Microsoft founder Bill Gates once remarked, ‘Competition is always a fantastic thing.’ I am bringing up this quote in response to an ongoing situation involving LendingTree LLC, a prominent company in the mortgage referral business, and Google Inc.
It appears that Google is planning to launch its own mortgage referral business, and that has LendingTree in something of a panic. As a result of the mega search engine's possible entry into the field, LendingTree has filed a federal lawsuit against Mortech Inc.
How does Mortech figure into this? According to the lawsuit, LendingTree claims that Mortech is violating an agreement not to work with any of LendingTree's current or potential competitors. Mortech supplies pricing services to the mortgage banking industry, including prospect management tools and guideline services for lenders.
The Associated Press recently pointed out that Google has been quietly moving into the residential realm by upgrading its Google Maps page to highlight real estate search functions and introducing a PowerMeter for homeowners interested in keeping up on their energy consumption. However, Google has specifically not stated that it has definitive plans to expand fully into the mortgage referral sector.
It is understandable that nobody wants a major corporation suddenly showing up as the new competition. Two years ago, many financial services companies were aghast over the possibility that Wal-Mart might get into the banking business when the retailer sought to gain a charter to create an industrial loan corporation. The hue and cry that Wal-Mart would annihilate the competition was so overwhelming that the Federal Deposit Insurance Corp. repeatedly stalled on its review of the charter application.
Eventually, Wal-Mart got fed up, withdrew its application and abandoned plans of starting its own bank. Needless to say, Wal-Mart never had a chance to do damage to the financial services industry – and, in any event, the industry did not have to worry about an outside assault, because it did a pretty effective job of self-immolation.
I am also reminded of a similar brouhaha in 1981 when Sears, Roebuck & Co. attempted to enter the real estate market by acquiring Coldwell Banker and joining it with Allstate Insurance and Dean Witter Financial Services Group as part of the Sears Financial Network. The fact that you cannot go into your nearby Sears store and buy a house will give you an idea of how successful that venture was: Sears wound up selling Coldwell Banker in 1993 to the Fremont Group for $230 million. Three years later, HFS Inc. bought Coldwell Banker for $740 million.
Is LendingTree overreacting to the threat from its potential new rival? I think so. Yes, Google seems like a formidable rival, but where is the evidence that Google will stomp all over LendingTree and steal its share of the market? Expecting Google to go from zero to 100 mph in a niche sector where it has no track record is not realistic – particularly when one considers the success that LearningTree has achieved in this area.
In business, the biggest company is not always the last man standing. The history of U.S. corporate economics is littered with oversized companies that tumbled and fell. Think of the aforementioned Bill Gates, who once faced the monolithic IBM.
If anything, LendingTree should take the possibility of competition from Google as a cue to reassert its market dominance. Filing a lawsuit to keep a competitor out makes LendingTree look scared at having to take on a new player, and it does not inspire consumer or investor confidence in the company.
While I am tossing around quotes about competition, I would like to add this observation from Charles Darwin: ‘In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment.’
Indeed, the fittest don't survive by suing others to stay out of their environment.
What is your opinion? Feel free to share your comments here or e-mail me with your thoughts.
– Phil Hall, editor, [b][i]Secondary Marketing Executive[/i][/b].
[i] (Please address all comments regarding this opinion column to hallp@sme-online.com.)[/i]
