A new analysis of the simmering Rightmove crisis says there is now “no clear downside” stopping agents leaving.
The Financial Times says that Rightmove’s dominance in recent years has been a classic case of what it calls ‘the network effect’.
FT writer Bryce Elder says: “The past decade has seen money flood into any company that could claim to be carving out a dominant market position.”
It says that its market leadership grew and so, as a result, did its revenues thanks to agents contributing their inventories and having to pay fast-increasing fees.
But Elder then explains how the Coronavirus crisis has turned that position on its head: “If a company succeeds in establishing itself as the default route to market and that market then disappears overnight, those providing the inventory will want their pain to be shared. Advertisers expect reduced fees and subscription holidays. And if these incentives are seen as ungenerous, the company risks triggering an exodus that throws the network effect into reverse.”
Elder says the virus crisis is the first time that agents have been truly united in common cause against the monopoly power of the two major portals, citing past agent rebellions which ran out of steam quickly and “industry backed challengers such as…OnTheMarket failed to gain much traction.”
However, Elder suggests the current Say No To Rightmove campaign has touched a nerve in the industry.
“It was never obvious what might fuel a rebellion against the duopoly. Now, however, it is. With the UK property market paralysed by Covid-19 there is no clear downside to cancelling high-priced ad packages that generate no revenue. Time needed to seek other arrangements has also become plentiful” he continues.
The FT describes Rightmove’s response to the crisis - an ill-judged deferred payment proposal and now a 75 per cent fee reduction for four months - as “fumbled.”
The article also extensively cites an analysis of Rightmove’s current problems by City investment consultancy Jefferies, which is quoted as saying: “Rightmove management may think that its four month fee discount has now put its relationship back on a sustainable footing. We see the opposite … We see its actions as directly leading to an opening of the floodgates.”
The article explains: “Quelling the rebellion and preserving Rightmove’s market leadership will require a permanent cut to fees, says Jefferies. According to the broker’s forecasts, which are more than 30 per cent below consensus levels, Rightmove will deliver little or no earnings growth in the next two years.”
At the end of last week Estate Agent Today exclusively reported on a video interview between industry analyst Christopher Watkin and the leader of the Say No To Rightmove group, Acorn agency group chief Rob Sargent.
He says his group is already backed by 1,500 agency owners representing some 2,500 offices. He expects that this will reach 3,000 offices in the next 10 days.
He forecasts that the “tipping point” is coming in the near future for Rightmove and its competitors, in terms of how they move forward once discount periods and government furlough payments end as the Coronavirus crisis subsides.
However, the scale of Rightmove’s power and wealth is set out by the FT which says the company is wealthy enough to outlive the crisis and could pay its staff well into 2021 on current earnings.
The piece concludes: “Yet a valuation of nearly 30 times 2021 consensus earnings, a premium to its long-run average of around 26 times forward profits, suggests investors have priced in a post-crisis continuation of Rightmove’s status quo. Anyone who has tried to negotiate with an estate agent will appreciate the risks being baked into that assumption.”