Scout24 & The New Property Portal Paradigm: Analysis Part 2 - The How

Germany's market-leading real estate portal operator Scout24 recently outlined its journey, goals and ambitions in a capital markets day for investors. The detailed presentation that accompanied it was a fascinating insight into the strategy of one of the world's leading portal companies which is undergoing a transition out of a purely online-classifieds model.

In the last article, we saw that what Scout24 intends to do to move into the next chapter of its history constitutes nothing short of changing the entire company paradigm by detaching monetization from listings to focus on transactions. In this instalment of the three-part series, we'll look at how exactly the Berlin-based company is going about its strategy.

The How

As Scout24 CEO Tobias Hartmann put it "in real estate it all starts with the owner and each owner has three decision frameworks". Scout24 wants to be involved in all of these for both private individuals as well as agents.

Every portal company already caters to the needs of private individuals looking to buy or rent a new home and to agents looking to sell or rent out a property. In Germany, sales and rental listings from private individuals are permitted on portals as well. It's the evolution of the marketing products towards a lead generation model and the addition of the management and CRM layer on top for both agents and private individuals which is new and exciting here.

As this slide from the presentation neatly shows, with its new paradigm Scout24 has no fewer than 8 different customer types and can serve their needs in different ways.

Credit: Scout24 CMD 2021

The range of products Scout24 can now offer to just about anyone around a real estate transaction is impressive and has been fuelled in no small part by some shrewd acquisitions. No longer is the company just a portal helping out an agent with their marketing:

The new paradigm is evident in both the types of products Scout24 makes revenue from and the types of customers it earns from.

As per the objective from its previous CMD in 2019, Scout24 has now largely transitioned from a model based on one-off listings to one based on subscriptions and lead commission. Between 2019 and 2021 the company's dependence on revenue generated from one-off listings dropped nearly 8%.

Residential agents form an ever-smaller part of the revenue generation pie as Scout24 markets products to private individuals and reduces its reliance on revenue from one group and increases its TAM.

There are three product areas that can be considered innovative in the real estate portal industry here and which are driving Scout24's push away from purely listings-based revenue.

1. User subscription products

Generating recurring revenue from users (aside from dwindling third-party ad revenue) is something that has long been a kind of el Dorado for heavily trafficked real estate portals. Scout24 is leading the way here with its 'Plus' products: MieterPlus (renter), KauferPlus (buyer) and VermieterPlus (landlords).

With these products, users pay a subscription fee for premium services. Renters get to be top of landlords' inboxes, can sign everything online and get free tenant proof of income assessment. Buyers get a discount on surveys, house appraisals and price analysis as well as information on who else is interested in a property. Landlords get free listings, digital signing, repair management and free tenant screening among other benefits.

According to Scout24's latest quarterly report, there are 236,612 Plus subscribers (an 82.8% rise year-on-year) as the company markets these products hard.

2. integrated CRM and rental management area available to all

Portals owning CRM software is nothing groundbreaking, there are plenty out there that own agent-facing CRM solutions. The difference here is that Scout24 has a CRM for agents as well as a CRM for private landlords which is fully integrated into its listings portal.

Scout24 bought out leading rental management platform Vermietet.de in May 2021 with subsequent filings revealing that it cost around €44 million. The company has been working hard to integrate the back ends of Vermietet.de and ImmoScout24.de since the acquisition and today users can log into both with the same account and manage their rental property in a truly end-to-end way from listings the property on the leading portal to tenant screening, document signing, utilities management, invoice management and more.

3. Seller mandate lead commission through Immoverkauf

There is a new revenue model gaining ground among large real estate portals both in the US and Europe - the commission-based lead generation model. As others have pointed out, in Europe the money to be made here is in generating seller mandate leads, qualifying them, sending them to agents and taking a percentage (said to be around 33%) of the agent's commission if the lead ends up transacting.

Scout24 made sure that it was on the bandwagon early with this one. It bought out valuation and brokerage recommendation engine Immoverkauf in 2020 and in doing so automatically became one of the biggest players at the top of the funnel for seller mandate leads. The revenue generated from generating and participating in these leads now accounts for around 15% of Scout24's revenue and that percentage is growing.

Developing and integrating all of these products has been a lot of work for the company and has required a big investment. As we'll see in the third instalment of this series though, Scout24 would have been running a big risk if it hadn't started down the transactional path when it did.