At the same time, the Internet clearly isn’t done changing the real estate profession.  Consumers continue to flock to national real estate portals like Zillow, which has attracted a ton of capital to invest in innovations.  In an article dated April 26, 2012, from Business Insider and entitled, “Zillow Chief: Here’s Why We Can Be A Billion-Dollar Company”, Zillow’s CEO, Spencer Rascoff, is quoted as saying:

We’re trying to move to a world where agents wake up, roll out of bed, and pull out their tablet or PC and manage their day and their workflow based on the tools that Zillow provides to them.

This same statement would make a good mission for most brokers and, of course, the mission of MLS organizations is to help brokers with their mission.  Of course, Zillow, RPR or other national sites can be good partners with brokers and MLS organizations in providing value to agents and consumers, and so the two are not necessarily in conflict.  That being said, the Internet has proven one thing pretty well, and that’s that pure middlemen (those not adding true value) do get dis-intermediated over time.  So, there’s no question that brokers and MLSs need to continue to provide independent value and how MLSs, brokers and agents create value in the coming years will be a decisive question for survival.

In trying to assess the outcome of a battle, a good place to start is with relative strengths and weaknesses of each participant.  Reviewing the relative strengths and weaknesses also will help illuminate the value of the Spark Platform, which has been designed to enhance the strengths and counter the weaknesses of the MLS, brokers and agents.

Strengths of the MLS and Broker and Agent Members

• Cooperation is the primary strength of the MLS.  More specifically, MLS organizations have proven to be the most effective at getting competitors in the real estate industry to cooperate with each other. This is accomplished through a bit of representative democracy, whereby the competitors have a key voice in defining the ground rules for cooperation.  What we’ve seen over and over again through the years is that the further the competitors are away from the rule-making for cooperation, the less effective it is. This is one of the main reasons MLSs have remained local.  Establishing cooperation at a national level is exceedingly difficult.

• Listing data aggregation, both in terms of quantity and quality, is one of the primary benefits of MLS cooperation. Competing brokers are willing to share data with each other because they had a voice in creating the rules (terms of use) for how their data can and will be used by their competitors.  Without this cooperation, the data aggregation wouldn’t exist.

Weaknesses of the MLS and Broker and Agent Members

• Fragmentation is the primary weakness of the MLS and of the cooperation among brokers and agents.  The problem is that the cooperation literally only extends so far, and then shifts to another MLS, which creates different rules, different data formats, and other sources of fragmentation.  This fragmentation (sometimes called overlapping market disorder) is a big problem for brokers.  Facing shrinking margins for years, brokers have been expanding territory and running smack dab into MLS fragmentation, which increases costs exactly when brokers most need to reduce cost.

• Smaller Market; Less Choice.  Fragmentation among MLSs also makes development of software and other tools and processes less efficient and so lowers the amount of innovation and choices for brokers and agents.  Every new entrant into the real estate software market has to deal with the wide disparity of listing data and rules among the hundreds of MLSs, which necessarily lowers the number of competitors willing or able to enter the market and solidifies the positions of those who have already entered the market.  The result is less competition, innovation and ultimately choice.

Strengths of National Sites

• Scale of investment is the core strength of national sites like Zillow.  By definition, national sites are building products for all agents and consumers in the market, and so can support a much larger investment in technology and other innovations than ever would be prudent for a single or even a regional group of MLSs.

Weaknesses of National Sites

• Data, of course.  The national sites are all seeking data from the MLS organizations, which have proven to be the only organizations able to establish the framework for cooperation necessary to create a complete and reliable aggregation of listings from competitors in any given market.  The national sites, especially those focused on advertising, have not been able to establish the level of trust necessary to supplant the MLS, because it is not in the best interest of competitors to all choose one site for advertising.

From the above, we can see that the strength of the MLS, brokers and agents (cooperation and data) is the weakness of the national sites, and the weakness of the MLS, brokers and agents (fragmentation) is the strength of the national sites.

