Traditional vs Tech: How the U.K.’s biggest real estate incumbent is reacting to digital disruption

Written in collaboration with Eddie Holmes, partner at PropTech Consult.

It’s indisputable that digital transformation is occurring in real estate and changing the way people buy and sell houses. Nowhere around the world is this more evident than in the U.K., where upstart online agencies like Purplebricks have captured market share and are growing fast.

Often, we spend most of our time looking at the disruptors. But for every disrupter, there are those being disrupted. In this case that’s Countrywide, the U.K.’s largest estate agency group.

Countrywide’s stock price is down over 50 percent during the past 12 months, shedding hundreds of millions of pounds in value.

But the firm hasn’t stayed still; in 2016 it launched its own online offering, which is now rolling out across its massive network. But while credit should be given for moving early and quickly, Countrywide’s strategy raises serious questions around the viability of the offering and if it was, in fact, designed to fail.

Background

Countrywide is the largest estate agency group in the U.K. Founded in 1986 following the acquisition of two estate agencies by Hambros, the company grew through sustained acquisitions of businesses such as Nationwide and John D Wood estate agents.

Today it employs 11,300 personnel across 1,500 branches under 47 high street brands.

Trading as a property services business, rather than simply an estate agency, Countrywide provides a range of services to homebuyers, sellers, renters and landlords.

Countrywide has been the hardest hit estate agency incumbent in the U.K.

The perfect storm of macro economic factors affecting the housing market combined with the rising competition from online agencies has brought immense pressure on its business.

This has come about in the context of an organization that was not known for the robustness or depth of their technology systems before the market dynamics changed.

Purplebricks is the largest of a new breed of online agencies. Its proposition to homeowners is a low, fixed-fee, combined with smart technology to save consumers thousands of pounds when selling their home.

Together, these firms have captured 6 percent of the market in the U.K., and continue to grow.

To illustrate their different fortunes and trajectories, the chart below shows share price changes over the past 16 months for Countrywide (orange) and Purplebricks (blue):

Countrywide’s stock price has taken a hammering. Meanwhile, Purplebricks’ market cap is greater than the two largest listed estate agency groups in the U.K. combined, showing a clear picture of where the investment community sees the future of the industry.

If the investment community was bearish on the entire real estate market, Purplebricks’ market cap would be much lower. But the reality of the markets shows a clear preference toward where the future lies.

This market pressure is affecting all estate agency groups in the U.K. The chart below shows how three of the largest players have seen their revenues and profits impacted over the past 12 months. Countrywide is not alone, but it has been the hardest hit:

We’re at a pivotal point for the entire industry and for Countrywide in particular. This is a business in decline, and the line between death spiral and a rebirth is razor thin. The chart below shows the Countrywide story as only numbers can do: flat revenues and decimated profits.

Anthony Codling, an analyst at the investment banking group Jefferies — which has previously acted for Countrywide — sums up his position: “Although Countrywide may be down, it is not out and if what doesn’t kill us makes us stronger, we expect the group to emerge strongly from the storm once it has run its course.”

But it is still unknown if this will kill Countrywide. Only time — and its strategy to combat the rising tide of online agencies — will tell.

Countrywide reacts

Countrywide’s strategy became clear in 2015 and has two main pillars under the title “Building Our Future.”

• Launch an online hybrid competitor of its own (the multichannel approach)
• Rationalize the existing business by closing branches and consolidating brands

These efforts resulted in the pilot launch of its new, online offering in May 2016, and the closing of 200 branches and four brands in 2016 (leaving Countrywide with 991 branches and 47 brands).

The restructuring of its business didn’t come cheap; £8.1 million of redundancy costs and £15.8 million of property closure costs, plus a £19.6 million goodwill impairment charge.

The investment in the new technology platform was an outsourced build, rumored to cost an additional £6 million, while salary expenses for the year increased £6 million to £366 million.

Clearly, Countrywide is spending significant cash and investing in both pillars of the strategy. It has also executed both pillars simultaneously, which must have caused significant cultural challenges among the workforce at a time when laser focus on the online pilot — instead of restructuring — was critical.

