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.
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.