If you haven’t subscribed to TED Talks videos on YouTube, then you’re missing an advantage that some of the tech elite get months before we get a chance to see it online. So if you don’t view it on the internet (via YouTube or on the TED Talks website), then you don’t know what you’re missing. Chris Anderson, editor of WIRED Magazine, discusses the evolution of any viable technology and its four critical stages of evolution. I wanted to use this framework to discuss technology that has been introduced into the real estate industry and where it is in its evolution. As we’ve all heard “keep your friends close, but your enemies closer”. So where is the next real estate billionaire going to come from? Technology?
Stage One: Critical Price
The price of any new technology is stratospheric at first (the first DVD player was priced over $1,200 at first). Then, as the production increases and the acceptance from consumers takes hold, the price begins to decline to a “critical price” that opens the “flood gates” of demand. This critical price coincides with the efficiencies in production to meet the spike in demand for the product.
Stage Two: Critical Mass
The product was initially very costly to produce, but the increased demand has driven the production costs down to take advantage of economies of scale. The “critical mass” coincides with more efficient production avenues that help drive market share for the product.
Stage Three: Displacement
The product was originally conceived as an alternative to something else (something else that was too costly, too inefficient, too cumbersome, etc.) and that something else is losing market share to the new technology (product). The loss in market share will reach a point where the new product will “displace” the older, inefficient product in the minds (and hearts) of the consumer (i.e.: the DVD vs. the VHS).
Stage Four: Deflationary abundance
The product has displaced an older, inefficient product and its appeal has become ubiquitous throughout the market. The final stage of this “new” technology (product) is its mass appeal and the availability of cheap, mass production. The availability of the product will cause “deflationary abundance” and our $1,200 DVD player is now essentially a throw-away from WalMart @ $69.99.
Our Question: Relevant to Real Estate?
Where is Redfin in this model as it relates to the introduction of technology into the new real estate brokerage business? I think we’re (as agents and competitors) still trying to figure out what kind of a threat is this new technology (and it is technology driven this time, since the reduced brokerage commission model has failed in the past) going to pose to our businesses as the consumer shifts to an online world.
We’re seeing that the “critical price” is something that is going to appeal to technology consumers (1% listing fee for Sellers, paid at closing vs. 3% to a local brokerage – “on average”). Is that “critical price” going to propagate to market share around the country or in the minds of value driven “hard asset” consumers? Right now, Redfin’s market share is sporadic, at best, and the Central Valley of California (my market) is not covered, nor do they anticipate coverage through 2008 (think of all those banks and their inventory of foreclosures in Sacramento, Stockton, Merced, Modesto, Fresno and Bakersfield that could be saving 2% off any price sold in this market).
So are they going to shoot for ubiquitous coverage in the displacement stage right off the bat or aim for critical mass from larger markets before they “dip their toe” into the ancillary markets (such as the Central Valley is perceived to be)? Who gets sued when the employee at Redfin fails to get a termite report verified before closing? Or will Redfin be large enough financially to withstand any nominal suit over the course of “hundreds of thousands” of transactions @ 1%?
Is it more important to make a quick “buck” for the investors in the larger markets first, or shoot for the moon and generate ubiquitous coverage with as much seed money as you can? I think that is the $64k question for the 1st tier venture capitalists that have put tens of millions into the bank accounts of savvy techies (salesmen) looking to take a proven technology model into another industry.
Memo to other VC’s: The second mouse gets the cheese
Obviously, we’re very early in this (new real estate technology) model to know exactly where it’s headed with this market, the technology and the online consumer, but I wanted to “toss around the topic” to the group and remember in any market:
1. Always be moving forward;
2. Pay attention to your competitors; but,
3. Pay more attention to what you’re doing.