Funda has been a great success since its launch in 2001, despite or maybe even thanks to its co-op style setup.
Real estate agents in the Netherlands are suffering dearly from the housing crisis, with their fees linked to transactions and property prices, both of which are down. To make matters worse, price pressure has also eroded their commissions since 2008. Agents' fees are anyhow low in the Netherlands, typically between 1.0% and 1.5% of the sale price. This wasn't much of a problem for agents when properties sold quickly. But recently agents have been forced to ask part of their fees upfront, providing necessary cash flow.
Yet real estate agents have always had a strong position in the Netherlands, with more than 90% of home owners employing an agent to sell their property, a much higher figure than in nearby Germany, France and Belgium. This hasn't changed much over the past two decades despite the rise of the internet. Home owners typically engage one agent as the sole broker to sell their property. This is a gift to property portals, as it allows them to publish full address details on their websites, with meaningful map presentations. This strong position of agents may be somehow linked to their education level: Dutch real estate agents are well trained, and a large majority is affiliated in one of three trade associations, which maintain rather serious entry level examinations and require yearly refresher courses. And although competition between agents is fierce, there is a strongly felt comradeship between agents of the same trade body, with equal animosity between those who are not. NVM, the Dutch Real Estate Agents Association, is the largest and oldest of the three, with a 70% market share among agents in the Netherlands. It stood out, from an international viewpoint, in that it had always invested heavily in its property database, establishing a comprehensive national database as early as 1979.
NVM was early to the party too when the internet came up in the late nineties. It had been experimenting with a properties section on its website since 1997 and was positively surprised by the enthusiasm it generated from consumers. However, at the start of the millennium, with the internet craze at its peak, NVM decided to change tack: seeing the winner-take-all effect of the internet, with Amazon and Ebay as the prime examples, it decided to spin off the properties section and relaunch it under a new name. It explicitly opted for a name with no preconceived meaning, funda, and placed the company at a suitable distance from its own organisation, on a commercial footing, with an external shareholder, publisher Wegener, and offices in Amsterdam.
Although funda had aggressive revenue and profit targets, its setup was inspired by the cooperative model. That’s not surprising, as the Dutch love cooperatives, with almost 20% of economic activity in the Netherlands generated through cooperatives. The funds to start the business, approximately 10 million euros, were brought together by 500 NVM agents, who each received a share in the business, NVM keeping the controlling stake. These same agents would in time also become the prime customers of the business.
Funda was launched early 2001 and quickly became market leader, reducing the Telegraph newspaper affiliated property portal, woonkrant.nl, to a second tier role. Funda had preferred access to NVM members' listings, however, in the early years agents weren't very keen to publish their listings online. And when they had finally decided to list online, they refused to publish any photographs. Funda encouraged them to upload photographs by rewarding them with a higher ranking in the search results list, a trick the company has used ever since. Moving quality content to the top is all too common with search engines and community forums, but rarely used by property portals. But funda's success was as much the result of its relentless focus on usability, introducing several interface designs that have been copied by many websites since, such as its solution for faceted search.
￼In the early years, the company generated most of its income from banner ads from third parties, but realised soon enough that it was easier to generate money from agents. The operating agreement with NVM didn't allow funda to charge for listings, which led the team to employ the freemium model, charging for top listings and other upgrades such as videos and panorama views. Upgrades were always charged on a per-property basis, allowing agents to pass the charges on to their customers.
The company has always had a strong bias towards the for-sale market, at the expense of rentals. This mirrors the portfolio of the NVM membership. But more important, the rentals market in the country is tiny by any standard, as most rentals are social housing properties, leaving only 10% of the housing stock for free market rental properties. More information on the structure of the Dutch property market can be found in the accompanying article 'The Netherlands underwater: from boom to bust'.
Funda's setup, with shareholders doubling as customers, sometimes led to tensions in the company's governance. Why should funda have to grow its revenues and profits, when these were largely generated from its shareholders, the agents? NVM had not ventured into starting funda as a disinterested financial shareholder. On the contrary, it had always been very clear that it intended to deploy funda to further the interests of the association and its members. Its approach to funda had always echoed NAR’s to Realtor.com. And although Rightmove's early shareholders were estate agents too, they had never aspired to such goals.
