Sean Park Portrait
Quote of The Day Title
All truly great ideas started life out as an act of futility.
- Hugh MacLeod

Articles tagged 'Zoopla'

From our cold dead hands.

A phrase popularized by the late Charlton Heston in his crusading role as the poster boy for the NRA. But I’m surprised it hasn’t yet been officially adopted by more old economy industry groups as a rallying cry to marshall support to save and protect their dying business models. To the bitter end.

I was reminded of this when my dad sent me this Globe & Mail article from the home country:

An Ontario court has shut the door on attempts to create new web sites to repackage real estate listings using data from the Multiple Listings Service system.

In a ruling released Monday, Mr. Justice David Brown of the Ontario Superior Court said Toronto real estate broker Fraser Beach did not have the right to provide broad public access to MLS data through a web site he helped create while working for BCE Inc. division Bell New Ventures in 2007.

The decision comes after the Toronto Real Estate Board (TREB) shut down several attempts in recent years to create new web sites allowing members of the public to sort MLS data – including an operation started by Mr. Beach.

That the Canadian Real Estate Association would want to protect its MLS data is entirely reasonable, indeed it is a very valuable dataset. However one would hope that they would take this as a wake-up call and start thinking very hard about developing a new business model around this data. One that reflects the modern realities of a fully connected, digitized economy. Perhaps they are. To be honest I have no idea. So acknowledging that this is pure unadulterated speculation, I suspect they aren’t. I suspect like the newspaper, music, bookselling, banking, etc. sectors before them, the main focal point of their efforts is to keep the bloody genie in the bottle. At least for long enough for the old hands to ride off into the sunset and let the next generation deal with it.

It’s a shame really, because on paper – as for most incumbents – not only do they have the most (everything) to lose when the paradigm shifts, but they are also by far the best positioned to maintain a leadership position so long as they adapt (in time.) Inertia, installed base and brand recognition take care of that. Basically they’ve got a strong hand. But time and time again it seems that these kinds of companies and institutions can’t help themselves but to overplay it. Taking another card while holding two Jacks kind of thing. Admittedly it would be hard work for someone to build up a competitive offering to the MLS from scratch, but I suspect not impossible. I don’t know what the public information access laws are like in Canada but if they are similar to those in the UK for instance, a smart entrepreneur might mimic the route taken by Zoopla and bootstrap prices starting from public sales records. And even if they do manage to maintain a data monopoly, they and their member agents will be faced with an increasingly angry client base who won’t readily accept being held hostage by secretive data trolls.

If I were a Canadian real-estate broker, I would be leading the charge to flip the MLS and traditional broker roles on their heads. Having read this excellent post on the future of my profession, I would understand that my customers are (mostly) not looking to do away with me but to get real value from my services and insights and conversely will become annoyed and resentful if they get the feeling they’re just paying a toll to a glorified data monkey.

The way a broker creates value in a world of abundance (vs a world of scarcity) is fundamentally different. Someone forgot to tell the record companies. Let’s not make the same mistake again. Save a real estate broker: free the data.

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Next thing you know the Dow’s down 9000 points

I thought I’d play a little markets jeopardy with the headline to this post. The question of course is: “what would happen if Google stopped mucking around and just came out and said it?” Said they were going to take their massive dataset, brilliant algorithms and (hire) all the smartest people in all the lands and offer a free service to “do anything anyone anywhere might conceivably want to do.” That should be enough to cast a pall over even the most profitable or promising companies. Sell everything (else) and buy Google, right?

Many of you are of course thinking no, not right: the premise is far-fetched (not to say ridiculous) and even if you accept it in the spirit of the thought experiment it so obviously is, the conclusion – that they take out every other competitor at the kneecaps – is not a given by any stretch of the imagination. And yet, when Google announced that they were going to launch a free property listing plug-in to enhance their UK maps product, the market reacted pretty much as if Google were indeed Merlin the Magician and just by waving it’s googly wand it could take over any market at will just by unleashing its fierce intellect and sizzling technology on the hapless incumbents. In this particular instance, Rightmove‘s (the leading UK property portal) shares collapsed on the news trading down 10% on the day and c. 15% in all since the story broke. Now to be fair, having traded as low as 156p at the start of the year, RMV shares have had a pretty solid 2009, hitting a high of just over 600p and trading around 550p before the Google ‘news’ hit the market. And since investing (and especially trading) is not about picking the prettiest asset but picking the asset you think most others will find prettiest, I don’t blame any fund manager for selling first and asking questions later. And I have much sympathy for those that think that Rightmove’s market leadership is vulnerable in the medium term; only I don’t harbor much fear that this threat will come from Mountainview. The competitor that Rightmove’s shareholders should be keeping a close eye on isn’t Google, but Zoopla of course. (Reminder: we are investors in Zoopla.) Ah, but Zoopla has a silly name, it can’t be a real threat. Google however…

