UK real estate agents are facing a watershed, borne out of a crisis, resulting in an urgent need for a long term solution to their loss of control over marketing costs and data aggregation.
It has become apparent in recent months that the relationship between estate agents and Rightmove has become untenable due to ever-increasing fees and a lack of heartfelt compassion in humanity’s darkest hour.
The Coronavirus has had a catastrophic impact on society. People are dying. The economy is being crippled. Homes and jobs are being lost. Key workers are risking their own health and wellbeing for the benefit of others. Rishi Sunak has unveiled a £30 billion package to protect the UK from the economic impact of the virus.
Meanwhile, Rightmove PLC’s contribution was to merely offer agents a deferred payment scheme. Its first instinct was to treat human beings and their livelihoods, the revenue source of the corporate portals, simply as numbers on an accountant's ledger.
This pitiful offer from a PLC with operating profits of over £200 million in 2019 and plentiful cash reserves may well prove to be Rightmove’s “Ratner” moment. It provoked a backlash from UK agents and for many it was the straw that broke the camel’s back, prompting the creation of the Say No to Rightmove (SNTR) campaign that currently represents around 1500 estate and letting agents.
The “good old days” of the original Rightmove are ancient history. Press and agents need to start referring to it as Rightmove PLC for that is what it is. It may be the consumers favourite which is why leaving it is a risky business; no agent can dispute that they are currently the largest property portal in the UK and for most agents they provide the best leads. But whether the decision to leave Rightmove for a competitor is good, bad, or indifferent is irrelevant – what is most relevant is that the net result of portal domination and data control issues will merely shuffle sideways without a radical rethink.
This is a watershed moment, borne of a crisis, and is highlighting the obsolescence of both “limited by shares” and private equity ownership of businesses purporting to be “member” organisations.
Data Aggregation and why it is essential to break the grip of the dominant corporate portals
The reason property portals exist is because searching multiple estate agent websites that cover the same geographic expanse is simply inefficient and always will be.
The original Rightmove offered a solution by aggregating properties from multiple estate agents into a single platform. Initially, there was an implied contract for mutual betterment – agents provided inventory in return for paying fees to this aggregated marketing platform. As soon as Rightmove floated on the stock market, however, that arrangement was irrevocably broken. Then Zoopla, sensing a commercial opportunity, grew through a strategy of acquisition, removed all challenger portals and provided a similar service. Several challenger portals have subsequently emerged, especially in recent weeks, all positioning themselves with a stated policy of breaking this corporate dominance and offering agents a better deal.
Whilst competition to disrupt the stranglehold of Rightmove and Zoopla is welcomed, a direct consequence is that the industry is about to turn full circle back to the pre-Zoopla days; homebuyers will once more be required to visit multiple websites to potentially find their dream home, negating all the advantages of property aggregation.
The optimal solution is of course one single aggregated portal to end portal wars once and for all.
Which Property Portal Should I Choose?
Rightmove PLC dominates the portal sector by a huge margin, followed by private equity owned Zoopla and Onthemarket PLC. However, their propositions and business models have remained relatively static over the years. It should also not be forgotten that Zoopla created the duopoly the industry now finds itself in by ruthlessly eliminating competition; and neither Zoopla nor Onthemarket covered themselves in glory in their initial reactions to the crisis. All three corporate portals ended up being largely shamed into discount schemes of varying degrees of opportunism and generosity.
Inevitably though, any current corporate offers to reduce marketing fees during the Covid-19 crisis will be temporary. As soon as we emerge as an economy from the other side of this crisis the discounts will cease, and subscriptions will have to rise to satisfy PLC imperatives - investor driven increases in revenue, dividends and market capitalisation. Every agent knows that promises have been broken by corporate portals in the past, agent shares have been diluted by cash raises, and revenue always grows at the expense of agents.
Modern platforms are attempting to differentiate; some appear to be providing innovation in what has otherwise become a rather stagnant portal sector, and others are providing solutions built on blockchain.
As much as I admire the entrepreneurs of the challenger portals, the promise of a reasonable fee structure based on inflation or house price indices is merely a good intention and not legally binding. Offering blockchain to decentralise control is all well and good, but if the blockchain containing the decentralised data is privately owned, who legally owns the estate agents’ data?
The so called “free” portals opportunistically want agents to pump them full of monetisable data - the new “digital oil” - and will never generate the marketing budgets to compete with the corporates.
The stark limitation of every one of these businesses is that they are private companies limited by shares, operating as distinct legal entities to their directors and shareholders and offer agents no or limited control over marketing costs and their own data (if that doesn’t ring alarm bells for the future, go and grab another shot of espresso and read it again).
The eagle-eyed agent will also notice that there are “pseudo-mutual” challengers attempting to seduce agents with a “mutual-style” portal and equity inducements whilst apparently operating through a non-mutual legal structure.
Five years ago, Agents’ Mutual and its portal Onthemarket claimed to be different but despite a ruthlessly enforced “one other portal” rule and expenditure of £90m it failed to replace Zoopla. Their financial model proved unpalatable for too many independent and larger “corporate” agents resulting in the Board rejecting its founding principles in favour of de-mutualisation and a flotation on AIM.
The Covid-19 crisis has surely helped agents to understand, in unequivocal terms, that a commercial business, limited by shares, has to be shamed into offering short term protection and offers zero long term protection in times of crisis. We have already seen what happens when estate agents feed the behemoths of the portal sector with their hard-earned cash and loyalty; the portals use their dominance in the sector to squeeze upwards only subscriptions out of agents to satisfy those who are ultimately in control – the external shareholders.
