The biggest challenge facing the readers of OnlineMarketplaces today is building sustainable, next-generation digital businesses in real estate.
Here, I will share eight key lessons I have learned after my many years in the industry. During that time, I have helped build some of the largest and most dynamic companies in the sector, participated in more than 30 mergers and acquisitions, and worked in diverse markets across China, Southeast Asia, and Australia-New Zealand.
Over the past 20 years, 56% of the investment in property technology has been in portals, and portals have been the nexus for most technological innovations in residential real estate.
The next five years-plus will look very different.
I would like to challenge the general assumption that change will come necessarily from portals. You can already sense that portals in most markets are reaching maturity in their core advertising businesses.
Portals have largely accomplished their mission of moving property marketing from print to digital and have done so without significantly reducing the amount spent. This has given them huge margins and immense profitability.
Declining potential for core revenue growth explains why portals are scrambling to tackle ancillary services and get closer to the transaction. For most developed-market agents, real estate portals are no longer the critical source of leads. They are now just one of several.
After bringing advertising online, the next big transition in residential real estate is to bring the transaction online. It is not portals that are in the best position to do this, but agents.
I know this may surprise you. Agents have been worried for years about being disrupted right out of existence by portals but a good agent using advanced digital tools is generally in a better starting position to bring the transaction online than a portal.
Each market will find its own solution, but the ultimate fulfilment of the potential would be an end-to-end platform or ecosystem for agents and consumers. Think of a real estate version of UBER.
Every market is different, and successful companies must tune themselves to local market conditions.
The market for new property is different from the market for established or secondhand property. The new property market is business-to-consumer and characterised by high volume per client. A single developer may be marketing a single project with hundreds or thousands of new residential units at a time.
On the other hand, the established property market is low volume and focused on maximising prices in individual transactions. It has a consumer to business (the agent) to consumer model.
The rental market is completely different again.
What characterises the market you hope to serve? How will you adapt your business to its specific characteristics?
The uniqueness of individual national markets is well known within the industry. Proptech businesses that dominate their own country markets often give up any hope of replicating their model overseas.
When a proptech does wish to expand internationally, like the REA Group, it tends to purchase or partner with promising local businesses that have evolved to fit the local conditions, rather than trying to import its own way of doing things.
Social media, search engines, and even e-commerce companies have an easier time going international than digital companies in real estate. Few proptech business models are easily copied and pasted from one country to another.
Some countries, such as the United States, are predominately established housing markets. In September, only 800,000 new homes were sold in the United States. That compares to 6.29 million existing-home sales.
Other countries' real estate markets are overwhelmingly tilted towards new housing. China is an example. In Japan, more than four out of five homes sold are newly built.
The existing proptech ecosystem also varies widely from country to country. In more developed markets, new companies can build on and link to the infrastructure created by other businesses. On the other hand, proptechs in emerging markets must often create essential services and technologies before building more advanced offerings.
The digital business you can build in the USA —where there is an infrastructure of MLSs, CRMs, portals, marketing tech, etc.— is very different from what you can build in most Southeast Asian countries, where very little of that infrastructure exists.
In most lower or middle-income countries, mobile is much more important than in Europe or the USA. Mobile and online payments penetration is high, but computer ownership is low. This makes the mobile experience paramount to your success.
Get close to the money and seek to integrate payments if you can. Doing so will reduce friction and increase the stickiness of your products and services.
Integrated payments improve payment data security and the user experience as well as giving you a much clearer indication of your business's key revenue drivers.
Because of the multiplicity of actors in property markets, some digital companies get confused about just who their ultimate customer is.
In new property, the developer is your real customer, not the intermediary of a property marketing agency.
In existing or second-hand real estate, the consumer (either on the sell or the buy side) is the ultimate customer. Not the intermediary agent.
And in rental real estate, it is the landlord rather than the intermediary property manager.
Structure your offering appropriately and make sure your incentives are targeting the correct party.
It is essential to identify the key metrics by which you measure your success and to define them carefully. This allows for the appropriate allocation of resources.
Clearly defined metrics also prevent confusion and misrepresentations from developing internally. When your team members have to report on their performance, human nature makes them likely to seize on any latitude to present their performance in the most optimistic manner possible.
For example, if your key metric is leads, but you don't define the leads carefully, you may see staff reporting a steady and welcoming increase in this metric without seeing the expected corresponding growth in revenue.
In most cases today, I think MAU (monthly active users) is the better measure than monthly unique visitors or related website metrics. If your business generates most of its enquiry from social media, for example, then your web traffic metrics are incomplete and insufficient.
Let me leave you with a couple of questions to provoke thought. Should a real estate portal count as its own the traffic it generates via SEM from Google?
And what about the traffic a real estate portal generates on the listings provided by an agent? Should that be counted as the portal's traffic or as the agent's?
The key to success is providing real value by removing roadblocks that hinder your users.
For example, when it comes to mortgage financing, provide a solution that pre-approves the property or buyer. This is a far superior solution for your users compared to referring leads to third-party financial services providers. It also provides much better results for your business.
The importance of having the right team has been emphasised to the point of nausea, but most leaders still regularly make the wrong choices.
Everyone understands that the team is essential, but the knowledge of what characteristics makes good team members is not as widely held.
Experience as a middle manager in a large technology company, even a very impressive large technology company such as Microsoft, is not necessarily the suitable qualification for a fast-growing digital business in real estate.
Rather than hiring candidates with impressive names on their LinkedIn profiles, look for someone with the inherent outlook of an entrepreneur. This is fundamentally more important when you want that individual to help you drive change in your industry.