And it’s not just UK property where I think the mainstream markets and pundits breathlessly get it wrong about Google. In area after area they have proven not to be a very successful or threatening competitor and in other areas their entry has often been a boon for specialist competitors in the segment due to the legitimizing power Google brings to the table. They are able to (implicitly) validate new business models in ways a smaller, more specialist start-up could never dream of, and yet this market validation very often plays right into the hands of folks who, well, know what the hell they are doing.

Don’t believe me? Let’s take just a couple areas where – if you believe the logic in the argument used to justify Rightmove‘s downtrade – Google should be causing wholesale panic and disruption:

  • Financial Information: maybe I’m wrong but I don’t exactly see Thomson Reuters or Bloomberg shaking in their boots, and yet here is a sector that is tailor made for Google’s engineering, distribution and technology assets, and one where they have had years to refine the value proposition; and yet Google Finance remains essentially a working prototype of a back-of-the-napkin sketch of what a Google financial information portal could become. Umair challenged CEO Schmidt to take up this challenge a couple months ago but I’m not convinced it would be as easy as it looks.
  • News aggregators: Google News is all we need right? (Perhaps supplemented with Google Reader…) There’s no reason for sites like Digg or Daylife or the Huffington Post to exist. I mean what are these guys thinking: some of them even started after Google News went into public beta. Crazy. Except they actually work, they have customers willing to use them despite Google News existing. But really, how long can this last?
  • Advertising: I must be joking now. After all advertising is the one market Google owns; the market that gave them their billions that allowed them to hire all the smart (non-evil) people and enter and take any other market at will. Right? Well if you think so, have a look at this recent post from Paul Kedrosky. It’s why vertical search and specialist sites exist. It’s why you (usually) go to Amazon.com if you know you are searching for a book, and not necessarily via Google.

And I could go on. But the point of this post is not to say that Google are useless, yesterday’s game, past their prime. In fact my best Google-fanboy guess would be that they are far from the point of diminishing returns and structural foolishness. My point is rather that they are not – or at least not universally – the ‘destroyers of all economic worlds’; that as they grow to become a company of thousands of employees in dozens of locations they will inevitably have to deal with some of the structural pathologies that this involves, including rising mediocracy and products looking more like camels than horses. Oh yeah and evil too. Yes they are a fierce competitor and certainly there is some risk that they could destroy your business model and take your business with it. But this is far from certain. They are human. They make mistakes. They execute poorly. They don’t always (or even often) win. And best of all, once you’ve proven that you can beat them, they just might buy your company.

Update:
I forgot to send you to a great essay by John Borthwick, thinking about the challenges Google faces going forward and highlighting the structural shortcomings of trying to regulate behavior in the fast moving world of technology, inspired by Ken Auletta’s book Googled: The End of the World As We Know It.
And of course Jeff Jarvis wrote a book about the opening premise of this post (which perhaps Santa will bring me) called What Would Google Do?

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The bond salesman and the estate agent: a modern-day parable.

For the last 15 years of my life, the biggest, most consistent and important professional challenge I have faced is convincing (usually well-paid) professional middlemen that the forward march of information and communication technologies is:

  • Inevitable. And as Andrew Carnegie once said, it’s a waste of time to criticize the inevitable. Get over it.
  • Sort of like electricity. Dangerous to those who are ignorant of it (don’t stick a fork in the power outlet); and extremely powerful and useful to those who understand it and/or can harness it.

Of course there are variations, and this is strictly anecdotal based on my very own proprietary inside-my-head number crunching, but typically the population in question looks something like:Middlemen Typology

If you are tasked with managing or catalyzing a paradigm shift, you don’t need to worry about the “Aging Rock Stars”, these people are either too old or too good to care about paradigm shifts: either they will adapt naturally or gracefully retire and most of them don’t mind either outcome (ie they can afford it.) They won’t support change per se, but neither will they actively resist it as they don’t suffer normal insecurities. Ignore them.

