Finding a market gap or disrupting/competing with incumbents — Ray’s PropTech Weekly #34

Subscribe to Real Estate Pundit’s newsletter

Friends, Feudal Landlords and Commoners,

You hear it endlessly: “why hasn’t anyone disrupted real estate.”

What they often mean is why hasn’t anyone disrupted real estate agents.

There are many reasons why disruption hasn’t been knocking too hard at the door for agents.

But tech isn’t just about disruption. Often, and in my opinion in it’s better form, tech is about enabling behaviour that didn’t exist before.

People like Ben Thompson (of Stratechery) talk about how Facebook and Snapchat have filled the empty time in our day, and therefore changed the way we use our time.

He also talks about how some companies, like Amazon, have leveraged the Internet and better customer service to ‘own’ people’s behaviour. He calls this aggregation theory.

Aggregation theory absolutely applies to property: Rightmove (and Zillow in the US,Realestate.com.au in Australia) own consumer eyeballs when it comes to property.

But none of these websites sell property. They’re just listings services for real estateagents to pay for access to consumers.

And that’s why agents pay for access: they feel they have to. These brands dominate mind share.

And they are typically winner-takes-all markets.

There are start-up examples of this in the UK and US:

Fixflo — it’s repair reporting service is so simple and effective, that it’s cheaper for agents to partner with Fixflo. They set a standard and have a lead that no-one can compete with. And of course, they positioned themselves as a partner. The best partner. It comes down to the domain knowledge of founder Rajeev Nayyar. He uniquely understood the problem and continues to deliver a solution people genuinely love.

Compstak — free lease comps, for agents. So naturally agents give them comps in exchange for others. The barter helps Compstak crowdsource the best database of comps. And because it’s free they operate not in competition, but in partnership with their customers. And again Michael Mandel has genuine domain expertise. Compstak makes money by selling market ‘intelligence’ products to institutional money managers.

Land Insight — finding land to build homes on is the biggest impediment to solving the current housing crisis. Jonny Britton has the unique domain expertise to solve this problem. His product brings in every dataset imaginable so you can draw on a map and see who owns that land, what is allowed to be built there and anything else of value. The real key: he’s filling a gap that no incumbent sits in, and will be the partner of choice for every single property firm in the UK.

Realla — this last one fits my pattern: sitting in a market gap and genuine domain expertise with Andy Miles’s British Land background and Ian Parry being the founder of Globrix (which would still stand up as the best property portal today, if Zoopla hadn’t acquired and killed it). But Realla’s end game isn’t as much of a market gap as the other examples. Andy doesn’t talk about it because he’s disciplined and focusing on their current solution: digital marketing for commercial real estate — not many in this space at all. If he wins the marketing custom of commercial real estate agents, he’ll have the data, the credibility and the technical chops to perpetuate a genuinely dominant commercial property portal.

All of these companies prove that it’s much more exciting and profitable to find a market need and partner with incumbents.

Then there are the those who wish to disrupt. And they largely fail because their motivation is wrong: they aren’t establishing new and better behaviours for consumers. They are actively treading on the toes of the incumbents.

Yes, I’m talking about Zoopla.

I published a piece in Property Industry Eye about online mortgage broker Trussle announcing they are integrating with Zoopla.

What the story doesn’t come out and say explicitly is that Zoopla’s biggest customers, Countrywide and Connells, are set up as agents to get that mortgage brokerage income.

It’s quite farcical that as independent estate agents across the UK ditch Zoopla because of numerous conflicts of interest, the biggest agency firms have minority shareholdings in Zoopla and continue to back it.

And in return, Zoopla is making a play for the very core of their revenue streams.

My prediction is this will be the straw that breaks the camels back. Within 12 months Countrywide and Connells will join their peer group at OnTheMarket.com and ditch Zoopla.

To give Alex Chesterman credit, he’s played the perfect game of increasing EPS (earnings per share) through acquisitions — and hiding the loss of income and audience from Zoopla’s core property portal offering. First uSwitch, and more recently Property Software Group.

He makes money for his shareholders.

But Zoopla is the anti-innovation company. They cloned Rightmove and have consistently acquired to create shareholder value.

They epitomise smart, the word their branding has helped them to now own.

But there’s more to this story: the future of agency.

Specifically the digital future of estate agents.

Online agents have so far disappointed: they’re nothing but cheap listings services (initially enabled by Zoopla and therefore enraging their customer estate agents), and as last week’s post highlighted, the majority of people don’t think it’s worth using them.

Online agents today just don’t have any domain expertise that translates into an agent killing product.

But Trussle does point to the future.

If this young start-up is transformative enough that Zoopla wants to integrate with them (and make money from mortgage referrals), then surely every single estateagent should be taking up the same opportunity?

Please feel free to relay news, tips and comments @RayhanRESI

Ray’s PropTech Weekly XXXIV

Upcoming Events

Realogy FWD — 21 Jun — RealogyFWD.com
Realcomm 2016–21–23 Jun — Link
Inman Connect SF — 2–5 Aug — Link

WeWork freezes hiring and cuts staff (The Real Deal)

Adam Neumann doing his best impression of Icarus? Link

Reonomy co-founder Guillermo Sanchez leaving start-up (The RealDeal)

It’s about the people: Link

Trussle’s dream of one-click mortgages (The Memo)

In-depth look at Trussle by the respected tech journal: Link

Eddie Holmes interviews Compstak’s Michael Mandel (Soundcloud)

I must admit as a huge fan of Compstak I express incredible bias when I say this is the best Proptech podcast yet. Listen 15 minutes in and you’ll see proof of Michael’s domain expertise. A shorter listen than usual and one I would recommend you don’t skip: Link

Financial Times calling the top of UK house prices (FT)

Multiple articles, backed by lots of industry quotes. They’re wrong, but hey, it sells papers to constantly year after year call the top of the housing market. The market is cyclical. It will go down at some point, before recovering to higher highs. What you need to understand is that house prices are tied to the supply of money. As the money supply increases, a greater proportion will go where it is treated best: residential property. No, not blocks of flats. Homes. The places you aspire to live are the places the most money is chasing. And therefore homes appreciate at a faster rate than inflation, in the most consistent/low volatility manner. There’s a point to this: data could point out genuine downturns, peaks and troughs. Here’s the doomsaying FT piece: Link

VTS CEO Nick Romito gives a polished TV interview (Fox)

A company that successfully pivoted from domain experts to tech start-up: Link

Roofstock founder Gary Beasley talks about the next phase of innovation in real estate tech (Inman)

Former CFO of Ziprealty (one of the original tech-enabled brokerages which was acquired by behemoth Realogy) talks about his experiences and what he sees coming next: Link