Will the Internet Eliminate the Real Estate Business?

The structure of the internet started in 1982 with the introduction of Transmission Control Protocol Internet Protocol (TCP/IP), however this was for commercial use only. The internet became available to the public in 1990; therefore, we have 20 years of history to show us the effects of the internet on certain businesses and to take this information and apply it to our own Real Estate business. When we look at how the internet has changed many businesses, definite patterns emerge. There are 3 primary patterns or factors that we find define whether and how the internet affects a certain business or not. These factors are 1. Specialized Knowledge, 2. the "Experience of the Customer" and the 3. "Hand holding Principle". We have found that if we filter businesses through these 3 factors it illustrates whether and how much the internet will affect the business. For instance, if we ask ourselves the question, "Does the consumer need specialized knowledge to use this product or service?” the answer is a very strong factor determining whether the business is affected by the internet. The more specialized knowledge the consumer needs to use the product or service the less likely the consumer will find and use it online. Similarly we ask, "Is there risk in using this product or service online?" The more risk there is the more hand holding the consumer wants, or put another way, the more the consumer wants to spread the liability of making a bad buying decision onto someone else. If the experience of the consumer using the product or service is greater offline than it is online, the business is less likely to be adversely affected by the internet. By the experience I don't mean the amount of time a person spends doing a specific task, I mean the pleasure and enhancement of going through a specific buying process or the use of any given product. Businesses are affected by these three factors at varying different degrees. Let's look at certain individual businesses.

  • ·         The Movie Distribution Business:

This business is one of supplying movies for the consumer to watch. It is one of the most interesting industries to look at because it illustrates the concept of, "the experience", so well. The internet has virtually annihilated the movie rental business. Blockbuster video rentals was basically annihilated by Netflix, an internet based movie rental outlet where you don't even have to get off the couch to order a movie. Netflix is listed as the single cause of the downfall of Blockbuster, why is that? First you have to ask yourself, "Is Netflix an old business model that gradually built up strength through better business practices than Blockbuster?" Certainly not; it’s a completely new concept, still fairly primitive, that took down an established business giant. A true David and Goliath story. The whole concept of streaming videos into your home through your computer or Apple TV or Xbox is not only new but it is relatively difficult for a non-techy type of consumer to set up. With Netflix or any other video streaming service, the experience of actually watching the movie is exactly the same, you watch it on the same TV or big screen in your home; however, it’s more convenient. You don't have to go to the store to get the movie. An interesting question arises, why are there still theatres? Because people still go to watch movies in the theatres, but it's not convenient at all. They have to travel to get to the theatre and when you throw in the popcorn and drinks it is a lot more expensive. What is the difference? It comes down to the experience of the consumer. It is a totally different experience to watch a movie in a theatre than it is in your home. Consumers will pay for a better experience. Netflix was able to offer the same experience as Blockbuster but not the same as the theatres. The experience of going to a theatre with high end surround sound and a 20 foot screen is a completely different experience. Now you can go and watch movies in 3D for an even more different experience. Naturally this same concept does not apply equally to all consumers. This is why the internet has hurt the theatre business but not eliminated it. Nor will it eliminate it as long as the theatres continue to find ways to create different experiences for the consumer. It is also important to note that theatres have no specialized knowledge to offer the consumer. The only differentiating factor is the experience.

  • ·         The Travel Business:

The travel business was much like the Real estate business in that they had a monopoly on the information.  Before the internet, whenever you wanted to book a trip on an airline, you went to a travel agent. The only way you could research travel was to either buy a book on it or get information from your travel agent. Travel agents were holding all the cards when it came to information and travel arrangements. Now you can not only research the same information the travel agents have access to, you can book your own trips on line. You would think that this would eliminate the travel industry; however, the consumer does not know all the specifics of the exotic places they want to go to. Travel agents have that specific knowledge that consumers do not. There is also another factor that comes into play here, I call the "Hand Holding Principle". When the stakes rise to a place where the consequences of a bad decision become risky enough, the consumer wants someone to hold their hand. They want someone to take the pressure off them and take some of the responsibility for the decision. The travel agents have specialized knowledge and they take some of the risk away from making major travel decisions. When the stakes are not high and there is no hand holding needed, for instance when someone is flying to Vancouver from Calgary, then the consumer will book online. However, when the stakes are huge as they would be when someone is booking a trip to an exotic holiday for the whole family they will often go to an expert for advice and that expert is the travel agent. As with the movie industry the internet has hurt the travel industry but not eliminated it. There are far less travel agents now than there were 20 years ago. In my opinion the consumer is going to get more and more comfortable with booking online. In order for the travel industry to survive, they are going to have to figure out ways to differentiate the experience of booking trips in order to maintain their business similar to the ways the movie business has brought in 3D.

  • ·         The Encyclopaedia Business:

My parents had both the Britannica and the World Book encyclopaedias. I am sure they purchased them from some very skilled door to door salesman. This is a business that has been completely annihilated by the internet. Why is that? It is a business that is 100% based on information. It offered no specific knowledge that you could not get from the internet. There is no hand holding factor because there is no risk in going online and Googling some question, and the experience is actually better online. It's faster and easier to find specific information than it is to look it up in a book. There is also a great deal of related information offered automatically.

