Top property portal sites around the world have announced layoffs. What does the global financial crisis mean for the rest of the property portals? Who will be the winners and losers?
Whether we like it or not, the global economic crisis is hitting most businesses and it is hittng them hard. The story is no different for the property portals around the world. zillow.com, rightmove.co.uk, redfin.com and move.com have all announced that they will be either laying off people or cutting costs. However, it is not all doom and gloom and opportunities are emerging as the downturn takes hold.
It doesnt matter is you are a large incumbents (e.g. rightmove and move.com), a well funded aspirants (e.g. findaproperty.com), or an up start (e.g. globrix.com), each are impacted differently by the economic crisis and there will be winners and losers across the board as the property portal space adapts to the changed circumstances.
The Large Incumbents
rightmove.co.uk and move.com are two large incumbents that have announced that they are cutting back costs. rightmove.co.uk announced last week that they would be laying off 20% of their work force while move.com is looking at reducing its costs base by US$20m. These sites have strong revenue streams (>$100m) and dominate their market. The underlying challenge for them is maintaining or growing their EBITDA margins to meet the market or shareholder expectations.
For all large incumbents, revenues will be put under pressure as customers either exit the market (ie go out of business) or re-evaluate their marketing spend and decrease the amount they spend on the large incumbents. While some customers will choose to stop advertising on the large incumbents and favour the free sites, i expect that this will be at the periphery as only the small customers are likely to walk away from the strong leads volume that the large encumbents deliver. It is likely that they would drop advertising on other sites or more likely their print advertising before dropping proven large encumbents.
The one area the large encumbents will find challenging is display advertising revenues as they are likely to be hardest hit.
The good news for them is that they have a high enough cost base that they can reduce costs without necessarily impacting the quality of service they provide and it can be argued that the down turn is actually a good thing for imposing some financial discipline on the relatively young companies. For example move.com is looking at cutting US$20m in costs but this is out of a cost base of US$200m+. A 10% cost reduction isnt that hard to achieve.
The other advantage for incumbents is that they probably have strong cash flows and healthy bank balances so they are not in financial trouble and, if courageous enough, they should be thinking of using the down turn to pick up expansionary assets at bargain prices. I expect to see a number of acquisitions announced in the next 6 – 12 months with the large players being the acquirers.
The question then arises is what will the REA Group, Seloger in France and Immoscout in Germany do? Will they also announce cost reductions and layoff or will they just throttle back their cost growth to ensure that they deliver good returns over the next shareholders over the next few years? I am expecting all of them to cut costs.
The winners in this group will be those that move fast, cut their non customer facing costs, invest in driving the competition into the ground and then selectively make acquisitions in new markets with strong long term growth potential.
The Well Funded Aspirants
Companies like domain.com.au in Australia and findaproperty.com and primelocation.com in the UK are well funded aspirants (ie not in first place) with traditional media owners.
I am expecting them to experience strong pressure on revenues such they they will either decrease or perhaps remain flat. This will be driven by customers choosing to drop the aspirants in order to stay with the large incumbents (even if the incumbents coss more) and perhaps flirt with the free to list sites.
The aspirants are truly caught in the middle.
Compounding the problem will be their large media company shareholders looking to reduce costs and therefore not wanting to invest any more money in the online businesses.
The challenge for the operators of these companies will be to reduce costs as fast as possible and as deep as possible. They will then have to focus all efforts on the sales and marketing operations in the hope of treading water.
These portal sites will be the losers from the economic crisis as I expect them to stagnate in this market as they are starved for funds. They will be unable to continue to fund the sales and marketing efforts to the same extent as they have historically and they will start to spiral. They will survive the financial down turn but will probably emerge far less competitive then when they entered.
The Up Starts
The up starts are those challenging the current market structures and usually with a free to list model (e.g. globrix.com, myhome.com.au and so on).
There are really two types – those that are well funded and those that arent. All of these sites will have to reduce costs and really focus their efforts on surviving the down turn.
The well funded ones, such as zillow.com, trulia.com, redfin.com are in the best position to survive. zillow.com and redfin.com have already announced layoffs while trulia.com, who has been more conservative in their cost growth, is likely to throttle back the investment in growth. These businesses will ride out the storm as they have the cash reserves and will live to fight another day. If they execute super well during this period they could turn out to be winners from the down turn. However this will require quick and decisive movements from management to ensure that costs are closely managed.
The real losers are likely to be the under funded up starts. These are the guys that will do it really tough over the next 12 months and i expect that they will either fold, merge with other up starts, or maybe (and i mean maybe) be bought. It is highly unlikely that they will be able to raise more money to fund growth. They will have to reduce costs to the bare minimum in the hope of riding out the storm but most will fail.
The question is what does this mean for zoomf.com, globrix.com, myhome.com.au, and the hundreds of other up starts around the world? Will they be the big losers from this financial crisis.
The only thing we do know for sure is that it will be an interesting ride and that the global property portal market will look very different in 12 months time.