Rightmove – Creating value for property buyers, sellers and agents
Network effects and a sound operating model combine to create a clear market leader.
In 2014, Rightmove clinched the coveted title of the UK’s most searched for business on Google. In fact, the writing’s been on the wall for a while for Rightmove’s competitors in the digital space for property classifieds. The company commands a 78%[1] share of the top four UK property classifieds websites by pages viewed and currently has ~1.1 million[2] residential property listings (50% more than any other single portal)[3].
Tracing its origins to 2000, Rightmove was founded as a joint venture among the UK’s 4 largest real estate agents. As the UK’s largest online property portal, its business model benefits from strong network effects. To buyers, Rightmove offers an extensive inventory of free-to-view listings. The resulting consumer eyeballs drive demand from estate agents who pay monthly fees to place listings on the site, generating Rightmove’s primary source of revenue. This is complemented by additional fees paid by agents for value-added advertising products that more prominently promote a given agent’s brand and listings relative to those of others, or provide comprehensive market intelligence.
Rightmove provides the end user with a selection of listings within his or her selected post code, ranked by proximity or price. In order for the user to follow up on a particular option, he or she can then either call the agency’s number displayed alongside the listing or email them via the portal, either of which is recorded as a “lead” generated by Rightmove. This simple metric, along with page impressions[4], allows Rightmove to communicate its core value proposition to estate agent customers.
Since listing on the London Stock Exchange in March 2006, Rightmove’s share price has risen at a 27% CAGR (vs. the FTSE250 Index at 6%)[5]. Revenue has grown at a 17% CAGR over 2007-2014[6], aided by the migration of estate agent marketing spend from traditional to digital media channels as consumers move away from newspapers and towards web browsing to meet their home buying needs. This strong topline growth has been complemented by high operating profit margins of ~70% and cash conversion above 100%[7], given the company’s cost management and asset-light operating model respectively. A highly fixed cost base consisting primarily of employee payroll also drives substantial operating leverage.
Other key facets of Rightmove’s operating model are a i) culture of openness and innovation, ii) a focus on retention of “Rightmovers” (as employees are referred to within the firm) and iii) efficient data storage management. Firm culture is strengthened by an open plan layout, where a new employee could well be sat next to a senior executive[8]. Employees of all levels are encouraged to voice opinions and ideas, particularly given the company’s need to constantly innovate its delivery channels and product offerings for end users as well as agents. The company was quick to develop mobile/tablet apps and today sees more than 50% of its visits conducted through these channels[9]. An example of a product innovation for end users is the School Checker service, which provides details of all schools within a certain radius of a given property, aiding parents in their search for that perfect new family home.
Employees work 24/7 to ensure that the website and mobile/tablet applications don’t suffer from lapses in service. Retention of software engineers and sales teams is of paramount importance, with employees benefitting from regular “Have Your Say” surveys and ping pong tables on which to take breaks from work. System functionality is also hugely important and in 2008, Rightmove moved from having two datacenters to three[10]. Originally, management had had to invest in four servers, given two servers need to be functioning at all times and with each datacenter housing one backup. Moving from a “2n” to “n+1” approach meant the company now only invested in one server at each of three datacenters, driving efficiencies.
Rightmove clearly benefitted from a first-mover-advantage following its launch in 2000. However, the company has managed to maintain its competitive advantage due to a sound operational strategy that is only likely to be aided by the continuing migration of estate agents’ marketing spend from print to digital media.
Footnotes:
[1] 2014 annual report, p13.
[2] 2014 annual report, p13.
[3] 2015 interim results presentation, p15.
[4] This refers to the number of times a full page property listing is viewed by an end user.
[5] Capital IQ.
[6] Derived from 2014 and 2008 annual reports.
[7] Based on 2014 annual report. Cash conversion based on cash generated from operating and investing activities divided by EBITDA.
[8] http://plc.rightmove.co.uk/careers/our-culture.aspx.
[9] 2014 annual report, p2.
[10] http://www.datacentres.com/news/uks-no1-property-website-makes-rightmove-choosing-controlcircle-datacentre-services.
Great example of a company that benefits from network effects! At first it was surprising to learn that the company was started by the largest real estate agents. Agents usually value personal contact with potential buyers and similar sites like US based Zillow create a free to access and anonymous platform in which house hunters can search without ever having to contact an agent. The ads and listing fees have been successful for the company thus far, but I wonder if there is any interest in capturing value from successful deals through commissions, gathering user data through login requirements etc.?
Thanks for the comment, Marlene. Its founding history and business model are reflective of a company that isn’t trying to disintermediate the agents, given that for purchases of this level of materiality (e.g. house / car), consumers will dig around a lot online but eventually go to look at the product via an agent at least once. On the value capture point, as with other classifieds businesses (e.g. auto), the difficulty in establishing commissions on sales lies in attributing the true driver of a consumer’s decision to purchase. At the moment, Rightmove focuses on leads generated and full page ad views as tangible metrics that agents can track and pay for. The link between the ads and a lead is more easily drawn than that between the ad and an eventual sale. Also, part of the value of the ads is that it sends a consumer to an agent who may end up upselling a higher priced property to the consumer, something that would be ignored by the commission approach. The user data point is interesting, and I think a direction that companies like Rightmove will move towards as they look to offer more targeted advertising options for agent customers. However, it will be important for them to toe a fine line and not allow privacy concerns to be a deterrent for consumers.
Great example of how first movers keep their edge through technical/user experience innovation (e.g. tablet and mobile applications).