Normally, I leave the non-technical thinking pieces to Mark and Todd. I think it’s finally time for me to give it a go. I was recently reading an article that Spencer Critchley posted on the O’Reilly Network: How Digital Production & Distribution Are Making Things Worse For Musicians, Not Better. At one point Critchley sites Jeremy Siegel’s book The Future For Investors and Siegel’s use of the fallacy of composition. To quote Critchely quoting Siegel:
Any individual or firm through its own effort can rise above the average, but every individual and firm, by definition, cannot. Similarly… if all firms have access to the same technology and implement it, then costs and prices will fall and the gains of productivity will go to the consumer. (p. 105, 1st ed.)
I find that this quote really resonates with the real estate industry and its presence on the net. We hear a lot of talk about new web sites or new services that have cost millions of dollars to develop. However, in general, anything on the net can be easily recreated by someone else. (For the sake of discussion, we’ll ignore patents and their effect here.) The hard work of coming up with the initial idea is done, but was costly. However, once done, it’s easy for someone else to copy it, destroying the advantage that innovation creates.
In real estate, a clear example that brokers and agents can relate to is having listings on your web site. When IDX first came around, having a listing site was somewhat novel and gave a competitive advantage. However, these days, with software such as Open-Realty utilizing standards like RETS, anyone can have an up-to-date listing site. Everyone can have that advantage and as a result, no one has a unique advantage. We can see this pattern repeated in real estate, other examples are the adoption of cell phones and the almost universal use of e-mail.
For an example outside real estate, let’s take a look at Netflix. Recently, the blog Netflix Fan had a post titled “It’s like Netflix, only from Blockbuster.” In this post, the Netflix Fan talks about the initial challenges Netflix had in explaining how their DVD by mail system worked. Netflix spent a lot of money developing the business model followed by advertising and educating the consuming public about it. However, as Blockbuster Online, GreenCine, and others have come on the scene, they’ve been able to replicate the basic model without having to do all the explanatory advertising.
What’s the lesson to learn from all this? One important one I’ve taken away is that technology will give you an advantage only as long as you are exclusive on that technology. Your exclusive advantage can be very short-lived. It also shows us what we’ve known all the time, we need to differentiate ourselves by offering additional services that can’t be easily replicated by a computer, and by how we interact with the consumer.
Now that the Netflix model has been so widely imitated, and users no longer have to be educated, Netflix is concentrating on maintaining momentum, building their brand, and stealing market share from bricks and mortar video stores.
That’s an unwritten paragraph that I could have added. That is exactly how Netflix is using the non-tech portions of their business to maintain their position.