The second category you should ignore (“Toast – Clueless”) might come as a bit more of a surprise, especially as they typically make up approximately half the population; these are folks that are clearly doomed in the new world (in the sense that nothing they do today will be recognized as valuable, not that they can’t do anything else if/when reality dawns…) but are blissfully unaware of their impending irrelevancy. Like the rock stars, this group will not support change but you’ll be surprised how little they resist it – at least in ways that are potentially effective. I chalk this up to they fact that they don’t see the train coming so what is there to worry about? Resist what? Don’t get me wrong, on balance this population will be against change but there won’t be any depth to the resistance and so you can get sidetracked if you expend your energy here.

As a change-agent, most of your time, energy and resources needs to be concentrated on those who are doomed and realize it (“Toast – Know it”), they will fight change kicking and screaming; and those who accept the inevitability of change, (usually) get the potential upside and downside but are scared/unsure as to whether or not they will succeed at adapting. With the first group, you need a two step process: see if any can be brought into the second camp, for those that cannot (usually 80%) the only recourse is to try to isolate them and prevent them from doing harm: accept that you cannot please all the people all the time. The second group (“Good but scared”) is where you should spend most of your time and resources, showing them and helping them to understand and become comfortable operating in the new paradigm. Demystify. Be honest: “you know that thing you used to count as your best skill, well it’s useless now, BUT this thing you are very good at that wasn’t so important before well now it’s key…” Win them over.

The last group (“Looking to breakthrough”) are the adopters – they are your allies, but be careful don’t get too close: they see this (rightly) as an opportunity to become the new rock stars and don’t necessarily care about the overall market; if you align yourself too closely too them, you’ll scare off the 20-30% ‘swing vote’ that can make or break the success of your company’s/industry’s transition. Also you’re selling to the sold.

Which brings me (at last!) to my story. It’s about seeing the future of an industry by looking at the recent past of another. It’s about understanding that property markets in 2009 are like bond markets in 1989. And Estate Agents in 2009 bear a frightening resemblance to bond salesmen c. 1989. Both define themselves in terms of relationships and proprietary, local knowledge. Their ability to extract value from their chosen marketplace depends to a significant extent on exploiting an information asymmetry. Of course this is not all that they do, and certainly the best do much more and in fact rely on information arbitrage only tangentially, but nonetheless for a significant majority of practitioners, take away this asymmetry and you’ve taken away their raison-d’etre. (For those of you who didn’t have the good fortune of working on a fixed income trading floor in the 80s or 90s, but want to get a better feel for what I’m saying, both Liar’s Poker and Bombardiers are excellent reads.)

Often, perhaps even most of the time, the bond salesman of 1990 had an adversarial relationship with their clients; it was certainly a relationship based on power – the salesperson was seen as a necessary evil: they had access to the market, to prices, to information. If you wanted to participate in that market, well…there really wasn’t any alternative to paying an agent to look out for your interests, however expensive and/or poor the service. You could say this could have been true of any capital market but in the bond market it was especially acute: the information asymmetry is structurally orders of magnitude more significant than say for listed equity markets: even 20 years ago, the fixed income markets consisted of hundreds of thousands, even millions of individual securities. Clearly most had a core of consistent defining characteristics – currency, coupon, maturity – but beyond these their was a multitude of idiosyncratic variables that were very hard to keep track of but often crucial to determining value. The fine print mattered. And a professional bond salesman ostensibly knew how to navigate the fine print. And nobody – including the salespeople – had robust tools for managing, searching and analyzing this vast universe of securities – the banks and brokers were at best one-eyed men in the land of the blind.

And then the future mayor of New York invented the Bloomberg. And the folks in Seattle put a spreadsheet on every desktop. And a few crazy scientists in Switzerland invented the world-wide web. And before you knew it a bond trader could make markets in a 1000 securities instead of 100. And an investor could run an analytic screen on thousands, or tens of thousands of securities, without ever talking to a salesperson. And then electronic trading and bookbuilding came along and the customer could even trade without picking up the phone once. So did the salesman disappear? Well yes and no. The bond salesman of 1990 is no more: the job that essentially revolved around collecting, parsing and organizing scarce and opaque information in order to make a turn on a trade has been consigned to the dustbin: the most rudimentary use of 2009 technology by an intern would produce a service that is an order of magnitude better than the world’s best bond salesman could produce in 1990. But the value of a truly excellent salesperson today – even post crisis (perhaps especially post-crisis) – is higher than ever, as such a person can leverage the enormous power of the information gathering and analytic tools serving the market and synthesize what is relevant or valuable for each of her clients.

