The MLS Value Disconnect

Feb 23, 2013 Michael Wurzer

Zillow is valued at around $1.4 billion, Trulia at $700 million, and Move at $380 million, all of which, when added together, seems to dwarf the perceived value of the nationwide network of MLSs. For example, a few years ago, ARMLS, one of the largest MLSs in the country with 30,000 members (and an FBS customer), was considering selling to the Arizona Association of REALTORS for $4.75 million (in what likely was not a market or competitive sale price). In this post, I want to examine this perceived difference in value.

Of course, the primary content on all of these sites is real estate listings and MLSs have the most and best. Nonetheless, Zillow recently reported something like 70%+ revenue growth based on 29,000 Premium Agent Subscribers at an average revenue of $267 per agent per month. More importantly, based on the strong stock performance of Zillow and Trulia, the market clearly thinks they are in the early growth curve and will continue to grow revenue from agents and brokers. In the words of Rob Hahn, Zillow is killing it.

In contrast, MLS providers typically charge that amount per year, and, if anything, the pressure is to constantly lower that charge instead of increase it. In this post, I’d like to delve into some of the differences in the perceived value propositions between the MLS and sites like ZTR. I also will suggest toward the end that MLSs can and should shift their mindset regarding the value being offered to compete better against the ZTR juggernaut. (There’s a lot more value in MLS than anyone currently is realizing, but that value may disappear if it isn’t realized.)

One of the primary reasons for the different pricing or value propositions simply is scale. The MLS essentially serves all the agents in a given market, whereas ZTR is only serving a small fraction (approximately 3% or 30k/1M) of the membership in any given market. Many members of the MLS are essentially consumers and never actually have any transactions or only have a few per year, and so they have no need for marketing or other tools or software and little or no tolerance for extra fees.

Given the lack of transaction volume for most MLS members, typical penetration rates for non-MLS products are often less than 10% of the users whereas MLS services are paid for and extended to the entire membership or 100% of the market. Again, that higher volume means a lower price and lower tolerance for price increases. This can easily be confirmed by anyone who has ever negotiated an MLS-wide site license for a product. Whereas a typical CMA program may cost $30 per month when sold one by one, an MLS-wide site license may be able to be procured for $1 or less per member per month because of the lower sales costs and 100% penetration.

No matter how you slice it, a significant amount of the difference in price or value proposition between the MLS and ZTR products is volume, which the MLS has and ZTR does not. In fact, if the traditional pattern holds true (low penetration rates from individual agent or broker sales), Zillow and Trulia likely won’t be able to sustain their current growth rates and will settle into more of a revenue pattern like Move’s current pattern (though their revenue models are quite different).

However, if the market is right and Zillow and Trulia are able to sustain their growth rates, that means there remains another explanation for the different value proposition. Certainly the success Zillow, Trulia, and Move have had in achieving consumer attention and traffic is a significant difference in value. Agents and brokers need to connect with consumers and these sites help them do that. Of course, many MLSs also have public facing sites but that hasn’t seemed to stem the tide of traffic to ZTR, especially on mobile devices.

Does the consumer connection explain the difference in value entirely? Put differently, does the value difference suggest that brokers and MLSs should be working together to develop a stronger brand for MLS data? After all, the content at the center of all of these sites remains listings and the MLS remains the best source for listing data. Of course, the long-debated question is whether dominance by a ZT or R with consumers ultimately will result in a shift from MLSs to those sites regarding who is the source of listings. If ZT or R becomes the central hub for a critical mass of agents and brokers, why pay the MLS at all? The challenge to date has been that no entity other than the MLS has achieved that critical mass or deep penetration in any given market, and so the question looms.

Of course, another looming fact is that most MLSs are not run as for-profit businesses, and, as Greg Swann long ago argued, that’s what holds them back from realizing their true value. On the other hand, given that no other entities have managed to achieve critical mass in helping agents and brokers cooperate, perhaps the lack of a profit motive is the missing ingredient. Certainly what remains to be seen is whether a for profit entity can achieve critical mass of cooperation.

Given this on-going disparity and debate, I think it remains vital that MLSs continue to explore ways to collaborate with brokers to win the battle for the consumer. Too much value is at stake. I also humbly and selfishly suggest that innovations like the Spark Platform, and, more specifically, the Spark API provide the backbone for quickly and inexpensively building a compelling consumer experience on the web and mobile.

P.S. I wrote this on a flight to Mexico for a week of vacation with my family, so I won’t be able to approve or reply to comments until I return. Those who have commented before will be auto-approved, so I hope you comment and I’ll join the discussion when I return.