An inconclusive pilot

Countrywide sensibly rolled out its new online offering across three test markets. This allowed it to get to market fast, collect real customer feedback, and (we assume) incorporate that feedback back into the product.

The data below tracks Countrywide’s daily listings via the three brands used to pilot the scheme and shows that overall listings are down versus the previous pre-pilot performance:

Systemic issues with the offering

Countrywide ran its pilot and subsequently launched its online offering under its existing brands and corporate structure. It is positioned as an additional service, rather than as a separate offering, as evidenced from the messaging below.

This means that the new offering — which is being offered at a fraction of the cost of existing services — is operating within the same cost structure, making it difficult to turn a profit.

Marketing this service under the existing Countrywide brands and utilizing existing marketing channels (in the case above, the Entwistle Green website) raises some questions about the purpose of the service.

It is widely accepted that tech-driven businesses typically acquire newcustomers in new ways when compared to their traditional business competitors (for example, through smart digital marketing).

The ultimate goal of pushing services through new channels is to achieve an element of virality in the spread of the product, which reduces the cost of customer acquisition and creates the opportunity for larger profit margins.

However, by using traditional marketing channels under existing brands, Countrywide is not likely to reach new customers in new ways.

Instead, it is only reaching those potential customers who already know their existing brands well enough to find themselves on the website. Therefore it only serves to cannibalize the existing customer base by selling them a lower priced service while simultaneously failing to bring in new customers.

The brand extension problem

In March of this year, Australia’s second biggest real estate group, LJ Hooker, announced that it would launch its own DIY real estate disruptor, Settl. The new brand empowers vendors to sell their homes online, in exchange for paying a low fixed fee. It is a direct response to Purplebricks’ 2016 launch into the Australian market.

The key difference between LJ Hooker’s Settl and Countrywide’s online efforts is one of brand. LJ Hooker is creating a new “fighter” brand, while Countrywide is opting for a brand extension.

A fighter brand is designed to combat low-price competitors while protecting an organization’s premium-price offerings.

Imagine you own a lemonade stand that sells premium lemonade. You’ve been in business for years and are well known for offering premium beverages.

One day a low-cost lemonade stand opens across the road, offering lemonade at a tenth your price.

What LJ Hooker has done with Settl is to tackle the new competitor by opening its own, separate low-cost lemonade stand. To the customer’s eye, there is no connection with the existing LJ Hooker brand or the premium values associated with it.

What is Countrywide attempting to do? Sell low-cost lemonade alongside its premium lemonade, at the same stand. Not only is this confusing to customers, but it cannibalizes its existing premium business.

The history of fighter brands is not hugely positive. However, excellent examples can be seen with Intel’s launch of the Celeron processor to combat the threat of low price AMD chips, and the creation of JetStar by Qantas to see off the threat of low cost rival Virgin Blue.

(For more on fighter brands, see “Should You Launch a Fighter Brand?” on Harvard Business Review.)

By launching a brand extension, Countrywide is missing out on the classic benefits of a fighter brand: eliminating competition, protecting the existing premium offering, and opening up new, lower-end markets for the organization. Countrywide’s approach begs the question: Is the offering truly meant to succeed?

Conclusions

The fact that Countrywide’s online offering is a brand extension that does not offer the benefits of a fighter brand leads to two equally straightforward conclusions.

Either the entire endeavor is ill-fated due to major strategic positioning issues, or it is simply a lead-gen effort to support the incumbent business. The continued pursuit, at the cost of a £38m rights issue, of the strategy after an inconclusive pilot suggests this is the case.

Countrywide felt forced to do something; online agencies are perceived by the financial markets to be the greatest threat to its existing business. Purplebricks’ continued momentum, market traction, and rising stock price demanded a response from senior management.

There were a number of options available.

Countrywide could have invested in or acquired another online player in the market, it could have launched its own disruptive brand (as LJ Hooker has done with Settl), or it could have launched a new offering internally.

For whatever reason, the choice is the latter. Viewed from the outside, Countrywide now offers a service on par with the online agencies.

It can tell the market and prospective customers that it also offers a low-fee, online offering. However, customers don’t seem to be buying the new service and the markets aren’t buying the strategy.

