Matt Templeton Speaking on Real Estate Market Shifts — Matt Templeton of Keller Williams Urban Dallas frequently shares insights with Realtors on navigating the evolving market. (Courtesy Photo)

By Matthew Templeton
Managing Principal
KW Urban Dallas

The real estate industry is currently experiencing a period of profound transformation, marked by rapid technological advancements, significant capital investment, and notable shifts in leadership among major players. What we are witnessing is more than just an evolution; it feels like a fundamental redefinition of how business is conducted in real estate.

Recent headlines perfectly encapsulate this dynamic landscape, illustrating how quickly the market is adapting to new paradigms driven by technology and data:

September 2018: Compass secured another substantial funding round, raising $400 million. This capital infusion was primarily earmarked for expanding their software development capabilities and aggressively recruiting more agents.
February 2019: A significant leadership change occurred at Zillow, with billionaire co-founder of Expedia and Zillow, Rich Barton, returning to take the helm from Spencer Rascoff, who had served as CEO for nine years. This move signaled a strategic re-evaluation at the industry giant.
February 2019: Keller Williams launched its groundbreaking artificial intelligence and data-driven platform, setting a new benchmark for integrated technology in the real estate sector and prompting other companies to intensify their tech initiatives.
February 2019: RE/MAX, acknowledging the imperative of technological innovation, announced its commitment to delivering “best-in-class” technology, reinforcing this statement with the strategic acquisition of Booj, a real estate technology company.
Early March 2019: Opendoor, a data-centric iBuyer, expanded its offerings to include listings from rival brokerages and introduced Redfin-like rebates, signifying its move to broaden its market presence and directly compete on multiple fronts.
Early March 2019: The NTREIS Board faced a critical vote regarding increased data access for Zillow, highlighting the growing tension and value placed on real estate data. This decision was set to have major implications for North Texas Realtors and their data control.

These events underscore a clear trend: we have entered a new era of real estate, one characterized by an unprecedented pace of change and an increasing reliance on technology and data. However, there’s a deeper undercurrent at play, one that eerily mirrors the speculative period preceding the dot-com bust of the early 2000s. Real estate technology companies are awash with capital—indeed, 2018 was a record-breaking year for investment in proptech. Yet, a stark reality remains:

Many of the Top “Technology” or “Platform” Companies in the Industry Are Not Profitable

Consider some of the most prominent names. Zillow, despite its market dominance, has yet to achieve sustained profitability, with losses widening to $120 million in 2018. Redfin, another innovative brokerage, operates at a loss. Opendoor, a pioneer in the iBuying space, is also unprofitable. Compass, a brokerage that has raised billions, strategically avoids direct questions about profitability, its frequent need for new funding rounds speaking volumes about its operational model.

This raises a crucial question for those of us operating within the traditional framework of the industry: what kind of stability can we expect in such an environment?

The Dawn of the Digital Age Economy

Our global economy has unequivocally transitioned into the digital age. This era fundamentally differs from the Industrial Revolution of the 20th century, where companies typically had to demonstrate clear profitability before attracting significant investment or achieving success on the stock market. The cautious technology market of the 2000s has morphed back into a more speculative, capital-driven environment reminiscent of the late 1990s. Tech is undeniably hot, and the prevailing mindset is “winner takes all.”

However, this time, the dynamics are distinct. The foundation of this new economy rests upon a powerful, intangible asset: data, and the sophisticated integrated platforms designed to mine, house, and leverage it. But regardless of how technology companies are valued or perceived, the immutable laws of economics dictate that there will be winners and losers. The seemingly endless supply of venture capital will eventually diminish when tangible returns fail to materialize. That day of reckoning may not be imminent, but it is a fundamental truth.

Competing in This New Digital Landscape

The “digital age” has, for many technology companies, effectively supplanted the traditional “profit age.” Amazon famously pioneered this approach for over 15 years, consistently stating in its quarterly reports that profits were not its primary objective. Instead, Amazon prioritized building an unparalleled customer-centric platform. Despite years of unprofitability, the company achieved extraordinary success, much to the chagrin of early skeptics like myself. I recall passing on Amazon stock at $250/share, opting for what I perceived as more “profit-driven” business models. Today, it trades around $1,600/share, and only in recent years has it reached comprehensive profitability, largely driven by its highly successful Amazon Web Services (AWS) unit, while its core online retail business only recently became profitable. Facebook and Netflix followed similar trajectories, leveraging significant investment to fund operations, rapidly acquire users, and eventually monetize that user base.

Yet, the landscape is also littered with examples of companies that never achieved profitability and ultimately exhausted their operating capital.

