The recent deal between LoopNet and CoStar highlights the potential value that can be created from creating a clear market leader and, equally important, the value that can be destroyed when there are two co-leaders competing heavily in a market.
Companies such as realestate.com.au, Rightmove, immobilienscout24 and SeLoger each have elements in common – they are over 10 years old, established market leadership early, were established independently of the old world (print) and with weak competition, were able to move prices up aggressively and generate high levels of profit.
By having clear leadership and daylight in second place, the result has been high levels of revenues (all over US$100m), strong profits, and high market caps with the REA Group (realestate.com.au) and Rightmove both valued at US$1.8bn, and SeLoger, which was recently purchased by Axel Springer, valued at US$900m.
Where there are co-leaders in a market, value is often destroyed. For example in Spain, Fotocasa and Idealista are both estimated to have between US$28m and US$35m in revenue and are both probably making a slight profit – nowhere near the 50%+ EBITDA margins of Rightmove and SeLoger.
The same can be seen in Italy where the REA Group continues to invest heavily in competing with Immobiliare. They have lost US$6m over the last 12 months (to Dec 2010) in generating US$13.5m in revenues. Clearly this cannot go on forever.
So how is clear market leadership created? There are two approaches – organic or acquisition. For the REA Group, it was through a combination of both strong operational performance from 2002 through 2005 and the acquisition of the number three player, www.property.com.au, in 2004. If the number two player, domain.com.au, had acquired www.property.com.au, the gap between realestate.com.au and domain.com.au would have been closed almost overnight. By acquisition, there was clear daylight created between realestate.com.au and domain.com.au, and this gap is almost impossible to close.
iProperty (ASX:IPP) has managed to use the same approach and create a clear market leadership position in Malaysia. In 2010 they acquired the number two player, www.thinkproperty.com.my and now 80% of all visits to property portals in Malaysia go to an iProperty website. This allows the company to focus on one thing – signing up new customers.
So the question has to be, when will the REA Group acquire Immobiliare (or vice versa) and when will Idealista and Fotocasa merge? PS, rumour has it that Immobiliare recently knocked back a €50m offer by the REA Group for their business.
Simon Baker is the former CEO and Managing Director of the REA Group and the current Chairman of iProperty Group parent company IPGA Limited (ASX:IPP)
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{ 2 comments… read them below or add one }
I think both Idealista and Fotocasa make very decent margins of 30%+ in Spain, so life is not so bad either in a duopoly after all….
Simon, Your comments on Market Leadership are factually correct and should be carefully considered by all portal owners who are considering this technology as a road to riches.
I think the real question is, when will the Agents or their brokerages or their brands not simply become the Market Leader or sole source themselves.
Of course there is a solution for a single portal owner but only the first entering the market with this solution will prevail.
Regards
Lewis