Facebook Marketplace may look like a benign sideshow to many in the real estate industry. As a recent CoStar earnings call revealed though, the spectre of the household name internet tech giants is never too far away even in complicated verticals like real estate. According to Toby Chapman - a Partner at OC&C Strategy Consultants, all classifieds players should start thinking about Facebook Marketplace if they haven’t already...
Facebook Marketplace represents one of the most widely publicised and credible threats to traditional classified business models to have emerged in recent years. It is the first real evidence of a global Tech giant making a concerted play in the classified space and given its scale and capabilities, it could represent an existential threat to the industry as we know it today.
The good news is that Facebook’s success is by no means assured, and there are weaknesses leading players can exploit. A strong and proactive defensive strategy encompassing a range of tactics will be key to mitigating this threat. Not all classifieds players will be impacted to the same extent and Facebook’s success by geography and product has not been uniform so far.
Facebook is taking its approach to marketplaces seriously and classifieds players are right to be wary. It already has many credible and important ‘strings’ to its bow including far-reaching brand awareness and customer access, strong product and tech teams, a single multi-geo platform and deep pockets owing to its scale.
Fundamentally Facebook’s monetisation model is based on ad-supported free posting and looks to optimise user engagement. This difference in economic agenda could have significant consequences. It is conceivable that Facebook Marketplace chooses to develop and offer all the functionality currently monetised by traditional players for free, purely to continue to fuel its advertising engine. Facebook revenues in 2020 were $86bn, far exceeding the c.$30-35bn derived from the global classifieds market.
Today posting is generally free for C2C listers and cheap professional listers (who list via partnerships in some markets). Monetisation is primarily derived from Facebook ads inserted into the feed, pay-to-promote on posts and in-app payments (live in US, Europe roll-out expected 2021).
Various analysts estimate that the potential value of Marketplace to Facebook could be $10bn – but this could be even more should the model evolve.
Facebook’s model means it remains focused on user engagement, rather than direct monetisation of classified listings, as is the case with traditional players. It’s advertising revenues grew by $15bn in 2019 – 2020 alone. It is possible that Facebook will continue to develop and push its Marketplace only as a means of continuing to grow its advertising revenues.
Facebook has a global offering but so far has placed more focus on growing some markets more than others. In its most developed markets in North America and Western Europe, it has grown via partnership and with professional support. Other geographies continue to exist exclusively as C2C marketplaces.
From a category perspective, Facebook Marketplace’s current model is best suited to serving categories that have both high audience potential and a high presence of C2C sellers with unsophisticated seller needs. Facebook performs better in categories where social and local dimensions are important aspects to the sale – where the ability to know the seller and collect locally are valued. Accordingly, it is strong in general goods, but its presence in property and auto is more mixed and negligible in jobs (albeit there are rumours of a Facebook gig economy offering in the pipe).
Even within ‘professional’ verticals, such as cars and property, Facebook’s level of strength varies. It is stronger on lower-end and C2C listings (e.g. cheap rentals or old cars) and, as such, constitutes less of an immediate threat to classifieds site with a firmer footing in higher-end professional listers. The position for #2/#3 players can be more precarious, as they run the risk of being ‘squeezed’ between the ‘must-have’ premium classifieds leaders and a much cheaper/free alternative in Facebook Marketplace.
Notable ‘scare stories’ exist from North American and European markets where leading players have declined significantly as a result of Facebook’s entry. This includes leading generalist players in the UK, US and Canada. Others, particularly in continental Europe, have been more resilient.
Facebook Marketplace has already formed listings partnerships with the likes of OnTheMarket and Figaro-Immo in Europe property markets and will likely form more in the future.
Facebook’s inventory depth and quality, however, is not universally strong and both the suite of services available to sellers and the lead quality typically trail in respect to the leaders in professional categories such as property, auto and jobs. Although the Facebook brand is well-known, it doesn't always inspire trust with a higher level of cultural antipathy towards the brand constituting a barrier to adoption in some markets (e.g. Germany).
Not all classifieds businesses will be exposed to the FBMP to the same extent in the medium term – but a proactive approach to monitor and ward against the threat should be devised by leading players regardless.
There are plenty of examples out there of classifieds companies that have taken steps to mitigate the impact of FBMP on their businesses:
OC&C’s full report has further insights including more data comparing Facebook Marketplace’s inventory strength and consumer perspectives across multiple countries and product categories. To access the full report or arrange a conversation with Toby and the team at OC&C get in touch here.