Who Will Win the Battle of Horizontal Sites Vs Verticals?

Anna Game Lopata

June 23, 2016

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Property Portal Watch Founder and former REA Group CEO Simon Baker delivers his point at the Bangkok Conference in June

Property Portal Watch Founder Simon Baker says the race is on to dominate as leading classifieds sites emerge in each market with the capacity to go deep in segments they know they can win. But his vote still goes to verticals overall.

Want to hear Simon Baker speak? Register for the Property Portal Watch European Conference in Madrid!

Baker told this year’s Property Portal Watch Conference in Bangkok the top classifieds sites such as Mercado Libre, Naspers and Schibsted have the audience and are acquiring verticals and tech at speed in specific markets.

He defines classifieds as those portals starting life as large, simple businesses with a simple brand. They operate in multi segments including cars, jobs and homes with incredibly well-funded, large global teams across multiple markets.

Meanwhile property verticals operate in one segment and offer a wide range of products to advertisers with which they enjoy much closer relationships than the classifieds they compete with.

They are also well funded, can focus more deeply on the consumer to generate leads and are often part of a global network.

“Leading vertical players are very large and profitable,” Baker says. “Some like Navent in Latin America decide on a regional play, they can dominate. They are growing fast.”

But things are changing.

“The general classifieds sites are evolving and will become a ‘house of interlinked verticals’,” Baker says.

So who will win?

Verticals win on advertising relationships

“To start off with you need to be close to advertisers,” Baker asserts. “You’ve got to understand what they want and they’ve got to understand what you sell. You’ve got to get their listings.”

“Verticals have dedicated teams on the ground which build relationships, segment around agents and developers and are often using software to get closer to agent, get into their pocket,” Baker asserts.

“They can get much closer to advertisers so they’re in a much better position to monetize, especially in real estate which is a personal game. You can’t sell property remotely.

“And to get to quality listings you’ve got to go out on the motorbike and take pictures, it’s a long hard exhaustive effort, but you’re building quality.”

Meanwhile historically horizontals didn’t have dedicated sales teams although Baker says this is probably changing.

“Horizontals have a broader range of advertisers,” he says. “Everyone’s in the same bucket, the professionals and the public, so there are a whole lot of issues to deal with around that.

“Often classifieds have a ‘freemium’ model, where you just monetize some segments.”

Verticals win on quality listings

At the end of the day, Baker says, we know if you don’t have quality listings your consumer won’t have a great experience, they won’t generate leads so you won’t monetize.

“When you’ve got lots of leads you’ve then got something you can monetize,” he says.

While verticals often control quality from a central head office in terms of product and product development, the classifieds deliver a more variable offer.

“Listings come from a variety of inputs and sources so it’s harder to certify them, especially if they have been entered directly,” Baker says.

“So how do you know if listings are fraudulent across thousands of listings for cars, jobs and homes? It’s a much harder challenge and has to be fixed over time.”

“You want quality leads out the back end because the advertiser will says ‘yes that was worth it, yes I can convert. Yes I’ll come back and spend more money with you’.”

Verticals win on lead generation

In Baker’s view verticals are also up there as winners in terms of lead generation and the capacity for monetization.

“Verticals tailor their searches to the user,” he says.

“It’s all about data, filtering and providing information. Verticals can pile on real estate data, and serve it to a visitor in an informative engaging manner.

Verticals use free form searches, map based searches and often have more fields while classifieds can only offer generic searches with minor adjustments.

“Classifieds serve up a poor search experience with minimal or no additional information to assist with the decision making process,” Baker clarifies.

Classifieds win on traffic

While classifieds present listings in a very generic manner and don’t tailor their pages to maximize leads for them, it’s all about volume.

“Let’s get 28 million through the funnel to drive leads.”

Verticals therefore have a lower number of higher quality leads while classifieds deliver a higher number of lower quality leads.

“If you’re talking about advertisers and listings, verticals win. But classifieds definitely win hands down when it comes to traffic.

“Verticals often have a very clear marketing process using SEO and SEM to buy traffic and build their brand but it’s a high cost approach.

Classifieds preside over huge volumes of traffic with less brand building and marketing for the overall horizontal site.

“Schibsted wants to be a leader in an overall market rather than competing with its own brands,” Baker explains.

“Classifieds access to more traffic at a lower cost, which is a core part of why they exist.”

Verticals win on monetization

Despite this Baker still argues verticals win out in terms of capacity for monetization.