In reality, the brand extension offering cannot succeed on its own.

At best, it achieves product parity with online agencies, and offers a platform to upsell potential customers to its premium estate agency proposition.

However, it does not suggest that the business has thoroughly understood the challenges that this must create around issues such as incentivization of staff or servicing a totally new service line with the existing infrastructure and cost base.

If Countrywide’s offering was designed to fail — that is, to not succeed as a standalone business or product, but as lead-gen for its existing business — it does not mean it is a bad strategy.

In fact, it may be the best course of action for the large incumbent as it is relatively low risk and keeps its options open. But if the offering was not designed to fail, significant changes are clearly required to give it a chance of success.

Growth in new markets: An analysis of Opendoor, Knock, and OfferPad

Last December we conducted a wide-ranging analysis of Opendoor, the real estate startup that purchases homes directly from sellers. A look at of thousands of MLS records formed the basis of that piece, showing trends and extrapolating insights from the data.

At the time there were a number of unanswered questions we wanted to dig into: how much money does Opendoor make per transaction, how big could the model really get in the U.S., and does Opendoor have a sustainable competitive advantage against competitors?

Four months later I’m once again looking at the data, with these questions on my mind:

• What does Opendoor’s traction look like in its (relatively) new markets, Dallas and Las Vegas?
• Are there any notable changes in Opendoor’s fundamental business operations and metrics?
• Opendoor has two well-funded competitors in the market, Knock and OfferPad. How are they doing?

After looking at the data, there are three main observations:

• Dallas, Opendoor’s second market, is doing remarkably well. The transaction volumes there reached parity with Phoenix after only six months.
• Las Vegas, Opendoor’s third market, is off to a slow start. Key metrics suggest Opendoor is still finding its sweet spot in that market.
• Knock, Opendoor’s Atlanta-based competitor, is very early stage and has yet to ramp up in any significant fashion.

A snapshot of current volumes

Last time we looked at the data (at the end of November 2016), transaction volumes in Phoenix were going strong, Dallas was on a promising upswing, and Las Vegas was still small.

Since then, overall transaction volumes have surged from around 200 home sales per month to over 300 sales per month in February. In other words, in February, Opendoor was selling ten houses each day (including weekends) across all three markets. Not bad!

This growth appears to be driven by sustained volumes in Phoenix and very strong growth in Dallas -- putting that market on par with Phoenix after only six months.

Opendoor does Dallas

Let me be clear: I’m impressed with the growth in Dallas. When I’m evaluating new businesses and new business models (see my article, The Two Principles of Startup Success), I always look for business model validation (does this work in one market?) and then the ability to scale (can this be replicated in another market?).

Opendoor’s success in Dallas is a resounding answer to that question. Yes, the business can scale beyond one market. This is a noteworthy achievement for the firm.

Like Phoenix, the average selling price in Dallas is well-clustered. During the past three months, Opendoor’s median sale price in Phoenix was $210,000, compared to $212,000 in Dallas.

This suggests that, like Phoenix, Opendoor has found its sweet spot in the Dallas market. It deals with houses in a narrow and specified value range and (generally) does not deviate from that.

Opendoor credits its success to the team in Dallas and their focus on providing customers an experience they love. “We're seeing that customer love translate to growing word of mouth, and a growing business there,” said JD Ross, one of Opendoor’s co-founders.

What about Las Vegas?

I’m so glad you asked. Opendoor started listing and selling homes in Las Vegas at about the same time as in Dallas, last September. But growth has been slow ever since.

The sale price is not as well-clustered as in Dallas and Phoenix. There’s quite a spread of prices that Opendoor sells its homes for.

The median sale price in Las Vegas is also materially higher than Opendoor’s other markets, sitting at $322,000 (compared to $210,000 and $212,000 in Phoenix and Dallas). It’s not a factor of higher house prices in Las Vegas, either. According to Zillow, the median home price in Las Vegas is $209,000 and the median listing price is $247,000 -- which is on par with Phoenix and Dallas.

In Phoenix and Dallas, Opendoor is selling homes for roughly the market’s median home price. But in Las Vegas, it’s considerably higher.

