This all-new, global research takes a deep look into the future of real estate portals. The focus areas include portals’ expansion into adjacent revenue streams, closer to the transaction vs. more of the transaction, a deep dive into Rightmove’s growth dilemma, the implications for investors, and more.
2. Real estate portals are big, multi-billion dollar businesses.
This report takes a look into the future of these businesses
as they evolve from search engines to service engines.
I focus on the challenges, threats, and opportunities that I
believe portals will face during the coming years. As with
all of my work, I provide critical thinking combined with
evidence and data to support my positions.
I come from the industry, as the former head of strategy
at a major real estate portal. Now I travel the world
engaging with leading portals and real estate tech
businesses, working on strategy, sharing insights, and
helping them grow.
Mike DelPrete
June 2018
An introduction
3. The Future of Real Estate Portals Report
Setting the stage: revenue and growth
Adventures in adjacent revenue streams
Closer to the transaction vs. more of the transaction
The Rightmove dilemma
The top threats to portals
Crossing the Rubicon: portals vs. agents
What all real estate portals need to prosper
Implications for investors
Appendix 1: Product development prioritization framework
Appendix 2: Depth listing product strategies
05
14
34
51
73
81
94
103
108
116
4. The railroads are in
trouble because they
assumed themselves to
be in the railroad business
rather than in the
transportation business.
— Theodore Levitt, 1960
“
”
6. Real estate portals are big businesses globally.
Source: the last publicly available, full year financial results. Zillow Group EBITDA is actual, not adjusted, for an accurate comparison.
7. The portals are incredibly profitable, especially in
mature markets.
Note: I am reporting Zillow’s EBITDA margin and not its typically reported “Adjusted EBITDA,” to provide an apples-to-apples comparison.
8. #2’s in their markets
Global leaders
Annual revenue growth is strong in the U.S. but
mixed elsewhere.
Source: the last publicly available, full year financial results.
Wow!
9. Real estate listing revenues for portals are simple
to understand.
Revenue = Yield ($) x Customers (#)
• Yield, also known as average revenue per advertiser
(ARPA), measures the amount each customer pays
monthly.
• Portals increase their core listing revenues by
convincing customers to pay more (price rises or
new products), or by acquiring new customers.
• In mature markets – namely the U.K., Australia, and
New Zealand – the portals have reached customer
saturation. No new customers.
10. The main lever for revenue growth is increasing
yield (ARPA). But ARPA growth is declining.
Note: All comparisons are annual, except IS24 (which is quarterly). Annual ARPA growth at IS24 is 2.1%
11. The trend is even more pronounced in the U.K.
Portals can only raise prices so much each year.
Source: annual reports, investor presentations.
12. In the U.S., Zillow’s Premier Agent business is still
growing, but growth is slowing.
Source: annual reports, investor presentations.
13. Portals still generate most of their revenue from
agent listings; not much diversification.
Note: Zillow Group revenue is from Premier Agent, the equivalent core agent advertising business.
16. Activity across the value stream is varied by
portal, with some common trends.
Home inspiration
Home services
and repairs
Valuation and
data
Agent profiles
Mortgages
Insurance
Conveyancing
Moving
Utilities
17. Home inspiration
Home services
and repairs
Valuation and
data
Agent profiles
Mortgages
Insurance
Conveyancing
Moving
Utilities
Rightmove and Zoopla have taken opposite
diversification strategies.
18. Home inspiration
Home services
and repairs
Valuation and
data
Agent profiles
Mortgages
Insurance
Conveyancing
Moving
Utilities
Most portals start their diversification strategy
with valuation and data services.
Low-hanging
fruit and very
much related to
the core portal
business.
19. Home inspiration
Home services
and repairs
Valuation and
data
Agent profiles
Mortgages
Insurance
Conveyancing
Moving
Utilities
Mortgages and insurance have the biggest
revenue pools, but are also difficult to get right.
Easy to justify in
a spreadsheet,
much harder and
expensive to
execute.
20. Runner-up portals have diversified their revenue
streams more aggressively, out of necessity.
Listing
Revenues
% of Total
REA 84%
Domain 47%
Rightmove 76%
Zoopla 25%
Revenue Diversification
#2 in Australia
#2 in U.K.
21. Generally, adjacent revenue streams carry much
lower profit margins than classified listings.
Listing
Revenues
% of Total
EBITDA
Margins
REA 84% 66%
Domain 47% 35%
Rightmove 76% 76%
Zoopla 25% 39%
Revenue Diversification and Profitability
22. Adjacency revenues are still small and expensive
to start-up. Expansion comes at a (big) cost.
Revenue EBITDA
Revenue
as
% of Total
EBITDA
Margin
REA
(Financial
Services)
$13.2 million $5.7 million 3.4% 43%
Domain
(Transactions)
$11.1 million ($1.7 million) 6% (15%)
Domain (Transactions) consists of utility comparison and switching, Domain Loan Finder, and Domain Insure.
Revenue Adjacencies: REA vs. Domain (H1 2018)
23. Zoopla is the global leader in diversification. It’s
portal only accounts for 25% of revenues.
