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Airbnb, Uber, Meets Real Estate

Posted by Todd Mitchell on July 1, 2016
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File illustration picture showing the logo of car-sharing service app Uber on a smartphone next to the picture of an official German taxi sign in Frankfurt, September 15, 2014. A Frankfurt court earlier this month instituted a temporary injunction against Uber from offering car-sharing services across Germany. San Francisco-based Uber, which allows users to summon taxi-like services on their smartphones, offers two main services, Uber, its classic low-cost, limousine pick-up service, and Uberpop, a newer ride-sharing service, which connects private drivers to passengers - an established practice in Germany that nonetheless operates in a legal grey area of rules governing commercial transportation. REUTERS/Kai Pfaffenbach/Files (GERMANY - Tags: BUSINESS EMPLOYMENT CRIME LAW TRANSPORT)

Millions of consumers love Airbnb, Uber, and dozens of other similar platforms that have disrupted their respective industries. So what about real estate? – how do their secrets apply?Well, first, you have to define what a Platform is.


For this, we can look to the book Platform Revolution: How networked markets are transforming the economy—and how to make them work for you. “A platform’s overarching purpose: to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value-creation for all participants.”


To make this more concrete, we can look at the dynamics of Airbnb. The platform itself is, then there exist two different markets. The consumer. The person who is searching Airbnb for lodging options. And the host, who has posted their room or house as an available option. And in between those two, consummating the match, is Airbnb—and for this value-creation, through the match, Airbnb collects a percentage of the transaction total.


So if the consumer jumps on to find a suitable housing option for their upcoming trip, and they find one. Booking the room or house, for this match—Airbnb collects, say, 15% of the booking fee. The host gets compensated too, and the consumer has secured a great room or property.


Uber works in exactly the same manner. And, right now, because of people’s preference for this 2-sided marketplace, with a Platform in the middle, to consummate matches, Uber is disrupting the Taxi Cab industry—in the same manner Airbnb is with the hotel industry.


From the book, “Airbnb is, in a sense, in the same business as Hilton or Marriot. Like the hotel giants, it uses refined pricing and booking systems designed to allow guests to find, reserve, and pay for rooms as they need them. But Airbnb applies the platform model to the hotel business: Airbnb doesn’t own any rooms. Instead, it created and maintains the platform that allows individual participants to provide rooms directly to consumers. In return, Airbnb takes 9-15% (average 11%) per transaction.


Again, Uber, same thing.  Uber is, in a sense, in the same business as the Taxi cabs—except Uber owns no cars. They simply match the person who wants a ride, with the person who owns a car, and for their middleman status, collect a percentage of the total transaction.


I say all this to create the foundation of similarity between those platforms (Uber, Airbnb) and the traditional real estate brokerage. For example, ABC Realty—they’re all the same, so it doesn’t matter which brokerage we reference—through marketing and promotion, tries to build brand awareness for its company, as a means to create demand on the consumer side, which it then can consummate a match, between that homeowner and one of their ABC agents. And, for their role as the middleman—like Uber, like Airbnb—ABC Realty then collects a 15 to 50% of the paid commission.


Here, though, is where real estate brokerages fail, and how the consumer i.e. homeowner gets the short-end of the stick. In Airbnb’s case, consumer demand is built by having more attractive options; rooms, houses, etc. for reservation. If you visited Airbnb and wanted to stay in Portland, OR, but only found rooms in a run-down, crappy apartment, that more resembled a homeless shelter than a suitable hotel alternative, you would quickly be turned off.


Alternatively, if you searched for rooms and found that every property, posted by the dozens of Airbnb hosts, was superior in amenities and location, and similar in price—Airbnb would be your new favorite option. You would tell your family and friends. And demand on the consumer side, thanks to people like you, would grow exponentially over time.


This is, in fact, exactly what you’ve seen with Airbnb and Uber, in their respective industries.


In the real estate industry, though, here’s the problem. The broker, ABC Realty, doesn’t have have any agent with any documented alternative, to achieve for the homeowner, a superior result in terms of profit.


Think about it. I mean it. Really think about it. Think about all the real estate companies that you can possibly name. Keller Williams. ReMax. Coldwell Banker. Century 21. Guarantee. Those are some of the big ones. And now, please enunciate to me, the methodology that any of those companies use to guarantee to homeowners a superior result—more profit, a better experience?


I bet you can’t. And that’s because these brokerages—and, all brokerages—none of them operate as true platforms, and do not understand the disruptive forces of the 2-sided market business model.


Next month, in part two of this article, we’ll dive deeper. For starters, though, for there to be viral word of mouth, a standardized method/documented approach must exist to guarantee the homeowner the greatest outcome possible. This is the approach Linda and I have chosen to adopt.


Todd & Linda Mitchell



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