Good Standards Break Monopolies, Not Make Them

Sep 30, 2007  |  Michael Wurzer

The discussions across the country about consolidating MLSs rages on. In some areas, however, the focus appears to be more on who leads the consolidation than on the goals sought to be achieved. This conflict is similar to that created by Microsoft, which has created a de facto standard in many areas of technology. Some people laud the benefits of “standardizing” on Microsoft technologies and others recognize this as creating a monopoly and not a standard.

Similarly, to the extent MLSs advocate “their” MLS (system or vendor) as the “standard,” they are seeking to create a monopoly instead of competition. To some, reducing all MLSs to one system may at first appear to hold great allure. After all, as I’ve written previously, there are brokers experiencing real inefficiency (also known as pain) in dealing with multiple MLSs with many different rules and data formats, requiring entering listings many times, dealing with many different data feed formats, and paying many fees.

Reducing these disparities to one MLS certainly is one way to reduce these pains. The problem is that cramming all MLSs into one big one simply creates a monopoly and, eventually, the lack of competition will become stultifying and those same brokers calling for merger now will be crying for competition tomorrow when their interests ultimately diverge from those of the monopoly they created.

But there is a better way. Standards do not have to be created by choosing one vendor or creating one MLS. Rather, standards are about agreeing on the basics, the core, the non-competitive aspects of the business. For local MLSs, there certainly is an opportunity to solve real pain being faced by regional brokers by focusing on data standards (RETS) to allow single entry of listings.

If standards are followed, a listing can be entered once in any standards compliant system and then distributed to where the broker directs, eliminating the need for multiple entry points. Importantly, however, standards do not require choice of a particular point of entry (a monopoly), but rather enables choice among many standards compliant points of entry. This choice is what creates competition and competition is necessary to evolve the standard over time.

This last point deserves emphasis. Standards must evolve. Evolution requires competition. A single MLS does not enable competition. This is true for both the MLS and the vendors chosen by the MLS. One theory of regionalization says that if all MLSs were consolidated to one, competition could still occur at the vendor level. Vendors could code their systems to work with the “one MLS” and the many vendors that would be interested in this broader, bigger MLS would create more competition, not less. There is merit to this argument; it, too, has allure.

In practice, however, I believe the idea is flawed for two reasons. First, as I wrote a few months ago in a post called MLS Systems and Gateways, Front, Back and Middle, the need for brokers and agents to differentiate themselves will result in their selecting vendors that have capabilities not supported by the “one MLS” and so the goal of a single back end will be frustrated quickly by competition itself. Second, and more importantly, competition among MLSs is equally important as competition among vendors.

Despite being derided nearly incessantly over the last few years, the local MLS serves a critical function of providing true representation to the local brokers and agents. The local MLS can and will respond much more quickly to the local needs than will a monolithic state or national entity. The reason local MLSs have been attacked as being backward and inefficient lately is not because they are not responding to local needs, but rather because they are not responding to broader regional needs. The biggest complaints against the local MLS come from new entrants to that MLS, those trying to expand their markets from one region to another. When this happens, the brokers entering their next local MLS market see the differences from where they came and start cringing in pain as they recognize all the work they’re going to have to do to alter their business processes to accommodate the new rules, data formats, systems, etc. But the fact that these new entrants to the market feel ill-served does not mean that those who formed the MLS in the first instance feel ill-served. To the contrary, those whose home market is that local MLS more often than not feel well-served by their MLS. (If this were not the case, then they would change it. If anything, I think that MLSs should become even more local or micro, which would be possible with the distributed national repository idea I floated awhile back.)

Given that the local MLS serves a purpose in responding to local needs, the question becomes how to solve the pain experienced by new entrants or larger regional concerns? The answer? Standards, of course. By supporting standards, the local MLS can accept data input from other MLSs, reducing the need for duplicate entry, and ease the pain of processing data being received from the MLS. I also believe local MLSs could work better together on more common rules. This is one of the main reasons I started the Future of MLS Wiki. The Wiki hasn’t gotten a lot of traction yet, but often good ideas take time. 🙂

To those that would argue that such broad standards are difficult to achieve, I would agree. However, agreeing on broad and deep standards is easier than forcing mergers on unwilling participants. Moreover, the standards process is far less costly and could be executed faster than the politics of merger will allow. Most importantly, though, merger results in monopoly and that is the biggest cost of all.

5 Responses to “Good Standards Break Monopolies, Not Make Them”

  1. Sorin Udrea says:

    I have been reading most of your posts, especially those on the future of the MLS, and I really could not help making a short comment. I must say I am shocked and confused.

    My first impression regarding the MLS “problems” in North America is that when something works so well for so many years (as is the case of the MLS in North America), there is a risk that people will take it for granted: they will forget what that thing is, where it came from, and how hard it might have been to get here; it seems to me some people in North America just do not remember anymore what that system stands for, and they eventually want to change it into something “better”, but that will not serve the initial purpose anymore.

    I must tell you that hearing about the “problems” of the MLS’s and about the “need” for a statewide or even nationwide MLS in North America is almost unbelievable to me. I think I might have a different perspective on the subject because I am doing business in Romania, Eastern Europe. I have studied a lot about the real estate practices and the MLS in North America and we are now at the stage where we are working really hard to set up the first local MLS’s in Europe.

    For me it seems obvious that the whole idea about the MLS is getting most of the brokers in a certain area to cooperate with each other and compensating each other, under the umbrella of an entity (the MLS Service) which enforces some rules and regulations.

    The reason why MLS has never worked elsewhere in the world but in North America si that everybody tried to set up nationwide or even European MLS’s, and everybody mistook the MLS Service for a listing portal.

    Whereas, to my humble opinion, the MLS should stay local or else seize to exist: the cooperation between brokers for the sale of residential properties can only work locally, if we want it done in a professional and customer oriented manner. Moreover, it has been proven over and over againg that the residential sales always have and will remain local businesses.

    So, I do not know if that makes sense in the context, but my perspective, as an “outsider”, is that having only one MLS equals having no MLS and going back to the initial chaos.

    And trust me, you would not want to be where the Romanian real estate market is now, working to convince the brokers in every community that cooperation is better.

    Of course, (and I hope I understood it right), I have to give you all the credit that the only way and also (to my opinion) the obvious way to have easier access to data in various MLS’s is (RETS) Standards and data exchanges between MLS’s.

  2. Robbie says:

    I realize that RETS will ease the data pain, but how will it ease the rules pain? I almost think having statewide MLSs might be the answer (after all, we have 50 states in the USA for the forseeable future – so we’re going have at least 50 different sets of laws anyway). If California can make it work (IMHO the most difficult state to consolidate), I suspect it’ll add a lot of momentum to the MLS merger movement in the rest of the country.

    Ultimately, it’s up to the biggest MLS customers (brokers / MLS boards) to create demand for RETS and invest in it.

  3. Sorin: Your comments are greatly appreciated and provide a valuable outside perspective that I hope many people read.

    Robbie: You’re right, RETS currently is not addressing MLS business rules outside of the data standards. But I think effort is needed in that area, and that’s why I started the Future of MLS Wiki.

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  5. […] is a HUGE pile of mess to throw under one umbrella with one ringmaster”, check out my post Good Standards Break Monopolies, Not Make Them.  To summarize, you don’t need a national MLS to gain the benefits of standards, like […]