The hybrid brokerage dilemma: Why better tech shouldn't necessarily yield a consumer discount

Are you set up for success in 2016? Join 2,500 real estate industry leaders Aug. 4-7, 2015, at Inman Connect in San Francisco. Get Connected with the people and ideas that will inspire you and take your business to new heights. Register today and save $100 with code Readers.

Takeaways:

• Hybrid brokerages could be doing themselves a disservice by tying their superior tech to the simple promise of lower-cost transactions.
• In the technology world, technology isn’t used simply to drive costs down; it’s used to improve the overall customer experience.
• The real estate industry’s challenge going forward: to develop the chops to build the technology that creates a better experience, not simply a cheaper transaction.

Reading Inman’s massive hybrid brokerage special report, I was struck by how inextricably tied the technology model is to the discount model. Nearly every hybrid claimed that leveraging technology allowed them to lower the cost of the transaction, and therefore offer a discounted fee or rebate back to their customer.

The promise from all was “Better technology = lower cost.” This promise, made over dozens of years and many companies, created a knot in my stomach.

Is that really all that technology can do in real estate? Lower cost? Was that the ultimate value proposition that was stood to be realized by better tech? The answer: of course not.

Could it be that hybrids are doing themselves a disservice by tying their superior tech to the simple promise of lower-cost transactions? I can’t help but wonder if these tech-enabled brokerages would be better off focusing on the total value proposition of better technology instead of it as a means to an end of lower fees.

At Inman Connect in San Francisco on Aug. 4, there is a special panel on “Radical and Hybrid Business Models: How They Might Work.” Register here.

Looking around at today’s best technology companies and their value proposition, I can’t help but think that “lower cost” and discounting is a head fake that was and is leading hybrid brokers astray.

[Tweet “Discounting is a head fake that is leading hybrid brokers astray.”]

Uber’s black car hailing app, for example, is not less expensive than a cab. Far from it. My recent trip in an Uber black car was a good 30 percent over the going rate for the same ride in a cab. (To be fair, Uber X is cheaper than cabs in many, but not all, cases.)

Similarly, the lifetime value of a customer of an enterprise software-as-a-service (SaaS) company far exceeds that of a customer buying an individual, one-time software license.

In the technology world, technology isn’t used simply to drive costs down; it’s used to improve the overall customer experience. To wring out inefficiencies, to create delight and ease. That is the ultimate benefit. Not cost savings.

I don’t use Uber to save money. I use it to be more efficient. To save time. For convenience.

[Tweet “I don’t use Uber to save money. I use it to be more efficient.”]

It begs the question: Are hybrids missing that fundamental value of their improved tech by being so focused on making the discounts enabled by efficiency the thing they hang their hat on? And could they be better competitors in the marketplace, and do a better job for their customers, if they worried less about the discount?

Some seem to have figured this out. Redfin, for example, focuses less on the discount and more on the customer satisfaction and a consumer-friendly approach. Compass touts its technology as a way to create a “smarter” real estate experience. Xome focuses on end-to-end technology to wring out inefficiencies, the point savings being only one part of the core value.

All are designed to create delight and ease. To improve the overall customer experience.

Traditional brokers, too, would do well to look holistically at the differentiation opportunity that technology provides. There is no reason why traditional brokers can’t be technology-enabled to stand out from the competition.

Realogy’s investment in efforts such as Realogy FWD and its acquisition of ZipRealty point to the opportunity that technology can provide more traditional players to create value for themselves and a better experience for their customers.

If technology-powered improvements in overall experience is to become the differentiator in both hybrid and traditional models, the question is: Is the industry able to build the tech itself?

While companies like Keller Williams and ZipRealty have built extensive infrastructures internally, you’d be hard-pressed to make the argument that the industry has created its Uber or Google.

The biggest and best technology advancements in the industry have come on the backs of millions of dollars of venture money for companies like Zillow, Trulia, Redfin and Compass. The VCs all want the 100-times return, and most don’t see that opportunity emerging without disrupting the entire brokerage model.

That will be the industry’s challenge going forward: to develop the chops to build the technology that creates a better experience, not simply a cheaper transaction.

If the industry develops this capability, the line between hybrid and traditional brokers essentially disappears. And hybrids’ early work on technology investment may ultimately make their greatest contribution in the name of a better customer experience, rather than the disruption of the traditional compensation model.

In the end, many consumers will choose faster, better and easier over saving a few bucks. The industry, hybrids and traditional firms alike, would be best served to look deeper at the value technology provides beyond cost, to create a win-win world for themselves and their customers.

Email Morgan Brown.