It´s probably too early to fully judge the performance of the new model in the German real estate market.
Portals across the world are pushing innovation in all areas of their offering and operation, but in my view, here is one area where effective innovation has not been particularly relevant and that is: basic pricing models. The basic portal pricing package is the inclusion model; this is where agents pay a monthly fee, usually on a per office-branch basis or a package basis: 30, 50, 100 listings. On top of this basic package, portals can add new options: visibility, branding…
There are still new entrants who are pushing the performance model (charging per lead) or freemium model (free inclusion, and then visibility packages per listing) that seem to work better with horizontal services than with pure vertical players (i.e. Leboncoin).
This is why we, at Daybat, think that the Immoscout24 approach is innovative and unique in a non-exclusive market like Germany. Under Greg Ellis’ leadership, and based on his experience in the Australian market, the company adopted a new pricing scheme in 2014. This is my understanding of the essence of their model:
The key changes in the new pricing model
So long as the agent keeps their former spending (i.e what they paid last year), the inclusion of all listings has no additional cost.
Agents can then allocate that spending to promote any of their listings with four products:
- Showcase listing with a cost of €999 per month
- Premium listing with a cost of €149 per month
- Top listing with a cost of €79 per month
- Free listing. There is a fourth one that has no cost.
Each product has a different visibility package associated with it, higher price, higher visibility.
The process of encouraging agents to adopt the new model is shown below.
Source: Jefferies, Scout24, Company Note, 10 November 2015.
What was the logic of implementing this pricing model?
In our view there were three main factors pushing the change:
· Comprehensiveness. Ensure that all listings available in the market were present in Immoscout24. The former model pushed agents to select listings and therefore excluded some listings. That was bad for users and therefore bad for Immoscout24. This is, in our view, a major reason for the company changing its pricing model. Having full availability tremendously re-inforced their position and, more importantly, forced competitors to follow a similar model.
· Revenue protection. To ensure that revenue is maintained and overtime increased. For a publicly-listed company or soon-to-be IPO, this factor should have been included in their previous model.
· Revenue growth. Again essential. This required that Immoscout24 delivered on two fronts.
Value for Money. Significant incremental value delivered with a higher price charge.
Rivalry. Among agents for each query or Search Engine Result Page, SERP (location, price range…) to lock a prominent position or enough audience to ensure the selling of the property.
With this top-line intro, and with the data collected at Daybat, we sat down and performed our analysis. These are the results and what we learned.
Evolution of featured sales listings over 2016
As the data suggests there is no growth in the number of listings being displayed as featured (Showcase, Premium, or Top) neither as a % nor in absolute numbers over the period analyzed in 2016. None.
Is the new pricing model a success?
We think it is still too early to tell. The real estate industry in Germany was under pressure in 2016, mostly due to the lack of enough inventory. The number of agents has not grown, quite the opposite. Therefore Immoscout24 has been a very strong leader (with a very high penetration) and had a difficult job growing revenue when customers are closing shop.
The company wanted to protect its previous revenue (that was probably a requirement) and therefore agents had to allocate their spending into premium products regardless of their need. In a market with a lack of supply, there is no need nor enough incentive to spend more than the committed budget. And last, without competition (not enough demand from agents), there is no way to create a rivalry.
In the case of the Immoscout24 pricing model, we do not think that other country´s leaders will follow the pricing initiative in the near future, but it´s too early to call it a failure. In practice, if the market turns and agents start to compete with each other for buyers, (and not for sellers), we think it might work.
This article first appeared in Linkedin