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Trade Me Property changes its pricing model - again

On Wednesday Trade Me Property (TMP) announced a new pricing structure, almost a year after the implementation of the radical switch from a subscription model to a pay-per-listing business model.

That model has, it seems, proved to be a too great a stretch for the industry to accept and, likely as not, too troublesome an issue for Trade Me [NZX: TME] to continue to deal with as its annual reporting is just three weeks away.

On the face of it, the new pricing structure is a significant win for the real estate industry as it re-establishes the subscription model, while at the same time offering a scaled per-listing fee and a regionalisation of pricing.

The real estate industry mobilised when the new pricing model was announced last November, with reactions ranging from a  complete boycott of Trade Me Property to merely advising clients that the website had changed its pricing and was no longer a mandatory component of marketing of a listing.

At the same time, the industry circled the wagons around the ‘industry-owned’ website Realestate.co.nz as a way of providing the public with an alternative to TMP.

During the standoff that ensued over the past 10 months there has been a clear demonstration that the impact on Trade Me’s business was being felt in both customer loyalty – as demonstrated by listing numbers – and in investor confidence – as evidenced by the share price (although it is not accurate to entirely correlate share price to issues with the property sector, however critical it is).

I believe this new pricing scheme will patch up the issues TMP has faced in one fell swoop, resulting in the site returning to full strength and full loyalty (and if not loyalty, then at least patronage). It will not deliver the absolute gain to the bottomline that the original per-listing fee pricing model would have delivered but it will get the company back on track to build its business for the future.

So what are the details of the new price structure, who will benefit, who will choose which of the options, what will the medium term outcome be, and who are the winners and losers of this tussle?

Return of the subscription 

The new subscription service with unlimited listings will be open to all offices with a regional split: Metro offices in Auckland / Wellington / Christchurch will pay $1399 per month, an increase from last year's monthly subscription of $999; offices outside these areas will continue to pay $999 per month.

This locaton-based subscription model is a smart move in that it shifts the company away from a single flat fee structure to regional pricing. This will go down well with provincial customers who have long fought to be recognised as having a wholly different cost base to the metro real estate operators.

Once established, TMP may well apply this regional structure to their premium property advertising. It may also further segment by geography – I'm sure Southlanders would argue that Hamilton and Tauranga should pay more than them – or, rather, that they should pay less. Regional pricing makes sense and it will be interesting to see if Realestate.co.nz follows suit.

Listing fees based on rateable value price

TMP will also continue with the per listing fees in what they describe as the "Flexi option", to mirror the differential pricing introduced for private sellers a year or so ago. Single listings will be $159 for a property with a rateable value over $450,000 and $99 for those under $450,000. This will go down especially well with the smaller offices. On top of this, TMP are making a very public statement that the scale of a customer's business affords discounts in the form of Gold / Silver / Bronze.

The average NZ real estate office is actually quite small, handling around 100 listings a year / eight listings a month. In the many provincial offices where the median listing is around $300,000, this change will be welcome news. A year ago these offices would have been paying $999 a month for unlimited listings; the per listing fees bumped this up to $1272; this new structure will cost them $800 – a win!

The retention of the listing fee-based model is, in Trade Me’s words, a way in which offices remove the sunk cost of TMP and appropriately pass itt on to the consumer, in effect saving them thousands of dollars a year. Time will tell if the industry see it this way.

Overall, I think the industry will feel vindicated in leveraging their collective muscle against Trade Me. Maybe Simon Tremain of Tremain Real Estate in the Hawkes Bay and Tim Mordaunt of Property Brokers in the Manawatu and Hawkes Bay will be hailed as heroes for staunchly refusing to capitulate and effectively completely boycotting TMP all this time across all their offices.

I think it's likely the vast majority of offices will switch back to a subscription model, with the metro offices absorbing the higher monthly fee and relinquishing the charging of the fees to vendors. Many small offices will choose the per listing fee as a way of simply saving money,  and not to pass the cost on.

So who’s the winner and who’s the looser in this change?

For my money, the short term winner is the real estate industry. In the medium and longer term TMP is the winner. They will once again re-affirm their dominance of the lead generation business for agents from the largest and most comprehensive portal of listings covering licensed agent listings and private sellers. Once they have regained patronage (if not as yet loyalty), they will build a growing business in premium services that are sold more aggressively through a growing field-based sales team. They will naturally hike fees regularly and in time seek to move to a pure per-listing fee, which will deliver the bottomline the company and its investors want.

As for Realestate.co.nz, I fear they will be the loser in the short and long term. They have emerged from this period a lot stronger in audience terms and with greater appreciation from the industry. With TMP back with a full listings complement, however, the delivery of leads through Trade Me will return and Realestate.co.nz will once again be viewed as a championing industry site but hardly an adversary to TMP. Compounding their problems will be a more aggressive and significantly larger TMP sales team out in the field, who will seek to develop a stronger relationship with agents and offices, matched to a significant ramping up in their technology team

Disclosure: I was CEO of Realestate.co.nz from 2006 to 2012. I provide consultancy services to Trade Me Property from time to time, but I note those services do not extend to advice on pricing and offers. All insight and opinion expressed here are without any reference to any knowledge or insight I have gained through my work at Trade Me Property. 