  • ·         The Investment Business:

By this I mean the business of selling consumers investments like stocks and mutual funds. This business is very similar to the travel business when you consider the effects of the internet. The internet has hurt this business because the consumer can go online and buy and sell equities cheaper. Those that want to do their own research and make their own purchase can do so. But this business still thrives. TD Waterhouse, Edward Jones, Primerica, Investors Group and the national banks are all thriving. Why is that? The information is readily available on the internet. First the experience is different. There is a relationship involved and a process of learning and advice gathering. That relationship between the consumer and the financial advisor is part of the experience. Next, these financial advisors have specific knowledge. They are expected to know things about financial vehicles that average consumers do not. Lastly, the hand holding factor is huge. The business deals with the consumer's future; therefore, there is great risk, the main factor in the hand holding principle. The consumer does not want to take complete responsibility for decisions that could so greatly affect the future of their family. The financial advising industry has done a great job of portraying the importance of a relationship with the consumer and the strong need to have their hand held. For this reason, I see this business excelling in the future.

  • ·         The Restaurant Business:

Here is a business that is all about the experience. The internet is nothing but an advertising vehicle for this business. It may seem obvious but the internet cannot do anything but enhance this business because you cannot eat a meal online; however, you can order a meal and have it delivered. The internet can make certain restaurants excel or fail based on whether they use the incredible marketing power of the internet but it is primarily an advertising vehicle. The internet is a relatively minor factor in the restaurant business. There are restaurants that do very well that do not advertise at all, on or off line. How can this be? Because in the restaurant, it’s all about the experience. A restaurant that has amazing service and food will be busy regardless of advertising. Restaurants can also be in lousy locations and excel if the experience is awesome. Close to my home town, in a little town called Winfield, there’s a restaurant call Ricardo's. Although well off the highway on a no through street with very poor signage, this restaurant is very busy. The food and service are amazing so people will tell others and drive to a remote place for the experience. Conversely, there are other restaurants that are on the main street downtown and fail miserably because the experience is not as good as other restaurants.

  • ·         The Writing Industry:

By this I mean the business of writing and publishing books. The business is in contrast to the restaurant industry because there is no difference in the experience of reading a book published by a publisher and reading one that is self published; therefore, the experience is not a factor. The internet has made it cheaper and easier to publish a book. Like the travel industry the only way to publish a book 20 years ago was to go through a publisher, now you can do it faster and cheaper on-line; however, publishers still exist. Why is that? They have specialized knowledge and the hand holding factor is high. Not as high as the financial business but still high enough to make a difference. Books need to be specifically organized and edited to be appealing to consumers. For this reason I think the publishing business is around to stay. What about the actual reading experience? This I believe will change. Recently there is a different experience coming into play. You have been able to read books online for years but it hasn’t really taken off until the last couple of years. The reason is that the experience of reading a book on your computer screen is cumbersome and inconvenient. It is much easier to just pickup a novel; but, we now have readers and tablets. Many people buy tablets just to read books. The consumer can instantly download any book and read with amazing convenience, even turning pages is easier. The reader can highlight sections and make notes with incredible ease. Here is a prediction for you - in the next 5 to 10 years, the experience of using a reader will annihilate the hard copy book business. Think this through. The experience is better, it’s more convenient, cheaper, there is no hand holding principle, and there is no specific knowledge required to use a reader or tablet to read books.

  • ·         The Retail Business:

Looking at the retail business through our three factors it seems that it should be negatively affected by the Internet. Consumers do not need specialized knowledge to go to Walmart or any other store for that matter. It is actually easier to research products online than it is to go into a store so there is no specialized knowledge required. There is no risk involved in going to a store so there no hand holding required; however, there is a difference in the experience. I am at our lodge in the Cariboo over the Christmas holidays as I write this. I discovered an amazing new health vitamin called African Mango. I researched it on the net extensively. There are numerous sites to purchase a multitude of brands. But we are going into Kamloops for a few things and I have decided to go to a health food store to buy it. Why is that? The reason is I want it now. This is a difference in the experience of buying this product online or going to a store and buying it, but it's not a huge difference. The real difference comes when you think of the actual pass-time of shopping. Shopping has become an international pass-time. People shop for the experience when they go on vacation. Many times both sexes go out to shop and don't buy anything because they enjoy the experience of shopping rather than just getting something they need. Consumers can buy almost anything online; however, they cannot get the same experience nor can they try things on and look at themselves in the mirror or touch and feel the product. Stores like Costco are supplying snacks as you shop to further advance the shopping experience. There are 2 major changes in all retail businesses in the last 20 to 30 years. First there is the Internet and second is "distribution". Nobel Prize winning economist Paul Zane Pilzer says that Distribution is the single top change affecting the retail business in the last 30 years; even bigger than the internet. Sam Walton did not make or build anything - he made billions distributing other company’s products in a way that no one had done so prior to him. In 1976 Fred Smith started an airline that never flew a passenger; he flew people's packages overnight and created a revolution of distribution with FedEx. Incidentally, Fred Smith had the idea in college and his professor failed him because it was a ridiculous idea in his eyes and would never take off. Ross Perot built a 3.5 billion dollar computer company that did not make computers; it simply distributed other people's computers. With universal distribution, consumers can go out to stores and experience virtually any product.

