Home run?

In his book Zero To One, entrepreneur-investor Peter Thiel has a “secret question” for aspiring businesses: Have you identified a unique opportunity that others don’t see? Until now, online property-listing businesses have rarely done that—many think they were just the age-old print classifieds migrating to the digital space and grabbing a slice of the ad revenue from traditional media. Going digital has its usual perks, of course, such as anytime, anywhere access to property information, faster updates, and better displays, thanks to technology innovations. But have the new-age listing businesses tracked some untrodden ground?

Some newbies have done it the Thiel way, as his influence on the proliferating startup community in India is growing fast. It has as much to do with the philosophy of his book, as his credentials as a PayPal co-founder and Facebook’s first angel investor (in 2004). Thiel’s tenets have a profoundness that reveals the secret of success. For instance, he states that competitive markets destroy profits, and a startup should envisage building a monopoly around its idea because technology costs and entry barriers have shrunk with the spread of the Internet.

When Mumbai-based ventures Grabhouse.com and NoBroker.in set up shop in 2013, they decided to help real estate consumers bypass brokers/agents in their search for rental accommodation. It’s a novel idea (and hence, they have the opportunity to create that proverbial monopoly), but it looks like a long shot. Even established players like 99acres.com and MagicBricks.com don’t think it will be feasible to remove brokers from the property search space. However, investors have come forth to endorse the idea. In January this year, Grabhouse (now moving to Bangalore) raised $2.5 million (Rs 16 crore) in Series A, led by Kalaari Capital, while NoBroker got $3 million from SAIF Partners last month. It reminds one of the early 2000s when online travel agents like MakeMyTrip and Cleartrip took the ticketing business online. Big companies like Thomas Cook or even local travel agents felt just as unthreatened by that business model. But a decade later, ticketing has become a zero-commission game for agents and non-digital players have moved out.

One may argue that the real estate industry is fragmented and disorganised, with hyperlocal knowledge residing in brokers’ communities. But then, Grabhouse and NoBroker are connecting the social media forums of homeowners with user communities to bring depth and credibility to their databases. Grabhouse, with a team of 32, has helped link 32,000 houseowners with tenants, saving a cumulative brokerage (for owners and tenants) of nearly Rs 12 crore. “The target consumers for rentals are young and use the Internet extensively for search; hence, our business thrives,” explains co-founder Pankhuri Srivastava. NoBroker intends to go even further and make it a better experience for all. For instance, there are information gaps on both sides (landlords and tenants) which should be bridged, and further hurdles even after getting a house, says co-founder Amit Kumar Agarwal, citing how some brokers turn up every 11 months to get a cut for renewing a house lease.

According to most investors, the pot of gold (read digital advertising spend) in the property-listing space was estimated to be Rs 1,300 crore last year. But as digital ventures are literally wrenching control from traditional media, including newspapers, radio, TV, and out-of-home advertising, the market potential has expanded to Rs 4,000 crore. Add to that what most homeowners and builders spend in brokerage, and the market balloons to many billion dollars, splintered across fast-growing cities and other developing areas.

To crack this market, property-listing-and-search portals are in the middle of an innovation rush to organise information better, improve data accuracy, and enhance user experience. If they manage to rethink their businesses to appeal to the mass market, brokers will feel the heat just as travel agents did during the civil aviation boom of 2004-09. “If we use technology solutions effectively, we can capture 5% to 8% of the billion-dollar real estate marketing spends,” says Sumit Jain, co-founder and CEO of Bangalore-based CommonFloor.com. A few days ago, it unveiled Retina, a headgear powered by a smartphone, which enables users to take virtual tours of premium properties by moving their heads and pushing a button. By the end of 2015, the company plans to tie up with builders to showcase about 500 property tours via its app.

THE BIG PICTURE seems to be emerging. If the rush among investors was for job portals in the late ’90s, matrimony and travel in the early 2000s, and e-commerce (especially lifestyle and fashion) in 2008-2010, real estate is the new playing field. “It is the only industry where users end up doing up to 70% of their research and verification offline,” says Srivastava of Grabhouse. So bringing the entire ecosystem online (or at least a major chunk of it) means a huge opportunity, she notes. Even Google is interested, as people new to the Internet use its search engine for leads.

Already, there is an investment inflow of more than $300 million for a target market worth almost a billion dollars. And there is a pack of seasoned or fast-growing Internet ventures (see graphic) in contention to increase their market share as developers and owners are betting big on India’s economic revival to push up real-estate demand.