Conflict arose in 2007, when the funda team decided it was necessary to open the website for listings from agents not affiliated with NVM, something NVM wasn't so sure about. Start-up Jaap.nl had very quickly become very popular with properties crawled from agents’ websites and its catchy slogan ‘more properties for sale than funda’. Funda had also overstretched itself with a range of expansionary activities, including an international rollout and a design furniture website, which took away the focus from its core business, eating away its profits. Eventually, early 2008, a new leadership team was installed at funda, and the conflict was resolved in a classic Dutch compromise: funda would slowly but surely open up shop for other agents, always ensuring that NVM agents received preferential treatment. Jaap.nl quickly lost its edge.
Funda terminated a range of non-core activities and continued with a focused strategy, investing strongly in product improvements. Funda was leading with its interactive floor plans, its early experiments with augmented reality, its early adoption of larger sized photos and full-screen panorama photos. Funda added recently-sold properties and introduced agent reviews. The company also put a lot of effort in mobile, launching a suite of popular applications for iOS, Android and Windows. Finally, funda worked hard with agents to do its bit to get the property market on the rails again by launching a home swapping service.
The company has grown very successfully in this last phase, from 11m euros revenues in 2008 to 20m in 2012. Traffic doubled in this period, thanks partly to strong mobile growth, as did the team, growing to 70 employees. The company won the category award for best website in the Netherlands five times in a row from 2008 to 2012. And funda's market position in the Netherlands is unique: no other property portal has such a strong lead over its competitors, according to the analysis of the World's Dominant Portals.
Funda has always placed a high value on investing in improving its website, rather than maximising shareholder returns. This was possible, even desired, because its shareholders weren't pushing for short term profits. Even so, funda's earnings (EBT) have grown to 8m euros in 2012.
In 2012 Mecom, owner of minority shareholder Wegener, published its intention to investigate divesting its share in the business. This resulted in a share buy-back earlier this year, leaving only NVM and a group of real estate agents as owners. Even though NVM has signalled not to desire a change of plan with funda, several outsiders have voiced their concerns.
Time will tell what the future brings, but funda’s prospects are certainly good. First, there is ample opportunity for further market penetration. Funda hasn’t exhausted its options for selling more upgrades to its agents and their customers. The current product portfolio is rudimentary, and bundling and cross-selling would surely benefit the company. Next, funda could add real estate categories to its portfolio, such as student housing, retirement homes, self-build homes, serviced offices. Finally, there are many opportunities to branch out, servicing home seekers after they’ve found their new home, offering them services in the areas of financing, renovating, moving, styling, etc.
And there’s plenty to wow home seekers in the next few years with sexy product improvements. First, the online viewing has quite some way to go before it is as good as, or better than a real viewing: home seekers want to be able to hear the creaking of the stairs and the noise from the street. They want to see how the sun lights the house and garden from dusk till dawn. They want to be able to move through the home looking in any direction they want, seeing the property with the furniture, flooring and colourings of their choice. Second, crunching ‘big data’ from users and external sources will allow for all sorts of new applications, providing home seekers with answers to questions like: which area in Amsterdam is like Notting Hill Gate in London? What will my home cost in maintenance and refurbishing? And of course, viewers want razor sharp recommendations based on previous users’ behaviour, reducing the quest for their dream home from one year at best to six months at worst.
Funda has become a love brand, with fans describing themselves as funda-junkies and fundamentalists. This certainly helps in attracting business development opportunities. But the team’s most important task at this point is to sway the agents that funda’s success is aligned with theirs. That will provide them with the confidence to allow the company to take the next step.
I am grateful to Joep for putting together this excellent insightful article tracking the recent history of Funda. I welcome other CEO's / Founders of any other portals to share their insights and stories, there are great benefits to be gained by sharing and gaining peer review and shared experiences.