Today's REALTOR® Interview: Stuart H. Wolff

Slugging It Out on the Internet Frontier

March 1, 1998

This year will be a critical one for REALTORS®. A battle between rival providers of real estate information on the Internet will determine whether REALTORS® maintain their key position as first point of contact for most homebuyers. Stuart H. Wolff, chairman of the board and CEO of RealSelect Inc., the company that operates REALTOR.COM, the official Internet site of the NATIONAL ASSOCIATION OF REALTORS®, explains what’s at stake for REALTORS® and what they, as individuals, can do to ensure a bright future for the real estate industry.

Last November at NAR’s annual convention, you said that 1998 would be a critical year for RealSelect and for REALTORS®. What do you expect to happen in the months ahead?

There are about a dozen companies—all multibillion-dollar corporations—that are thinking about muscling in on the real estate market through the Internet. If they have any hope of succeeding, they’ll have to move quickly, probably within the next few months.

The good news is that it’s going to be hard for people from the outside to push in. Just because they want to muscle in, it doesn’t mean they’ll succeed.

I used to work for Telecommunications Inc., so I know how people in high-technology corporations think. They look at the Internet and realize there are only a limited number of business categories—travel, personal finance, health, and real estate, among them— that could potentially generate large amounts of revenue.

All these big companies are under pressure to grow. They have to show increased earnings year after year. So they’re constantly on the lookout for new territories to grow into. And if you're a big company, you're interested only in major categories, and residential real estate is one of them.

What strengths do the REALTORS® and RealSelect have to defend themselves against these market invasions?

We have the advantage of being the “first mover.” Using the cable television industry as an analogy, a lot of the big players in cable TV—HBO, MTV, and so on—got where they are today because they established themselves early. It’s like an army taking the hill before a rival army can get there. NAR and RealSelect “took the hill,” so we’re in a good position.

How serious is the danger that REALTORS® will get knocked off the hill?

The danger exists.

There's a misconception among some REALTORS® that putting information on the Internet is just another form of advertising, just another way of distributing classified ads. But the Internet has much more potential than that. It can inter-network—form links—which makes it an extremely powerful medium. Whoever has control of the information being put on the Internet becomes a gateway to the consumer.

Some of the big corporations see that potential. They're trying to position themselves so that they control the information—so that they push the REALTOR® out of the way and become the new gateway, the point of first contact with the consumer.

So you see a big battle developing over who will control the gateway?

Yes, today the REALTOR® is the gateway. There's a lot of business that’s generated off the real estate transaction, and the REALTOR® is located very high upstream, close to the consumer.

The mortgage industry, for example, would love to be the point of first contact with the consumer. It could qualify the consumer for a mortgage and then sell the leads back to the REALTOR®.

If I were a REALTOR®, I’d fight to the death to make sure I held on to that first point of contact.

Your business attitude toward the Internet seems to have been influenced by your experience at TCI with cable television. Cable television is probably the best analogy for what’s happening on the Internet today, particularly in the areas of content, distribution, and branding.

At one time, there were only three television networks in the country. Then there were four, and then six. With the advent of cable, you had 500 channels. The Web is like cable television, only instead of 500 channels, you have millions.

How did you end up at TCI?

I was working with my dad, who owns a chain of pharmacies in the Tulsa area. I started getting interested in the possibility of using interactive television in the health care industry.

I put together a business plan and submitted it to TCI. I was so convinced I wanted to work with TCI that I actually moved out to Denver and lived there for nine months before I was put on the payroll.

At the time, everyone predicted that interactive television was the next up-and-coming thing. It was huge, and it was going to take over the world. A lot of people fell for that, including TCI, Microsoft, and Time-Warner.

While everyone was focusing on interactive TV, the Internet was quietly being built off to one side. Suddenly, the big moguls looked over and realized “It’s the Internet, stupid.” So TCI and the others made an abrupt turn and started focusing on the Internet.

OK, you were working at TCI. How did you get involved with REALTORS® and the REALTOR Information Network?

I was interested in developing interactive television for an information-based market like health care. My real love is developing systems for “decision support,” that is, systems that help consumers make informed decisions about complicated purchases.

When I got to TCI, I was doing all the strategic planning on health care, something nobody there had worked on previously. After a while, I realized nobody was handling a lot of the major information categories, such as travel, personal finance, and real estate.

So I gradually started working in those other mainstream categories. After four years, I ended up being responsible for the business information systems group, which was part of the TCI Interactive Division. Real estate was one of my categories.

After studying the potential market for real estate on the Internet, I realized it was an unusual category because a lot of the data that you needed to go on the Internet was already available through the MLSs. I came to the conclusion that to do real estate on the Internet, you had to go through the MLSs. Success or failure would depend heavily on the MLSs themselves.

So we looked at the real estate business and asked, Where is it going? I felt that the MLSs weren’t going to go away. They would still be here tomorrow. We at TCI decided that the smart move was to invest in RIN because it involved the MLSs.

We had a signed letter of intent to put the deal together, but it fell apart because of circumstances both at RIN and TCI.

I still had a lot of confidence in the idea and decided to pursue it independently. I left TCI and got together a group of investors to pursue the concept. So actually, I put together a deal with NAR twice.

As it turned out, the idea of getting RealSelect together with neutral investors was a better idea for REALTORS®. With TCI involved, there was a danger that TCI would attempt to use RIN for its own strategic gains—which wouldn't necessarily be in the best interests of REALTORS®. The way we’re set up now, we’re less of a private corporation and more of a utility regulated by the REALTOR® community.

