CoStar CEO Andy Florance Disappointed REA Group Didn't Buy Rightmove

In an exclusive interview with Online Marketplaces, Andy Florance—CEO and founder at American real estate giant CoStar Group—said that the real estate portal landscape in the United Kingdom is set for a major change in the next ten years, branding market leader Rightmove "complacent".

Florance, whose company CoStar bought challenger portal OnTheMarket for GBP 100 million ($120 million) late last year says he is willing to be patient to take market share off of Rightmove via OnTheMarket.

"Rightmove is operating at a margin I would never be comfortable operating at, you’re super vulnerable by operating at 74% - it means you’re not working towards growth and you’re not building for the future.

"Agents in the United Kingdom express overwhelmingly to me that they are dissatisfied with the way the pricing works there.

"Rightmove has suggested it will increase prices by 35% in the next couple of years - what additional value are they offering for that increase? It’s questionable.

"We [CoStar] represent the competition."

Florance also hinted that the portal could be rebranded under the Homes.com banner letting slip in a hypothetical scenario that Manchester United could soon be playing at the "Homes.com stadium".

Florance was highly critical of real estate portals' willingness to "step on the faces" of their customers without consequence, and said OnTheMarket will differentiate itself by respecting agents.

"I am fascinated by the concept that intelligent people believe that market share can never shift in the portal world. If you don’t treat the customers well, the customers will seek another solution.

"There are a number of companies operating on the premise that you can do whatever you want to the customer, and they will take it and they will be your victim, and you can just step on their face.

"One of the first things we will do to differentiate ourselves from the other players is to treat the customers with respect. If you treat your customers with respect while your competitors are abusing them, that’s a competitive differentiator. We plan to provide choice to customers."

Florance called out Rightmove as well as US market leader Zillow for its strategy of consistently raising prices without adding extra value to its agent customers.

"Hypothetically: if we were to invest $300m-$400m into marketing OnTheMarket in the United Kingdom, and offered reasonable pricing to agents, superior software and more content, would we shift the game? Of course we would, I’ve done it a million times!

"I feel that to a little degree, Rightmove is a little complacent and arrogant. Hubris is a dangerous thing.

"Honestly, I’m fine with my customer saying 'You’re not the cheapest solution' - and by the way we’re not - but when our renewal rate percentage is in the high 90s, we are clearly providing value. Our pricing increases historically have mirrored inflation and we’ve grown through expanding the platform, not by milking the customer."

When pushed on the timeframe required to take significant market share off Rightmove, one of the most powerful market leaders in the world, Florance was keen to highlight the long-term nature of his investment in OnTheMarket:

"I think I’m very patient.

"We have achieved great results with Homes.com in seven months since we relaunched the platform, but already I’m being asked why I haven’t taken out Zillow. If my mum gives me two new shirts, asks me go upstairs and try them on, and I come back to show her shirt number one, it’s not fair for her to ask me why I didn’t like the second one!

"What happened to ten year investments? There are a lot of investments in this world that are not realised in six months. Some are made in two or three or five years.

"In my experience, the way marketplaces work is that they shift in three year horizons. You can’t shift something in one year. It takes place over the first three years, then the shift becomes obvious in Year Five or Year Six.

"In ten years from now, you will not recognise the landscape in the United Kingdom from what we have today.

"I would rather spend $500 million over ten years to become a market leader in the United Kingdom than spend $8.2 billion to buy it today."

Citing Australia's REA Group's failed proposal to buy Rightmove in a deal valuing the business at $8.2 billion, Florance said he was the most disappointed person in the industry that the deal didn't go through:

"I love it when someone levers up on a vulnerable business model. If you borrow billions and billions of dollars and go into a vulnerable business model you become an easy target.

"We have brankrupted PE firms before. We've had situations where we've had PE's who have invested very large sums of money into business models and portals they perceive are immutable, and we have caused those portals to go bankrupt.

"Unfortunately the deal didn't go through, which was very disappointing to me."

At the Proptech and Portal Watch conference in Barcelona—which Florance joined for the second year in a row—the long-serving CEO also told Online Marketplaces' chairman Simon Baker that CoStar isn't interested in buying Rightmove or Zoopla, before asserting that OnTheMarket is now ahead of Zoopla by number of leads delivered to agents.