Last week I visited an old watering hole with a former real estate client. He’d been one of the first to give our fledgling online business a go back in our first year (1999/2000), when it was far from certain that we had a valuable service, or that we’d even survive.
[Our early clients gave us a ‘fair go ‘in that wonderful, open Aussie way. There’s something refreshing about this positive quality of Australian culture. It’s deep rooted. It explains why voters turn on governments that go early to the polls (Carpenter 2008) and why they backed the same sex marriage even though most would not get direct, personal benefit. It just seemed fair.]
Over a cool pint of Squires we reminisced over what has become of the real estate industry over the ensuing 17 years, and how it has adapted to digital disruption.
In many ways, the day to day job of the agent has not changed much. The essential ‘list and sell’ activities are much the same as they were in 1999. But a few things have changed forever.
“We used to drive buyers around properties”, my agent friend recalled, “We’d have to arrange to get the keys of the various properties and then pick up the buyer and visit them all. We don’t do that anymore as these days everyone has the information to hand on their phones. Who’d have thought that back in the late 90s?”
Another major change is more obvious – the shift from print advertising to online.
Back in 1999, the real estate lift out of the Saturday paper used to be 120 pages thick with row upon row of property ads. Last week’s lift out (if you call it that, as it took little effort to “lift”) was 20 pages thin, and most of this was taken up by one page display ad fillers. There were barely 4 pages of classified (lineage) ads. Back in the late 1990s, this lift out was the real estate bible. If it was not advertised in there, the listing was invisible. Agents would crawl over hot coals to get mentioned in the editorial section.
My real estate remembered a story of that time.
“The newspaper salesman visited our offices every year to “negotiate” the annual price increases with us,” he told me, “One day he was acting so arrogant, it really got on my nerves. He knew he had me over a barrel. What choice did I have? I got so annoyed I almost kicked him out of my office, to which he said ‘But I can get you tickets to the footy!’
“‘I don’t want to go to the footy with you!’ was my reply.”
How the power has shifted since.
A quick back of an envelope calculation suggests that the local Saturday paper used to rake in $1million a week in classified real estate ads at the turn of the millennium. $50M a year. And they would have done similar numbers in car, boat and job ads.
Nearly all of that revenue has gone online since, lost forever. It’s a salutary lesson for anyone thinking they are impermeable to change.
If the mega-profitable price-making monopolist newspaper business sitting pretty in a secure, isolated market can be taken down like that, then who is safe?
Back in 2000, the relatively small real estate website business, realestate.com.au (now called the REA Group) was worth barely $6M, was running out of cash and close to folding. It had had 3 CEOS in 4 years. In WA, less than 30 (of the 1000 or so) real estate agency offices listed properties on its website. The business did not put sales boots on the ground until 2002. In 2000/2001, the same newspapers REA would later disrupt were publishing articles crowing over its imminent demise post dotcom crash.
Yet slowly and surely realestate.com.au took hold, and today, 17 years on, is worth $10Billion. Yes, ten billion. That means its value has risen 1,600 times over the ensuing years, and is far more valuable than the various print media empires it disrupted. Imagine betting a lazy $10K on that – it would be worth over $16M today.
REA’s growth in value was not some fast unsustainable bubble; it was a slow, inexorable growth borne from the strong underlying shift of real estate marketing dollars from print to online. It’s the kind of growth in value that sticks.
Fundamentally, online platforms offered better value than print (for advertisers and users), 24 hours a day service, and agents could update the ads themselves whenever they liked (rather than phone them in by Thursday lunchtime as they used to do). The web offered agents the ability to build their own virtual shopfront (website) and have databases emailing out new listings to potential buyers automatically (alerts). The web offered ease of comparison, mapping, calculators, access anywhere anytime, and the ink did not come off on your fingers either.
It was fairly obvious that the web would replace print over time, and the leading website would make the lion’s share of the money. Instead of dominating one local market, the #1 website would dominate an entire country, and that’s what REA Group did and why they are worth $10B.
The irony, not lost on my real estate mate, is that the internet did not save agents from paying exorbitant advertising fees, it just shifted them from print to online.
“We went from the frying pan into the fire!” said my mate.
“But here’s what I want to know,” asked my former agent friend, “When will we be disrupted? Will we be ultimately be replaced by AI or some new technology?”
“Now that’s a good question,” I replied, “You have to think it will happen in the next 5, 10 or 20 years. My guess is it will happen slowly, over time. While it’s happening, it will be easy to ignore. Many will scoff at the suggestion that real estate agents will be replaced by new technology like AI or an app. There will be disbelief, laughter and scorn, just as the rug is being pulled out from under them. It’s exactly how print behaved just as they were losing the battle unknowingly.
“But what happened to print media, Blockbuster, Kodak, Nokia and the postal service… will happen to you someday. It might arrive with little fanfare. It might take years to take hold. But you can bet some well backed tech business will reinvent how property is bought, sold and rented. If they make the experience far better than an agent, and their system becomes trusted and feels secure while saving loads of money, you can be sure people will give it a go.”
That’s digital disruption, in a nutshell.