What do you mean when you describe RealSelect as a utility?

There are a couple of unusual aspects about the real estate business. First, you have MLSs sharing information among competing brokers. That’s a consumer-friendly approach. You don’t see Wal-Mart, K-Mart, and Target all sharing their product catalog on the same information system.

Second, it’s hard to imagine that there's going to be an expansion of multiple listing services in existing market areas or a second Internet site like REALTOR.COM. It’s hard enough to get people to share data one time.

The data that REALTORS® are sharing now has tremendous value, and it’s important for the long-term well-being of REALTORS® that the data be managed properly. So you want an entity, such as an MLS, that’s set up to serve their interest. The trade association is the right organization to be involved in this process, since the association is serving the interests of all its members.

It’s hard to imagine that some outsider is going to come in and organize all the competitors’ data and manage it over the long term in a way that’s going to be in the best interests of the association members.

I understand that RealSelect's agreement with RIN, a subsidiary of NAR, contains a lot of restrictions and limitations. Isn't it hard for a business to work under such intense regulation?

Well, the joke I like to make is, Regulate me like Bell Atlantic. Bell Atlantic, the telephone company, the utility, is regulated, but it still makes a lot of money.

Something like RealSelect has to be regulated. You have all these competing brokers sharing information. If the system isn’t regulated, it'll eventually unravel. The fact that RealSelect is regulated is one of the factors that has contributed to its success.

Essentially, RIN said to us, “Look, you have to serve the interests of NAR members, and as long as you can do that, we’ll let you make a profit, if you can.” And we at RealSelect accepted that risk.

How does that deal look a year after it was made?

Good.

How does RealSelect make its money?

From a combination of enhanced promotional products that we sell to REALTORS® and advertising that we sell to others. Essentially, we’re like a cable television channel. We bring in a viewing audience and then sell advertising space to certain constituencies who are interested in reaching that audience.

If RealSelect builds a really good decision-support system for consumers, will it eliminate the need for the REALTOR®?

No, when consumers get into complex decisions, they need human help. Real estate is so complex that you can’t automate the decision-making process. What consumers need is a good approach linking systems and professionals together. In fact, automation will enhance the position of the REALTOR® in the transaction.

Getting back to the issue of possible invasions of the real estate marketplace, is there anything that REALTORS® can do to prevent their market from being taken over by outsiders?

There's a lot they can do. REALTORS® today own the customers and control the data. It’s hard to get into this business unless you've got the customers and the data. So REALTORS® are in charge of their own fate.

They should be selective about whom they do business with and not become a conduit for somebody who's trying to get into the business.

This is an individual decision, not a collective decision; each broker and sales associate has to make his or her own decision. The Web is a linking network. For that reason, relationships on the Web are very important—for those at both ends of the link. There's a lot of value in making the right decisions about linking and making those right decisions early on.

Do you see some point in the future when it'll be necessary to develop cooperative relationships with organizations that perhaps are seen as competitors or potential competitors?

Everybody out there is a potential partner. The more of a competitor they are, the more of a valuable partner they could be. Some of the people who could bring value to a partnership are also potentially the most dangerous. Those who bring a lot to the table are the ones who can either help you or hurt you the most.

There's a possibility that, over time, some of those potential competitors are going to recognize that REALTORS® aren’t going to let go of the business, that they’re going to fight to preserve their market, and that they’re not going to roll over and play dead. And when it’s clear that the REALTORS® are winning—or have won—the battle, some of those competitors may try to become our partners.

The fact is that RealSelect has the right utility model for real estate on the Internet. I doubt that anyone is going to be able to develop a second workable model. The fact is that the REALTORS® aren’t going anywhere. REALTOR.COM is four times bigger than any other real estate Web site. It’s very hard to knock an aggressive incumbent out of the box.

Will we know by the end of 1998 whether the REALTORS® have won the war?

1998 will be a critical year .Last year also was a critical year. If there had been a four-month delay in starting RealSelect, we probably wouldn't be talking now. It was that close. There were some major players perched on the edge, waiting to see whether RealSelect was going to get started.

We not only got started but also had a successful year: a million listings; 20 million page views; distribution relationships with NBC, AOL Digital City, USA Today, and others.

Now we’re positioned, and we’re hitting the numbers to substantiate it. What’s going to happen is, some final players are going to regroup and charge the hill one more time.

Where do you think the Internet is going in the future, and what impact will that have on the real estate industry?

I'm extremely bullish on the future of the Internet. It’s going to become more important than even I had thought initially.

Let me give you some statistics. In the travel industry last year, approximately 15 percent of all tickets were booked on the Internet.

I've seen some surveys predicting that about 33 percent of travel transactions will be done on the Internet in 1998. That’s a third of all transactions. Can you believe that number? If a third of all travel tickets are sold on the Internet in 1998, it won't be too long before you see a big chunk of real estate also being transacted on the Internet.

Do you think some industries will be impacted more by the Internet—and others less?

Clearly, the travel industry is being decimated. That’s a case where the incumbent is losing the market.

Real estate, on the other hand, is a great Internet success story. REALTORS® have been extremely aggressive about getting on the Internet and retaining their market. I don’t think REALTORS® have been given enough credit for that success.

Walt Albro is a former senior editor for REALTOR® Magazine.

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