Opendoor has been selling homes for six months in Las Vegas; perhaps its median sale price started high but has been falling to normal levels over time? Nope.

There’s a noticeable oddity in the Las Vegas market, with slow growth, a less-clustered sale price, and a sale price that’s higher than normal. Why?

It’s because Opendoor’s approach to the Las Vegas market is different. “In Vegas we've been focused on partnerships, and haven't pushed to expand to the broader market there yet,” says JD.

This is a different approach than Opendoor has taken in its other markets, with correspondingly different results.

Opendoor has partnered with Lennar (a new home builder) to offer the Lennar Trade Up program for Las Vegas homeowners. It’s a way for homeowners to “trade in” their existing homes to Opendoor as part of a package to buy a new home from Lennar.

This is a different approach than Opendoor has taken in its other markets, with correspondingly different results. My guess is that it’s a lower-cost option for the firm that effectively outsources lead generation to a partner while allowing Opendoor to focus efforts elsewhere. In other words, it’s a test, which is exactly what a you’d expect from a young, growing company.

Knock, Knock

Since the last analysis, two well-funded competitors have entered the U.S. market: Atlanta-based Knock and Phoenix-based OfferPad. Both announced that they raised over $30 million each in January of this year.

Knock is live in Atlanta and currently trading with tiny volumes; we’re talking about one home sold each of the past two months. It also has a very small number of new listings each month, anywhere between one and six over the past four months.

Knock either does not have the price discipline we’ve seen work so successfully for Opendoor, or is not yet enforcing it.

The median sale price for Knock’s ten listings that sold is $290,000. But underneath that, if we look across all listing prices, you can see they’re not clustered at all. The home values are all over the show, meaning Knock either does not have the price discipline we’ve seen work so successfully for Opendoor, or is not yet enforcing it.

There are several key takeaways in looking at Knock:

• This is a difficult business to be in. Raising money doesn’t give you market share. It takes time, skill, and good operations to build scale.
• Knock is super early stage. Its transaction volumes suggest it is still tinkering with its core operations and proving it can make the model work before attempting to scale up.
• Price discipline is important. It may be tempting to deal with higher-value homes where the fees are correspondingly higher, but Opendoor has shown us where the sweet spot for this model really is.

OfferPad, on the other hand, is a more mature business with better traction -- at least in the Phoenix market. With the help of friends at ATTOM Data Solutions, a real estate data company that aggregates data directly from property records (as opposed to my usual MLS sources), I was able to gather a snapshot of relative traction for both businesses in Phoenix.

It's worth a deeper dive into OfferPad, its model, and relative merits. But that will have to wait until another time.

A look at Opendoor’s operations: anything interesting?

To wrap everything up I took a quick look at Opendoor’s core business metrics to see how things are tracking.

To begin with, the much-talked-about home value appreciation has stayed the same with a median average of 5.4% (looking at 43 recent sales). That’s the difference between what Opendoor buys a home for and eventually sells it for -- about $11,000.

And listen: That’s the difference between the buy and sell price. Opendoor takes on a number of costs associated with sprucing up, holding, and selling a house. So don’t confuse that number with profit; it’s not.

If you prefer small dots to blue bars, below is another way to visualise the same data.

The average days on market in Phoenix has seen a slight improvement, moving down to a median average of 41 days from 47 days in the last analysis. That’s a 12% improvement, which if I were running the business I would have as a key metric. It’s a small improvement -- but when time is money -- a welcome one!

Opendoor also has a new logo.

It will be interesting to watch Opendoor’s progress from here. With Phoenix and Dallas firing well, will it expand to a handful of new markets, or is Las Vegas the next area of focus? When it enters new markets, will it follow the partnership model? And will Opendoor launch in Atlanta before Knock puts the foot down on the accelerator?

Are you researching iBuyers like Opendoor and on the hunt for data? Do you work at a consulting or venture capital firm? Check out the iBuyer Analysis Pack.

easyProperty: lessons in how not to build a business

On March 29, easyProperty released its full year 2016 financials to the U.K.’s Companies House. While a few days early, it turns out that it wasn’t an April Fool’s Day joke. The numbers announced begged to be looked at further.

