UPDATED, July 20, 12:28 p.m.: StreetEasy’s decision to charge for rental listings set off the five stages of agent grief.
“We CANNOT allow this extortion to continue,” one enraged commenter wrote on The Real Deal’s article detailing the new initiative. Another urged brokers to “take back the power,” and a third asked: “Can you get sued for monopolizing a City?”
The m-word has been lobbed at Streeteasy before. The Zillow-owned company has built up such clout in New York’s online residential listing market that brokers who balk at the new charges, or at its new Premier Agent feature that auctions off the right to advertise next to a listing, have no feasible alternative. Sure, there’s Realtor.com or Craigslist, and they all benefit from the tension StreetEasy’s new fees create. But none of those platforms offer anything close to StreetEasy’s reach in New York. Jonathan Greenspan, president of On-Line Residential, said at TRD’s Big Data + Real Estate Forum in March that the company was a virtual monopoly.
“Owners won’t let [brokers] take listings off,” he said.
And it’s not just Streeteasy. Leasing brokers have long complained that CoStar, an online commercial property database, uses its ubiquity to basically charge users whatever it wants. Xceligent, CoStar’s only real rival, is trying to exploit that sentiment by branding itself as a defender of the downtrodden. Last month, it filed a lawsuit to end what it described as “CoStar’s decades-long monopoly in the CRE information industry.”
And then there’s VTS. The cloud-based leasing and asset management platform is still a ways away from monopoly status, but it saw rapid growth fueled in part by venture capital and became the undisputed market leader after merging with its closest competitor, Hightower. As it continues to grow, adds more services and collects more invaluable data on its users’ preferences, it could become very hard to unseat.
The rise of VTS, Streeteasy and their kin forces brokerage firms to grapple with a problem other industries have long experienced: the growing clout of online platforms. Facebook has a near-monopoly in online social networking, Google in online searches and Amazon in U.S. e-commerce. Is that a bad thing? Econ 101 says yes, and so does Columbia law professor Tim Wu. Back in 2010, he declared that we live in an “age of monopolies.”
“Internet industries develop pretty much like any other industry that depends on a network: A single firm can dominate the market if the product becomes more valuable to each user as the number of users rises,” Wu wrote. “Such networks have a natural tendency to grow, and that growth leads to dominance.” Streeteasy is Exhibit A: Brokers want to list on it because that’s where the consumers are. The more brokers list on it, the more apartment hunters visit it, the more brokers want to list on it, and so goes the cycle.
Wu acknowledges that these internet giants can initially be great for consumers, providing them with innovative services. But eventually, he argues, every monopoly stops innovating and milks their consumers. Think AT&T in the 1970s or cable providers today.
Jonathan Taplin, the author of “Move Fast and Break Things: How Google, Facebook and Amazon Cornered Culture and Undermined Democracy,” made a similar case in April. He called on federal regulators to either sharpen antitrust rules significantly or break up the internet giants.
Others feel the benefits of scale outweigh the risks. Monopolies make life easier for consumers, proponents say: Who wants to visit a dozen search engines or listing sites when you can get it all in one place? The key, according to The Economist’s editorial board, is to make sure dominant internet platforms can still theoretically be challenged and are thus forced to keep innovating.
Regulators in the U.S. and Europe have taken a similar approach, resisting calls for a breakup but intervening when firms stifle competition too blatantly. The European Union fined Google $2.7 billion late last month for using its search engine clout to channel users to its own shopping service.
Time will tell whether or not breaking up the internet giants will benefit consumers. But there should be no doubt that StreetEasy’s dominance is hellish news for brokerages. Just look at what Google did to the newspapers.
Once immensely profitable thanks in large part to classified ads, newspapers are now forced to negotiate with Google and Facebook to get a pittance of their former ad revenues. “Billions of dollars have been reallocated from creators of content to owners of monopoly platforms,” Taplin wrote.
New York’s residential firms, junkies for StreetEasy’s popularity with consumers, are finding themselves in a similar situation and could be forced to fork over a bigger share of their revenues. And it’s not like their profits have been great lately.
Firms seem aware of the danger and recently accelerated plans to band together and launch a rival listing service through the Real Estate Board of New York. Many major firms said they would syndicate their listings exclusively through REBNY’s RLS. But Elliman’s decision to allow agents to cover their Streeteasy rental fees through their marketing budgets could be a sign that the alliance is on shaky ground.
“StreetEasy is our biggest driver of traffic, other than our own site, to our listings,” Elliman COO Scott Durkin acknowledged.
After spending years nurturing StreetEasy by sharing listing data, brokerages have only themselves to blame. To use Wu’s words: “Market power is rarely seized so much as it is surrendered up.”
Correction: an earlier version of this post misidentified Nestio as a direct StreetEasy competitor. Nestio is a platform that helps brokerage firms advertise on listings sites like StreetEasy, among other things.