The Australian yesterday reported that the Real Estate Institute of Australia is planning to launch a website to collate property sales data and, ultimately, compete with realestate.com.au, domain.com.au and the many others. It’s a move by independent real estate agents to take control back of a key traffic generator for their businesses – online advertising. While the move is likely to be too little too late, it’s the arrogance of a major competitor which caught my eye in the story:
Realestate.com.au chief executive Simon Baker said those price rises were justified because they corresponded with the much higher rises in site traffic and property listings.
Mr Baker said the group was not concerned about the prospect of an industry-led site because it was unlikely REIA would be able to obtain enough capital to adequately fund a new sales portal.
The Australian is published by News Limited which owns 53% of realestate.com.au. Baker is wrong to justify price rises of 10% a year on traffic generated by the site. The Internet is not a place where such old school justification of price rises is accepted. Online shoppers do so because online costs are less. Price rises ought to reflect real price rises experienced by the supplier and not what they think they can get away with.
By allowing online advertising sites to grow unchecked as they have, real estate agents have lost control of traffic to their doors and this makes them vulnerable. If Australia follows the US there will be a move to cut real estate agent commissions through better online functionality. Just as happened with online travel portals taking business form travel agents. Why will I be happy to love, say, $10,000 to a real estate agent when I can use an online ad portal to take care of the main work for less than 10% of that?
To compete with the power of realestate and domain, the agents need to offer new and exclusive functionality. It’s not just about price as the story in The Australian suggests – offering cheaper ads will not work. The agents need to leverage their intellectual property to their advantage.
The disruption faced by real estate agents is similar to that faced by newsagents. Both are old world bricks and mortar businesses made up of independent business people often too busy running their businesses to see the tsunami of online driven disruption which threatens to impact business as they know it. Good on the REIA for acting on this. It’s more than we are seeing from newsagents. However, their reaction will need to be faster and smarter than current reports suggest.
The challenge is that real estate agents and newsagents rely on long term big business partners who are no actively competing against them. This issue is the elephant in the room no one wants to talk about – how dare we speak ill of a supplier competing with us for fear they will go harder. The reality is that News and Fairfax are competing with real estate agents, they are a huge threat to the model real estate agents operate under. Likewise with newsagents. Fairfax and News will do what is right for their share price – meaning that newsagents and real estate agents must do only that which is right for their profitability.
The REIA approach is interesting, though completely dependent on the total commitment of its members. They have a ‘me too’ offering, without the funds to create a differentiated brand; their differentiator will be in member support. The likelihood of a large number of members agreeing to commit spend to their portal is low, and in the light of a competitive response from the publishers, its future is vulnerable.
Paul the best way for REIA to compete is for them to reinvent their offering from the storefront through to online. They should use the dominance of realestate and Domain to drive rebuilding of their model. What I hate is the arrogance of the big players – oh look, we’re so big you new guys can;t compete. Maybe so, but there is no credit for being so arrogant.
Nelson given my transparency there is no conflict. I do not own any Internet company. I do gain an insight from my newsagency and this does lead to better Tower software. It’s why I bought the newsagency. None of my businesses is that big so I’d say I’m a small fish. It’s up to others to judge whether I am arrogant. regardless of labels, I’ll fight for newsagents as they are important to the very fabric of Australia.
Nelson, a bit rough maybe? Several enterprises doesn’t make Mark arrogant. Who isn’t trying to make their business more propfitable? He appears to me to be fighting for all newsagents big and small, as the issues are generally across the board regardless of size. I say good on you Mark for bringing some of these day to day issues out in the open, as well as trying to inform about the future technology impacts etc.
Nice post, Mark. You certainly have a right to raise questions-no matter how many businesses you own.
Transparency: I work at realestate.com.au.
No one likes a price rise, that’s for sure. We don’t like the ones we have to pay. And when we have to raise our prices, our customers don’t like it either.
That’s why we focus on providing more and better leads from us than ever before, at a price much cheaper than print, which still gets most agent marketing money.
However, it’s important to recognize that price rises are necessary. We have to invest in this business to continue to be effective for agents. The internet is an unforgiving place.
Dave, There is no doubt that realestate.com.au dominates the marketplace. My concern about price is that for several Aussie portal sites now the costs are growing faster than the actual costs. For example, server and bandwidth costs have come down in the last three years. Only wages and offline marketing has increased. By building an online business purely online your more easily able to contain costs and pass the benefits on to adveretisers. Mark
Mark, thanks for that note. I think you’d be surprised to learn that technology costs are actually a small portion of the expenses at a business like realestate.com.au.
You hit the nail on the head when you highlighted employee costs, which account for more than half of our expenses. I’m going out on a limb here because I don’t work in that part of the biz, but I would hazard that servers could be free without having much of an impact on our cost structure.
The big things we’re spending money on in 2007 are designed to ultimately create more, good leads for agents. I think everyone will be happy with the things we announce, as we do so. But, they cost a lot of money!