  • ·         The Newspaper Business:

This business has been hit very hard by the internet. The site www.newspaperdeathwatch.com chronicles the demise of major newspapers around the world. On this site there are numerous worldwide newspapers that have closed their doors. Some of those newspapers were in business for over 100 years. Why is that? First, their product was information similar to the encyclopaedia business. Unlike the Real Estate Business, newspapers are their only product. Their mistake was that they hung on to their business model and did not change until it was too late. Imagine for a moment a different world, in this world Google and all other search engines had not started yet. The newspapers of the world jumped the gun and created incredibly easy to use sites online that you could search local current or historical information and your search could expand to search worldwide information if you so chose. They would give this information away for free and simply sell advertising on the sites. Consumers would have flocked to these sites in droves. Google would have never happened because the people who had 100 years experience in bringing news to the consumer had jumped on this new medium and monopolized it. I believe this is one of the biggest mistakes in business history. Instead the newspaper industry held on tight to the idea that people will always pay for their information and the experience of sitting down to a newspaper and coffee in the morning will never falter. How wrong they were. What about specialized knowledge? The only specialized knowledge you need to get information from the internet is to be able to ask a question. You don't even have to know how to spell; Google will ask you what you mean if you spell it wrong. There is a different experience for those that have read the paper for years with that morning coffee. There is still some loyalty to the concept. Unlike the encyclopaedia industry this is the only thing that has held on to some consumers; however, the difference is very small and as all the people that hang on to that experience die off this difference will be eliminated. The other thing that is hitting the newspaper industry is that the advertising is becoming less and less effective. There are 2 types of advertising; call to action and branding. Call to action advertising is advertising that entices the reader to act now - to go buy something or contact a salesperson or someone who is selling something. Branding is designed to make the consumer think of a specific brand or company when thinking of a certain product. Newspapers used to be both call to action vehicles and branding vehicles. They have now been reduced to poor branding vehicles. When people shop for products they go to the internet. The reason some Realtors still advertise in newspapers has been reduced to "because the seller wants to see their house in the paper". From continually asking Realtors in my sales meetings whether they are getting calls from newspaper ads, I am convinced that it is the most expensive and least effective form of advertising available to Realtors today. So when you seriously look at this business, the experience is better online for everyone except those select few who refuse to change. There is no specific knowledge required to use their product online, and there is virtually no risk of making a bad decision; therefore, there is no "hand holding factor". On top of all that, the single way that the business makes money, advertising, is becoming incredibly ineffective compared to the internet. I wonder if the newspaper business is going to be around long.

  • ·         The Real Estate Business:

Looking closely at all these businesses illustrates the factors that have to be present for the internet to eliminate or change a business. The product of the Real Estate business used to be information. We had "THE BOOK"; the MLS book. I remember 25 years ago showing houses. Buyers always wanted me to give them the book. We would say, "No No Mr .buyer, the book is mine and only mine, you have to deal with me to get the information". The internet took our product away. Now the consumer can research information about housing and every house available in just a few mouse clicks. However, in my opinion, if we look at the Real Estate business through the same eyes we have looked at other businesses, Real Estate comes out on top, or at least can come out on top if Realtors learn to adapt. First, they have to realize that they must find a different product. It's only logical since they don't have one anymore. What do they sell? They can't sell information because it’s now given away whether the Realtor likes it or not, through the internet and the MLS systems. They don't sell houses because they don't own them, stock them or even control them. What their new product has to be is specialized knowledge and the experience. Research has shown us that Realtors have to be far more knowledgeable about their business, the statistics, and the process than ever before. They must supply information that is not easily acquired by the consumer. They also have to get away from the concept of service. Their job has to be better than just supplying good service; they have to supply a profound experience. The consumer must be taken through the entire process with excitement and security. There is an old proverb that says, “People will not remember much about what you say, they will remember a little more about what you do, but they will never forget how you made them feel”. Realtors need to help consumers have a wonderful buying and/or selling experience. What that means is that there must be a good relationship built, they must communicate to the customer regularly and keep the customer up to date with the process. There must be a steady string of little extras that send the message that the customer is worth the money the Realtor charges. There must be a gift to say thank you for dealing with them and there must constant follow up after the sale. Consumers have shown that they are more than willing to pay for the right experience and specialized knowledge. Lastly, buying or selling a home is the largest transaction that most people will ever make; therefore, the risk is higher than any of the above discussed purchases. This makes the hand holding factor huge and the consumer will want you to take them through the process. Real Estate is the only business that I researched that has all three factors working for it as long as Realtors accept the idea that our product is no longer information. Our product is specialized knowledge and the buying and selling experience that we supply to the consumer. The internet will never eliminate our business; however, it has and it will eliminate realtors in the future who refuse to acknowledge this new business model.

Bill Hubbard

Bill Hubbard

Broker/Owner
CENTURY 21 Executives Realty Ltd.
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