Today’s front page of The Financial Review, Australia’s leading financial newspaper, carries the heading “Real Estate Agents Revolt”. The lead in paragraph says “The country’s largest real estate companies are shaping up for a fight with online marketing giant REA Group over the soaring cost of advertising on the web and the rights to the use of property data.”
The news immediately wiped off 5% or $80m from REA’s market cap – ouch!
Now this raises an interesting discussion about can a fragmented industry unite to create a true competitor to a market leader or is this just fantasy?
The best way to think about this is to look at what you have to believe for the industry to create a true competitor to a market leader.
The Industry Can Build a Comparable Listings Database
The first thing the industry must do is build a comparable database to the market leader. This is required so that the consumers have a similar experience when visiting the site.
In many markets this means aggregating as much as 90%+ of the listings. This may sound easy but in many circumstances it is hard to do.
In most markets outside the US and Canada, the listings are held by a wide range of software providers. This is a non trivial challenge and requires managing multiple data feeds and gaining the consent of the individual agents.
Failure to do this results in a sub-standard offer versus the market leader.
The Industry Can Create Awareness of the New Site
The second challenge having built a comparable site is can the industry create awareness of the site and drive reasonable traffic to the site? This become more problematic when up against a very well funded marketing beast.
The incumbent leaders are well organised with strong marketing teams. They will outspend and out market the industry and this is doubly hard when the industry is coming from a long way behind with a new brand pitched against a well-established and highly recognised brand.
The industry needs a massive marketing budget and access to strong capital reserves for the continued marketing push.
The Industry Can Create a Better Offer than the Market Leader
This is where it gets interesting. The industry needs to create an offer (i.e website) that is different from the market leader. It needs to create a reason for people to look at it and NOT the market leader.
One way of doing this is to proactively degrade the quality of listings on the market leader’s site. Now this is challenging but doable. It would require the industry as a whole (or large portions) to only submit say four photos or perhaps no price for their listings the market leading site, while at the same time having more photos and the price on the new industry site. This would, over time, have the impact of migrating traffic from one site to the other. However, you would have to be organised and patient.
This is the hardest one for the market leader to defend against.
Agents Will Stop Advertising on the Market Leader
The final thing we have to believe is that the agents will stop advertising on the market leader. This is a hard one.
In the Australian market, for example, the franchise groups cannot control what the agents do and at best, they can influence the outcome.
Therefore you have to believe that a vast number of agents would simultaneously stop advertising on the market leader. They would have to be able to argue with their vendors that it makes sense not to be on the market leader (rather hard I assume). You also have to believe that the cost saving is material enough for an agent to stop advertising. This is also a hard one to believe.
The market leader can combat this through a marketing campaign aimed at the vendor. This is rather simple to do as the addresses of the listings are well known.
Summary
So overall, while many industry players have aspirations to knock of the market leader, the reality is that it is very hard, almost impossible to do so. The best they can hope for is to put pressure on the market leader to reduce the speed of the price increases. However, in all markets where there is massive fragmentation, the big guy usually wins.
Advertising Partner
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{ 20 comments… read them below or add one }
Simon,
I think your summary tells the story as it is. Within the industry there are far to many agendas and politics for it work cohesively to achieve what needs to be achieved.
Didn’t Jamie Packer try acouple of years ago? … If memory servess me he gave up, because he couldn’t get the necessary traction with his dollares and infrastructure … what hope anyone else?
Good morning Simon
This is a very interesting piece you have written and describes exactly what we are doing at Radarhomes. We are a majority agent owned property portal. Please take a look at our website when you get a chance, we would be interested in your opinion.
Kind regards
Mark Flynn
As always, excellent analysis Simon from someone who has ‘been there’. I remember you destroying the probability of Google RE working in the ways some thought/hoped/feared it might, and you were proved right.
