realestate.com.au, the market leader in Australia, has announced a price increase that will come into play as of the 1st August. This announcement came in the form of a message that appeared just over a month ago in the administration section of the realestate.com.au site. While the message didn’t reveal the level of the increase that agents could expect, discussions with insiders suggest that the price rise could be as much as 30% for some customers.
Price increases are nothing new, especially from market leaders such as realestate.com.au. However, while agents will not like the price rise, it will be interesting to see the impact the increase has on the number of subscribers that realestate.com.au has in the Australian market and more importantly, their desire to spend on premium products and services.
As a bit of background, realestate.com.au is the market leader in the Australian market. 95%+ of Australian real estate agents pay for a subscription from the site and this subscription allows them to advertise as many properties they want in the “for sale” and “for rent” sections of the site. On top of this, the agents purchase a range of premium products such as feature properties, banner advertising and eBrochures.
It is my view that the price increase will mostly flow through to the bottom line of realestate.com.au.
Firstly, realestate.com.au is the dominant player in the Australian market. They have 5m+ UB’s to the site each month, a strong lead over the #2 player domain.com.au, and in some areas, they drive 70% of leads to real estate agents. With this level of dominance most agents practically don’t have a choice but to accept the price increase.
Secondly, in many parts of Australia, the vendors actually pay for this advertising rather than the agent. In these markets, the agent will simply pass on the costs to the vendor and while these costs continue to be significantly less than print, the vendors are unlikely to argue.
However, the more interesting question and potential challenge for realestate.com.au is the impact the price increase will have on its reputation, premium product sales and competition in the market.
The problem with market leaders is that often they are seen as a necessary evil by the estate agents. It doesn’t matter where you are in the world agents tend to not like to pay the market leader for advertising. This problem may be compounded for realestate.com.au as it is rumoured that they have had very poor results from a recent customer survey following on from the launch of their new site in April this year. Any price increase is likely to increase the negative sentiment towards the business.
Secondly, agents may start to reduce the amount they spend on premium products to offset any increase in advertising costs. This may result in not all of the price increase flowing through to the bottom line. To protect these revenues, it is important that the realestate.com.au sales team are 100% on their game and work with the key agents to ensure that premium revenues are protected.
Finally, with any price increase, there will be talk of more competition for realestate.com.au. The problem with this is that it is mostly just talk. Knocking off a well entrenched market leader like realestate.com.au is extremely difficult and there are few players, if any, that have the resources, skill or ability to be successful. If any decrease in market dominance does occur, it is likely to be self inflicted.
The bottom line is that while the price increase is unlikely to be welcomed by agents, it is the easiest way in which realestate.com.au is able to increase revenues from its core Australian business.
Simon Baker is the former CEO and Managing Director of the REA Group, the owner and operator of realestate.com.au