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Google - friend or foe?

publication date: Feb 17, 2010
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Google set to enter the UK property marketReports that Google is talking to estate agents about entering the UK property market have created a flurry of interest – and some panic – in the sector. But it’s not so easy to work out what the impact of Google’s venture might be. First of all, Google isn’t talking, so it’s difficult to see exactly what a Google property service might look like. Google has already introduced a property search service in Australia, where properties are listed for free and can be searched for via Google Maps. But Google UK could adopt a different model.

Certainly Google’s market presence gives it considerable power. But not everything Google has created has worked. The search engine company is known for its policy of promoting innovation – employees have 20 per cent of their time to spend on their own ideas – but this ‘let a thousand flowers bloom’ culture means that though many initiatives are started, some are knocked on the head quite early on. Social networking site Orkut, for instance, flopped in the US as Facebook and MySpace took its market away. And the property market hasn’t always been an easy one to crack – Tesco’s attempt to get into it ended with a whimper, for instance. Tesco, like Google, is a gorilla in its own market – but made little impact on the property sector, mainly through having misread the way estate agents and property portals would react to what it had to offer.

Ed Freyfogle, CEO of property portal Nestoria, warns that “property search is very different in different markets”. He believes this is a major challenge that Google will have to overcome. Not only do end users want to search in different ways, and value different attributes – for instance, square metreage in France against number of bedrooms in the UK – but the market structure is also different from country to country (notably in terms of the prevalence of FSBO and agent exclusivity).

Ed Freyfogle, CEO of Nestoria
As we’ve learned at Nestoria in rolling out to multiple countries, property is not a one-size-fits-all service – a human touch is required, and I’m not sure that’s Google’s strong suit.'
“Google has shown they are great at algorithmic solutions developed by geniuses in Mountain View,” Freyfogle says “But as we’ve learned at Nestoria in rolling out to multiple countries, property is not a one-size-fits-all service – a human touch is required, and I’m not sure that’s Google’ strong suit.” He also wonders whether simply mapping properties is a rather blun instrument for Google. “Of course, as the saying goes it’s all about location, location and location, and in that sense maps can be very useful, but it’s not a magic bullet that solves all problems.”

While Nestoria offers mapping, it also makes its API (Application Programming Interface) available to encourage others to experiment with different ways of presenting the property search. For instance, uses Nestoria’s data to help commuters find appropriately priced property within a commutable distance of London.

Despite the lack of definition on Google’s plans, the stock market quickly decided that Google would be a major threat to dominant portal Rightmove, and the shares were marked down 10 per cent on the day. Analysts are aware that with over 80 per cent of the market, Rightmove is currently winning the battle against other portals, but worry that if greater competition enters the market, Rightmove’s £300 plus monthly fees could come under pressure.

Simon Baker of Property Portal WatchThe share price reaction might have been overdone. Simon Baker of Property Portal Watch points out that Google has already been in the Australian market for six months, yet REA Group – the leading Australian portal – has been increasing its traffic and revenues despite the new competition. It seems more likely that Google will put increased pressure on some of the less successful portals, which are already struggling against Rightmove’s domination and the entry of second- generation portals. Local newspapers are also likely to see further erosion of their share of property listings – Johnston Press has already seen property ad revenues more than halve this year.

Google will face a number of challenges if it wants to rival Rightmove. First of all, it will have to build comprehensive listings data, whether it does so through agents or through second line portals. It will have to be canny in the way it does this – agents won’t be keen on entering data manually to yet another portal, even if it is free.

Secondly, Google will have to establish its brand in the property market. Ed Freyfogle says that while Google has a massive brand, it is not particularly relevant to the market. “Users perceive Google as exactly one thing: a general web search engine. So how do they get users to think about using Google for other services? Really the only way is if they start featuring these services more in their search engine. But then users have to ask if Google search is giving the best answer or just the Google answer?”

Lindsay Cuthill, director at Savills, says Google will also have to understand the agent’s need for suitable branding. “You hope that the portal reflects to some extent your own brand and aspirations,” he says. “We like to think we’re an aspirational brand, so we want the portal to reflect this in some way. We don’t want to be on a mass market portal if they’re only attracting the mass market.” If Google wants to attract the premium end of the market, it will have to make its pages sufficiently attractive for the upmarket buyer.

For the last couple of years Rightmove has continued to increase its revenues despite the downturn in the residential property market. It hasn’t lost agents, despite the cost of monthly subscriptions and the advent of pay-per-sale or lead competitors – no one is willing to lose a client by admitting they don’t advertise on Rightmove. Simon Baker notes that the Australian subscription sites only have to make one sale for the agent to break even on the subscription. Average commissions of AUD 8,000 to AUD 12,000 compare with subscriptions of AUD 4,000 to AUD 6,000. While the figures stack up, it’s unlikely that most agents will pull out of their contracts, at least in the near term.

A property search on Google AustraliaHowever agents are certainly interested by the opportunity to reach more eyeballs at a low cost. Lindsay Cuthill says “We know everyone’s first property search is initiated online, and our hope is to get our client’s property in front of the right people.” If Google can help Savills do that, then he is interested. His main concern is pricing. “Google is immensely powerful,” he says, “and our worry would be that such a powerful vehicle might want to charge high fees. Still, it’s like airlines – the more people there are wanting to fly you around, the cheaper it will get. It’s likely to get cheaper – that’s what you hope.”

Ed Freyfogle points out that free listings might be counter-productive, though. “Free encourages spam,” he says, and speculates that agents might even fake listings to attract enquiries. “Data quality is already a huge problem in the industry,” he says, “and we believe ‘free’ makes the problem worse rather than better.”

And though most observers, so far, believe that Google will come into the market with free listings – as it did in Australia – agents should be suspicious of the idea that it will be free forever. After all, The Times online has been free since it started, which hasn’t stopped Rupert Murdoch planning to charge for content.

Ed Freyfogle warns “Everyone needs to ask themselves if they believe there is such a thing as a free lunch? Is it plausible, in the long term, that a publicly listed corporation will continually give you things for ‘free’? Or are they entering the market, building position, to then exploit that position?”

Lindsay cuthill of Director Savills
If Google wants to attract the premium end of the market, it will have to make its pages sufficiently attractive for the upmarket buyer.’
Agents who think Google offers them a risk-free way to cut their costs should also consider the possible danger to agent themselves. Rightmove, having been created from inside the industry, protected agents by maintaining a policy of not allowing private sales. If Google in the UK follows the Australian model, it will source its ads from Google Base, the classified engine, and anyone can enter an ad, says Simon Baker of Property Portal Watch. By bringing buyers and sellers together, Google’s property listings could cut agents out of the equation. It will certainly create greater transparency in the market.

But the biggest difficulty Google faces is that of cannibalisation. Its main revenues come from selling paid search results (pay per click). So the property search is competing against its own most profitable product – and that represents a major risk for Google, says Ed Freyfogle. He knows from experience working at Yahoo that sometimes the left hand doesn’t know what the right hand is doing. “From the outside looking in,” he speculates, “based on feedback from Australian players, it seems Google has entered the market in a clumsy way that does its best to offend and scare their existing customers.”

Google will of´Čücally launch at the Property Professional Show on May 17.