Hopefully you’ll have jumped ahead and understood that the property market bears a striking resemblance to the bond market. Take the UK: 26 million residential properties. Each one a bit different, but also large numbers that are relatively similar and can be benchmarked by size or postcode or property type (detached, etc.) It is abundantly clear that this market is more than ripe for disruption: most people now intuitively feel that the pricing structure is wrong and the business model is wrong. Information is no longer scarce and so people will increasingly resent being asked to pay for it. Think back if you can 15 years to 1994: you want to buy or sell your property, what is it worth? You can get a sense from the property ads in the papers but not much more. The implicit knowledge embedded in your local estate agent is worth something. Fast forward to 2009: using tools like Zoopla, anybody now has access to more powerful pricing tools than were available to the best agents 15 years ago. The same model doesn’t work anymore. (That in reality this model is still largely intact as I write is testimony more to the power of inertia and the fact that most significant business model changes happen relatively suddenly and violently rather than slowly and linearly than to the possibility this business is immune to change.)

So does the estate agent disappear? No of course not. Many individual estate agents will perish, but the best – including many new entrants to the profession – will not only survive but thrive. Indeed the individual or team of estate agents will become more important than the brand (ie Note to Private Equity firms: make your LPs happy, don’t buy anymore Estate Agencies…) The superstar agent of 2015 will enable his customers, embrace innovation: interesting property – how about a blog? and not compete on price discovery but embed these tools in an overall process that will create trust and a real value-driven relationship with their clients (who will be much more likely to become clients for life.) There is a fantastic opportunity to transform perceptions, to create a true profession. To become massively successful by adding real value to 99% of home buyers or sellers who today are at best ambivalent towards the agents and agencies they feel compelled to work with, and a worst are outright hostile to them.

If this sounds too easy, well it is but only because the informational substrate and transactional platforms now exist (or are relatively easy to invent.) That wasn’t the case 15 years ago, and probably not even 5 years ago. But somethings never change: listening Alex walk on eggshells as he articulates the benefits of Zoopla to estate agents is like deja vu all over again, as I remembered the first presentations of electronic trading and book-building to room full of frowning bond salesmen, arms crossed, minds closed. But a few of those men and women got it, and got it quickly. Ten years later they are now in charge. The lesson? Yes you need to be careful not to antagonize an important constituency in your marketplace. You may even go out of your way to be helpful to them. But also remember the pie chart above: don’t waste your energy on the irreconcilable, empower and co-opt your supporters they will be small in number but they exist and spend most of your time and energy ‘holding the hand’ of the strong minority who “get it” but are intimidated by the potential pace and/or scope of change.

It’s just a guess, but I suspect this approach – the empowered individual – is about to become more and more the rule rather than the exception at the top of the property brokerage world. I’m even wondering if it’s something I should just do myself… ;)

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Give the readers what they want. (UK website edition.)

A couple years ago I saw a great presentation (on climate change and business) that pointed out that while in every other country in the world ‘sex’ was the most common search term on Google, in the United Kingdom it was ‘weather’. And ‘property’ isn’t far behind (source: Google Trends):

(compare to results for ‘All Regions’:)

So you can understand why we invested in Weatherbill and Zoopla… (There were a few other considerations as well, but this makes for a more fun story.)

So where was I…? Oh, that’s right, I just wanted to draw attention to Zoopla’s nifty new property value widgets and what a great addition they would make to any website targeting a British audience. The great thing is that it’s not just UK or England or even London prices you can track but areas and postcodes. Local is the new global. (Or something like that.) Write a blog for hedge fund managers? Keep the readers coming back with a nifty NW8 price tracking widget for example:

Or appeal to their bonus envy with this cheeky London Dream Homes listings widget:

I’d be willing to bet it has more pulling power than showing the latest price on the FTSE100 index…

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Data, AI, Web, Repeat.

Today Zoopla.co.uk announced a further GBP3.75 million investment round in which we are very excited to be participating alongside Atlas Venture and Octopus Ventures. I will also be joining their advisory board. We were first introduced to the very talented founder and CEO, Alex Chesterman, by my friend Fred Destin almost a year ago after I had congratulated him on Atlas’ original investment in Zoopla and had expressed my admiration for Zoopla’s site and approach.

