My first informal introduction to Business Plans and Business Models was my Broker's introduction to Real Estate Sales Class. Later, as I wrote my own Business Plan, I got my introduction under fire to Business Models (Also, Revenue Models and Profit Models).
It's important to know where your business comes from, where your revenue comes from, where your profit comes from and where your bread is buttered.
Great stories in the history of Business Models are:
- The Xerox decision to lease, not sell, their 914 copier.
- Dell's Direct Sales Model to sell computers.4
- Google's decision to use Bill Gross's idea to monetize the Internet click stream.
My experience in Internet sales has taught me there are conceptual barriers and intellectual barriers:
- Most people have/know/succeed with only one business model.
- Most businesses have/know/succeed with only one business model.
- Most businesses fail adding a second business model.
- The more a business model succeeds, the harder it is to change it.
- The further from: a) Make it for $5, b) Sell it for $10 c) Sell 100 Million d) Make $500 Million you get, the less most people, even business people don't understand it.
This is why most people don't understand how Network TV makes money, Google makes money and Zillow makes money. This is why fears Zillow will take over Real Estate sales, and not Real Estate Advertising, are so unfounded. This is why the NAR, Realtor.com and Big Real Estate, not Real Estate Agents have the most to fear.
Google and Zillow are media companies, like ABC, CBS and Newspapers. They make money with the Media Business Model:
- Giving away valuable content
- Driving viewers, readers and traffic
- Selling advertising.
Their Business Model is:
- Free Valuable Content > Drive Traffic > Sell Ads
Microsoft is easily the best Software Sales Company. But can a successful software sales company, even the most successful software sales company, compete successfully in another medium with another Business Model? I think not and I doubt it.
In the early 1990's, AOL was the darling of the Internet, with its Subscription Portal Model. Everyone wanted to be "The Next AOL". AOL (like Microsoft and Yahoo) turned down an offer to buy Google for $1 Million (That's Million with an "M"). Now everyone wants to be "The Next Google".
AOL recently gave up its Subscription Model, changing over to Google's Media Model. IBM recently open- sourced many of its patents and Microsoft has even open-sourced DotNetNuke. But just giving things away is not the Network Media Business Model.
Google understands Traffic. Google understands the value of Traffic. Google understands what they have to pay for Traffic (And to keep Traffic away from MSN/MSFT, Yahoo and Ask). Why else would they beat MSFT and pay $1.65 Billion for $100 Million in YouTube Tech and 3.1 $ Billion for DoubleClick?
Google's Playbook also has them giving away all kinds of neat technology: Google Earth, Google Base, GMail, Froogle and Google Analytics, to name just a few. Will MSFT, Yahoo and AOL, with their successful Business Models of Yesterday, succeed in playing catch up (or ketchup, as the case might be), with the Monster of the Media Business Model, Google? Somebody still doesn't get it.
Who will be "The Google of Real Estate"? Will Google be "The Google of Real Estate"? Google was beaten at Video Search by YouTube. Google is still beaten at Blog Search by Technorati. Google is still beaten at Social Networking by MySpace and FaceBook. Google is still beaten at Real Estate Search by Zillow.
Is it surprising Zillow is offering so many Google-Like features for Real Estate, FREE!!!?
Who will provide the first National MLS? Will it be the NAR/Realtor.com, paid for by Realtor subscriptions? Will it be Yahoo or MSN? Or will it be Google or Zillow, with their knowledge of the Network Media Model, their Knowledge of giving things away FREE, and their knowledge of the value of Traffic.
In Real Estate 2.0, because of Business Model, Business Model, Business Model; Location, Location, Location is now Traffic, Traffic, Traffic.
Google Knows Traffic.
Zillow Knows Traffic.
Adapt Or Die! Happy Searching.
WebHomeUSAblog; The Blog of Real Estate Search Marketing
I think there is a bubble right now and many 2.0 companies are going to fail. Look for lots of fallout!
Posted by: Science news | April 29, 2007 at 02:01 PM
Excellent post. Pursuing an advertising model, to "be like mike" (google), is the easy obvious thing to do. Only a few can succeed. We are a real estate web2.0 play and we view advertising as a low revenue opportunity that is more difficult to realize - even when we reach scale. And so do the professional investors we have had the privilege to meet. If other opportunities have greater expected value long-term, why not pursue them? Can Zillow be Google for RE? Sure. Is that all....?
Posted by: Karim Tahawi | April 30, 2007 at 03:51 PM