But in answer to the original question in your blog title ‘Should REA be worried?’ – damn right they should be. In business, we have to hear the negative, we need the bad news, it’s more important than the good in many ways. Any bad comments (unless downright stoopid) about my online RE business are taken seriously – we usually follow up and talk directly with those complaining, and if we’ve stuffed up, put it right. Around the traps, and now publically on the front page of the Fin (a major step you could argue in any PR war) we see loads and loads of bad feeling vs REA personified – not just cos they are the pre eminent, but the WAY they go about things.
Many a business in #1 position has gone in a few years, markets are dynamic, clients can switch, and even faster these days. Often it happens slowly though, almost imperceptibly, and the greatest changes often happen that way.
Yes, they should be worried, but not for the ultimate reasons many may think …
In Australia each State has an Institute that is supposed to represent their agents. They have individually and collectively NOT shown leadership in critical issues relating to their agent members well being. The revolt really is as a result of this lack of leadership and unless it (the revolt) has some clear objectives and leadership REA, will survive and perhaps even stronger.
Gratuitous leading from behind from REI presidents is not leadership.
Well, Well. When I started posting on this site a few months ago many said we would have not impact. Well in less than 8 months each and every one of postings has proven true.
In this Article, Simon continues on with propaganda designed to deter Agents on mass from eliminating REA and the like so here is a factual rebuttal for any Agent reading this post:
1)”The Industry Can Build a Comparable Listings Database”- are you kidding. They are the one’s who one it already. With Billions of Dollars at stake all they do is post it on one new site they own and control and share equally in the profits of. Done in as little as 30 days!
2)”The Industry Can Create Awareness of the New Site”- are you kidding 2. Let’s see total Agents x ads, signs, website links, feature sheets, google paid ads, plus other great online strategies that only their sheer numbers can suppot.
Done in as little as 60 days!
3) “The Industry Can Create a Better Offer than the Market Leader”- yes! Who else really knows what the Buyers and Sellers really want. Who talks to all Buyers and all Sellers. Only one group.
It’s Done already. Agents know what is needed already plus they can hire the best internet futurists to future proof the site.
4)”Agents Will Stop Advertising on the Market Leader”-Their not stupid like you think! Let’s see pay REA thousands or get checks written to them instead. HMMM- how to you say “in a second”
5)” Summary”- are you serious, “impossible”. AGENTS control the market not REA or the like. AGENTS decide where to list online not REA. AGENTS number in the 1000′s not REA.
We are so happy to see an $80 million dollar swing in valuation prove points we have preached here and are more happy to see AGENTS acting for themselves.
Now is their still a solution for ONE portal owner? Yes and you can still make millions of dollars. Drop us a line.
The real estate agent industry, in Australia, is in a state of flux. The industry for so long protected by it Institutes via lobby to legislators and by the dominance of two portals is now panicking. Australia, against world trends still clings to a commission agents system. This system is now under threat mainly due to vendors becoming “more aware” that they have options. They have options to commision based selling, flat rate discount selling, agent assisted selling, selling themselves and lawyers real estate selling. Sites around the world that are giving new options like matching buyers/sellers and on line brokerage will also emerge in Australia in due course.
What concerns me most about the Real Estate Institutes direction in this country is their apparent desire to set up their own national portal based on solely protecting their “commission based sales model” . They are entering a field of which they know very little, are ignoring the real threats to their “industry” and expect all agents to follow.
This will not succeed as every agent (barring the franchise owned agencies) is a separate business model of their own. Each agent will look at what is best for their own survival. Most are smart enough to know that their Industry Bosses (REIs) do not know their patch as well as they do.
Our capitalist system works best when the options are multiple, when the consumer, the vendor and the agent have choices.
If REIs decide to start up their own “National Portal” then REA will salivate at the prospect of fighting them head on- with 80% of eyeballs as their start point.
Vic,
Business by nature IS always in flux. Successful business models are prepared to adapt to maximize profit potential.
REIs will not be the solution because government intervention is certain to follow any Associations collective actions that could be seen as anti-competitive. Thus an independant Aussie wide solution is needed that is set up from day one as an online portal with ownership shares held by those same independant agents.