Former Realestate.co.nz CEO Alistair Helm is founder of Properazzi.

Comments and questions
10

A great disclosure at the end, so you are not totally independent then? Shame.
You haven't touched on one thing, which is the term 'once bitten twice shy'.
If Trademe has done it before , they will do it again. Driven from above with demands for better returns for their shareholders. TMP does not deserve a second chance. The arrogance they have shown, as a group, is appalling and beyond forgiveness. They cannot be trusted.

I feel it is appropriate that I provide a full disclosure about project work I have done or am doing for Trade Me Property, as I do project work for other companies - I am a self-employed consultant.

I write these articles published in the NBR from my own site at Properazzi because I hold a passion for real estate and the digital evolution of this industry. Nobody pays me to write these articles and nobody edits or censors them.

Trade Me abused its dominant market position in an untenable way - the increase in pricing could not be justified in any way except as a blatant price gouge on all participants in the real estate industry.

One participant I talked to quantified the impact on them and their customers (ie. vendors) at 200% increase - from $750k a year to $2.5m. They will not be going back to Trade Me in a big hurry as realestate.co.nz is serving them just fine now at under half the cost of Trade Me. That is why Trade Me has lost this war.

And deservedly so.

I probably should not reply to this as I am not responsible for what Trade Me Property do or in any have reason to defend them. But this comment needs some objective response.

If as you say you know of a real estate company that was spending $750,000 a year with Trade Me Property then based on the subscription cost at rate card of $999 per office per month plus add on premium advertising I would estimate this company would have 60+ offices. I know of only one 'single customer' of Trade Me Property of this scale - they also happen to be a shareholder in Realestate.co.nz.

This customer has an estimated business in sales commissions alone of close to $150 million a year - they probably spend currently around $10 million on newspaper and print advertising - I think these figures provide context to the numbers you quote especially given almost all leads for agents from buyers nowadays come from online and Trade Me delivers the largest share.

Very telling comments, Alistair if I may say so. So what Trade Me was essentially trying to do was eying a bigger slice of the sales commission for providing the same service where it was already making huge margins for very little extra effort.

Where Trade Me fails to appreciate is that most agents have to carry the advertising cost at an individual level and so cost per listing matters.

I am not trying to defend the real estate industry - simply commenting on how Trade Me has scored an own goal and is now rapidly losing ground. In my opinion, irrecoverable ground.

I recently sold a $1.5m property via the real estate firm and was happy to only advertise on realestate.co.nz - at the agent's cost. But he had to convince me first that the site works as well if not better than Trade Me. When I compared the number of listings on the site vs Trade Me, and how many viewings were going through - I did not need to be convinced further.

Disclosure: I am completely independent to the subject. The Real Estate Industry should continue with their own site and not use TradeMe - they have already done the hard yards on their own platform, they have regathered their own destiny back into their own hands, and they don't need TradeMe anymore. Why go back - memories will fade, TradeMe costs will go up and they would lament they had it all in their hands in 2014. No brainer really. TradeMe has flexed their muscle, and lost.

Trade Me needs to look very hard at reducing the cost of advertising to the Motor Industry as well.

The motor industry advertising is huge, and just waiting to be plucked by a industry owned portal like the real estate guys run. upwards of 32,000 listings at $59 each say 50% rolling over monthly that's millions annually. I guess 12 to 15 million pa.

Thats why there is Autotrader Arty. This again is a completely independant site only used by dealers. However with new zealand such a small market there are only so many websites that our market can sustain.

The reason Trade Me is so popular is that it covers all basis and is available for private listers and business listers whether its selling a car, renting a house, purchasing shoes and more. Trade me has been the platform that has enabled a level playing field and has enabled the joe public to market and sell anything of value to a wider audience.

Let think for a moment to the days before Trade Me existed.

Arty

Very telling comment - however just look across the ditch to see a comparison for Trade Me

The real estate digital marketing platform owned by REA Group - market cap A$6.3billion

The car sales digital marketing platform owned by Car Sales - market cap A$2.7 billion

The digital employment marketing platform owned by Seek - market cap A$5.6 billion

NZ is lets say a 5th the size of Australia and Trade Me dominates these first two markets and is a key player in the third. Its current market cap is $1.4 billion - shows that first they are not as well developed - especially considering they are also the e-Bay of NZ and also that they cannot be price gauging

Well I find this all very interesting. I wrote to trademe the minute the new offer was put on my desk and told them in very clear terms what I thought of the way they had treated the industry. No response. Two days later I listed the scarf that they sent out to owners to soften us up and guess what, I get a phone call from them.To their credit they didn't remove my auction which is still going along with a tongue in cheek ad. Trademe is a publicly listed company and they have to do everything to drive profit up. Hence the fact that the industry will no longer provide them with the stock because without the stock they are just another sella or wheedle. I won't support it because we have our own fantastic website and it now has more listings than trademe and I can assure you it works extremely well for us. There are over 10,000 more listings on real-estate.co.nz than trademe. Why would we give our stock when they are actually a direct competitor to our industry?