Joining the Battle

We built the Spark Platform to enhance the strengths and counter the weaknesses of MLS organizations and their broker and agent members. More specifically, the Spark Platform enhances MLS cooperation, reduces fragmentation, and “sparks” innovation in the real estate software industry.

First, the Spark API reduces fragmentation by implementing the RESO data dictionary to standardize as much data as possible.  Using the Spark API, software developers can create products for all MLSs from one API instead of having to address them all individually.

Importantly, the Spark Platform is as much a process as it is a product. Though both FBS and the participating MLS organizations will be working together to map the existing data to the RESO data standards, the reality is that not all fields will map to the dictionary right away. However, the idea here is to create an ecosystem driven by mutual incentives to create more standardized data over time.

For example, mobile development is the biggest frontier for real estate technology today, and the Spark API is designed specifically to make mobile development easier. As more developers use the API, more standard data will be needed, and the brokers and MLSs in each local MLS will now have a direct incentive to provide that standard data to get new mobile products for their MLS members.

Second, the Spark Platform enhances cooperation by ensuring that the MLS rules (the basis for cooperation among the brokers) are supported and that data is only accessed and used by those properly licensed.  Central to the Platform is the API Manager, which allows each MLS to specify the roles and rules for data access (e.g., MLS members, VOWs, IDX, etc.) that are then enforced through the API. In addition, the license agreements required by the MLS are integrated into the purchasing process through the store and during authentication from each use of the application. In this way, the MLS rules are enforced for data access and yet the data and rules are made available to developer applications through a single API, store and app bar, streamlining the development, sale, and delivery of applications.

Third, the Spark Store expands the market for real estate software (reduces fragmentation), which expanded market should increase the investment into new technologies for agents, creating more choice, more competition, and thereby lower costs for better products.

I mentioned mobile development above as one example where more innovation is important for MLSs. A related area for innovation is the creation of VOWs or customer portals. We all know how controversial IDX policies have become over the last few years, and VOWs offer a clearer alternative for brokers and agents to serve real estate consumers without all the IDX controversy. The Spark Platform is ideal for creating customer portals because of the standard data and built-in licensing through the authentication process of the API to ensure only those properly licensed get access to the data. Further imagine this: Once brokers and agents have their customers engaged in a customer portal, they could then extend the Platform to deliver and even sell real estate technology to their customers through the portal, creating an entirely new market for real estate software for consumers delivered by brokers and agents.

Undoubtedly, there are many ways other than mobile and customer portals in which the Spark Platform will ignite innovation in the real estate industry. In fact, that’s really the point. No one company or MLS can dream let alone create all the innovation real estate practitioners need. Instead, we need an ecosystem of innovation supported by competition and clear incentives for each party in the transaction. The Spark Platform creates such an ecosystem and we’re excited to see what innovation it brings.

Get Involved

As mentioned in my post yesterday, we’re in an alpha phase right now and are very excited by the interest expressed by so many MLSs to work with us on this project. We’re also working with a variety of developers to add products to the store, and we’re looking for more development partners now. If you’re interested in working with us or learning more, please inquire here and follow us here on the FBS Blog as we’ll soon be announcing some developer incentive programs.

One of the most exciting aspects of working with an MLS like MLSPIN is that they’ve built their MLS system in-house and have an excellent team of developers who can leverage the Spark API for their members and, if they choose, market their innovations to other MLSs using the Platform. For any MLS with an in-house development team, the Spark Platform provides a fantastic opportunity to have the best of in-house responsiveness while also leveraging a standards-based development platform.

I asked Kathy Condon, CEO of MLSPIN, if she could provide a quote for this post, and she said, “We’re excited to work with FBS on this project to leverage the new RESO data dictionary and bring to our brokers and agents the innovations possible from this new development in real estate technology.”

With MLSPIN becoming a charter member, the Spark Platform is now expected to reach over 230,000 brokers and agents.

With this post, I’m hopeful to clarify the different types of syndication and how IDX is different from all types of syndication.  Here are my definitions:

• Broker Syndication — Where the broker chooses (opts in) to send their listings (and only their listings) to a third-party listing advertising portal.  MLSs can and do provide tools such as ListHub or Point2 to help brokers syndicate but that is to be distinguished from MLS Syndication.

