I’ll cut right to the chase: OnTheMarket, the online property portal challenging Rightmove and Zoopla, does not offer more value to consumers compared to the existing alternatives. It serves no purpose and investing in such a business would be a horrible idea.

The power of network effects

The fully understand the case against OnTheMarket, we need to start with the concept of network effects. Simply put, network effects is the phenomenon whereby a service becomes more valuable when more people use it (Facebook is a great example).

Online marketplaces such as Rightmove and eBay are classic examples of businesses that benefit from network effects. The more people that use them -- buyers and sellers -- the more valuable the service becomes. If you’re selling something, you want to advertise to the biggest audience possible. And if you’re looking to buy something, you want access to the largest selection possible (think Amazon).

Businesses that have the benefit of network effects -- again, marketplaces and social networks are the best examples -- are incredibly difficult to displace. Because even if a new entrant’s product is objectively better, a smaller audience of potential buyers and sellers equals an inferior proposition. If you’re holding a garage sale, would you rather sell to an audience of 100 people or 1,000 people?

Providing value to users

As I’ve previously written in The 2 Principles of Startup Success, a new venture needs to provide more value to users than the other available options. If we use Clayton Christensen’s framework of “jobs to be done” as a basis (booking a flight, hailing a cab, keeping track of customers, or buying groceries), then the value of the new needs to exceed the value of the current.

Value can be defined many ways: cost, utility, and convenience are fairly standard measures. The value is what the user perceives and experiences on an individual basis, not what the provider thinks. Value originates with the user, not the new venture.

If you must explain your value, it’s not as great as you think.

If the value of the new is relatively close to the value of the current, you enter what I call “The Grind.” This is the unenviable position where you need to convince customers of the value you provide. As Jeff Jarvis eloquently states in What Would Google Do?, if you must explain your value, it’s not as great as you think.

The customer proposition of property portals

The value that property portals provide to consumers is straightforward:

For buyers: access to the largest inventory of properties for sale (tracked as the total number of listings)
For sellers: advertise your property to the largest collection of potential buyers (tracked as the total number of visitors)

Why OnTheMarket is a horrible investment?

Critically, OnTheMarket is a bad investment because it doesn’t provide value to users. There is no compelling reason for consumers to use the product compared to the existing alternatives (Rightmove and Zoopla).

Exhibit #1: OnTheMarket has a fraction of the total number of properties for sale

According to excellent research conducted by Exane BNP Paribas, OnTheMarket has around 5,700 agency customers, which is a fraction of the existing players (see the graph below). In fact, this number is down from 6,300 customers when last reported in 2016.

Earlier research conducted by MyOnlineEstateAgent showed that OnTheMarket had around 36 percent of the listings of Rightmove and 50 percent of the listings of Zoopla.

Looking at one region today, Bristol, shows 2,945 listings on Rightmove, 1,940 listings on Zoopla, and 659 on OnTheMarket. The market leaders have between 3x and 4.5x the total number of listings as compared to OnTheMarket, a non-trivial difference!

So: OnTheMarket has considerably fewer for sale listings than the existing alternatives.

Exhibit #2: OnTheMarket does not have the most visitors

In 2016, this story on EstateAgentToday discussed the relative traffic numbers of the major property portals. In it, OnTheMarket.com reported April traffic of 7.25 million visits, compared to Zoopla attracting close to 50 million average monthly visits to its website and mobile apps, while Rightmove receives more than 120 million visits each month.

In other words, the market leader, Rightmove, has over 16 times the traffic -- also known as potential buyers -- than OnTheMarket. Where would you want to advertise your home for sale?

The following charts from Similarweb show the same story (albeit with slightly different numbers, as web tracking is more an art form rather than a science). The market leaders have anywhere from 10 to 20 times the traffic of OnTheMarket -- and it’s not changing.

Web Site Visitors: Rightmove (orange) vs. OnTheMarket (blue)

Screen Shot 2017-09-12 at 3.57.23 PM.png

Web Site Visitors: Zoopla (blue) vs. OnTheMarket (orange)

Screen Shot 2017-09-12 at 3.57.58 PM.png

So: OnTheMarket has exponentially fewer visitors (potential buyers) than the existing alternatives.

Exhibit #3: OnTheMarket’s user interface doesn’t offer any advantages over the alternatives

In the same EstateAgentToday article linked previously, OnTheMarket’s CEO commented: “We have provided consumers with an alternative search platform which is clean, clear and responsive… There are no third party adverts cluttering the pages and the properties are displayed in the best possible light.”

He posits that the user interface of OnTheMarket provides a superior experience compared of the alternatives. Let’s take a look.

I’ll let you make your own judgement call, but from my perspective the user interfaces are basically identical: clean, simple and intuitive. I don’t see a massive value-add in what OnTheMarket is providing. If OnTheMarket was providing a superior experience, perhaps we would expect its web traffic to be increasing?

According to OnTheMarket, another value add they offer consumers is the ability to set up property alerts to be automatically notified of new listings. But both Rightmove and Zoopla also offer this functionality.

So: OnTheMarket offers, at best, an undifferentiated product compared to the market leaders, providing no additional value to users.

Why does OnTheMarket exist?

All of this begs the question: why does OnTheMarket exist? According to its CEO, it provides an “alternative search platform” for consumers. Which is really no answer at all.

OnTheMarket launched in 2015 to challenge the duopoly of Rightmove and Zoopla in the U.K. market. It was founded by a broad consortium of traditional real estate agencies who didn’t appreciate the market and pricing power enjoyed by the existing portals.

So: OnTheMarket’s reason for existing is to the benefit of existing estate agency owners and shareholders. Along the way, it forgot that it needs to provide actual, legitimate value to users other than an unnecessary “alternative search platform.”

Is OnTheMarket a good investment?

Rule number one in launching a new venture is to provide actual value to your users. It’s impossible to succeed without that key component.

On the verge of its IPO where it is seeking to raise around 50 million pounds at a valuation of between 200 million and 250 million pounds, you have to wonder who would be foolish enough to invest in the venture.

OnTheMarket provides no additional value to consumers. Investing in a business that serves no purpose and adds no value for its users is a horrible idea.

Disclosure: I am not an investor in nor do I have any financial relationship with any of the businesses mentioned in this article. I simply can’t stand bad ideas.