From an agent perspective, regaining control of their costs, data and more importantly their industry does not simply involve moving sideways to another privately owned platform. That is not a long-term solution and agents and consumers will once again find themselves trapped further down the line with multiple confusing choices.
Maybe one of the challenger portals will get rich quick if Zoopla repeats its previous acquisitive behaviour and takes out any competition as soon as it gains momentum in order to reinstate its dominance with Rightmove?
Yet if agents continue to accept the status quo we have truly arrived at the definition of madness:– repeating the same mistakes whilst expecting a different result.
Say No to Rightmove PLC - and other Non-Mutuals
Robert Sargent, head of a London estate agency, recently launched the SNTR campaign. It was encouraging to see that agents were finally taking collective action to combat the ever-increasing fees of Rightmove PLC. But surprisingly (considering the traction the campaign has received), the strategy appears to revolve around short-term objectives based on corporate fee reductions and lacks a long-term vision for the industry.
In recent correspondence issued by the campaign, Sargent indicates that the campaign’s objectives are to collectively pressure Rightmove PLC into changing their pricing ‘regime’, and he encourages support of another PLC, Onthemarket, of which Sargent and other SNTR campaigners are also shareholders.
In developed economies, oligopolies tend to dominate the economy as the perfectly competitive model is of negligible importance for consumers – we all know consumers love Rightmove PLC. For agents, however, this matter is of crucial importance. With two corporate portals already controlling their costs and data, what possible benefit is to be gained by giving additional control to another AIM listed corporation in the form of Onthemarket PLC?
Mr Sargent points out that Onthemarket PLC is currently “circa 60% agent-owned by shareholding”, but fails to point out that Agents’ Mutual Limited is a wholly owned and controlled subsidiary of Onthemarket PLC. Institutions and members of the public can buy shares in Onthemarket PLC just like they did with Rightmove PLC. Go figure.
I congratulate Mr Sargent for becoming the figurehead of long overdue collective action by agents. But as a founding member and shareholder of Onthemarket PLC I believe it is incumbent upon him to impartially set realistic expectations and thoroughly examine all alternatives to the current status quo.
It is naïve to think that Rightmove PLC or Onthemarket PLC is under any obligation, nor should it be, to consider itself the agent’s friend. I believe it is misleading to propose that any PLC Board should feel obliged to acquiesce to the demands of a pressure group to reduce its revenue. Agents sold that right, like Turkeys voting for Christmas, when they voted to sell ownership of these businesses to the public and institutional investors.
The primary purpose of both PLC’s is to increase revenue, dividends, and market capitalisation, year on year, for their investors. The fact this process happens to be at the expense of estate and letting agents is irrelevant and unfortunately a situation of agent’s own making. PLC’s are not the agents’ friend, at any price.
The Proposal - A Long-Term Mutual Strategy
The only way for agents to truly control their marketing costs, data and protect their future is to take collective action, change their behaviour and mutually own a single platform where each agent firm is equal and there are never external shareholders. The only viable long-term strategy to achieve such a vision is to join an agent-led, never for sale, mutually owned (legally structured as such) and mutually funded (by agents) portal/marketplace.
But how can a legitimate mutual successfully raise enough finance to sustain its growth over several years from start-up, through critical mass to long term sustainability? And who would manage the development of a mutual platform whilst seeking additional ways to generate revenue for its members?
My solution is a hybrid mutual/commercial partnership between two companies, whereby the mutual Ltd ("the Mutual") is limited by guarantee and the commercial service provider ("CSP") is limited by shares:
This legal structure is transparent, independent, and puts agents back in control. The soft-launched PropertyMutual.com platform already provides a fully functional property search platform for residential, commercial, agricultural and overseas properties whilst providing basic lead generation for estate agents.
In its current form it provides a solid foundation to start mutually shaping and building the next-generation property platform in co-ordination with UK agents.
The end-result might be a single marketplace which provides a gateway for estate agents to earn additional revenue. It might ultimately incorporate blockchain. It might send traffic back to estate agents own websites or regional mutual hubs. It might use Geolocation. It might integrate with social platforms and other property API web services. It might ultimately discard subscriptions if alternative revenue can be generated for the benefit of the Mutual by the CSP. It might adopt the latest technology or create partnerships to maintain more ‘social distancing’, ie ‘smarter’ CRM systems, virtual tours, digital conveyancing, Ai based valuations systems etc. But importantly, the development of the platform will be moulded exclusively by the mutually owning agents, informing their Regional Representative, informing their Regional Board Director.
The possibilities are endless and could include joint ventures with other PropTech businesses offering technology of benefit to our members, so I am not advocating another monopoly. The key difference is the financial and technological benefits will be retained inside the Mutual for the benefit of its members, not external investors or third parties.
The strategy of leaving corporates for a mutual offering will never be a seismic shift – more so a considered, gradual transition of continuing to use the corporate platforms in parallel with the Mutual platform until the day that the Mutual members are generating meaningful leads.
The volatility created by Covid-19 has created a watershed moment for our industry. It is a wake-up call to remind us that our costs and data should no longer be controlled by large corporations, plc’s, and shareholders. It is also the once in a decade opportunity for agents to mutually back their own single, independent, aggregated platform and end the portal wars for good.
As Jefferies.com stated last December in their detailed analysis of the property portal market: PropertyMutual is "an incredibly disruptive blueprint that would take the agency-portal relationship all the way back to its pure-play mutual roots".
Andrew Goldthorpe MRICS, CEO PropertyMutual.com
(firstname.lastname@example.org) 07709 461597
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