• MLS Syndication — Where the MLS syndicates a feed of all listings (other than those opted out of the feed by brokers) direct to a third-party listing advertising portal.   As indicated by the bolded terms opt-in and opt-out, MLS Syndication is different than Broker Syndication in that MLS Syndication sends all listings by default unless the broker chooses not to send them (opts out) whereas Broker Syndication is an opt-in approach.  (Theoretically, an MLS could syndicate the entire active listing database to a third-party portal with no ability to opt-out, but I’m not aware of any MLS doing that and so have limited the definition of MLS syndication to an opt-out broker choice.) This distinction between opt-out and opt-in broker choice (and, therefore, between Broker and MLS syndication) is very important, because opt-in (Broker Syndication) will significantly reduce the number of listings being sent to any one third-party portal whereas opt-out (MLS Syndication) will result in more listings being sent to the third-party portal.

• IDX — Where brokers (MLS Participants) agree with each other to share listings for display on their respective web sites.  The primary distinction between IDX and syndication (both MLS and Broker) is that IDX does not involve display of the listing on a third party portal.  Instead, the web sites involved are the broker’s or their agent’s own sites and the IDX policy is the terms on which they agree to share listings on their web sites.  IDX policies actually come in two flavors as well, opt-in and opt-out, but the primary difference between syndication and IDX is not whether the broker is opted-in or out but rather the destination site and who controls the rules for display on that site.  With syndication, the third party web site dictates the terms and with IDX the terms of display are dictated by the IDX policy.

• VOW — Another important MLS policy that applies here is for Virtual Office Websites or VOWs.  I know there are all kinds of legal documents (e.g., the DOJ/NAR settlement) defining a VOW but, for purposes of this post, I’m simply going to say that a VOW is a web site that is like the brokers real office in that it has a front-door and requires the consumer to identify him or her self before getting service.  If the consumer identifies him or her self (by signing in and agreeing to the terms of use), the broker can disclose MLS information to the customer on the VOW web site just as they could if they walked in the front door of their office.  VOWs are very different from IDX in that basically the entire MLS database (with some limited exceptions) is involved, just as it is in their physical office.

From the above definitions, there are two major distinctions among the terms:

1. Who controls the terms of use for the listing information (third party portal or the broker or agent); and
2. The extent to which the aggregate of MLS data is involved versus just the listings of one broker.

These two themes impact each other, because the more the aggregate MLS data is involved (as opposed to just the listings of one broker), the more important is agreement (terms of use) among the brokers regarding how the aggregate listing information is displayed and used.  Applying these two distinctions, we can more easily see the gradations between Broker Syndication, MLS Syndication, IDX, VOWs and even MLS consumer portals or other listing portals.

Syndication involves sending listings to third-party sites, which typically dictate the terms of use (how the listing information is displayed, how the listing broker is displayed, what ads can be sold around the content, etc.).  In contrast, the terms of use for IDX, VOWs, and MLS portals are defined by the brokers through the MLS.  This fundamental difference (who determines the terms of use) is why a decision by a broker or the MLS not to syndicate does not inexorably lead to a decision not to participate in IDX.

Of course, the lines of distinction I’ve drawn above are not hard and fast as demonstrated recently by Sandicor’s attempt to influence the terms of use on third-party web sites.  Will the new rules from Sandicor change the terms of use of the third-party portals and require more prominent display of the listing broker?  If so, this could create an entirely new way of forging agreements for syndication that could allow broader use of the MLS aggregation.

Similarly, Zillow’s purchase of Diverse Solutions (an IDX provider) poses the potential to blur some of the lines between syndication and IDX.  Also, the creation of the Real Estate Network syndication channels for major franchises and independent brokerages creates the potential to aggregate listing data via syndication outside of the MLS.  Again, however, the key issue here is who controls the terms of use.  To achieve critical mass with any of these approaches requires the terms of use to balance the competing interests of the brokers as accomplished with IDX and VOWs.   And, even there, we know from recent controversies over IDX that the balance of competing interests is fragile and requires constant evaluation to ensure the balance is maintained so the MLS aggregation can be used properly.  This is what MLS organizations do well, create cooperation among competing brokers, and why MLSs and the IDX and VOW policies created through that cooperative process will continue to survive regardless of what happens with the syndication debate.

