Let me share a narrative from another industry that resonates with the
mortgage industry. In his book, Blown to Bits, Philip Evans tells a fascinating tale about the
evolution of Encyclopedia Britannica, Inc. The company built a dominant
brand (Your family owned a complete set of Britannica’s, right?) using one of
the most aggressive and successful direct sales forces in the world. By
targeting middle-income families and focusing on their aspirations for their
children, the company developed a marketing proposition as compelling as the
intellectual content itself.
By 1990, sales of Britannica’s multi-volume sets had reached an all-time
peak. The company had led market share and enjoyed steady growth,
generous margins, and 200 years of success. Since 1990, however, sales of
Britannica—and of all printed encyclopedias—have collapsed by over 80
percent. So, what happened? Cyclical forces at work reshaped the way information was shared and blew
Britannica away. Microsoft began providing a digitized encyclopedia on CD-
ROM with every purchase of Windows operating system—and they gave it
away for FREE! Not too long after that, the Internet went mainstream, followed
by Google. Now just about any information can be found online in moments.
I find some very interesting parallels to the mortgage industry:
1. The most venerable can prove the most vulnerable.
2. A strong culture and dominant competitive advantage can blind leaders
in times of change.
3. Incumbents are saddled with legacy assets while insurgents are not
(consider prime and sub-prime in the mortgage business).
4. Winning is not a zero-sum game, which means the total value of
players and value can rise and fall.
Aren’t mortgage originators (direct sales force) the most venerable? Don’t we
have generous margins, steady growth, and a dominant market share? Are
there forces at work reshaping the way we do business? Unfortunately, the
answer to all of these questions is a resounding YES!
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