Zoopla.co.uk logo

So what is Zoopla!? In their own words:

Zoopla.co.uk is a unique property website offering users information and tools to help them make better-informed property decisions. Our aim is to provide the most comprehensive source of residential property market information in the UK to help buyers, sellers, owners and estate agents alike and give them an advantage in the property market…

…We have started by providing FREE value estimates, sold prices and local information as well as letting users add content by editing information and uploading photos. We are the UK’s fastest growing property website and by far the largest and most active property community in the UK, with over a million user contributions to our website in 2008 alone…

…Our value estimates are calculated using a proprietary algorithm (a secret formula) that we have developed by analysing millions of data points relating to property sales and home characteristics throughout the UK. The algorithm works by comparing relationships between home prices, economic trends and property characteristics in given geographic areas. Our estimates are constantly refined, using the most recent data available and a variety of statistical methodologies, in order to provide the most current information on any home.

We are still testing and improving our features and tools and recognise that things aren’t perfect yet…

So what’s so interesting about Zoopla!? Or perhaps more specifically, how does Zoopla fit into Nauiokas Park’s investment universe? Two words: rich data.

  1. In Zoopla, Alex and Simon Kain (co-founder and CTO), have leveraged the web to feed intelligent algorithms that allow them to bootstrap basic, publicly available data, into an increasingly more robust, accurate, rich and granular dataset of UK residential property.
  2. They have built the site in a way that naturally compels visitors to improve and enrich the dataset. This user-generated data is not only very valuable but is itself subject to Metcalfe’s Law and so adds tremendously to the sustainable advantage of the site and their database. This is not trivial. When I was running a Credit Trading business, complex-data quality issues were absolutely critical to running the business efficiently and having effective risk management. We, like other banks, were plagued with bad quality (inconsistent, out-of-date, missing, etc. etc.) data. As a part of the ‘web-ification’ of our business (pre Digital Markets stuff), one of the single most effective things we did was to expose our various data structures to broad populations of users within the bank and allow users to correct and enhance the data on an ad hoc basis. Of course the ‘data priests’ were aghast…but it worked. Really I think it’s just applying a variation of Linus’ Law: “given enough eyeballs, all bugs are shallow.”

But how does a unique, rich, ever-improving, granular, transparent, database of UK property prices fit with Nauiokas Park’s focus on disruptive business models and technologies in financial services and markets? Well, we think Zoopla is ideally positioned to drive and benefit from a fundamental shift in the economic structure underlying the property markets. (This is a theme regular readers will recognise,) ie the shift from a market predicated on information scarcity to one build on information abundance. And you don’t even have to be particularly clever to work out how this is likely to play out, as property is the ith market in a series of [N] markets to have this thrust upon them. I don’t want to give too much away, but for the City types out there just think back to the bond markets of 1990. (For Wall Street types you only have to think back to oh about, 2004…) All other things being equal, as this “phase change” occurs in an industry, value moves away from transactions (matching) to data. (Think Merrill Lynch vs. Bloomberg LP over the past few years as a reasonable pair trade in this vein. Or all investment banks vs. Markit Group…)

Post-2008, even the proverbial man-in-the-street knows there was a data… how would you say… “issue”… when it came to the intersection of residential property and finance… Now I’m not suggesting (not quite anyways) that had Zoopla existed and been well-established globally years ago that the sub-crimeprime crisis would not have occurred (stupid is as stupid does)…but having easy access to the kind of readily “digestable” data available from Zoopla would clearly have been a boon to any responsible mortgage underwriter or securitization professional. In fact, I’d go so far as to say that today were I an institutional investor in UK RMBS, I would require that the underwriters/originators of the pools provide me with a FTP feed of the individual Zoopla data of every property in the pool. And if I were running say a big UK mortgage book and/or originator, I would certainly be interested in having an independent automated external mark-to-market run at least monthly, probably weekly…you get the idea.

And finally, whenever you have good, digital, reproduce-able data, well there my friend you have the makings of a myriad of listed and OTC markets in that underlying. Think Case-Shiller only better.

We are truly excited by the myriad of business opportunities available to Zoopla as it continues to grow and improve its core database and builds products and services on top, but perhaps most exciting is being able to participate once again at the early stages of a company that is set to play a key role in transforming an important and large marketplace, reducing friction and creating an entirely new value paradigm. Even reminds me a little of another UK start-up you might have heard of called Betfair… And we can’t wait to see what Alex and the team will achieve in the next few years and look forward to helping them in any way we can.

So, if you live in the UK, what are you waiting for? Go Zoopla! your home, claim it, enhance the data and presto, you now have effectively a pretty good proxy ticker-tape for (probably) the most important asset you own.

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