Last year alone, CommonFloor raised $40 million across two rounds, with most of the funding coming from its existing investor Tiger Global Management, the private equity arm of the New York-based hedge fund Tiger Management Corp. Google Capital, the corporate venture capital arm of the tech giant, also invested an undisclosed sum in CommonFloor this January. Since it was founded in 2007, CommonFloor organically built communities of homeowners and residents, but pivoted to online property search by 2011. It has also acquired two startups—Flat.to (featuring student accommodation) and Bakfy (a Twitter-like app connecting college campuses)—to enhance its engagement with a younger demographic.

Soon after, Japanese telecom and Internet giant SoftBank led a $90 million round into Mumbai-based Housing.com. Its co-investors included Nexus Venture Partners, Qualcomm Ventures, and Falcon Edge Capital, which had previously put in just over $20 million. Meanwhile, 99acres.com, set up in 2006 and the current industry leader, also raised Rs 750 crore by way of a qualified institutional placement. “We are the leaders, but not by a big margin,” says Sanjeev Bikhchandani, chairman of Info Edge, the company behind this Internet venture. “We have to invest in a highly competitive market, which means 99acres will incur losses. We need to execute well—and invest more.”

Home sales, however, haven’t picked up as expected to support these big-time investments. Aviral Gupta, founder of the investment brokerage Mynte Advisors, says residential property sales will see a good run in the top seven cities (Delhi-NCR, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, and Pune)—from 175,000 units in 2014 to an estimated 192,000 in the current year. But that will be still less than the 200,000 units sold in 2013. If real estate doesn’t pick up, it will dampen the advertising market in 18 months or so.

THERE IS ONE HEARTENING ASPECT, though. Most of the portals are differentiating from the get-go, rather than replicating each other to fight for the same market pie. During the first wave, the sites were simple online directories featuring property information and charging fees for enlisting, while consumers browsed for free and connected with advertisers offline, often through brokers. In fact, between 2006 and 2010, the battle for supremacy depended on who had the maximum number of listings.

The wake-up call came in 2011, with CommonFloor and PropTiger ushering in new ways of doing online property search. The innovation battle gained steam over the past 12 months, with accessories, hardware, and software technologies enhancing the user experience (UX). These include augmented reality tours similar to the Xbox Kinect (IndiaProperty), smartphone-powered headgear for virtual walkthrough, (CommonFloor), and map-based search (Housing.com).
Even industry veterans 99acres and MagicBricks are upgrading. “Last year feels like a rebirth for 99acres,” says Narasimha Jayakumar, chief business officer. The company came up in 2005, following the success of Naukri.com and Jeevansathi.com, and led the way for real estate listings by moving online. For 99acres, which is playing catch-up on user interface (UI) and UX, the thrust is now on leveraging its relationships with a national network of 25,000 brokers and applying its data analytics muscle. “We are collecting a lot of local data from our brokers’ network,” says Jayakumar. “That helps provide the most measurable search based on data.” There’s further value addition when the company provides price movements by location and previous transactions.

However, the knowledge of the brokers is vital for 99acres to execute its analytics-based strategy.
MagicBricks.com, part of the Times Group that has dominated newspaper real estate classifieds for decades, claims to be India’s largest property portal with more than 125,000 active listings from houseowners, around 15,000 registered brokers, and up to 3,000 builders. (Its total listings gross 800,000 sourced from 300-plus cities.) “When we started, the unit price for listing was quite low,” recalls MagicBricks CEO Sudhir Pai, referring to the early-stage incentive. “That’s one reason we had less control over the data featured on the site [brokers could easily put them up for a little money, and there were no verification tools].”

Now, the focus has shifted from big numbers to the ability to validate the information featured. MagicBricks says it has increased its listing fees since 2010 and the number of listings has shrunk after the accuracy fix. Also, search technologies were none too robust at the time and users often failed to navigate through the clutter; so improvement in that area was another key requirement. “Technology interventions, as well as the hyperlocal information gathered, have kicked in to enhance our listing/data accuracy and user experience,” says Pai, detailing the company’s improved algorithms in several areas and its focus on mobile that accounts for more than 30% of its traffic.

INDIAPROPERTY.COM HAS demonstrated the best reinvention, though. Consim Info (now Matrimony.com), a Chennai-based Internet conglomerate, appointed Ganesh Vasudevan to head IndiaProperty in 2011, which was demerged from the parent company in 2012. (Consim founder Murugavel Janakiraman retains a stake in IndiaProperty.) Vasudevan has repositioned the realty portal and created new avenues to monetise the business. Since then, the company has raised $19 million from a slew of investors, including Bertelsmann India Investments, Canaan Partners, and Mayfield Fund. “Thanks to the Internet, we clearly saw a huge opportunity to help builders market their projects better because consumers were seeking different kinds of properties,” says Vasudevan. The company enables property buying, besides helping with property discovery—without charging any fee.