EasyProperty, launched in 2015, is a hybrid online estate agency in the U.K. It has a similar business model to Purplebricks and eMoov, which aim to sell houses for a low, fixed fee instead of a percentage-based commission, and thus disrupt the traditional real estate agency and brokerage model.

EasyProperty has raised just shy of of £40 million since inception, making it one of the best-funded entrants in the field (second only to Purplebricks).

What drew me to this story is the sheer amount of money raised and subsequently spent. According to its filings, easyProperty had a full year loss of £11.4 million in 2016, having lost £6.8 million the year before.

And what did that money buy? A staggeringly small £874,000 in revenue for 2016.

How did easyProperty manage to spend so much money and achieve such little market traction? It’s a crowded space, but there are a number of other players making significant gains. To me, this is a lesson in how not to build a business.

The Purplebricks comparison

Let’s look at Purplebricks for a comparison. It’s a direct competitor as a hybrid online estate agency, also a start-up, and because it’s publically listed has financials we can analyze (which I did so here, looking at how Purplebricks has successfully scaled).

Let’s start with an overview using the most recent data available. For easyProperty, this is its full year 2016 results. For Purplebricks, we have its half-year 2017 results, announced last December.

While the time periods don’t match up, it’s clear to see the disparity between spend and traction.

What’s striking is not how much money easyProperty is spending, but how little return it’s getting for that spend. Back when the business launched, Mr. Ellice, the CEO, is quoted as saying the company expects to be listing 4,000 to 5,000 properties each month by 2016. Two years later, the reality is around 80 properties per month.

There are a few interesting ways to slice this data. First, let’s look at the total cost per listing. This is what each business is spending per listing. Clearly there will be economies of scale and it should be nonlinear, but looking at the metric is illuminating!

EasyProperty is spending around £12,000 for each of its listings, compared to around £1,000 at Purplebricks. That’s not a great return for the massive sums being spent.

At a higher level, we can also look at how much easyProperty is spending for each £1 in revenue. Spoiler alert: it’s not pretty.

So while Purplebricks is spending around £1 for every £1 in revenue (breakeven), easyProperty is spending £14 for every £1 in revenue. That’s an outrageously bad return on investment.

If easyProperty had simply given away 1,000 listings at its list price of £825 each, it would have cost the firm less than 1/10th of what it ended up spending in 2016.

Technology is not a key differentiator

There’s a choice quote in the director’s report: “The directors consider the level of technology within the business to be more sophisticated than its competitors in its capacity to be able to create and maintain product catalogues across multiple verticals and territories, including product variations, variable pricing and packages that may or may not have optional elements.”

I fundamentally disagree with the premise that technology is a key differentiator or represents a sustainable competitive advantage in this space. I’ve researched and spoken to dozens of leaders in this field around the world, and I’ve yet to find a correlation between an amazing technology platform and market traction.

As I recently wrote in my analysis of eMoov’s technology platform, the winning combination is people + technology. And as the eMoov case study makes clear, technology is only as good as the business behind it.

In other words, the fact that your technology supports packages that “may or may not have optional elements” is not a reason to think the business will succeed against competitors.

With a tech team of 26 developers (compared to eMoov’s tech team of nine), my sense is that easyProperty just needs to get on with it and stop investing millions in its technology platform.

Mo’ Money, Mo’ Problems

There are a number of businesses in this space around the world. The most successful have a great customer proposition and scrappy, driven founders with a burning desire to change the industry.

The director’s report states, “...as is typical for businesses at this stage of their lifecycle it is generating start-up losses as it uses working capital to develop the business.”

I’m not sure that I would describe this situation as “typical.” Purplebricks generated losses to build the business. EasyProperty is just spending a lot of money.

The technology behind an online real estate agency: Lessons from eMoov

Online agencies are one of several new models gaining traction in residential real estate. They smartly combine the traditional expertise of professionals with efficient new technologies to provide a low-cost alternative to traditional real estate agencies and brokerages.

Their rise around the world is slow, but the impact they are having is unmistakably big. The top player in the U.K., Purplebricks, has a market capitalization approaching $1 billion after going public in December 2015. 

