Rightmove, Airbnb and The Importance of Priortising your Inventory Providers in Times of Crisis

April 20, 2020
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With the coronavirus pandemic laying waste to economic activity across the planet and experts everywhere preaching liquidity, at some point marketplaces and portals must make a decision about which stakeholders have to lose out. Favouring one or other of these groups inevitably comes with its own pitfalls and consequences.

There have been some notable examples of property portals and marketplace sites choosing one set of stakeholders over others. Their experiences tell a story...

Rightmove

The UK portal wars have been well documented over the last few years. They have perhaps never been as intense as in the immediate aftermath of the coronavirus hitting the UK as Rightmove, Zoopla and OnTheMarket made varying offers to their stricken agent customers.

Rightmove’s initial offer was a paltry £275 of deferred payments per agency branch with some stringent terms attached for agents to even qualify.

Unsurprisingly, the British portal’s offer was seen as derisory by its customers and ended up being the casus belli for the Say No To Rightmove movement which quickly amassed over 1500 agent signatories. Quite apart from the existential threat posed to Rightmove by its inventory abandoning it, the negative press generated has been substantial and unwelcome.

Ultimately Rightmove’s default position was to favour their shareholders. The company is often held up as a paragon, a model for others to follow to maximise profits. The 2019 annual shareholder report, released just a week after the controversial deferred payment offering, shows why its stock has been a darling of investors for so many years. Operating profit was up 8%, earnings per share were up 10% and web traffic was up 2%.

Aside from the impressive numbers which are churned out year after year to shareholder acclaim, perhaps the most pertinent metric for Rightmove is ARPA (average revenue per advertiser). The figure here has increased markedly over the last five years from £754 per agent per month in 2015 to £1088 in 2019. Fantastic for investors but not so much for agencies whose profits are unlikely to have increased by 30% in the last 4 years.

The one slight blemish on the 2019 report, and one that can be explained in part by the successive rises in ARPA, is the 3% decrease in customer numbers. Agencies complaining about property portals is nothing new, but until the paralysis of the market in March, there was nothing other than a general dislike of Rightmove profiteering that bound UK estate agents.

The initial Rightmove response on the 18th of March was the spark that finally united agents. The pipe dream of all standing together to do something about Rightmove price hikes, for most, had always given way to practical concerns. Now, confronting Rightmove is not only a common cause for many agents but a business necessity dictated to them by their stagnant transaction numbers.

Although Rightmove has since beefed up its financial support to agents and apologised, the portal giant now faces perhaps the biggest threat it has ever faced: the loss of a significant part of its inventory.

Airbnb

Another clear market leader with a somewhat fraught relationship with its inventory providers is Airbnb. Like Rightmove, their initial response to the situation brought on by the pandemic was not welcomed by those providing the site’s inventory.

At first, Airbnb offered all users a money-back guarantee for vacations affected by travel restrictions as the company kept the booking fee and taxes. This did not take into account that each individual host has their own cancellation policy and many ended up losing out on funds needed to pay their mortgages.

Subsequently, in a communication to hosts very similar to that attributed to Rightmove CEO Peter Brooks-Johnson in the wake of heavy criticism for the initial financial help offering, Airbnb CEO Brian Chesky said "The last few weeks have been a bit of a wakeup call for us. We know we need to be closer to you”. A $250 million package was then put together to help hosts and patch up relationships.

Execs of the Silicon Valley giant had been gearing up for an IPO valued at $40 billion before the start of the coronavirus restrictions, and so shifting focus and concentrating on hosts was maybe not the default strategy.

The company has subsequently had to raise $2 billion in investment to sure up its finances whilst the situation endures and has reportedly seen infighting among the board of directors.

Perhaps more important than any possible IPO, boardroom tension or balance sheet concerns though is the flight of inventory. As hosts see that their portfolios are not being filled by Airbnb’s customers and their mortgages aren’t being paid, they may decide to do something else with their assets. In fact, there is already some evidence that this type of housing is returning to the long-term rental market. Airbnb itself has recognised this and is offering longer-term rentals in an attempt to follow the inventory.

Lessons

It could be argued that Rightmove has been boxed into a corner. It has not diversified like rival Zoopla has, and the only way to make more money if you have a monopoly is to increase the price. Unlike Zoopla, which is owned by Silver Lake Partners and can take the long view, Rightmove is a public company whose shareholders have come to expect that the leadership will do what is necessary to convert market leadership into an ascending stock ticker.

Rightmove shares were sitting on a record high of 701 GBX a couple of weeks before the crash. The portal enjoys a +75% market share of user time spent on property portals according to Comscore. Why would they do anything other than what they had always done in the face of COVID-19?

In Airbnb’s case, the decision to prioritise the end-user over the supplier must be understood in the context of a company that is so ubiquitous and has such user affinity that its name has become a verb. Although the company was close to breakeven in 2018, they fell well short of it in 2019 and concerns over consumer relations and another negative pre-IPO balance sheet seem to have taken over in the days after the coronavirus thudded into the global economy.

In both cases, the default thinking seems to have been that if an overwhelming percentage of property/vacation hunters come to our platform then the inventory suppliers will surely have to follow and play ball. However, the lesson perhaps is that when the inventory supplier is backed into a corner by financial concerns created by an unprecedented situation, they can and will take their properties elsewhere despite the near-monopoly of user attention.

There is not necessarily a perfect or even a right way to deal with circumstances that nobody in living memory has had to deal with before. Rightmove and Airbnb rivals Zoopla and VRBO have had their own problems and controversies in prioritising other stakeholders. That said, if Rightmove and Airbnb could go back to late March I’m sure their inventory providers would be treated differently.

April 20, 2020
Edmund got to know the world of portals and marketplaces working at Mitula Group (which became Lifull Connect after the buyout in 2018). He worked directly with hundreds of portals across the world in his role in the content department for three and a half years before transferring to the SEO department to understand the inner workings of listings sites. He joined Online Marketplaces as Head of Content in March 2020.

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