One-Size-Fits-Most vs Choice-Driven
My last post about “Lean MLS” got a lot of attention. But what does this all mean? Basically we are proposing a new business model for the MLS, one with a lean core set of features that brokers in the market agree are essential to facilitate the reciprocal sharing of commission and cooperation. Then, for features not included in lean core, we have created a rich environment for innovation called the Spring API. The API will allow brokers and approved vendors to access the MLS database to build anything an MLS might want! In the new model, if brokers want something outside of the MLS vendor’s product line, they can opt-in and buy from the MLS or from their MLS vendor or from any of myriad vendors active in the real estate technology space.
This is not as complicated as it sounds. It’s just like a menu at any restaurant. Almost all menus are a la carte, you order only what you want. The opposite of a la carte is “table d’hôte”, or Prix fixe. It’s the opposite of choice-driven, it’s a one-size-fits-most solution. In most MLS markets features are offered table d’hôte: brokers all pay the same fee to the MLS in return for a big box of services, some of which they would not want given the option of choosing. Some services are even in direct competition with the broker such as agent marketing packages and agent websites etc.
What About the Money?
So when Solid Earth decided to rebuild the MLS platform, we did more than just rewrite it, we reinvented it and the industry is paying attention. We decided to break the already stretched status quo and introduce a new, more rational MLS solution with an API, so that new services can be extended for the brokers who want them. But there is an important topic we have not really covered, what about the money? Several customers have asked me basically the same question: Matt, if we reset services to something that’s more “a la carte” and less “fixed price”, how do we sell it? Will we still be able to make money from the MLS? Won’t that be complicated? So, that’s three questions but they have a simple answer.
I’ll illustrate with a made-up example: let’s say there’s an MLS with 1,000 members and they pay $10/month for a traditional (bloatware) MLS product. That’s $10,000/month. In the new model the cost of the lean core MLS is slashed, 40% to 50% less than the traditional cost. The MLS can (and should) pass those savings along to their subscribers but that’ll damage the MLSs margins. In this example, $5,000 is missing each month from the budget and needs to be replaced with other income streams.
While there are multiple income streams in the new business model, including ad revenue, App Store sales and other premium options, the big revenue generator will most likely be the API. That’s true for Google, FaceBook and many other platforms that have built their businesses around API interoperability. We are very confident that brokers and approved vendors will want to use to the API to access all manner of content. Listing information, agent information, broker information as well as new content such as leads, in-app analytics and traffic. Those accounts are sort of like a RETS account but are more manageable, measurable and interactive. Solid Earth’s projections predict that there will dozens of these accounts in each MLS market, returning ~$300 to ~$1,500 / month per account. Depending on the size of the market, these fees could easily exceed current “bloatware” subscription revenue. (Note, we have another release coming out next week that expands on this idea… stay tuned)
So we believe that it’s likely to be a revenue positive event when MLSs transition to the new model. It’s clearly what’s next and in our opinion, the sooner we get moving on this the more empowered the brokers and their MLS will become.
Spring is perfect for MLS systems that want to innovate and walk away from the old model. It’s ready for that challenge and for the innovation that is picking up speed in 2014. Come to Booth number 5976 at the NAR Expo to learn more about it, or go here and request a demo today. We’ll be in touch.