In a recessionary environment, competition drives prices down because lower prices attract more consumers to part with their money in a fearful environment. But on the Web in 2001, the opposite will happen for Realtors. I predict that Web marketing costs will go up dramatically.

The dotcom shakeouts have changed the economics of the Web. Service providers have to show profits. The flip side is that the service providers also have to show more results. Higher costs could be a good thing if Realtors get what they pay for.

Why will services cost more? Here are five reasons:

Not enough online Realtors

With a potential subscriber pool of more than a million Realtors and possibly twice that many counting nonmembers of the National Association of REALTORS, it must shock lead generation package service providers that Realtors are so hard to sell. Even the most successful, well-financed service provider, Realtor.com, which also comes blessed with the NAR seal of approval, has only been able to sell online lead generation packages to about one out of ten Realtors, and that is with constant advertising, presentations, and acquiring new customers through the merger of companies such as Top Producer.

With relatively few Realtors to sell, lead generation tool providers are going to have to make their sales pitches count, with more tools, add-ons and other options so that Realtors will say yes. If there are more ways to capture leads off of the same tool, the cost of keeping the lead close to the Realtor will be higher. In addition to having their listings online, Realtors will have to sponsor all the reports attached to their listings so that they will capture the customer, not other Realtors. And that costs money.

Too little incentive

With the bull real estate market most Realtors across the country have enjoyed, there has been little reason for them to get too concerned about the Internet. Why fix what isn't broken?

Other Realtors are overwhelmed by mastering the new medium. First-mover advantage has given many Realtors incentive to expand their marketing dollars to include the Web, but even then, many did not experience the results they wanted. They bought multiple Web sites but didn't get leads. This year, they won't renew as many.

The learning curve has been great. Only through customer feedback provided by Realtor.com did the NAR realize that agents and brokers were being hurt at the local level by not being able to post listings on their own personal Web sites. Broker reciprocity is supposed to be allowed by every MLS over the next few months, and with listings, agents will have more incentive to buy lead generation packages. But their expectations will also be higher. They will want leads, and if they get them, they will pay for them.

The learning curve has been great in other ways. Agents found that Web sites didn't make the phone ring and that for Web sites to be effective, they must be vigorously promoted. Even the carrot of four out of ten homebuyers visiting the 'net wasn't enough to get many Realtors excited. They figured if their listings were there, the buyers would come to them.

Other Realtors are confused about how much they should spend and which marketing tools are most effective, causing many agents to settle for having a presence on the Web instead of using the Web actively in their marketing.

The new Internet economy

Some agents are growing concerned about the veracity of online service providers. The bankruptcies and company closings of the past year cause some agents to wonder which companies are really viable? This is a situation where some companies with a good idea but little seed money might get overlooked by Realtors who are afraid of being left holding the bag.

Because of the fallout of some service providers, many of the tools that Realtors subscribed to last year will not be around this year, decreasing competition for the ones that are left. The ones who are left or starting up have to really prove themselves in terms of their solvency and their pedigree of being Realtor-oriented. Public relations campaigns cost money.

Other companies that are still around may respond to the new Internet economy in a number of unpredictable ways; some will change their business models, some will add more tools to offer more value, and others will merge with other companies. But because of the need for all companies to show profitability, the cost of services won't go down, they will go up.

Free services didn't work

A few years ago, businesses on the Internet attracted subscribers with free services - free e-mail, free Web sites, etc. Well, the free lunch is over and that is because it simply didn't work as a business plan.

Comfortably cushioned by venture capital or public investors, many companies such as Realestate.com and HomeSeekers built their agent subscription bases with free Web sites, hoping to attract agents and their listings to their sites. But several factors combined to make "free" services a bad idea. First, the Gold Alliance agreements between Realtor.com and local MLS organizations and their broker members handicapped most of HomeStore's competitors. Free or not, many agents found that they were blocked either by their MLSs or their own brokers from getting their listings on any site other than Realtor.com. Many just gave up.

Online service providers found that free services such as vortal-sponsored Web sites, didn't do what they were supposed to do - drive more Realtors to embrace the Internet. So they gave away a lot of free stuff for nothing.

Automation didn't work, either

Most of the service providers forgot to consider the nature of the sales force they were trying to sell. While the business model of building a technology solution that can be automated sounds great in theory, it only works if your intended customer likes automation. Many service providers fell on their faces because they didn't build enough training and customer support into their business plans. Why didn't they? All that hand-holding is expensive. They thought about themselves instead of their customers.