It’s important to note that
Zoopla:
• Spent a lot of money
on acquisitions (£450
million).
• Targeted existing
businesses with proven
product/market fit.
• Executed its strategy
well.
Source: MDP estimates based on FY 2017 financial reports, disclosures, and investor presentations.
24. Zoopla has integrated its acquisitions well, but
the synergy value is unclear.
• The key question in Zoopla’s diversification
strategy is: How much are the businesses
benefiting from cross-sell synergies?
• In other words, are the acquired businesses
growing faster than they would have as stand-
alone businesses?
• Two measures to look at are revenue growth
and lead generation growth post-acquisition.
25. The comparison business saw a revenue uptick
immediately after acquisition, before slowing.
+38%
+10%
+17%
Zoopla acquired its comparison business in 2015,
and its 2015 results include 4 months of revenue.
Modest revenue
growth after a
promising start.
Source: ZPG financial results and investor presentations.
26. New lead generation has slowed significantly,
showing little sign of a direct traffic benefit.
Note: this is a like-for-like new lead comparison, and doesn’t include pro-forma leads from mid-year acquisitions.
27. In the case of Zoopla, the verdict is still out on the
synergy value.
• While I’m sure there is synergy between the
businesses, it’s not what I would call a
runaway cross-sell success.
• There is modest growth, but it’s not clear if the
source is organic or inorganic.
• I would treat any cross-sell synergy as an
added bonus, not a given. The core business
case should stand on its own merits!
28. Closer to the transaction vs.
more of the transaction
29. In their efforts to diversify
revenue streams, real
estate portals are moving
closer to the transaction
and doing more of the
transaction.
30. The strategy is multi-dimensional. Real estate
portals are operating along two axes.
Closer to the transaction
Far from the transaction
More of the
transaction
Less of the
transaction
31. Portals began focused on property advertising, but
many are expanding across the entire transaction.
More of the
transaction
Less of the
transaction
Property
advertising
Agent
profiles
Valuation
& data
Home
services &
repairs
Home
inspiration
UtilitiesMovingInsuranceMortgages
32. The classic classifieds model stays far from the
transaction, only connecting buyers and sellers.
Closer to the transaction
Far from the transaction
A true marketplace: connecting
buyers and sellers.
Part of the transaction. Intimately
involved with buyers and sellers, or
actually buying and selling inventory.
33. As portals move closer to the transaction, they
move closer to consumers, displacing agents.
Closer to the transaction
Far from the transaction
More of the
transaction
Less of the
transaction
Closer to consumers
Closer to agents
34. Marketplace businesses are high-margin and scale
inexpensively. Expansion is less scalable.
Closer to the transaction
Far from the transaction
More of the
transaction
Less of the
transaction
Low Margin,
Less Scalable
High Margin,
Highly Scalable
35. At 130 slides, the full report covers:
• Closer to the transaction vs.
more of the transaction
• The Rightmove dilemma
• The top threats to portals
• Crossing the Rubicon: portals
vs. agents
• What all real estate portals
need to prosper
• Implications for investors
• Appendix 1: Product
development prioritization
framework
• Appendix 2: Depth listing
product strategies
If you’d like to read more, please
buy the full report!
Buy Now!
$500 for individuals, $2,500 for corporates
37. I’m a strategic advisor and global expert in real
estate tech. I’m a former CEO, tech entrepreneur,
and head of strategy at a major real estate portal.
I’ve travelled the world talking to and working with
leading property portals and real estate tech
businesses, gathering first-hand knowledge and
insights on industry trends and themes. I advise
corporates, work with startups, mentor founders
and executives, and work on challenging
entrepreneurial projects.
• www.mikedp.com
• Mailing list
• mdelprete@gmail.com
About the author: Mike DelPrete
38. I’m involved with a number of ventures across the
industry, and always happy to chat.
Consulting
I’m leading the University’s new
Real Estate Tech program, one of
the world’s first. Let’s talk about
how we can collaborate.
I’m managing director for the
Boomtown Real Estate Tech
Accelerator. Let’s talk about how
we can help launch your early-
stage business.
I’m a sought-after strategy and
new ventures consultant. Let’s
talk about how I can help you or
your business.
39. My other industry reports
A 190+ slide presentation where I take a
global view of emerging models in real
estate that are changing the way consumers
buy and sell houses. It’s a data-heavy,
representative scan of the market that pulls
out facts, highlights insights, and draws
conclusions.
An evidence-based, 100+ slide presentation
looking at the top real estate portals from
around the globe. It gives an illuminating
view of best practices, emerging trends,
growth strategies, and common insights and
challenges.
40. The Adventures in Real Estate Tech Book
Adventures in Real Estate Tech is a 110-page
collection of my past insights, analysis, and articles
from 2016 to today. My work offers a data-rich,
evidence-based analysis of real estate tech, with a
healthy dosage of strategic insights. I cover the trends
that are changing the industry and the major players
gaining traction around the world. The scope is global,
because we all have a lot to learn no matter where we
live. Order a copy today!
