When we were contemplating the best revenue model for aussiehome.com, the online real estate portal we established in 1999, we considered the following main alternatives:
- Subscriptions – real estates agents pay regular fees to list their properties
- Advertising – advertisers pay for display ads on the website
- eCommerce – home seekers can buy/rent directly off the website
Any other revenue model you can think of is just a variation of the 3 above. Note that for each option you have a different paying customer. And knowing who your customer is, and what problem you are solving for them, as I have discussed in these pages, is critically important.
In subscriptions, your client is the real estate agent, and the users of the site (home seekers) get to use it for free. What would agents want in return? Enough enquiries (and as we learned over time, a listing edge) to justify these fees.
Advertising income means your paying customers are your advertisers. In return for the promotional investment on your site they expect to see lots of views of their ads, and click throughs. Likely advertisers would be banks, mortgage brokers, home builders and any other home-related businesses.
The final one is pure ecommerce – taking on the whole industry, competing against real estate agents, and selling/renting properties directly off the site. Back in 1999, barely 3% of all properties in WA were sold privately (ie by the owner, not through an agent). Fortunately, we discounted this 3rd option. We did not believe the world was ready for home owners to take a punt on a new website, chancing their arm with their largest financial asset (their house). 18 years later, this is still the case. Nearly everyone selling their property in 2017 does so through a licensed real estate agent, and REIWA member. ‘For sale by owner’ sites have floundered.
Selling ads, we thought, would be tough as we’d be up against Yahoo! and others and we’d need huge traffic to pull any decent ad dollars. This would mean raising a King’s ransom in funding, and blowing most of it on our own promotions. This seemed too risky. Another good decision this, as Google and Facebook would come along and scoop up nearly all of the digital ad money in Australia.
So, almost by a process of elimination, we plumped for subscriptions. Subscriptions is no easy solution though. Real estate agents, and most small business owners, resist paying ongoing fees. It adds to their costs, and makes their business riskier. They would be far happier paying for something large in one bulky purchase (as we found out, on such things as banner ads and websites).
Subscriptions is also a long, slow row to hoe. In order to get properties on the site, you need enough agents to be paying to load them up. Only then will visitors have enough content to peruse, find your site useful and return.
This is the major problem with brand new two-sided market places. You have to build supply and demand simultaneously, and this is extremely difficult.
When you’re building a 2-sided marketplace from scratch, how can you get demand when you have little supply, and how can you get supply when you have little demand?
Uber solved this curly one by paying the first drivers to sign up in a city some income, irrespective of whether they had passengers. They realised that the minute the first passengers used the service, there had to be Uber drivers nearby. Uber knew this first experience had to work well, so their early adopters would rave about the service. They grew from there.
We did something similar. We gave away 3-month free trials to our early real estate agents, so they could plop all their listings on the site, for free, in order to get some supply up there. As soon as the first people looked on the site, there had to be hundreds of properties for sale and rent. Once a few agencies were supporting us, it became easier to get others to give us a go. Obviously, this does not produce any income, so we could not do this forever. After our first year, we stopped giving away free trials.
Slowly, but surely, we started to earn monthly income. As agencies came off their free trials, they started to pay a fee. Not huge bikkies, but something. Once you get customers paying for your service, you are in business. They take it more seriously than a free offer. They update their listings, and then, something wonderful happens – they start to get enquiries. We could see the email enquiries coming directly off the site. (We could not see phone calls of course, but these were happening, so we were told.)
On top of this base of subscriptions income, we added some ecommerce (users could buy Landgate sales evidence online) and advertising (banner ads for agents, and display ads for mortgage brokers and the like). We then moved into web site design for our agencies (building their sites off our system), magazines and in time feed income so that our clients could be on up to a dozen sites through us. But it was the bedrock subs income that built the strong foundation.
As Seth Godin wrote recently, the ‘drip drip drip‘ of subscriptions is the most sustainable business model.
Newspapers have had to learn this. The NY Times put on 800,000 new paying subscribers since Trump was elected. Their shares are soaring, built off a base of 2.2 million subscribers, up more than 60% in the past year. Failing NY Times fake news indeed. Quite the reverse Mr President!
One thing that took me to Business News in 2013 was that their readers had been paying for subscriptions since 2002. By 2017, these subscribers were renewing at record levels, and subscriptions income was the largest single income source. A great local story of a media company taking a brave route, and prevailing.
Netflix entered Australia 2 years ago, and now 1 in 3 Australian households have a subscription. Quickflix, its Aussie competitor, started more than 10 years ago, never passed more than a few hundred thousand subscribers. Although prevailing against all other local competitors, they could not compete with the US-backed giant and shut down within months of Netflix’s entry.
Realestate.com.au’s valuation today is north of A$9 billion. I remember when it was worth $6 million, after the throes of the dotcom crash in Easter 2000. But it built itself up, and the ‘network effect’ of having pretty much every agency on board meant every agency had to be on board, and everyone went there to view properties. A complete 2-sided market of immense power, they could pretty much charge what they like. It now costs more than $1,500 a property to list on the site.
As my cofounder Nick used to say to me, “Charlie, get them on the drip.” How right he was.
