How one of the world’s best businesses may lose its shine
Rightmove is widely recognised as one of the best businesses in the world. Over 18 years, the property portal has delivered exceptional results for its customers and shareholders while forging a brand reputation amongst consumers that is unrivalled in the property industry.
Throughout 2016 it received an average of 120 million visits a month, making it the 38th most visited site in the UK, per Alexa. It has over 20,000 sales or letting agency branches advertising at any given time, or approximately 91% of the total market.
Such a formidable position is the envy of every other business operating in the property and digital media industries. Indeed, respected business publication Forbes recently named Rightmove as the most innovative company in the world.
However, we think this is completely incorrect. In fact, Rightmove is hardly innovative at all, Here’s why.
Innovator’s dilemma and Rightmove
It is helpful to look at this issue using the framework of the Innovator’s Dilemma. This theory, first outlined by Clayton Christensen in his book of the same name discusses how outstanding companies can lose their market leadership even when their position may appear unassailable. Those businesses tend to have three key characteristics:
Innovator’s dilemma characteristic No.1
They will be in the “Innovation Window” on the innovation S-Curve, as shown in this graphic from Harvard Business School:
Innovator’s dilemma characteristic No. 2
They will have a large customer set (and may indeed have a monopoly) who are largely happy with the service they are receiving:
The UK has a potential maximum market size of approximately 22000 advertisers.
Innovator’s dilemma characteristic no.3
Their investors are likely to be used to excellent financial performance and consistently good (increasing) returns on their investment:
These financial results translate to increasing returns to shareholders:
There are some key takeaways from these:
Rightmove enjoys supernormal profits from a monopoly position amongst advertisers;
- There is very little headroom for growth through acquiring new advertisers;
- Even if new advertisers can be acquired, the annual growth rate appears to be slowing; and
- Both financial performance and returns to investors have been slowly accelerating their growth since 2012.
It is plain to see from this analysis that Rightmove ticks the three boxes of the Innovator’s Dilemma.
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