If one portal offers a better money making alternative then the smart business owners will follow.
Lewis,
nothing like trying to make a buck by telling people they are being ripped off is there…?
Agents aren’t the only ones with options. REA could sell directly to vendors. People manage to work ebay ok so there’s no reason they couldn’t list their own properties. Whilst agents want to sabotage REA’s business, don’t forget the opposite could also happen.
What Simon has done here is list a number of services REA provides which cost money. If agents want to start their own portal, how do you know it won’t cost as much as a subscription to REA?
Rupert,
Agents will not pay a single cent, ever, if they own the portal. The list of advertisers lined up with check books open, simply to get their products and services promoted on an Agent owned portal is massive and endless.
Lewis, I understand your point of view although, due to the fragmented nature of agency model, I feel it unlikely that the time, passion and finance required to produce something like REA will be to hand.
Do you consider that a profit sharing model may prevail? i.e. a property portal in the ownership of a single company that provides x% of its profits back to the agents that are advertising their client’s properties through it.
In this way the agency community avoids the substantial outlay, retains control and benefits financially…
Yes, Ian,
With the potential revenue streams available to a portal, which has anywhere from 80-100% of all available content, which is 100% accurate and timely, that portal can build a successful model by partnering with Agents.
I mean partner, actually giving them a majority share of the profits. A portal founder could keep a mere 10% of the net profits and return the remaining 90% in equal shares to all Agents directly. Since a portal with this content can generate such massive revenues everyone wins.
Of course the portals ownership or share capital structure would need to ensure the Agents are guaranteed their revenues. As an out strategy, the portal founder could simply sell the portal back the Agents and maintain a royalty similar to the 10% he had previously earned (except he was now on the beach).
We have a complete model designed for this purpose. Of course the sheer power of such a portal also allows for industry leading (breaking through) marketing technologies to be employed, ensuring the portal remains relevant from it’s original purpose as a property portal.
I guess having all 10,000 Agents linking back to the site, promoting the url in all media at every opportunity could be beneficial too
REA wiped out in 6 months.
seems a little fanciful to me. it’s a nice idea but then what if the new site becomes a marketing beast. do you start all over again.
the market place needs to remember the hard work and big spend put in by portals.
nothing is free and if they don’t need the service, they don’t have to advertise.
It will become a marketing beast but since it’s original stated reason to exist is clearly spelled out from Day One, there will never be an issue with the competition problem.
Has the privacy commissioner looked into photo data mining on realestate.com.au yet. Yesterday, Canada’s privacy commissioner launched an investigation on this issue in Canada. Precedence already set and decisions already issued completely support an Agent’s responsibility to control and limit access to this data in Canada along with a legal obligation to inform consumers of the probability this will happen.
I hope the Australian ministry is looking into this issue with realestate.com.au.
the cronies on here this website are full of rubbish
stick to keeping rea afloat
good luck lewis you will beat rea rip off merchants
Twelve months on from Simon’s posting and the so called agent revolt has amounted to zilch. REA still stands as the dominant portal, Domain still at number two and Review has not gained and traction as a truly national portal. A couple of wannabees have entered the market and after some wallowing have all but disappeared. A push for a brand new “agent owned” portal starting along Lewis Nelson’s concept, promoted with a lot of hoopla and went fizzbang before it went on line. Their issue is now how to reimburse the initial investors. So Simon, your predictions were, as usual, right on the money. As a wise man once said “trying to organize agents is like trying to herd cats”
Indeed Vic – what did happen to that new agent-owned property portal that was going to change everything?!! I remember copping a lot of heat from it (yet, it never actually did anything… all just words)
However, I still concur with what I wrote a year ago – depth of feeling against REA is v strong, and things can change (slowly) against an incumbent. Nothing can be taken for granted, and markets are dynamic. All very interesting though!
The link does not even work anymore…