Collectively, online agencies have around 5 percent market share in the U.K. and are putting the incumbents under increasing pressure. And the battle in the U.S. is about to heat up with Purplebricks raising $62 million to enter the market in the second half of 2017.

The value proposition of online agencies typically consists of a low fixed-fee and an improved customer experience. Technology plays a key role; online agencies rely on it to empower consumers, bring transparency to the transaction and improve overall efficiency (thus allowing them to charge lower fees).

If technology is a key point of difference, what exactly does it do? What does it look like and how does it add value to the transaction?

Tech is a critical component of an online agency’s value proposition. Here, we’re going to dive deeper, looking at exactly what this tech looks like for a leading online agency, how it adds value and what lessons we can learn.

Case study: eMoov.co.uk

EMoov is one of the leading online agencies in the U.K., having served over 20,000 customers since its founding in 2010. 

EMoov’s technology platform started development in 2013 and is currently on its third iteration, which is one of the big reasons eMoov is appealing as a case study. Not only has the tech platform been in operation for around four years, the team behind it has had a chance to learn and iterate.

Another important factor: The technology is being used at scale. The company lists between 300 and 400 homes each month, and it expects to list nearly 7,000 homes in 2017. This is not technology built in a basement without users — it’s battle-tested in the field and being used to sell homes.

At a high level, the technology platform does two main things:

• It empowers customers in a way that allows transparency and control over the transaction.
• It reduces costs at scale by making eMoov’s internal agents more efficient.

EMoov believes technology plays an important part in real estate by empowering customers and making agents more efficient. But it also believes property professionals are still needed in certain areas, like negotiation.

Ivan Ramirez, eMoov’s CTO, sums up his philosophy: “It was important for us to fully automate certain parts of the journey, like property onboarding, a well as viewings, but we knew that other parts, like offer negotiations and progressions, was an area where we needed to keep the human element present.”

“We still use technology in these areas of the selling process, but it’s more focused on empowering the agent and providing transparency to the customer,” Ramirez added.

A history of iteration

“Historically, technology has been absent from the property transaction, save for search via the portals and agent-facing office management software,” said Russell Quirk, eMoov’s CEO.

Russell thinks that a number of the players in the online agency space, in addition to all of the participants in the traditional sector, grossly underestimate the amount of work required. “It’s a two-year project at a minimum and a massive seven-figure investment,” he adds.

EMoov’s technology has gone through a number of iterations, not all of which have been successful. “We’ve ripped up an entire build and thrown it away and a team with it,” Quirk said. “We adopted a waterfall approach and just didn’t listen to the customers. We focused more on the solution than understanding the problem.”

Now, however, the team is firing on all cylinders and innovating, iterating and deploying new features on a weekly basis.

Ramirez and his team of product managers spend a lot of time in the trenches, shadowing agents dealing with customers, understanding the existing process and looking at customer feedback from support tickets. 

“The goal was to pull out meaningful feedback that would allow us to challenge the existing business processes,” Ramirez said.

“We looked at our internal team’s business processes even further, as well as our customers’ desired journeys, information they wanted to see, and how to present it all in a way that makes sense to them. The way our customers and our internal agents consume and interact with the product is completely different.”

Ramirez believes in a process of continuous improvement and that a product is never complete. 

He’s also implemented a culture of product development that aligns to key business metrics. 

Everything that’s built has an associated metric to be measured against. In his opinion, this is why eMoov is able to operate a business at a low cost while keeping a high level of customer service.

Enhancing the customer journey

“Customers of all ages and demographics embrace being in control and having 24/7 access to their listing and their transaction,” Quirk said. By presenting everything to its customers, eMoov is able to bring a strong degree of transparency to the process.

The property dashboard gives users — both homesellers and eMoov’s agents — a comprehensive look at the property listing. 

Relative listing popularity and key performance metrics from the major listing portals (Rightmove in the U.K.) are shown alongside a snapshot of viewings and potential buyer feedback.

EMoov has attempted to automate the entire process of scheduling viewings. Sellers define the times they are available to show the property to potential buyers. The company’s agents then work within these timeframes to help schedule showings for the seller.