“Verticals have a higher capacity to get close to advertiser and consumer, so they have more ways to monetize from premium advertising through to data offerings and sharing commission,” he points out.

“Verticals generate higher quality leads, have a wider range of products to sell to top advertisers including premium advertising, display advertising, software and data.

“Meanwhile for classifieds it’s a little harder.”

He says market leaders charge for categories on the classifieds sites which deliver limited advertising opportunities.

“Classifieds often run a freemium model because leads are based on volumes. Advertisers get to choose but usually at the category level. It’s hard to monetize the private listings, it depends which categories they are in.

“For verticals meanwhile, everything lines up nicely to extract the value. They have lots of advertising options plus running a relatively low cost team. It’s a fundamentally different model with great margins.”

Verticals win over time

If you go by the clicks Baker says it’s the verticals in the long term because they get closer to the advertiser and the consumer.

“What I think will happen is the verticals will go the way of data. They will know exactly what Javier’s dream home is and can put it in front of him at the exact moment he’s thinking about it.

“Whatever life or economic change is driving a decision, the vertical using data is on to it. They’ll know if Javier also wants to buy a car, and based on his occupation what kind of car he might like.

“But to do that (verticals) need to be very close to advertiser on one end so I know exactly what the stock is and close to the consumer on the other end so I can put the right stock in front of him.”

Top Players Still Win

In different markets Baker concedes there will be different winners.

“In the established markets it’s currently very hard to dislodge players like the REA Group or Rightmove,” he says.

“But maybe over time if players move to data driven models, or move to cut out the middle man to connect buyers and sellers directly.”

“The real winners are the top 2-3 verticals in each market. They might become acquisition targets for the horizontals or be big and profitable in their own right as number 2 which is possible in larger markets,” Baker says.

The general classifieds are also very ingrained.

“The leading classifieds sites are emerging in each market, they’ve got the audience, they can acquire the verticals if they want and it is happening. They have the capacity to build out the verticals and the capacity to go deep in a segment they know they can win.”

Emerging markets unclear

But it’s too early to tell in the emerging markets.

“The general classifieds sites are starting to think of the world as a house of verticals rather than in the traditional way.

“We’re seeing players like Mercado Libre building out dedicated vertical teams by country and of course players are also acquiring verticals.

“They are also thinking about each segment and building out specific tools for them because they’ve  observed the verticals doing it and figuring they have to do it too.”

But Baker also says consumers are the real winners because their experience is only going to get better over time.

“And the advertiser is also a winner because more options for the future are being created for portals to monetize through different approaches.”

Kings of Data Will Win

Baker reiterates the winners in the game will be those who have the data, understand the data and use it most effectively.

“They’re the ones who will capture the majority of the value in the transaction while someone else will facilitate the transaction, whatever that might be,” he says.

“The people in the best position will either be the verticals or the classified sites that understand the process and go deep in a segment.

They will target the right house to the buyer at the right time, provide the right tools for the transaction and  take a commission from the deposit while someone else just closes the deal. It will get there.”

While winners might be very clear in established markets where large  players with data bases and the the money to invest in cracking the code already exist, in the emerging markets its still up for grabs.

“It could be the vertical, the classifieds or the ‘verticalised’ classifieds site,” Baker says. 

Want to Hear Simon Baker Speak? Register for Madrid!

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Acerca de Lucas Vargas:

  • Empezó en Grupo ZAP como el VP de Sales y en 2016 cuando la empresa tenía 60 empleados. Fue nombrado COO de VivaReal tomando el mando de Brian Requarth el Co-Fundador. VivaReal lanzó en Colombia y se trasladó a Brasil. En 2017 se hizo CEO del Grupo ZAP.
  • Ha trabajado en Mexico en PWC y en el Banco Santander
  • Tiene un Master de Business Administration de Harvard
  • En noviembre este año después de la fusión de OLX Brasil y Grupo ZAP fue nombrado el CEO del OLX Business Unit. Lidera la empresa junto con Andries Oudshoorn y Marcos Leite
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Simon Baker is the Founder and Executive Chairman of Online Marketplaces and Property Portal Watch. Involved with property portals for 15 years, he’s a well-recognized expert and industry consultant.
As former CEO/MD of the REA Group for 8 years, Simon led the group to its current market-leading position. When he joined REA Group in 2001, it had $4m in revenues, $6m in losses and an $8m market cap.
By 2008, the company presided over $155m in revenues, $35m in EBITDA and enjoyed a peak market cap of $1b. Simon is currently Chairman of the Mitula Group and Real Estate Investar and a serial portal founder and, investor.