PropTech Anatomy – Rightmove & The Innovator’s Dilemma
How one of the world’s best businesses may lose its shine
Rightmove is widely recognised as one of the best businesses in the world. Over 18 years, the property portal has delivered exceptional results for its customers and shareholders while forging a brand reputation amongst consumers that is unrivalled in the property industry. Throughout 2016 it received an average of 120 million visits a month, making it the 38th most visited site in the UK, per Alexa. It has over 20,000 sales or letting agency branches advertising at any given time, or approximately 91% of the total market.
Such a formidable position is the envy of every other business operating in the property and digital media industries. Indeed, respected business publication Forbes recently named Rightmove as the most innovative company in the world.
However, we think this is completely incorrect. In fact, Rightmove is hardly innovative at all, Here’s why.@Rightmove is at risk due to the Innovator’s Dilemma. It needs to develop a new growth strategy or it will struggleClick To Tweet
Innovator’s dilemma and Rightmove
It is helpful to look at this issue using the framework of the Innovator’s Dilemma. This theory, first outlined by Clayton Christensen in his book of the same name discusses how outstanding companies can lose their market leadership even when their position may appear unassailable. Those businesses tend to have three key characteristics:
Innovator’s Dilemma Characteristic No.1
They will be in the “Innovation Window” on the innovation S-Curve, as shown in this graphic from Harvard Business School:
Innovator’s Dilemma Characteristic No.2
They will have a large customer set (and may indeed have a monopoly) who are largely happy with the service they are receiving:
The UK has a potential maximum market size of approximately 22000 advertisers.
Innovator’s Dilemma Characteristic No.3
Their investors are likely to be used to excellent financial performance and consistently good (increasing) returns on their investment:
These financial results translate to increasing returns to shareholders:
There are some key takeaways from these:
Rightmove enjoys supernormal profits from a monopoly position amongst advertisers;
- There is very little headroom for growth through acquiring new advertisers;
- Even if new advertisers can be acquired, the annual growth rate appears to be slowing; and
- Both financial performance and returns to investors have been slowly accelerating their growth since 2012.
It is plain to see from this analysis that Rightmove ticks the three boxes of the Innovator’s Dilemma.
Now let’s look at the wider competitive environment that the business faces to identify why it is important for Rightmove to act soon. There are a range of dynamics at play which could undermine Rightmove in the medium to long term:
Digital Transformation of Customer Base
As the advertisers go through their own digital transformation, they may place new demands on their suppliers or indeed discover new ways of advertising that makes them less reliant on Rightmove. Ultimately, this could reduce the number of advertisers.
Failure to Develop New Product
Rightmove fundamentally offers the same product to consumers and customers as it did when it began trading in 2000. To date, where it has innovated – through commercial or overseas property, for instance – it has not found returns anything like as profitable as its core business.
Threat from Asymmetric Competition
The rise of Purplebricks in recent years must be viewed as a threat to Rightmove. Where most estate agents are customers of the business and are unlikely ever to adopt any other relationship, Purplebricks (or indeed another, potentially as yet unknown technology driven estate agent) have the potential to gain so much market share as to make their own brand well enough known in the eyes of potential property purchasers to draw traffic from Rightmove. If the site loses consumer traffic it will be less attractive to advertisers.
Shift in Pricing Power
Even if this asymmetric threat does not materialise, it will inevitably draw sales and lettings volumes from the traditional advertiser base leading to rationalisation in a very fragmented market. While Rightmove may be able to counter this in the short term with price rises, the concentration of pricing power in a business like Purplebricks may restrict Rightmove’s ability to maneuver around this threat.
One threat that must not be discounted is that a competitor portal develops a proposition to consumers and advertisers that better reflects the desires of the consumer as technology permeates through society more deeply and widely over time. Zoopla have recently pivoted away from focusing purely on search and now offer consumers and advertisers a range of products across the property lifecycle. This diversity under one brand may result in Zoopla simply offering a more compelling proposition to all parties.
Unknown Competitive Threats
New entrants to the portal market do not have the same pressures from investors or customers as Rightmove. Whilst it isn’t clear what innovative product or service would appeal to enough consumers or advertisers to usurp Rightmove today, the potential of something coming to market cannot be discounted. It could be a For-Sale-By-Owner proposition or it could be a totally new way to search for property. There are plenty of people out there working on solutions like these.
Rightmove is an excellent business which is about to come under serious pressure from multiple angles. It seems impossible that it can maintain financial performance or grow in the long term based on its current strategy for an indefinite period. Instead, it should now be looking to develop and implement a new growth strategy while it is in the Innovation Window.@Rightmove should now be looking to develop and implement a new growth strategyClick To Tweet
Rightmove has a golden opportunity right now to develop and implement a strategy that will keep it relevant for another 20 years. Instead, it has recently promoted a new CEO from within, a strategy very unlikely to challenge the status quo. We wonder if complacency will ultimately undermine Rightmove’s long term future.
Do you share our view that Rightmove is at real risk? Please share your thoughts below.