Yesterday we looked at why the Australian online real estate market structure changed dramatically from September 2000, when domain.com.au last had more unique visitors than realestate.com.au, to today where realestate.com.au (the REA Group) dominates the market place and is valued at over US$3.4 billion.
This second part of the article looks at what Fairfax can do to really take on the REA Group.
Float of The Domain Group
The first and most important thing that Fairfax should do is float domain.com.au and its sister companies – APM and Commerce Australia. APM is one of the leading real estate data companies in Australia while Commerce Australia is one of the leading CRM systems for the real estate industry.
There is a clear precedent for putting these types of business together in a listed vehicle. OnTheHouse recently floated on the Australian market and, while much smaller than domain.com.au, has a market value US$55 million. There are also overseas examples of these types of companies being put together including Seloger in France who also owns Pericles, a software company.
There are clear benefits from being a listed vehicle:
Zoopla is a great example of a business that has used acquisitions (and thus consolidation of the market) to create a viable #2 in the UK market.
There are a number of opportunities in the Australian market for domain.com.au t0 consolidate smaller players and therefore creates a more competitive number 2 to the market leading realestate.com.au.
The clear consolidation options would be:
One area that should be explored is signing up agents as shareholders or issuing equity to agents. Historically it can be seen that when agents have access to equity they can tend to favour advertising on that vehicle. In the UK, Rightmove started life as an agent owned but independently operated website.
Given the inherent agent dislike within the Australian market towards the REA group and its perceived high level of charges, there may be an opportunity to leverage this undercurrent to divert some of the discretionary advertising spend towards an independent domain.com.au site.
This will also play on the fact that the Ray White group captured significant equity upside by investing in realestate.com.au (the REA Group) at $0.23 and selling out at around $6. Many agents feel they missed out on this opportunity and could potentially want equity in a new listed vehicle.
Build a Marketing Leading Team
Domain has to do is to build a high quality focused team. While it could be argued that today there are many strong and capable employees within domain.com.au and its sister companies, the reality is that this team has over the years been unable to close the gap with realestate.com.au. Being part of a traditional corporate such as Fairfax, it is hard to attract top talent and provide them with an entrepreneurial and exciting environment. The other challenge is that within the traditional corporate's, quality people often get reassigned to the traditional businesses in an attempt to prolong those revenue streams.
By leveraging equity and a more entrepreneurial stand-alone environment, domain.com.au should be up to attract higher quality experienced online real estate personnel including many existing and former REA group employees.
Tap into the Market Discontent
When you talk to agents and franchise group operators in the Australian market, there is a clear level of discontent with the amounts being charged for both subscriptions and premium products by the REA group.
This discontent should provide domain with an opportunity to position itself as the friends of the agent and to help it capture a greater share of the Australian market. Of course, being a separate listed vehicle with the ability of agents and developers to freely take an equity stake, would make it easier for them to position themselves as the friends of the industry. This is the position that the REA group once held.
The listing of domain.com.au and its sister companies is likely to create a new paradigm in which there is a chance that they can improve their overall position in the market and provide much greater competition to the REA Group juggernaut.
I guess the real question is not whether Fairfax can truly take on the REA Group, it is do they have the strategy and the courage to execute that strategy in a way that they haven't shown to date.
While there are no certainties in life, except for death and taxes, it is safe to say that if Fairfax continues down the same path that it has for the last 12 1/2 years, it is likely to continue to achieve the same outcome.
Simon Baker is the former CEO and MD of the REA Group. In 2000 he did the deal for News Corp to take at 42% stake in the REA Group. Between 2001 and 2008 he was responsible for turning the business around growing revenues from $4m to $155m, turning a $6m loss to a $35m profit, and growing market cap from $8m to a high of just under $1bn.
Today Simon invests in and provides strategic and operational advice and guidance to a range of property portals around the world. He can be contacted at [email protected]