On the other side, potential buyers are presented with an online tool to schedule a viewing, as seen below.

The entire process occurs online for the more than 5,000 viewings that eMoov arranges each month. And it’s more efficient; 93 percent of viewing confirmations now occur online automatically. “We’re now doing this with half the staff that we were deploying to do half as many viewings a year ago,” Quirk said. 

Improving team efficiencies

Ramirez subscribes to a Warren Buffett philosophy, which is that successful businesses need to be low-cost operators. “We have been able to significantly decrease the cost of service in the first part of the seller journey by really operationalizing the product in a way that makes every contact that we do have with our customers more efficient,” he adds.

“In an omni-channel approach, this is a must to succeed as you need to be able to service that customer in whichever way they want to be serviced at different stages of the journey,” Ramirez said. “It’s very difficult to force a customer through a rigid interaction, so the product needs to be flexible and empower whomever engages with it.”

As an example, the customer onboarding process is how a new listing gets on the market. It typically consists of the following steps:

1. Provide property details (description, rooms, highlights and so on)
2. Set the selling price
3. Schedule the photographers to come take the photos
4. Set viewing availability
5. ID checks

A year ago, the steps listed above were all done manually. Today, 90 percent of eMoov’s customers do the steps above on their own using the tech product. This “hand-holding” approach has been transformational for its business and significantly tightened the time it takes to list a new home.

The impact on cost is equally material. The team that supports this operation had 15 people, but now the firm only needs nine people to handle nearly double the number of new customers. Historically, productivity has chugged along at less than 60 cases per person, and now the team is up to over 100 cases per person.

EMoov currently has around 50 staff members, of which seven are engineers and two are product people. 

In comparison, there are 11 staff members in offers and progressions and eight in support. It’s this combination of intelligent tech plus experienced property professionals that makes the entire operation efficient and successful.

The platform essentially has a workflow functionality that puts tasks in front of the agent, helping to progress the sale one task at a time. “It takes the thinking out of the progressions job,” Ramirez said. 

The platform also manages the chain on the property being sold, as seen below, giving a holistic view of the entire transaction.

Lessons learned and future plans

Some of eMoov’s biggest wins have been around customer onboarding, automated viewings and collecting feedback. Each of these areas has benefited greatly from technology to streamline and automate the process.

On the flip side, one area that surprised the team was virtual tours. “Virtual tours didn’t add any value to our listings. We didn’t see a faster time to offer; we didn’t see less or more viewings,” Ramirez said. 

When evaluating interesting new technologies, eMoov is in a unique position as it sits across the entire transaction and can see the utility (or lack thereof) of adding new features like tours.

EMoov has identified machine learning, artificial intelligence and chatbots as areas of future, long-term focus. 

Developments in these tech realms can improve service areas like valuations and viewings. 

In the short-term, however, the focus remains on iterating the offers and sales progression components of the platform to improve efficiencies and give customers more control and transparency.

Final thoughts

No matter what your role in the industry is, there are lessons to be learned from what online agencies like eMoov are able to bring to the market. 

Namely, that there’s room to provide homesellers an improved experience. Technology plays an unmistakably important role in enhancing the customer experience of buying and selling real estate.

As someone who looks at a lot of businesses in real estate tech (with a focus on finding winning models), I see a number of key takeaways from the eMoov story:

• The winning formula is technology + people. You need both to succeed.
• Success comes from more than technology and user interface; it’s the team, the methodology, and an ethos of continuous improvement.
• A good tech product is a big investment and long undertaking and can’t be acquired off-the-shelf.
• Ultimately, the product must be good for consumers. It needs to add value and make the transaction easier and more efficient through transparency and automation, 24/7.

Purplebricks results show promising trends

Earlier today Purplebricks announced their interim results for the six months ended 31 October 2016. How exciting!

The chart below could effectively be called "scaling." It shows how Purplebricks managed to more than double their revenue during this time period without increasing their fixed and variable costs. While cost of sales increased linearly with revenues (think the payments to their local property experts for securing a listing), their admin expenses and sales and marketing costs stayed the same.

This shows the business model successfully scaling by reaching more customers per advertising dollar. 

