‘Core’ vs. ‘optional’ Pt 3: Arguments both ways

(This is Part 3 in a four-part series. I started with some definitions to get us on the same page; we then looked at NAR policy on the issue (for those MLSs that are bound by it); here, I’ll provide some of the arguments for and against making services ‘core’; last, I’ll touch on the legal dimension (but only briefly).

There are arguments for and against making services core. The weight your MLS gives to each argument is as important as the number of arguments; so there might be three arguments for making a service core and four arguments against it, but the three arguments for making the service core may be more weighty. The discussion that follows is thus necessarily just a framework for thinking about these issues; it is not a formula for resolving them.

Arguments for making services core

The key arguments for making a service a core service are that it provides economies of scale; it can promote individual broker investments based on the platform that MLS makes available and nudges brokers to be on the leading edge; it facilitates making the service as integrated with other MLS functions as possible; it makes MLS business planning much easier; it addresses the ‘small incremental price’ problem; or it addresses the unwillingness of a third-party provider to sell into the MLS subscriber base.

Economies. When the MLS purchases a site license for an application, it may get an incredible deal on a per-unit basis for the service. Volume discounts are frequently the foremost consideration in an MLS board’s mind when it considers potential core services. Of course, this cannot be the only consideration. After all, an MLS with 2,000 subscribers could get a good deal on 2,000 Cadillac Escalades, too, but making a Cadillac Escalade part of the MLS’s core services would not cross most folk’s minds.

Encourage brokers to use advanced technology. The MLS may make a strategic decision that the industry as a whole needs to move in some direction technologically. Making some aspect of a new technology part of the MLS’s core services removes one of the barriers that may prevent brokers adopting the technology – cost. If the MLS provides or arranges for training in and support of the service at the MLS level, it may remove other barriers.

Integration with MLS. Sometimes, for a service to be fully integrated into the MLS, it needs to be available to everyone. This is not true with all integrated services: The way that web-based MLSs are built, it should generally be possible to integrate a feature without it being available to or visible to all users. But on occasion, it’s hard to make that work.

Easier MLS business planning. It’s much easier for an MLS with a small staff, especially if it has no substantial marketing or sales staff, to take the cost of providing a service to all subscribers and just spread it across all the subscribers. The alternative is more complicated: the MLS must create a budget for the costs to deliver the service based in part on estimates of how many subscribers will buy it. Many MLSs do not have the business planning, marketing, and sales expertise on staff to do this kind of planning.

Addresses ‘small incremental price’ problem. There are services that are so trivially expensive that billing for them separately might cost more than the service itself does. For example, in one large MLS client of ours, a service to be integrated into the MLS worked out to cost less than $3 per subscriber per year. The MLS would have spent more than that to bill and collect fees for the service on an optional basis. Of course, the risk if MLS finds too many such services is core cost bloat (see below).

Third-party provider requirements. Sometimes a strategically important service is available only from third-party providers who insist that they will work with an MLS’s subscribers only on an all-or-nothing basis.

Arguments against making services core

The key arguments against making a service a core service are that it ‘bloats’ the core cost; it make create an artificial adoption curve; it can overlook superior competitive offerings or stifle their development; and it may pre-empt offerings being developed by participating brokers internally.

Core cost ‘bloat’. Every additional service offered as part of the core of MLS increases the cost to the subscribers, even if only slightly. Over time, such additions can lead to increase in the core cost. Many MLSs avoid this problem by adding new core services only when they have been able to press costs out of other services or eliminate services that are no longer useful. They avoid increasing fees and the problem of core cost bloat.

Artificial adoption curves. Sometimes the MLS may choose a service that ultimately does not have legs; or perhaps it chooses a service whose time has not yet come in the industry. The MLS may create a scaffold for brokers to engage in using this service at a time when the benefits for using the service do not match well with the costs.

Stifling superior offerings. This is an important issue. If the MLS makes a service core, one of two things commonly happens. One possibility: The core service is at least ‘pretty good,’ and because MLS subscribers are paying for it whether they use it not, they are not inclined to consider other products that they would use instead if they had the choice (assuming switching costs would not make it unreasonable to change). Another possibility: The core service is less than ‘pretty good,’ and many MLS subscribers buy a superior alternative on the market; but MLS’s support of the inferior product prolongs its existence in the market and imposes costs of competition on the superior product it would not otherwise experience if the inferior service were allowed to die a natural death. Making the service a core service also increases the barrier for competitive service providers to enter the market.

Pre-empting brokers’ own investments. Brokers are always seeking to distinguish themselves. One can debate at length whether they succeed at doing so – as others already have – but brokers nevertheless invest a lot of money in competitive marketing with each other. If a broker has deployed or is deploying a service within the firm, and the MLS adopts a competing service as a core service of the MLS, you can imagine the broker’s displeasure. (I’d expect you would not have to imagine it – most brokers will be very vocal about it.)

Others?

I expect there are other arguments for and against making certain services core. Please comment to share your thoughts.

Next: Legal issues in the ‘core’ service debate