Why real estate agents in developing markets underinvest in software (and why SaaS struggles)?
The typical reasons often point to small market size, low purchasing capacity, limited awareness, limited government support.
I’d instead point to the nature of the institutions for property transactions.
Exclusive vendor-real estate agent contracts to sell/ rent homes are rare.
The same property is given to 10 agents (even non-agents!). Whoever brings a buyer first wins the commission.
The competition becomes about speed.
But they also collaborate —sharing listings via social media and splitting commissions.
On the surface it looks efficient. But creates an incentive problem.
There is have no guarantee of a commission even if you invested heavily in relevant SAAS/tools. That’s an appropriability problem.
Romano puts it this way: “In the frictionless perfectly competitive market, with no barriers to the use of information, the market will provide no R&D investment.”
That’s why even MLSs struggle to take root. Who’ll pay to list the property when the value can be captured by anyone? You can’t educate people to list. The sunk cost can’t be recouped.
The investment cost is private. But the benefits are not.
Even a buyer can swerve the listing agent and deal directly with the owner - it’s common.
Underinvestment and low adoption of SAAS becomes a rational choice to weak institutions.
Free, cheap or ubiquitous SAAS like WhatsApp is widely used. Not because they’re free. On the contrary, it’s because the no/little sunk cost is easy to recoup without exclusive contracts.
But it’s not as if exclusivity is widely desired. It’s not!
I have spoken with real estate agents who don’t like the exclusivity - “it puts unnecessary pressure on you to sell!”
Non-exclusivity of contracts is a solution to another problem - a market problem.
Anyway, if you’re thinking about SAAS, you must consider the inherent institutional problems and engineer with them in top on mind.