In the venture capital world, the amount of investment capital a business requires to sustain operations is known as the burn rate. It signifies how quickly a company expends the cash provided by investors while it strives to develop a profitable model for its innovative technology.

Some companies choose to go public to secure more capital, hoping the market will grant them the same leniency it did Amazon—allowing them a pass on profitability as long as they demonstrate consistent growth in user base, engagement, and reach.

The Imperative: Growth Fuels Survival in the Unprofitable Digital Age

This brings us to a critical realization: to survive in the digital age without immediate profit, a company must continuously convince investors to inject more capital, primarily by demonstrating robust growth. Zillow serves as a powerful illustration of the consequences when growth slows. Its stock price had plummeted in the year leading up to early 2019, with its total market capitalization falling more than 50 percent from its peak. This significant decline underscored the need for a drastic change, which led to Rich Barton, a co-founder with a deep understanding of the company’s genesis, stepping back into the CEO role.

Notably, upon the announcement of Barton’s return, Zillow’s stock soared by over 25 percent. This recovery propelled its valuation back into the $8 billion range, up from lows of $3-$4 billion late the previous year, though still off its peak of $12-$13 billion in late 2017 through mid-2018. This sharp market reaction vividly demonstrated that investors were actively “punishing” Zillow for its perceived lack of growth.

Prior to its fourth-quarter earnings call, Zillow’s revenue growth had decelerated, its user base expansion and view counts were declining, and the path to profitability appeared increasingly uncertain. For a tech company, a lack of growth signals an immediate need to prove profitability, a difficult pivot for a company built on a different premise. What was Zillow’s response? Former CEO, Spencer Rascoff, had stated in the third-quarter earnings call that Zillow would continue to move “further up the funnel toward the consumer” and expand its business offerings. Rich Barton emphatically reiterated this strategy upon assuming the CEO position, declaring:

“We’re making strategic investments to broaden the Zillow Group portfolio to move further down the home-shopping funnel, giving today’s ‘uberized,’ on-demand consumers a full spectrum of options to buy, sell, borrow and rent on their terms.”

Barton emphasized that the current year would be one of “transformation and investment.” Zillow must execute strategic maneuvers to reignite its growth trajectory despite its ongoing unprofitability. For real estate agents, these shifts could profoundly impact their income models, future earning potential, and even their autonomy. The recent Indeed ads from both Zillow and Redfin, actively recruiting agents, suggest a future where independent agents might find themselves operating under new corporate structures or as employees.

It’s also worth noting that other beloved companies across various industries, such as Uber and Airbnb, similarly operate without a clear path to profitability yet maintain massive valuations and continue to attract the significant capital necessary to sustain their operations.

Implications of This New Paradigm: The Digital Age vs. The Profit Age

What does this fundamental shift mean for the ultimate consumer? For now, it primarily means increased competition for their attention. While many services appear “free,” there is immense monetary value being exchanged behind the scenes, largely centered on consumer data and engagement. This translates to an array of innovative and convenient services, but also potential considerations around data privacy and vendor lock-in.

And what are the profound implications for the real estate professional?

Embrace and Master Technology: More than ever before, real estate professionals must develop a deep understanding of technology. It is no longer optional but essential. Become a truly Tech-Enabled Agent—one who not only uses technology but integrates it intelligently into every aspect of their business to enhance efficiency, client experience, and lead generation. This will be a continuous learning process.
Understand the Shifting Competitive Landscape: Traditional, profit-based business models, characteristic of conventional brokerages and advertising platforms, are not obsolete. However, they are being vigorously challenged by competitors who operate under a different set of financial rules. These digitally-native competitors often do not face the same immediate pressure for profitability, allowing them to make long-term, capital-intensive plays that might not always prioritize the interests of individual agents, consumers, or the industry’s established norms. As one venture capitalist astutely put it: “It’s not about the money right now; it’s about fundamentally turning the real estate industry on its head.”
Choose Your Alliances Wisely: The competitive landscape is rife with complexity. Some entities may approach agents offering attractive partnerships, generous compensation, and enticing promises. However, these “wolves in sheep’s clothing” may have ulterior motives, strategically working to reshape the industry in ways that could ultimately undermine the independent agent’s livelihood and autonomy. Diligence, critical evaluation, and a clear understanding of a partner’s long-term business model are paramount to protecting your business and client relationships.

Matt Templeton is a distinguished Real Estate Agent Expansionist, dynamic Speaker, successful Brokerage Owner, and a recognized Real Estate Guru with Keller Williams, based in Dallas. He actively coaches top business owners on crucial aspects of business building, effective lead generation strategies, optimized time allocation, and leveraging cutting-edge technology. You can reach him directly at [email protected].