that built their websites. Pretty shrewd acquisitions, given the cost of building and maintaining IDX websites over the past years.
Another example would be a sort of hybrid approach — bring in a highly competent tech, marketing, and customer experience person who can adequately manage outside vendors. Jack Miller at GoodLife Team is probably the poster boy for this approach. Expand that team with some competent and dedicated support personnel, and you end up with someone like Matthew Shadbolt at Corcoran Group in Manhattan.
The hybrid group is an excellent middle way, but may lack some of the strategic advantages of the full-on technology acquisition. It’s highly dependent on the quality of that internal resource.
Also, because outside vendors make it their business to provide a standard product to all of their customers, working with an outside vendor is not necessarily the best way to achieve a strategic advantage over competitors. If everyone is getting the same product, then there is no strategic advantage.
The hybrid approach thus requires either exceptional outside-the-box sourcing capabilities, or considerable expertise in modifying or customizing off-the-rack vendor solutions.
In many ways, the hybrid approach is founded on developing and supporting the leadership capabilities at that tech/marketing level. These tech/marketing business leaders must constantly be managing cultural relationships between the core business and the vendor relationships.
This is in addition to completing all of the tech/marketing/customer experience functions for which their role is responsible. A tall order.
An acquisition would shift the cultural duties over to human resources or general C-level leadership, leaving the tech/marketing business leaders to focus on that role.
The technology firm acquisitions that are occurring in the industry appear to be happening mostly at the aggregator level: Diverse Solutions and Tigerleads for example. Perhaps this is because the aggregators have a funding model that’s different enough from brokerage.
But the aggregators are, for the most part, digital natives. Evaluating and buying technology is their core business. Merging and dealing with culture issues is common for them. Tech people typically understand distributed culture.
Will "traditional" brokers ever stop paying monthly fees to their tech companies, and simply acquire vendors instead? Will they learn how to evaluate and purchase compelling technology that gives them a strategic advantage, and then purchase it as a means of denying that advantage to their competitors?
Now is an interesting time to consider these questions. If the market is indeed turning around, then the cost side of the tech buying equation is going to shift with it.
