If there is one thing I know, it’s that multi-billionaires love to get unsolicited advice from semi-anonymous bloggers. With that in mind I thought I would take an opportunity to dole out some friendly advice to Larry Page and Sergey Brin.
First though, I have to confess that I don’t have a good track record when it comes to Google.
Back in early 2001, I got a call from my best friend who had just attend a tech conference in Silicon Valley. He told me about a gentleman he sat next to who was an investor in what he described as a new search engine company.
Hearing this I laughed out loud. “What sort of idiot invests in a search engine company?” I asked incredulously.
The internet bubble had barely finished popping and many of the companies that survived looked as if they were in their death throes. Tech companies specifically had seen their stock prices plummet and former darlings like Alta Vista were going out of business or being absorbed into larger entities.
I wondered how much money that poor sap would lose investing in this silly new company.
That “silly” new company of course was Google. And the sap? Well, that was a guy named John Doerr.
Suffice to say, I have gone from a Google skeptic, to a Google user, to a Google believer. Though some may see them as a benevolent dictator, they make my life easier and more productive, and I enthusiastically use most of their products.
More importantly, I believe that Google believes that there is no industry they can’t dominate with a proprietary algorithm, an elegant user interface, and a boatload of the most talented programmer’s money can buy. Their interest in companies like Uber, Nest, Waze, and a number of others in “non-core” industries proves that.
Thus I submit that the next industry in their crosshairs should be the residential real estate industry, crushing in the process the National Association of Realtors. Why? Because they are crushable.
Though everyone will tell you they know a really good real estate agent, as a group, there may not be another profession where compensation of individuals so outpaces their value; the financial services industry excepted.
The average commission for a real estate agent is between two and a half to three percent per transaction, and with two agents per sale – - one representing the seller, and one the buyer – - up to six percent of the transaction value is lost in their fees. What’s worse is that their compensation scales with price – - they get twice the commission on a $500K sale than they do on a $250K sale, yet they perform the exact same amount of work.
There have been a number of companies that have tried to disintermediate realtors over the last few years, but none has had any real success. The biggest obstacle has been the NAR, which has a powerful lobby in Washington and is hyper-vigilant in pushing legislation to keep their industry protected. However, Google has the muscle in DC to take them on.
There are other obstacles related to the consumer, like the fact that buying a home is the biggest financial decision most people will make, and the fact that real estate expertise involves deep local knowledge.
But the biggest issue is that the home buying (and selling) process is intimately personal and emotional. Consumers have very specifics wants and needs when it comes to purchasing a home, which sometimes they themselves don’t even understand, let alone have to capacity to convey to their agent.
If a client only wants to look at houses with large backyards, and their agent isn’t inquisitive enough – - and most aren’t – - they will never know if it is because they host an annual summer party, like to garden, or sunbathe nude.
But if a series of questions could discover that the buyers want a large back yard so their dogs could run, then maybe that opens up the possibility of purchasing a home with a smaller backyard, but that is close to a dog walk or public park.
There are hundreds of different types of criteria like this that people use to search for a home, and an infinite number of undiscovered motivations attached to those criteria.
Companies like Match.com and E-Harmony have shown that even the most personal and emotional consumer decision – - finding a marriage partner – - can be successfully navigated with a set of intuitive decision tree questions. This is also known as an algorithm.
I believe Google can use their expertise at algorithms to find the best properties for the consumer, and their expertise at everything else to move them seamlessly and efficiently through the home buying process. This efficiency would commoditize the business and the role of the realtor, destroying the current commission structure in the process.
I imagine that a move by Google into real estate would follow the Uber model; rolling out in select metro areas where it would be most likely to scale well. I also imagine that they would not focus on the very low-end of the market (not enough profit), nor the very high-end of the market (too much hand holding).
Once Google Realty was established, the transaction process would be the perfect platform to bundle additional products such as mortgages, insurance, and home improvement. Think of the consumer, who just saved tens of thousands of dollars by purchasing their home through Google; what do you think the chances are that they would spend some of that money on an integrated Google Home technology package based on Nest’s products?
The possibilities seem endless.