How property portals are expanding offerings across the value chain

Big property portals around the world have built their businesses off of advertising.

Much like the classified sections in the newspapers they replaced, portals like Zillow Group in the U.S. and Rightmove in the U.K. offer the most prominent way to advertise properties for sale.

But in an effort to grow their revenue streams and provide more value to consumers, many of the portals have added other verticals in addition to advertising, looking to develop other services a homeseller or homebuyer might need. They are expanding across the value chain.

One of the big areas of focus over the past few years has been valuation and data services.

The first step in many homeselling journeys involves a home value estimate. So, many portals have begun offering this information to consumers through automated valuation models (AVMs), a computer-generated model based on a mix of publicly available information and portals’ listing data. Zillow’s Zestimates are a good example of this.

While I was serving as head of strategy at the New Zealand property portal and classifieds site Trade Me, we invested in Homes.co.nz partly for this reason. Trade Me recently launched Property Insights, which offers home valuations for properties across New Zealand. It was a calculated, strategic move to expand the value offered to consumers beyond advertising and increase overall value in the market in the process.

Here’s how the big property portals in the U.S., U.K., Australia and New Zealand have expanded across the value chain. By tracking past and current trends, some commonalities emerge. Based on these, I’ll also suggest future ones.

Current verticals where portals are expanding their focus

Data and valuation verticals have been a key area for portals for the past few years.

In addition to Trade Me’s efforts, Zoopla announced a partnership with property research startup Property Detective earlier this year, Zillow has had its Zestimate since 2006, and REA Group launched a tool to show estimated home values for all properties in Australia in 2015.

Home services and repairs is also a big area of focus — and potentially lucrative. Many of the big portals are making moves into this space, with marketplaces that connect tradespeople with homeowners that take a clip of the ticket along the way.

In December 2015, News Corp. (REA Group’s parent company) paid $40 million for a 25 percent stake in HiPages, an Australian online marketplace for tradespeople.

And just a few months later, Fairfax Media’s Domain Group (the no. 2 property portal in Australia) acquired a 35 percent stake in Oneflare, a similar tradesperson marketplace, for $15 million.

Antony Catalano, CEO of Domain Group, told startupdaily.net that the investment is “part of our strategy to broaden our offering to consumers and agents across the property lifecycle, into home improvement and local trade services.”

It’s also a huge revenue pool, with both businesses tapping into a $100 billion local services market in Australia.

If we go back to the color-coded chart above, I wouldn’t be surprised if a few of those reds in the home services category flip to yellow or green over the next 12 months.

The rationale for expansion

At Trade Me, one reason for our desire to expand across the value chain was to extend and expand our relationship with consumers outside of the actual homebuying and selling experience.

If the utility a property portal provides consumers occurs on a more regular basis, then the consumer is more likely to come back to the portal when it’s time to sell their home and buy another one.

Growing revenues is another motivating factor when looking to expand. Many property portals see a relatively limited runway of growth in the core advertising business. Once they mature and capture a large market share, what else is there to do but slowly raise prices over time?

Expanding into adjacent services that complement the core advertising proposition makes sense.

It provides consumers with more value, streamlines the entire process and allows the property portal to tap into new revenue streams.

Another key reason for the desire to expand — and a bit of a dirty little secret — is that it’s exciting!

If there are a bunch of Type A personalities running a property portal and setting strategy, it’s quite boring to travel the same track and look for small, incremental efficiencies. It’s sexy and exciting to try new things, especially for the types of individuals in these positions (and I’m just as guilty as the next person).

The Rightmove situation

Unless you’re color-blind, you might notice that the Rightmove column in our chart is nearly all red, meaning it hasn’t expanded across the value chain.

“But wait,” I can hear you asking, “isn’t Rightmove a global leader in the property portal space?”

It is, and as I discussed in my previous article on the investment strategies of the major portals, it has a narrow and focused strategy on its core advertising proposition.

Zoopla, the No. 2 player in the U.K. market, has the opposite strategy. It aims to be the one-stop shop for consumers, aggressively expanding across the value chain in the process.

So we have the top two players in the U.K. with completely different strategies. We should be able to see which approach is the winning one, right?

My analysis leads me to believe that Zoopla’s strategy is a result of its market position, rather than the cause of it. In other words, because Zoopla has always been the no. 2 underdog in the market with its potential of dislodging Rightmove extremely unlikely, management opted for an alternative strategy to differentiate its offering.

So in the end, there is no clear winning strategy. Or rather, both are winning strategies. But what is clear is that the big portals focus on their core proposition and completely nail it before expanding across the value chain.

Future focus areas

If I consider future trends and where the big property portals are and will be spending more effort, two emerge: the mortgage and insurance space.

Zillow Group does a great job of this with its mortgage rate comparison service, and Zoopla made a big move in the space with its £160 million acquisition of uSwitch (which has a mortgage comparison service) and its investment in startup Trussle to speed up the entire mortgage process.

These two areas represent the biggest potential revenue pools across the entire value chain. Everyone is talking about them, but not everyone is doing something in that space. It’s difficult to execute on because of the inherent complexity and well-established incumbents.

During my time at Trade Me, we launched a big effort in the insurance space with Trade Me Insurance. We partnered with an existing player in the market and worked together to launch a Trade Me-branded insurance product. It was a considerable undertaking and represents a big, long-term bet in insurance.

Where to place your bets

Another way to view the value chain is as a roulette wheel. If you’re a property portal, startup or VC investor, where should you place your bets?

I would do three things:

• Place the biggest, long-term bets on mortgages and insurance. It’s the biggest revenue pool and ripe for new solutions that reduce friction. Property portals are ideally placed close to the transaction where they can add real customer value.
• Place the second-largest, short-term bets on home services and repairs. The Australian market is locked up with REA Group and Domain active in the space, but there’s still room for a big property portal tie-up in the U.S., U.K., New Zealand and Canada.
• Stay away from other categories like moving, home inspiration, agent profiles and conveyancing. These all sit on smaller revenue pools, face strong competition from global giants (Houzz), or offer limited value to consumers from a property portal’s perspective.

Expanding across the value chain is a smart strategy that will continue in mature and emerging markets for the years to come.

There will always be outliers — like Rightmove — but for now, it is the exception to the rule.

Mike DelPrete is an adviser and consultant who lives in Bolton Landing and works in New York, LA, San Francisco, London and Amsterdam. Connect with him on LinkedIn.

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