You can see the equally stunning growth in listings (aka instructions aka someone paying Purplebricks to sell their home) below. 

Wow! We're talking more than doubling customers and more than doubling revenues. 

Even more so when you consider the average customer acquisition cost (how much money the business needs to spend to get a new customer). In the same period last year, that number was worryingly close to the fee Purplebricks charged customers (£849 vs. £825), making it impossible to turn a profit.

But wait, look!

Those customer acquisition costs have dropped - significantly - to around £350. That is the most interesting bit of information in this update, given it is a very robust answer to the question, "Can this model make money?"

This interim update is quite remarkable in that it shows further proof the Purplebricks business model works. While initial costs greatly exceeded revenues as the company built scale, what we're seeing now is proper scaling.

There is still the open question of how effective Purplebricks is at selling houses (as opposed to listing them), but I won't wade into that here (here's looking at you, Jefferies). But for now, I'm quite impressed with the results and what it shows for the prospects of not just Purplebricks, but the entire industry.

Note: inexplicably, many of the numbers above are not explicitly mentioned in the results. However, it's easy enough to figure out given the stated revenues, average revenues per customer, and a few assumptions.

Disruption is coming and it absolutely is Purplebricks

Last week an article was published on Realestatebusiness.com.au titled, “Disruption is coming but it ain’t Purplebricks.” The sub-headline is the attention-grabbing, “The real estate industry is set for a shake-up, but if you think it’s in the form of agencies such as Purplebricks, you are mistaken.”

The headline and the article prompted me to respond, because Purplebricks is absolutely the type of disruption that is coming to the real estate industry.

To be clear, I’m writing from a neutral position. I was previously the head of strategy at Trade Me, New Zealand’s top portal. I have no ties to Purplebricks whatsoever, but I’ve spent the past 9 months looking at new models around the world in real estate that are getting traction.

What disruption looks like

The author makes it sounds like disruption always comes in the same package: big, digital, and transformational. Uber is used as an example, and it’s a good one. Uber is incredibly disruptive! They’ve used technology - coupled with a new business model - to transform how people get from point A to point B.

But let’s not confuse a $15 cab ride with a $500,000 home sale.

These are completely different events in someone’s life, occurring at completely different frequencies and at different scales. Disruption is going to look different for each.

You can trace the concept of disruptive innovation back to Clayton Christensen’s seminal book, The Innovator’s Dilemma. The story I remember most clearly is big disruption in the steel industry, and it’s not a big, whiz-bang, transformational change. It’s about making rebar (steel bars) cheaper than the big guys. That’s where disruption starts.

Why Purplebricks is disruptive

The Purplebricks business model offers the same service as a traditional real estate agent at a fraction of the cost (roughly a 60%-70% savings). To support that model, they’re also changing the way the service is delivered, through a combination of “Local Property Experts,” technology tools, and online support.

While the jury is still out on the effectiveness of this model and if it really delivers for consumers, it is incorrect to claim that a new model changing the way real estate is transacted at a fraction of the cost isn’t disruptive.

This is what disruption looks like in real estate, and this is why everyone should be paying attention.

It’s not going to be an app to sell your home. It’s not AI, algorithms, or automation. That’s not what disruptive innovation is going to look like in real estate.

Technology might be able to radically change other businesses where the transaction costs are lower and frequency is higher, but it’s unlikely in real estate. Consumers still want a hand to hold and an expert to guide them.

Disruption is going to come from a company that offers a superior experience at a superior price. And when it comes, it will resonate with consumers and gain significant traction in the marketplace.

Purplebricks and the fixed-fee providers in the UK currently account for 5% market share. That’s tens of thousands of transactions every year - a very big deal! If you want evidence of disruption, just read about the UK’s largest estate agency closing 59 branches, or this choice quote, “The cuts come as online-focused rivals such as Purplebricks are building market share…”

If that isn’t disruption, I’m not sure what is.

Which brings me back to my point: don’t dismiss a new entrant because they don’t fit your idea of what a disruptive player looks like. Even if a new model doesn’t look like Uber, it can still shake up the incumbents.

Yes, disruption is coming to real estate. And it will look a lot like Purplebricks.