What to make of all this debate? First, there’s not much new here. Brokers are competitors and will make independent decisions about where to advertise their listings. This is called syndication and it’s been happening since the beginning of real estate brokerage. Historically, the syndication channels were newspapers, home magazines, flyers, signs, etc. Now we have the web and sites like Zillow and Trulia. So, this debate is nothing new.

Brokers will continue to decide how they can gain a competitive advantage for their listings. Some brokers only want their listings on their own web site or their franchise web site. Other brokers find value in Zillow or Trulia or Realtor.com. Others yet post to Craigslist and dozens of other sites, on the theory that more is better. In my view, here’s the rub:

On its own, syndication (the decisions of individual competing brokers) will never result in a critical mass of listings on any one site, because competitors will naturally choose different destinations to distinguish themselves.

This is what distinguishes syndication from the MLS. Almost five years ago, I wrote about how the MLS is more than technology. In that post, I wrote:

The representative decision-making process of the MLS is what allows for the broad cooperation necessary to create critical mass in terms of data sharing. Without this, I believe we’ll simply have a mishmash of data strewn here and there, with no possibility of a national repository or any other useful portal. The MLS embraces the duality of competition and cooperation, and strikes a limited balance that enables critical mass to be established. This feat should not be underestimated.

Five years later, that post proved prescient, because, indeed, what we have today is a mishmash of data strewn here and there. The only site that has anywhere near a complete data set is Realtor.com, because they were successful in working directly with the MLS organizations that have worked so hard to encourage cooperation among the brokers.

Importantly, however, the necessary cooperation will never be the strength of syndication channels (Zillow, Trulia, etc.), because they make most of their money by selling ads to brokers and agents on top of the listing data, which is inherently non-cooperative. In fact, this practice of selling ads on top of the listings to competing brokers really irks the listing brokers and results in claims of “coming to dinner with just a fork” and, ultimately, “we need to take back our data!”

But let’s stop and evaluate that last call to action, “we need to take back our data.” Where I think those who advocate against syndication go wrong is in using the terms “we” and “our.” In the competitive landscape of real estate brokerages, the only “we” and “our” is the MLS but the MLS is not a syndicator. By definition, syndication is the decision of an individual broker for their listings alone, and has nothing to do with the cooperative aggregation of listing data in the MLS. As suggested above, some brokers will decide to syndicate, others won’t, and the market ultimately will decide who has made the best decisions. This is as it should be.

The tougher issues arise, however, when brokers extend these same arguments to the MLS aggregation. In this regard, those arguing against “MLS” syndication are right. The MLS should not send the MLS aggregation to any advertising site, because the business models of those sites conflicts with the cooperative model of the MLS. As I wrote five years ago, the value of the MLS is in creating that fragile cooperation that allows for the aggregation. What we’re now seeing is that the fragile balance of cooperation will not stand for the MLS sending the aggregate data to any advertising site.

Instead, the MLS should continue to foster the IDX and VOW policies that have been successful so far and modernize them with stronger terms of use designed to make it clear to brokers that their data will only be used by home buyers and sellers for their personal home buying and selling decisions. Such a foundation will not only preserve but strengthen IDX and VOWs, and help brokers and agents extend the collective MLS data to their customers on the web, mobile devices and whatever new technology comes down the pipe next.

In addition to moving the new mobile project out of beta, we’ve added some new features as well, including an enhanced full-screen photo tour, auto-loading of listings and photos as you scroll or swipe, ability for consumers to take notes on listings, and uploading of photos by the listing agent.

Mobile, in all its forms, continues to be a primary focus for FBS and we expect to continuously add functionality to this new platform.