Lessons Learned from The Fall of Emoov
It seemed that online estate agents were flying high in a honeymoon period where money was raised easily and the model was being hailed as the game-changing disruptor set to shake up the industry – so what went wrong?
This year, PurpleBricks lost almost 75% of its share price, Connells closed down their online-only offering Hatched, easyPropety was acquired by the very agents they were supposed to disrupt, and most recently, online agent Emoov went under, taking Tepillo with them.
Could it be the business model?
Hefty costs of servicing clients (portal fees), eye-watering acquisition costs, a pure transactional business model with large overheads, no chance to trigger repeat business from customers who are unlikely to return within 7 years, negative unit economics, burning most of your cash in OPEX and not CAPEX…. What could go wrong?!
Online agents are ending up in a situation where clients paying upfront fees for a new instruction are in many cases, funding the cost of servicing existing clients. If this were a fund management business, it could be described as a Ponzi scheme… This means that online agents rely heavily on a regular flow of new properties coming onto and off of the market.
In a seller’s market where property prices are on the rise and the amount of effort required to sell a property is not too overwhelming, the online agency model can prove effective. But as soon as the market shifted in favour of buyers and properties were no longer flying off the shelves, it became a totally different story. Essentially, Brexit changed the paradigm. Even Russel Quirk himself realised in 2016 that his leave vote was a mistake and could potentially put a nail in the coffin of his own business.
The online agency model has shifted substantially since the early days. Early operators worked with a simple pay up-front model and charged in the region of £100-£400 for the service (a far cry from the £800-£1500 charged by most online agents today). However, the pay up-front model has become less attractive due to the fact that the number of properties actually sold by online agents is reported to be roughly 40% of their inventory, leading consumers to request a pay upon completion option as well.
To be able to viably offer a no-sale-no-fee service, online agents needed to substantially raise their prices, resulting in the loss of their low-cost edge over the High Street. This means that in a large portion of the market, online agents are now not only in competition with each other, but are also in direct competition with the High Street, on a similar price point. Online agents are now converging towards the very model that they set out to disrupt – a model which requires even more working capital to successfully operate.
Again, just one month before calling the administrators, Mr Quirk himself realised the need to shift towards a more traditional estate agency service, admitting that the online model in its current form will not gain the traction needed. To many in the industry, it seemed that Quirk may have been requesting a cease-fire to allow him to sell his business to one of the traditional players that he had been bashing for so long.
The battle for market share has seen a number of newer online agents offering impossibly low, unsustainable price points (DoorSteps or 99Home) in an attempt to undercut the already unprofitable larger players. This strategy can work if you can achieve repeat business and monetise these heavily subsidised customers further down the line – but the chance of repeat business from your home-seller clients is slim to none.
Ultimately when a business is no more than a “shop window” to the portals, it fails to become a destination and needs to create positive unit economics for every transaction.
Is there an alternative model that can benefit both consumers and professional and get very one a better deal?
Marketplaces like Amazon, Auto-Trader, Ebay and Expedia, all benefit from the ‘Network Effect’, whereby a product or service gains additional value as more people use it. The Network Effect also has an impact in spurring the development of ancillary services, which increases the value of the service as a whole and diversifies a marketplace’s offering. Marketplaces are far more resilient because they serve all parties involved in the market and offer a diverse range of services across multiple verticals.
Another key benefit for marketplaces is that they can generate revenue from both B2B clients and B2C end-users. Amazon Prime is the best example in the industry. Suppliers pay to have their product or service featured on Prime and consumers pay to access to it.
Marketplaces become a destination for consumers and constantly increase the number of potential touch-points with their customers. This reduces acquisition costs and creates a life-time value per user that in many cases exceeds 5 times its costs of acquisition.
This is the beauty of the frictionless marketplace.
Is this applicable in the property industry?
Let’s look at lettings for a start. £50bn of rental money changes hands every year, generating £5bn income across the various verticals of the industry (tenant find, management, utilities, financial services etc.).
The variety of ancillary products and services that are taken up by both landlords and tenants throughout the rental lifecycle provide the perfect foundation for a property marketplace. By becoming a destination for consumers, a property marketplace can offer a free tenant-find service to all players, both landlords and letting agents, and still generate revenue through referencing checks, rent collection, utility switching, insurance products, eviction services etc. The breadth of services on offer and low costs of acquiring customers allow this model to function while keeping costs low for end-users and giving everyone a great deal.
Is this simply too good to be true? Well, maybe, but this is what TheHouseShop is about, and this is what we do. By working with everyone involved in the market and partnering with powerful and established players such as Experian and Facebook Marketplace, we have been able to develop our platform into a marketplace that delivers value to everyone.
People often ask me how we differ from online agents… The fact that our model goes far beyond the confines of a core listing service means we are much more resilient to the types of housing market changes that killed Emoov. By becoming a destination, we generate repeat business and recurring revenue from our users. The fact that many of our services can be taken up at any point in time, instead of just when a homeowner is looking for a buyer or new tenants, has been a key driver for our growth and clearly differentiates us from the online estate agents.
When it comes bringing innovation to the property industry, I strongly believe that the marketplace model is the most viable option that can deliver value to the entire ecosystem. TheHouseShop has embraced this model and we have already started to see the rapid growth and resilience that a frictionless marketplace can deliver. We believe everyone deserves a better deal and we have already started to prove that it is possible.
Not convinced? Want to know more about the power of platforms and marketplaces?
I cannot recommend enough that you read Platform Strategies, the book written by Benoit and Laure Claire Reillier from Launchworks, who are advising some of the largest platforms and marketplaces across the globe.