On the innovation side, Vasudevan is focussing on the huge number of prospective buyers who are still not online. He has opened six “experience centres” in Chennai (the cost of each is usually shared with a builder at the site) where IndiaProperty’s technology team simulates the experience of a property visit through augmented reality, using gestures, much like an Xbox Kinect experience. The team has worked on some 3,000 projects and these are also showcased at the company’s property shows. Another six experience centres are coming up in Bangalore and a similar unit will be opened at the Hyderabad airport.

More significantly, the company is replicating the entire web experience offline and reaching out to users who may not have an online presence. “Our solution can be deployed in any high footfall area like malls or stores,” says Vasudevan. By converting the content from existing media formats to its experience centres/website, it eyes higher rates of conversion and better returns via its technology platform.

AMONG THE NEWBIES, HOUSING.COM has specialised in map-based property search since it started in mid-2012 and believes that success is all about execution. “Have a map on which you have icons, and click on the markers that expand to the house,” has been the startup’s motto since inception. Users get relevant information on locality, commuting, utilities, and amenities that will add up to elevate the overall living experience. Property details are verified and photographed by a team of 600 data collectors across multiple cities.

Says Suvir Sujan, co-founder of Nexus Venture Partners, which has backed Housing (Sujan sits on its board): “They want to give 100% transparency on their website; everything you see there is verified.” That might be the USP of its business but it also requires a lot of execution at the backend—right from exploring data science to getting the most from the feet on the street.
Run by a battery of twentysomething co-founders, Housing is the quintessential hyper-aggressive startup. Its traffic growth has surged over the past 12 months, but many feel sceptical about its overemphasis on technology. Sure, the website has a wow factor and attracts users, but the UI-UX cannot be divorced from on-ground realities. In other words, the proof of its success will be in the quality of the search results and its information network on the ground as it scales up. Still, its high-velocity growth and focus on map-based search may prove to be an inspired effort in the era of 4G connectivity and smart devices.

COMMONFLOOR IS DIFFERENT from the rest of the pack as it brings to the table networked communities that helped initiate the venture and still play a key role in its success. Back in 2007, the aim was to bring together the residents of large apartment complexes. “People didn’t know each other, and lacked a collective approach towards solving problems. As the Internet allows people to break silos, we created a hyperlocal network,” says Sumit Jain. But there’s more to it.

According to Jain, every innovation must make the business more scalable—a lesson they have learnt early and expedited well. “A lot of property owners were not listing when we started the business,” he recalls. “There was an opportunity to build a great database and incorporate quality information.” The company started addressing each owner via its apartment management portal and provided end-to-end services. For instance, if a tenant’s lease was about to expire, CommonFloor would help the owner get a new tenant or get the lease renewed. The upside of the exercise: The company had organically built a database of residential properties, getting information directly from the owners (as opposed to agents). And that helped build the credibility factor.

Today, two-fifth of its 500,000 listings comes directly from the owners. The company also runs an online community management platform and about 500 housing societies subscribed to its paid services within six months. CommonFloor wants to take it to the next stage and establish direct relationships with 200,000 homeowners. The community-focussed approach is a novelty in India, and the startup enjoys first-mover advantage.

Online broker PropTiger has focussed on two relatively new areas—property advisory and loan advisory services. “Our business and revenue models are different,” says co-founder Dhruv Agarwala. The company’s sales team handholds buyers in areas like loan application and documentation. As a broker, its commission per transaction is bigger, compared with the volume play of 99acres or MagicBricks. It also gets a fee for connecting customers with finance companies. Since its inception four years ago, the company has sold new properties worth Rs 7,600 crore and employs 450 people. It has raised $44 million till date, with Rupert Murdoch’s News Corp being the latest investor, buying 25% stake for $30 million late last year.

THE COMPETITION in the online property-listing space is leading to myriad innovations, fast-expanding social networks, and better business ethics like listing verification. Most important, the top 10 players, with nearly $300 million in investments, are trying out different business models and adopting different technologies. But the question remains: Are these innovations sharp enough to keep them differentiated? In other words, can each of them build on its monopolistic idea in the time to come? As Thiel says in Zero To One: “If there is money to be made, new firms will enter the market, increase supply, drive prices down, and thereby eliminate profit. Under perfect competition, in the long run, no company makes an economic profit... All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.”