Waiting for the Next Big Thing – or Not
I read posts and articles all the time where opinions are dressed up as news pieces. Not to pick on Market Watch (who basically lifted these “chicken little” comments from Vice) or Inman but these are just a couple recent examples. There are dozens of these occurrences every week.
A couple old sayings come to mind when reading articles like these –
“Anything is possible.” Look at WeWork. There went a $40 billion IPO out the window in a span of a few weeks.
“There’s a first time for everything.” We just had the first World Series ever in which the visiting team won every game in the series.
Could, would, maybe…
What Constitutes Success in Real Estate?
In baseball, a .330 hitter makes an out in 2/3 of his at-bats. Do that for a career and you go into the Baseball Hall of Fame. A successful quarterback will have at least a 65% completion rate.
Most brokers and agents would pay dearly to have a consistent 5% lead conversion rate. So is it the number of at-bats or pass attempts, so to speak, or the number of hits or completions that counts?
Everyone knows about the low barrier to entry in the industry. This and the threshold for broker success in this business are tied to the huge fragmentation not just across the country as a whole but in every state too. So why does the volume of business (and resulting commissions) continue to concentrate at the top of the real estate agent ranks? Years ago, people used to talk about a 70/30 business environment where 30% of the agents accounted for 70% of the transactions. Then it became 80/20, now it is 85/15, and yet it still doesn’t stop new players from entering the game and trying to advance up the ladder of success.
The Next Big Thing
Is this on the minds of VC’s and hedge funds when they look at this industry? What do they see that most people don’t when they pour tens of millions of dollars into a tech startup that thinks it has come across the next big thing in real estate? Anything is possible and there have been some great ideas that have come to fruition over the past 10-15 years.
Somewhere out there, someone is going to come up with the next great idea (see: Zestimates and Zillow Premier Agents). Data aggregation is critical but so is the ability to make sense of and leverage that data. Regardless, it takes technology to make all of that work and to speed up the process as well. There will be a next big thing – but who or what will it be? Maybe it’s Zillow Offers and we don’t even realize it yet.
What we CAN count on is that it will be technology-based combined with an equal dose of human talent and sensibilities. It will also likely be in an area that takes advantage of inherent inefficiencies in the industry.
And despite these inefficiencies and hundreds of markets in this country, it has to scale up across the country to really be the NEXT BIG THING.
Rich Barton sees it. He couldn’t have been more explicit at the recent Zillow Unlock conference. Do brokers see it?
Skeptics and Advocates
Not gonna happen, a lot of people say. Well, are we looking at probabilities similar to lead conversion rates, baseball batting averages, or quarterback pass completion rates? Circumstances change every day and there are lots of smart people out there who will spot the opportunity and act on it. Maybe it will pan out for them; maybe it won’t.
Ask Inside Real Estate and their investors what they think is coming down the road. See if Vista Equity Partners believes that there is something just over the horizon waiting to be monetized. They don’t need a .330 batting average. Some doubles and triples (and millions of dollars) will get them where they want to go.
What the real estate tech startups have always needed are deep-pocketed advocates – people who are willing to put those millions of dollars down on a proposal because they know that this business is a never-ending series of long shots. What the startups bring to the game is a relentless effort and a huge amount of sweat equity in the face of incredibly long odds. But it does require someone who believes to bankroll that effort. And recent history has demonstrated that there are a lot of angel investors out there willing to pony up that kind of money. Because there is a first time for everything.
These two stances, skeptics and advocates, are often considered to be extremes in human behavior when in fact they’re not. There are degrees of skepticism and belief. That’s why hedge funds are aptly named.
Years ago, people in the industry used to talk about “lions coming over the hill” and that those “lions” were going to leverage technology to take over the industry. Well, technology has advanced light years since that speech in 1993 and the lions are already in our midst. They’re not the Microsofts and Googles that everyone feared years ago. They’re the startups who have beaten the odds so far, defied the conventional wisdom, and succeeded to some extent. A lot of skeptics just don’t want to acknowledge it – yet.
There’s a first time for everything and anything IS possible.