In early 2007 the REA Group acquired casa.it from Antonio Fregnan for just euros 11.7 million. At the time, casa.it was the clear leader in the Italian market and the Immobiliare team ran a site called eurekasa.it (a forerunner of immobiliare.it). Today the story is different. Immobiliare is the clear market leader on all measures (including revenue and profitability) and casa.it is falling back into a distant second place.
The conventional wisdom is that once you have established market leadership, it is for you to lose that leadership position rather than someone else to take it. This article looks at how Immobiliare became the market leader, or perhaps more poignantly, how the REA Group lost the Italian market.
Casa.it was launched in 1996 and was originally based out of Treviso, just north of Venice. It was the only serious property portal in the Italian market for 10 years until 2005/6 when Eurekasa was launched. The brand Eurekasa (which didn't actually mean anything and was hybrid of eureka and casa) proved challenging to build and the team, in late 2007, acquired the domain Immobiliare (it means "real estate") and re-launched the site. Since that date, the two have battled each other in the Italian market.
At the recent Property Portal Watch conference in Barcelona, Silvio Pagliani, co-founder of immobiliare.it presented the Immobiliare growth story. At the core of this presentation was a chart showing the monthly growth since 2007 in agencies using Immobiliare and Casa. There are three phases: the growth phase, co-leadership, and then sole leadership.
The growth phase started when the REA Group (and SkyItalia) acquired casa.it. Following the acquisition, the REA Group significantly invested into building the team, growing the number of agents and into driving traffic to the site. At the same time, the Immobiliare team was operating Eurekasa and finding it challenging keeping up with casa.it.
During this phase, the Immobiliare team realised that they had to close the listings gap with casa.it. To do this, they aggressively went after the larger agency groups by offering low cost or even free deals. For other customers, they priced themselves similarly to casa.it but offered high levels of discounts to sign up customers.
On the traffic side, the Immobiliare team focused on acquiring performance based traffic rather than brand building. They realised that future growth was dependent on driving leads to the agents to demonstrate value. During this phase Eurekasa became Immobiliare, a brand that was easier to build.
From a casa.it perspective, the business operations moved from Treviso to Milan and a stronger management team was hired. The business also became an operating unit of the REA Group with formal reporting requirements.
Perhaps, at this point, casa.it started to move from being entrepreneurial to being more corporate. There was extensive reporting required by the REA Group head quarters, the local management team didn't have access to equity, and were placed on significant salary packages.
The co-leadership phase saw casa.it move from leadership in the number of agencies using the service to second place.
Immobiliare continued to focus on building the number of agents and the number of listings. There were less free deals and more focus on monetisation. Technology was enhanced and verticals such as rentals, new builds and commercial were launched to differentiate the offering from casa.it. The pricing was the same but the industry marketing message was that "we are different". Finally, on the consumer marketing side, the Immobiliare team continued to buy performance based traffic while doing some minor brand building.
Perhaps during this phase casa.it began to lose its way. While funds continued to be invested into growing the business, they progressively had less and less impact. In 2011 the number of agents using casa.it appears to have peaked with agencies, who were under cost pressure, choosing Immobiliare over casa.it.
Even when the casa.it business began to plateau and lose its way, there were few changes in the management team. In fact, some management salaries continued to rise. For the 12 months ended 30 June 2012, the CEO of casa.it received euro 500,000 / AUD 625,000 (15% more than the previous year) including euro 120,000 / AUD 150,000 in short term performance bonuses. (Source: REA Group 2012 Annual Report)
There appears to have been more centralised control (in Australia) with many decisions requiring head office sign off. One example of this was the move, in late 2010, of the casa.it site to the Australian technology platform.
However, an argument could be made that head office didn't fully understand the competitive position of casa.it versus Immobiliare as we have seen that casa.it lost the leadership position during this phase.
Sole Leadership Phase
From mid 2012 onwards, Immobiliare increased the performance gap and took sole leadership of the Italian market. Today the number of agents using Immobiliare is 50% more than those using casa.it.
Immobiliare has been able to extend its lead by focusing on building the Immobiliare brand, driving continued use of the service by agents, and increasing ARPA. These has also been continued development of a strong technology platform and products including a multi platform approach.
Casa.it has struggled to keep pace. Agents using the service have stabilised between 10,000 and 12,000, revenue increased by only 4% from 2013 to 2014 and the business went backwards from a small profit of euro 1.3m to break even. Clearly traffic has also been an issue as creative ways of sourcing traffic (i.e. the use of pop-unders) have been used.
The departure of the REA Group CEO and CFO in early 2014 combined with an interim CEO may have meant that not enough focus was placed on the Italian business.
Even if changes were wanted to be made, Italian employment laws are a minefield and heavily favour the employee meaning termination costs can, in some cases, be prohibitive.
There are probably two key lessons from the above transformation of the Italian market.
The first is that a small, nimble, focused and motivated competitor can (in the right circumstances) eat a market leader's lunch. The belief that market leadership, once obtained can not be lost, has been shattered. Nothing is for ever and a market leader has to continue to run hard, be innovative, and never take anything for granted.
The second is that owning and operating portals around the world is very hard. There are time zone issues, language issues, cultural issues, and market knowledge issues just to name a few. Just because you are a market leader in one market doesn't mean that you can be a market leader in another market. The REA Group has done a great job in Australia but has yet to transfer this knowledge and experience to success in any other market. In fact, corporate bureaucracy and tight management approaches can stifle local competitiveness and innovation.
Later this week we will look at what the REA Group should do with its investment in the Italian market.
Simon Baker is the former CEO and Managing Director of the REA Group. In 2007 he led the acquisition of casa.it by the REA Group. He left the REA Group in August 2008.