‘Houston, We Have A Problem’ - Why Me Being Wrong About Online Agents’ Market Share Is Bleak For PurpleBricks

Posted by Properganda on 12th November 2019 -

Ok so let’s get this out of the way first as I really must pay homage to my trolls that love to remind me of this, albeit of course from behind their twitching digital curtains of anonymity. Thanks guys, you’ve inspired a whole article (but it’s such a shame that I can’t thank you personally)…

So, in 2014/2015 I was incredibly optimistic about the market share that I believed online agents could command. I was sincere in my belief that 30% of all U.K. homes sold would ultimately be via online agents. I may, on particularly enthusiastic occasions, have cited that a 50% slice was possible.

Why did I think this? Well, founder over-enthusiasm played its part, sure. But so did the data.

Between 2011 and 2015 Emoov doubled in size each year. As did the likes of House Network, House Simple etc. Then, in early 2014 along comes Purplebricks and duly quadruples in size in its second year as a consequence of good marketing and a humungous ad spend. Then they double the next year and so on. The logical conclusion? That the prospect for the growth of the online model was massive.

And it seems that hundreds of millions of pounds agreed with me, having been pumped into the sector by funds, VC’s, high net worth individuals, angel investors and family offices including some notable, infamous participants including Neil Woodford, DN Capital, Tosca Fund, Charles Dunstone, Simon Murdoch’s Episode 1 VC, Sarah Beeny, Savills, LSL, the Daily Mail Group and Richard Desmond of ‘Asian Babes’ notoriety turned legitimate newspaper and TV channel proprietor.    

Listings growth. Speculative money. A competitor IPO. International expansion… it was all going on and so, honestly, would anyone on the inside not have thought that the summit was much higher than it turned out to be?

The metrics vary a bit between The Advisory, Rightmove and Twenty EA with regard to the national market share of online estate agents. I rather believe the latter two more though given that they encompass all UK estate agencies and do not just take the onliners that they are readily aware of as The Advisory do and, by those measures, online agents list less than 8% of all homes marketed in this country. This despite a big, big effort by some very innovative and determined players with very deep pockets and, in fact, I’d estimate that altogether well over £150million has been spent by the top ten protagonists just on Google, Facebook, TV, radio and outdoor ads. 

The ad spend versus listing growth graph looks a bit like this:

As it turns out, marketing spend and resulting customer acquisition are not necessarily linear. The law of diminishing returns has its say and so listing growth began to stall in 2018 - but also as a consequence of the following perils:

·     Too many competitors (55 online agencies at one point) all trying to grow fast

·     Cost of acquisition increasing unsustainably with Google ramping up the click cost month by month

·     A fight-back from the traditional guys on fee value and the ‘peril’ of upfront fees (although it took them long enough)

·     And importantly, the realisation that the cheap-fee online proposition had a ceiling amongst consumers. ‘Too cheap’ is not for everyone, psychologically

To clarify (for the sake of the slower trolls at the back) when riding the crest of the wave five years ago it was understandable to forecast continuing growth as per the gist of the famous innovation adoption curve that states in essence that adopters of innovation are more open to adaptation than others and at earlier stages. Innovators first, early adopters next then the early majority and so on. But when the money spent was no longer equalling the same lift in business each year it only then became evident that the ceiling had been reached and that for a bunch of reasons the online estate agency cult had run out of Kool-Aid. 

Which brings me to those that are late to this particular party…

The PurpleBricks journey is like the Apollo 13 mission. It blasted off brilliantly albeit very expensively. It flew toward the stars guzzling fuel as it went but nonetheless mesmerising onlookers and giving its passengers a wild ride for a while. But then it went wrong and its destination became a hard bang down to earth instead of a moon-shoot. It too is dangerously low on oxygen as was a fate that befell the 1970 version. In my analogy the pilots have long since bailed out, landing softly in Hollywood. Literally. 

The Bruce’s stunt-double, Vic Darvey, has a job on his hands. He needs to make things look good and so, almost understandably, is reassuring investors, staff and customers that he can steer PurpleBricks to a 10% market share and certain prosperity now that the ballast of the US and Australian operations have been cast aside.

The problem with this is that PurpleBricks currently sits at less than a 4% market share nationally which, again for the slow ones, equates to an improvement in listings/revenue of 150%. Back in time, say in 2015, that would have looked easy. But in the past two years their growth trajectory has resembled the ordinary rather than the stellar. In their most recent numbers, UK listings were only 10% higher than the year before and so this means that at this new rate it will take approximately 10 years to reach their stated goal which I suspect is somewhat longer than Mr Darvey was inferring.

Put simply, if your trajectory is too low and you’ve spent all of your money on fuel and you can’t go any faster, what do you think happens? I’d say they’ve dropped a Clanger. 

Published by

Russell Quirk