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Disrupting the Business; Not the Relationship

In many businesses, disruption has caused a significant change in the relationship between suppliers of services, products, and consumers. This was foretold in the late 1990s book Blown to Bits, where Philip Evans, then the Director of the Media Labs at MIT, predicted that the internet would ultimately rearrange all relationships between producers and consumers. They would be blown to bits.

Evans opined that no part of the world would escape—business, governments, education systems, media companies, etc. Among other factors, he said that the trade-offs between richness and reach would ultimately disappear. In residential brokerage, the analogy would be the reach of newspaper classified versus the richness of one-on-one personal meetings would melt away. An agent or brokerage would be able to reach a broad audience with rich content more quickly and at a lower cost than anything that came before. The real disruption happened to those who controlled the old means of reaching potential consumers, such as newspapers, homes, books, etc. Look how that has turned out.

Consumer Disruptors

In many businesses, the disruption is about new entrants taking advantage of the internet to disrupt the relationship between the producers of services and the consumer. The retail world has seen this happen, along with financial services and other areas. We refer to them as consumer disruptors.

Business Disruptors

In other businesses, the disruption has taken place, not between the producer and consumer, but rather the means of delivery of products and services. In residential brokerage, this is where most of the disruption, thus far, has taken place. We refer to these as business disruptors.

REAL Trends consumer research (and several others) have documented that housing consumers prefer to employ an agent in buying and selling their homes at higher levels than ever before. Further, research has shown that how housing consumers find and select an agent is much the same today as it was pre-internet. Even that great disruptor, Zillow, has moved in a new direction where they depend on agents for the delivery of most of the services that they provide. They use agents to list and sell homes in their iBuyer and referral programs.

Firms like Compass. eXp and others are not disrupting the relationship that agents have with their buyers and sellers. They are disrupting the means of service delivery, not getting between agents and the customers. Redfin is still delivering service through its agents, albeit at lower prices than the traditional brokerage industry.

iBuyers are a different story. They are disrupting the normal relationship between agents and housing consumers by buying direct from consumers. This presents a new form of disintermediation but, other than the scale of their operations, they are not a new form of service. In the past, many traditional brokerage firms had programs offering to buy homes from sellers when they couldn’t sell them.

The other disruptive force, of course, is the capital available to these new companies. Zillow, Redfin, Compass, and iBuyers like OpenDoor and OfferPad have raised billions of dollars to build out their businesses. This level of available capital has not been seen before. While firms like Realogy, Berkshire Hathaway, RE/MAX and Keller Williams have access to high levels of capital, they have not yet deployed it in a focused way to become either business system disruptors or consumer disruptors.

At some point, this may change. The incumbents are using their capital to develop large-scale technology platforms, deep databases, and smart systems. These will also fall along the lines of being more business disrupting than consumer disruptors—at least for now.

It’s important to distinguish between these two types of disruptive organizations. Doing so gives leaders the ability to develop strategies to compete more effectively.

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