Our recent Adjacencies Report looked at the businesses that real estate portal companies have been diversifying into. We studied over 180 products and services from 55 leading portal companies around the world.
Real estate portal companies spend billions of dollars to get into these revenue streams and growing towards the transaction has been a popular topic of discussion at our industry conferences for many years.
Despite the breadth of the study, drawing solid conclusions from the available data is pretty fraught. That's why we spoke to 6 industry experts with top-level decision-making experience at real estate portal and adjacent companies to look through the report and provide some context and opinion to accompany the numbers...
The report found that some real estate portal companies such as Zoopla in the UK and Magic Bricks in India are involved in as many as 12 adjacencies aside from their traditional main revenue stream. According to Andrew Rechtman, PropTech Advisor and former REA Group Residential GM, the number of revenue streams a portal has may not be the most important metric:
"Looking at just the number of adjacencies a portal is involved in may be a deceptive view. The size of investment in adjacencies is also critical, as it is easy to 'dabble' in low-touch partnerships that don't require sizeable investment, but also don't generate big returns."
The data from the report also showed that the #2 portals in any given market are more likely to diversify as are those owned by publishers or real estate vertical specialist companies - something that did not come as a surprise to former ImmoScout24 CEO, Marc Stilke:
"Verticals are more likely to complement their ecosystem and customer proposition by adjacencies, as they aspire for a deeper integration into the value chain, a more complete service portfolio to agents and consumers and usually strive for a quality leadership proposition. Examples are ImmobilienScout24, idealista or PropertyGuru"
On the question of which industries real estate portal companies are getting into, the report found that mortgage was by far the most popular area with software, insurance and rental management all proving popular adjacent revenue streams as well. This is something that Justin Seow has seen for himself in developing markets in his role as Head of Portfolio Strategy at Frontier Digital Ventures:
"Countries such as Chile, Colombia, Morocco, the Philippines, Malaysia etc, have seen VC money being poured into businesses that focus solely on mortgages, valuation, CRM tools and even pure-play rental platforms etc. Most of these players don't intend to just stop there either, as they will eventually move to other areas of the value chain and may threaten a traditional platform's core business area."
On the question of whether portal companies are developing their own products and services in adjacent revenue streams in house, via a partnership or buying into them, we saw that by and large the simple lead generation products are being created via partnerships while any serious attempts to break into a market require acquisitions.
All of the experts we spoke to agreed that to make any meaningful revenue in an adjacent market, portal companies have to shell out the cash to acquire an existing business. Emmet Creighton, Founder & CEO of homebuyer assistance company Lintil, was particularly adamant on the point:
"Portal companies developing their own adjacent revenue streams is fraught with danger. With the success these portals companies have experienced in the last 20 years has manifested itself in a hubris that will ultimately cost them time and money and market share.
It's my belief that unless innovation has been a part of a portal companies' DNA from day one then they will struggle to provide the entrepreneurial spirit necessary to develop adjacencies that make a huge change on revenue growth. Lots of these portals have not developed sufficiently over the last 20 years to give me any confidence that they can now shift the focus to adjacencies internally and be successful. I believe market acquisitions will determine the next generation of portal company success."
When looking at how much money portal companies are spending to acquire businesses in adjacent revenue streams, the Adjacencies Report found from available data that the amount has been rising steadily since 2018 and reached just under $2 billion in 2021 (just from disclosed transaction prices).
According to Brett Hartley-Wilson, a Chinese portal expert, portal companies need to be careful when assessing these types of acquisitions:
"There can be a significant variance in the cost of integrating adjacent services depending on the service proposition, number of vendors working with the portal, the portal’s relationship with its users etc. It’s up to each portal to determine if the juice is worth the squeeze when adding a new service."
One of the most striking findings from the report was that until now, adjacent revenue streams have not been big contributors to their portal parent companies' bottom line with the available data from public companies showing that these products and services typically only represent between 2%-3% of total revenues.
According to Online Marketplaces' Chairman and former REA Group CEO Simon Baker, there are a couple of good reasons for this:
"Firstly, it is easier to capture more advertising revenue from the existing customer base through increasing prices and launching new advertising products. Secondly, portals have a clear reputation with their advertisers and their viewers are being a search vehicle for homes. It is hard to move this reputation to another group of products such as mortgages, software, or insurance. Finally, these adjacencies require different skills than the traditional listings business and therefore are harder to execute from an organizational perspective."
The most pertinent question for those in the industry reading the Online Marketplaces Adjacencies Report is 'are adjacent revenue streams becoming more important for portal companies?'. On this point, there isn't much data to go on. Anecdotally however there may be evidence to support the argument that the importance of adjacent revenue streams has been diminishing slightly over the last few years and that some portals have been pulling back.
On the future of adjacent revenue streams for real estate portals, our panel was broadly in agreement that adjacent revenue streams won't be going the way of Zillow's iBuying division any time soon...
Emmet Creighton said: "It's my opinion that adjacencies will be the most important revenue streams for portal companies in the company years. The traditional revenue streams are already being disrupted and soon portal companies will have to adapt or lose market share. Young companies like our own see this as a huge and perhaps the first opportunity in 20 years to gain an advantage over property portals. Consumers are demanding a better way of engaging with the real estate market and rise of importance in adjacencies is a direct result of this pressure. "
Andrew Rechtman said: "With their baked-in consumer bases and solid core businesses, the leading portals will want to add more adjacency revenue to drive growth, but not at the expense of reducing their current high margins and cash flows."
"As clear winners and successful business models emerge in the next 2-3 years, some of the biggest portals are likely to jump in to make major M&A investments with big adjacency bets."
Justin Seow said: "In the current rising interest rate environment, cash has become more expensive and therefore platforms need to find the best adjacency mix and rollout strategy, and this is unique to individual markets and players. Nonetheless, there is also an element of moving into adjacencies not purely as a monetisation tool from Day 1, but to provide users with the best and most fulfilling experience with the platform."
Brett Hartley-Wilson said: "The next major battleground for platforms is winning share of wallet for everything transaction within the four walls of the home. Portals, through agents and agency brands, combined with the amount of data they collect related to different dwelling types, have unique access to this market."
Simon Baker said: "There is only so much revenue that can be extracted from agents, moving into other revenue streams, particularly from the consumers, makes sense."
"At the end of the day, moving into adjacencies is easier on paper than in reality. It will take time and patience to grow these businesses, for many, they will end up being sold onto to other companies who are looking for market consolidation (and thus scale)."
The Online Marketplaces Adjacencies Report is available to read for free for our newsletter subscribers. The report's findings and a link to the full report are available here.