Interesting analysis on Redfin that is much more thoughtful then what you normally read. What’s interesting to see is if the $8,000,000 venture capital investment will ever pay off on a model that I don’t think would be particularly too hard to duplicate except for companies bloated in bureacracy.

In other words, success attracts attention and if you have something that can easily be duplicated, expect others to follow.

What I was trying to convey is that it’s more likely that Redfin (or its similar competitors) will successfully add services over time, to serve both the low end (low cost, low service) and up into the middle (moderate cost, moderate services), than Coldwell Banker will successfully remove services to create a low end brokerage.

On the tech side, this is what happens. The low end guys add features to their “good enough and cheap” products and capture a lot of the middle. The high end guys try to cripple their full feature product to plug a hole on the low end, and it usually doesn’t work.

I am not an agent, only a buyer of multiple houses, but from what I have read on the ten or so agent blogs I read, it seems likely to me that agents will block efforts to create a real competitor at the low end, in order to protect their commissions. Just like Oracle resisted offering a low end database product for years, IBM resisted offering a low end app server for years, etc. Protect those fat margins. The open source and the $99 products took the low end and then got better, and the Oracle/IBM stuff became high-end full feature niche products. When they tried to cut features and sell more cheaply, the products looked like crippled versions of the complex high end products, not elegant and simple offerings. My guess is that if the full service brokers ever offer a low end product, they will just add a bunch of annoying restrictions so that customers won’t want to use it. Then they say “See, no one wants it.”

Is this true? I don’t know. But I do know that this is how it works in other markets. For those that think a “Lexus” buyer will never want a Hyundai, recall that Japanese cars used to be seen as junk. Now Lexus is a premier brand. The low end gets better.

Finally, I assume that the VCs who are funding Redfin and its successors view the RE market the way I described above. I.e. multi billion dollar market that is ripe for someone to change the business model by coming in from below and using technology to offer services and take share. Hey, eToys blew up, but Sequoia made a billion dollars on that investment before it did. And, people now sure do buy a lot of toys via online self service, don’t they? Heck, cars are one of eBay’s biggest categories; who thought people would buy expensive cars over the web?

Ron will have to answer for himself, but the way I see it is that if Redfin can find a profitable way to serve its clients at a fraction of its competitors’ cost, and then leverages that experience to move upmarket where it can provide, say, 2X the service it’s used to but charge 3X, then — hey, the VC’s will be mighty happy.

I hope not.

It’s funny that it’s considered so foreign in real estate.

Nice work, Kevin.

You were an intelligent voice at Real Estate Connect.

Redfin’s business model is an interesting one, but is encountering serious competition far earlier in its development that Charles Schwab.

The biggest threat that comes to mind is Iggy’s House, which offers zero percent listing commission. Its brokerage arm, Buy/Side Realty, rebates 75 percent of its commission to the buyer.
They claim their technology and customer meets or exceeds that of Redfin. And if I am not mistaken, they have penetrated more markets.

The speed of disruption these days occurs probably 10x faster than it did in the 1980’s. Charles Schwab would have difficulty competing as a startup in today’s market.

You might have mention Coldwell Banker as an inside joke, but in case you didn’t, they DID launch a discount branch… Years ago.

Google Blue Edge Realty. Total commission is 2%!

My understanding is that this venture failed miserably.

There is nothing wrong with discounting. I like to say that “I used to discount, but then I got good”

Frank- Broker FranklyRealty.com

Seriously, this reminds me of way back when Zip Realty was first launched by some much younger Berkeley grads. At first their agents were on salary only as I recall. But, as I recall, they realized they needed to act a bit more like real estate agents and found a happy medium of some sort. Redfin may very well do the same thing. Instead of “Coldwell Banker Lite” how about “Subprime Coldwell Banker”? I understand that adjective is going to be available very soon.