The Internet Is Not a Tulip

By Christopher M. Leporini, REALTOR® Magazine

Following the bust, some pundits derided the hype surrounding the new economy as another Tulipmania, where greed and folly made tulip bulbs more valuable than gold before the market’s collapse. But unlike the tulip fad, the Internet offers real, long-term value for businesses, argues author John Tuccillo in New Business Models for a New Economy: Remaking the Four Businesses of Real Estate. The book looks back at what went wrong with the initial boom, explores the changing real estate industry, and outlines business plans for real estate professionals to compete in the new economy.

Was the new economy just a figment of Madison Avenue marketing executive’s imaginations? The late ‘90s saw tremendous hype, but few concrete results. Fortunes were gained and frittered away over products that didn’t even tangibly exist. However, if the short-term promise of the market was overblown, the criticism following its collapse has been overstated as well, Tuccillo says in “Chapter 1: In the Land of the Blind, the One-Eyed Man is King.” He points out that a record numbers of start-ups were launched in the 1990s, the vast majority—80 percent—of which failed. Internet companies were simply more visible. Secondly, an initial boom and bust cycle doesn’t mean that the economy as a whole isn’t changing. The fledgling manufacturing sector faced economic collapse in 1873, but it still represented the economy’s future.

We are now far enough removed from the bust to objectively study the lessons provided by Internet companies’ failures. Tuccillo identifies three reasons that these start-ups failed

  1. They focused on technology without learning about the industry they entered. Tuccillo cites a company that he worked for that underestimated the importance of local representation in the real estate sale. Inexperience caused the company to emphasize transaction speed, without providing comparable service in counseling customers, a suicidal course in the high-touch real estate industry.
  2. They had poor timing. For example, he mentions a company that developed a combination transaction management platform/customer management system. The product was well-conceived, but a second round of necessary funding never came. Their business model had proven successful for other companies during the boom, but they had a bad luck to execute it during a bust.
  3. They had no business model. Tuccillo calls not having a business model “one of the greatest sins in the marketplace.” A company without clearly defined goals and identity is doomed. He says that and Real’s fuzzy missions confused consumers and led to the sites’ downfall.

Later chapters turn from examining the lessons of the past to exploring current real estate industry trends. These include increased consumer empowerment and higher customer service standards; changes in the methods by which information is collected, managed, and transmitted; more consolidation; and changing compensation systems. These factors call for changing business models that adjust to the realities of the new market and new technologies. However, Tuccillo calls for a measured approach toward technology. He points out that most of the new developments that will affect your business will enter your life subtly, advising readers to take the time to evaluate trends before grabbing onto every fad that comes along.

“Chapter 7: The Agent in the New Economy” focuses on how salespeople can adapt to the changing market. (The book includes separate chapters that examine new business models for brokerages, associations, and MLSs.) Salespeople will increasingly rely on a “buy, not build” approach that places an emphasis on partnership and delegation, creating a division of labor via sales team or outsourcing technology needs to outside providers. The greatest change, he predicts, will be an increased acceptance of fee-for-service sales models. The Internet has empowered consumers, allowing them to research homes before they even contact a real estate professional. In the future, consumers will force the industry to change its price structure as well, only paying for the services that they want. This new model will not replace the traditional commission system, but rather offer another choice to consumers, says Tuccillo.

New Business Models for a New Economy: Remaking the Four Businesses of Real Estate puts the downturn in perspective, offering lessons on the new economy’s history and future. The cooling period after the meltdown offers real estate professionals the chance to re-examine the Internet’s promise for their industry. Just because the bloom has worn off the new economy, doesn’t mean that it’s another tulip.

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This post was contributed exclusively for REALTOR® Magazine.

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