U.K. property portal OnTheMarket is on the verge of an IPO and has recently gained increased news coverage. Real estate tech entrepreneur Mike DelPrete explains why investing in the country’s third biggest property portal is a seriously bad idea.
I’ll cut right to the chase: OnTheMarket, the online property portal challenging Rightmove and Zoopla, does not offer more value to consumers compared to the existing alternatives. It serves no purpose and investing in such a business would be a horrible idea.
The power of network effects
The fully understand the case against OnTheMarket, we need to start with the concept of network effects. Simply put, network effects is the phenomenon whereby a service becomes more valuable when more people use it (Facebook is a great example).
Online marketplaces such as Rightmove and eBay are classic examples of businesses that benefit from network effects. The more people that use them — buyers and sellers — the more valuable the service becomes. If you’re selling something, you want to advertise to the biggest audience possible. And if you’re looking to buy something, you want access to the largest selection possible (think Amazon).
Businesses that have the benefit of network effects — again, marketplaces and social networks are the best examples — are incredibly difficult to displace. Because even if a new entrant’s product is objectively better, a smaller audience of potential buyers and sellers equals an inferior proposition. If you’re holding a garage sale, would you rather sell to an audience of 100 people or 1,000 people?
Providing value to users
As I’ve previously written in The 2 Principles of Startup Success, a new venture needs to provide more value to users than the other available options. If we use Clayton Christensen’s framework of “jobs to be done” as a basis (booking a flight, hailing a cab, keeping track of customers, or buying groceries), then the value of the new needs to exceed the value of the current.
Value can be defined many ways: cost, utility, and convenience are fairly standard measures. The value is what the user perceives and experiences on an individual basis, not what the provider thinks. Value originates with the user, not the new venture.
If you must explain your value, it’s not as great as you think.
If the value of the new is relatively close to the value of the current, you enter what I call “The Grind.” This is the unenviable position where you need to convince customers of the value you provide. As Jeff Jarvis eloquently states in What Would Google Do?, if you must explain your value, it’s not as great as you think.
The customer proposition of property portals
The value that property portals provide to consumers is straightforward:
- For buyers: access to the largest inventory of properties for sale (tracked as the total number of listings)
- For sellers: advertise your property to the largest collection of potential buyers (tracked as the total number of visitors)
Why OnTheMarket is a horrible investment?
Critically, OnTheMarket is a bad investment because it doesn’t provide value to users. There is no compelling reason for consumers to use the product compared to the existing alternatives (Rightmove and Zoopla).
Exhibit #1: OnTheMarket has a fraction of the total number of properties for sale
According to excellent research conducted by Exane BNP Paribas, OnTheMarket has around 5,700 agency customers, which is a fraction of the existing players (see the graph below). In fact, this number is down from 6,300 customers when last reported in 2016.
Earlier research conducted by MyOnlineEstateAgent showed that OnTheMarket had around 36 percent of the listings of Rightmove and 50 percent of the listings of Zoopla.
Looking at one region today, Bristol, shows 2,945 listings on Rightmove, 1,940 listings on Zoopla, and 659 on OnTheMarket. The market leaders have between 3x and 4.5x the total number of listings as compared to OnTheMarket, a non-trivial difference!
So: OnTheMarket has considerably fewer for sale listings than the existing alternatives.
Exhibit #2: OnTheMarket does not have the most visitors
In 2016, this story on EstateAgentToday discussed the relative traffic numbers of the major property portals. In it, OnTheMarket.com reported April traffic of 7.25 million visits, compared to Zoopla attracting close to 50 million average monthly visits to its website and mobile apps, while Rightmove receives more than 120 million visits each month.
In other words, the market leader, Rightmove, has over 16 times the traffic — also known as potential buyers — than OnTheMarket. Where would you want to advertise your home for sale?
The following charts from Similarweb show the same story (albeit with slightly different numbers, as web tracking is more an art form rather than a science). The market leaders have anywhere from 10 to 20 times the traffic of OnTheMarket — and it’s not changing.
Web Site Visitors: Rightmove (orange) vs. OnTheMarket (blue)
Web Site Visitors: Zoopla (blue) vs. OnTheMarket (orange)
So: OnTheMarket has exponentially fewer visitors (potential buyers) than the existing alternatives.
Exhibit #3: OnTheMarket’s user interface doesn’t offer any advantages over the alternatives
In the same EstateAgentToday article linked previously, OnTheMarket’s CEO commented: “We have provided consumers with an alternative search platform which is clean, clear and responsive… There are no third party adverts cluttering the pages and the properties are displayed in the best possible light.”
He posits that the user interface of OnTheMarket provides a superior experience compared of the alternatives.
To read the full article and compare OTM’s offerings to that of its competitors, head over to Mike’s blog: Adventures in Real Estate Tech
This article has been updated to include the following statement from OnTheMarket Chief Executive Ian Springett:
“We note the opinions of Mike Delprete, who is clearly entitled to his view on the property portals landscape. We note, too, the views of the overwhelming majority of our members who have supported our strategic proposals.
“We believe that by raising capital from new investors we will substantially strengthen our market position in terms of growth in both property advertisers and consumer traffic. Agents provide the main property listings content and the main revenue sources for property portals.
“Our members’ ownership of shares in the newly listed company will enable them to remain enfranchised, aligned and fully invested in OnTheMarket’s future success.”