Is Closed Source a Good Idea in Real Estate?

A response to a curious shift at Keller Williams

Recently, Keller Williams co-founder Gary Keller took the stage at a company event to discuss the role of technology in the future of his firm. The full article is reprinted here, courtesy of WFG National Title Insurance Company.

TL;DR — Keller Williams is adopting an aggressive ‘closed-network’ approach that prioritizes proprietary technology and nearly eliminates ‘bolt-on’ or third-party software integrations. How this will play out for Keller Williams in an increasingly open-sourced, sharing economy will have ramifications for not only Keller, but other high tech powered brokers, agents, and ultimately, clients.

credit: pexels.com

Open vs Closed

What do we mean?

Generally, and for the purposes of this discussion, I’ll refer to the Wikipedia definition of open and closed systems: Open systems are systems that allow interactions between their internal elements and the environment. Closed systems, on the other hand, are held to be isolated from their environment.

For real estate brokerages such as Keller Williams, this means choosing between developing and supporting proprietary technology (closed) or integrating and collaborating with third-party software (open). Before we get into the details of Keller’s direction, let’s step back and take a look at the pros and cons of each:

Benefits of Being Open

In general, open source systems:

Can more readily support industry growth through collaboration, idea sharing and ease of adoption.

Are characterized and supported by strong and vocal communities that often time generate new innovation within themselves.

Are not subject to a private agendas.

From the initiation of the first trade routes to open source software development, the benefits of open systems are obvious. In today’s “knowledge sharing economy” (hello, Uber and AirBnB!) it is obvious customer demand supports the growth of open-source development.

Drawbacks of Open Source

On the flip side, open source can lead to:

Fragmentation and time constraints due to reliance on others, especially among poorly coordinated efforts.

Slower decisions and a lack of consistency in product development and user experience.

Theft.

Closed systems benefit from a singular vision, faster execution, consistent delivery, and retention of critical and sensitive data.

Keller Williams Has Spoken: Closed

“We are a technology company. No. 1 that means we build the technology. No. 2 that means we hire the technologists …. We are not a real estate company anymore…” — Gary Keller

We’ve seen this trend emerge with companies such as @Properties, who have focused on both developing proprietary tools and integrating third party software to new players such as Compass that are building an end-to-end platform for their agents.

Keller appears firmly set against off-the-shelf solutions, implying that inputting consumer or transaction data into third party software strengthens their competitive position and weakens that of Keller Williams. The takeaway is that this consumer and transaction data is not only valuable, but the property of Keller Williams. Which of course it is…and it isn’t.

credit: Keller Williams per WFG National Title Insurance Company

The problem with this position is that it assumes Keller is the only holder of this information. Take search parameters and search progress for a home buyer. I challenge any real estate agent who thinks once they have a conversation with a prospect, that those search parameters and online browsing habits aren’t also already captured by Zillow…or Redfin…or Realtor.com.

Consumers have already spoken: they freaking love the portals. According to NAR’s 2017 report, 51% of home buyers found their home online, versus 34% through an agent. To be fair, 88% purchased a home using an agent — which means buyers are more commonly searching on their own and using an agent for negotiations and advice. That’s significant, and if Keller thinks they’re going to monopolize and maximize economic value from consumer search data I think they’re wrong.

Furthermore, building a system of closed technology goes against the grain of consumer habits. Nowhere is this more painful than this video, featured on Keller Williams Marketing & Technology page:

“Download this app to work with me” — no thanks.

Did you catch that? How many times did the KW agent refer to the fact that the open house visitor must download his app in order to benefit from working with the agent. Would you leave the open house and download an app just to message the agent and get updates on the property?

Me neither. Back to Zillow.

“You have singlehandedly created the most valuable real estate company in the country called Zillow. They don’t create their own content,” Keller added. “It’s your data. [Real estate portals are] just using money and technology to enhance the experience so everyone wants to go there.”

I’ve spoken to a lot of real estate agents, and the love-hate relationship with Zillow is real. In any single conversation, Premier Agent is hated because a prospect can easily go back to a link and click on a different agent’s contact information, while in the next breath the lead generation function of Zillow is praised. Keller would be better off acquiring data from these sources because the portals are doing a better job of it (and can do it cheaper because they’re paid to do it, not paying).

The last part of that quote is important: “so everyone wants to go there.” Exactly. This is why you don’t mess with the 800 pound gorilla. Closing yourself off in this sense is akin to developing a product without listening to your stakeholders. Keller Williams Labs vets ideas through its own agents, (who presumably get feedback from their clients) but why not collaborate with additional technology developers to expand that knowledge base exponentially?

Open systems account for changes in need that allow companies to develop products that fit those needs and can better use supply (i.e. previous knowledge) that benefit firms who can iterate through ideas. Ultimately, open systems benefit from mutual respect, collaboration, and interests.

A closed system is akin to running a restaurant and creating a menu based on what the other chefs want to serve, instead of listening to the paying customers.

It Sounds Familiar

Unfortunately, this industry has seen this closed-system development before: the 680+ MLS’s across the country. The real estate industry has historically been characterized as one leery of adopting new technology due to the fear it may diminish their relevance. This is literally the manifestation of closed systems, and one that the industry is now rapidly trying to undo through the adoption of RESO standards and web APIs. While listings were once the most basic and prized asset to a broker, the adoption of the portals has shifted that slightly.

With that in mind, it’s hard to fault Keller Williams for wanting to protect it’s, and any brokers, now most coveted asset: data. To that effect, Gary Keller, in his presentation, noted the firm’s data pledge:

“We will always respect your data as your business and we will always allow you to take your database with you.”

Data, however, is messy and a real challenge to manage, which is a major advantage to relying on experts in this business, such as established CRMs and young and able startups with teams of dedicated data scientists. Out-of-the-box solutions are often less risky for this reason. This can also benefit firms because real estate is cyclical, and the heavy impacts of this can be better handled if firms can be more flexible. “Big Data” is likely in the running for word-of-the-decade, and for Keller Williams to potentially shut itself out from streams of data would mean missing an incredible opportunity to leverage the latest in machine learning and build a database with troves of valuable data (which of course Keller does not want to supply, so the point being they won’t be able to acquire, either).

A Better Alternative

There are two camps emerging: the high tech powered brokers and niche boutiques. Many, including Compass CEO Robert Reffkin, believe the traditional brokerage model is going away. Without doubt the boutiques will need the technology to keep up, and it is likely agents will benefit the most regardless.

To this point, firm-agnostic technology is likely to be most appealing not only to consumers, but to agents who will continue to grow to be more entrepreneurial and drive decisions for which business tools they use. This flexibility will allow agents to meet the demands of clients more closely.

In the End

The next generation of real estate technology companies are likely to establish a competitive advantage through value propositions derived through complementary services to the technology leaders of today, from high tech brokers to AirBnB. This is a challenging environment for closed system companies. The worst case scenario is positioning oneself as Borders while Amazon eats your lunch due to its massive value derived from far reaching integrations and partnerships.

At the moment, it is way too early to know if this is the right move for Keller and the industry. Technology alone is solely a means, not an end in generating value. Adoption is critical, and a question Keller needs to ask itself is whether or not to define that as adoption of its tools among its own agents (likely high) or their clients (TBD). If the tools, such as the Keller Williams app, create addition frictions or a “tax” on the existing process, it’s a fail. How valuable would Twitter be if it content was only viewable by those users who are currently logged in?

Personally, I’m leaning one direction: