If you ever want to hear the sad story of monster.com in the United States, ask a Seek executive.
For the entire 2000s, Monster reigned as the number one online jobs portal Stateside. Then, owing to a series of tactical mistakes and security lapses, which analysts saw as signs it was taking its incumbency for granted, suddenly it wasn’t top any more. Since 2010, careerbuilder.com and indeed.com have surpassed it in terms of unique browsers.
It’s easy to understand why Seek’s managers are encouraged to read the monster.com case study.
For seek.com.au enjoys the same position in Australia today as monster.com once did in the US. In a classified job ads market which has migrated almost completely from print to online, Seek commands a 75 per cent share.
“These guys built their business because someone else was complacent,” says portfolio manager with Platypus Asset Management, Prasad Patkar.
“Seek will tell you they took their business model to Fairfax before they took it to [original backer] James Packer – and Fairfax, the incumbent at the time, fobbed them off. They’ve gone on to ruin Fairfax, and they’re absolutely paranoid about making sure someone doesn’t do the same to them.”
They’ve gone on to ruin Fairfax, and they’re absolutely paranoid about making sure someone doesn’t do the same to them.
It is hard to believe that little more than a decade has passed since seek.com.au and its cousins in classifieds – realestate.com.au and carsales.com.au – began dipping their toes in what were known as the rivers of gold – the ads for property, jobs and motor vehicles which once underwrote the business models of newspapers.
These upstarts managed long ago to divert those flows their way. Carsales today sits in a similar position to Seek, commanding more than 70 per cent of online motor vehicle ad revenue in a market where the print presence is now virtually non-existent.
REA Group, the owner of realestate.com.au, has just reported it holds a 75 per cent share of the eyeballs for online recruitment ads, albeit in a market where print still accounts for slightly more than half the total revenue.
In any case, these three have achieved the sort of monopoly-like position that fund managers love, making them among the highest-priced stocks in the Australian sharemarket.
At the time if writing, REA Group was trading at 34 times its one-year forward earnings estimate. Carsales’ PE ratio was 28, Seek’s 22. Fairfax was on less than nine.
Such eye-watering valuations for these disruptors of the 2000s begs a question. How much longer can they keep it up?
What’s the chance they will, in their turn, be monstered by a nimbler, hungrier start-up? Or what if their success attracts the sort of monolithic, deep-pocketed overseas competitors that slowly eroded the dominant position wotif.com once enjoyed in online travel bookings?
Remarkably, analysts and observers of the three see little threat to their quasi-monopolies.
Simon Baker ran the REA Group from 2001 to 2008. Its flagship realestate.com.au had been launched as recently as 1996, but Baker estimates that by 2003 its market position was unassailable, and still is.
“There is zero chance of the world changing when it comes to online property portals,” he says bluntly.
Baker is backing property portals in several countries where the migration of real estate ads from print to web is relatively immature but, he says, he “honestly doesn’t know why anyone would bother in Australia ... at best, if everything went perfectly and after a lot of hard work, you might get to be the size of Domain [the distant second to REA in all but the NSW market].”
The realestate.com.au brand, he says, is now “so well entrenched in the consumer psyche, it’s hard to get another one in there”.
It was built, he says, on the hard-to-replicate work of signing up real estate agents one by one and installing the XML feeds required to make their interface with the site work.
Announcing yet another spectacular profit last week – $51.6 million for the first half of 2012-13, up 25 per cent year-on-year – REA Group chief executive Greg Ellis tacitly acknowledged that his company’s most feasible enemy potentially lay within.
He says REA’s culture fought complacency by “not thinking about number one” but, rather, tailoring its products to the way its customers and consumers wanted to use them.
“If our product is relevant to the market,” he says, “and if we’ve employed good people that we make sure we empower, then our ability to lose our position is lowered. That’s all we can do.”
REA has in the past couple of years reduced its emphasis on collecting subscription fees from real estate agents, and concentrated on revenue from what it calls “depth listings” – the premium advertisements for individual houses or commercial premises that appear at the top of a suburb search.
“We recognised that agents want to focus on individual properties,” Ellis says. “We challenged our own business model and it’s allowed us to deliver strong numbers despite a declining number of agents and a flat number of listings and transactions over the past couple of years.”
None of the three online classified giants can be accused of complacency, Patkar says. He rates carsales the best of a good bunch at “monetising the pipeline” between its browsers and its customers, the car dealers.
“When they IPO’d it was all about the dealer network,” he says. “Then they built up the ads from private sellers. Now it’s data for the dealers – they’ve already got them all using the software, and data is their next leg of growth as they monetise that.”
Far from relaxing at the top, Carsales has also tried to diversify into general classifieds – only to be thwarted by the Australian Competition and Consumer Commission rejecting its attempt to buy the Trading Post from Telstra.