Realtors are in a high-touch profession. It stands to reason that as a group, they require high-touch attention themselves. Some service providers have finally caught on that if they are going to sell their products, they had better be more willing to provide one-on-one instruction and support. That costs money.

Agents will step up to buy, but only if they can get the kind of nurturing they need to get up and running so that their new software doesn't turn into shelfware, sitting on a shelf unused. Look for more hands-on support from service providers and less automation at the point of sale, which will drive up costs.

You will also see more turnkey solutions, but the more you want the service provider to do, the more it will cost you. Look for Internet administrative services to boom. Want a state-of-the-art Web site you never have to touch? Want someone to follow-up on those e-mails for you? Want your desktop software to track your visitors for you? You can have it all, but outsourcing will cost you.

Companies have to revenue-share

You will see more mergers and exclusive agreements in 2001 than ever before. Look for those agreements to cost you more money for Web sites and other marketing tools. A perfect example of this is Realtor.com's exclusive service provider agreement with IPIX, a virtual tour technology service provider. At $99 for a four-picture tour, IPIX products are among the highest priced in the market, causing some Realtors to question why they were selected to be the exclusive tour provider for Realtor.com's I-LEAD customers. The answer is simple. IPIX is priced so that it can share its revenues with Realtor.com. Companies that are price their products too low have nothing to offer Realtor.com. Why should Realtor.com give any company access to its hard-won customers for little or nothing?

Other companies that can deliver virtual tours for less money, and Realtor.com will allow Realtors to put these tours on their listings if they have I-LEAD Web pages. One company, Grandtours gives you 12 photos for about $40 as well as the html code so you drop the tour into your Realtor.com listing. VisualTour offers up to 50 images and more for $25. These other service providers can clearly beat IPIX in pricing, but what they can't do is match IPIX for revenue-sharing and that is why companies from Yahoo! to Realtor.com are endorsing IPIX tours. In the $99 tour, there is a lot of room for IPIX to share profits with a revenue partner who brings a lot of volume business to the table. What kind of revenue-sharing is there in a $25 product? And what kind of money does VisualTour have for other advertising? How will Realtors find them unless they advertise, revenue-share or find some other way to get in front of Realtors? (Editor's note: VisualTour does have a revenue-sharing model in place with brokers and supplies the code to allow the tours to be supported on Realtor.com, HomeAdvisor and other portals.)

No, I'm not picking on Realtor.com or any other company because the practice of revenue sharing is becoming standard. It's really just a variation of the advertising model. Would you rather pay $99 for a virtual tour because IPIX has to advertise on Realtor.com or because they cut a deal to make it easier for you to get their tours onto Realtor.com listings? You see? It makes no difference.

In the future, you'll see service providers pricing their products higher so that they can tap into other people's sales forces, too. Unfortunately for the targeted Realtor, that means higher prices for such services.

Online services will have more accountability

Fear of shaky dotcoms, disdain at higher prices for services, and the wisdom that comes from experience will cause Realtors to be pickier about choosing marketing services in 2001. More Realtors are getting online, and they also have more resources to share information with each other than before. List-servs(tm), chat rooms, message boards and other online communities means word gets around quickly when a service provider is not doing right by agents.

Some companies will capitalize on the new Realtor skepticism by providing agents with tools that they haven't had before. One service that will make a lot of news will be lead tracking services. It takes guts for a service provider to make themselves accountable for leads, but the Internet is no different from other media. Realtors are going to demand to see some results from their online dollars. Again, this will cost money.

Some smaller Web site companies like Com-stock have been providing lead tracking reports for its customers so they know where leads from their Web sites and listings come from. As far as Web site packages go, Com-stock's Web sites aren't cheap, but that's because you are paying to get leads. They put your listings on other sites for you and then tell you which listing service delivers you the most leads. So far, this has been permission-based lead tracking, but it is an invaluable tool for agents who are planning their marketing budgets and trying to decide which Web sites and other lead generation tools to renew. (That's what Web sites are - renewable subscriptions services.)

Interealty, one of the largest Internet MLS information management system providers, has taken this concept one step further by providing this feature at the MLS level. Brokers can upgrade their MLS access to include a client/transaction/office management platform that opens with a customer/lead report so that agents can see how many click-throughs and e-mails they received from HomeAdvisor or other portals. Again this is lead reporting by permission, but it is useful information, nonetheless. It also means that enabled MLSs will charge you for the service as an upgrade. It won't be free.

Should you be upset that marketing on the Web will cost you more this year? No, the shakeouts mean that service providers along with Realtors will learn from experience. You will pay more for service, but to keep you, service providers will have to help you get more for your money.