The data race
#Week42 saw a notable buy in the real estate sector, with US information provider CoStar splashing out £99 million to acquire OnTheMarket, the UK’s third-largest residential property sales and lettings portal.
At first glance, this is a fairly straightforward purchase for a firm with a strong position in the US – where it owns Homes.com – looking to replicate that in the UK. The property search market is hugely valuable, and CoStar has clearly smelt an opportunity, but perhaps there’s a bit more going on here than first appears.
OnTheMarket was established in 2013 by a group of large estate agents, including Knight Frank and Savills, seeking to disrupt the duopoly of the market leaders Rightmove and Zoopla. The talk at the time from the agents was the “need to take back control before it’s too late”, but in truth it has never quite made the necessary traction.
Property search in the UK is dominated by Rightmove, which claims an 86% share of the market, £245 million a year in profit and revenue that is nearly 20 times higher than OnTheMarket. But the arrival of CoStar has caused some ripples; at time of writing, Rightmove’s share price had fallen 13% as investors reached the conclusion that OnTheMarket is now a genuine challenger.
It will be interesting to see if CoStar can leverage its experience into UK success; it certainly has the cash to spend heavily as it seeks to lead the market. And with a track record of expansion through acquisition – European buys include Thomas Daily in 2016 and Realla in 2018 – it will know how to bring its expertise to bear on a new business. But this is just one side of the coin, for CoStar has long been a wily operator at the vanguard of real estate’s data revolution.
Most Paperclip readers will be aware of CoStar for its commercial real estate data and news services. The insight it provides is vital to many aspects of property investment and development. What’s more, CoStar knows its products are valuable, and charges accordingly.
It seems likely that its latest acquisition makes sense not only on a basic commercial level – a good deal for a portal that, with investment, has a decent shout of future growth – but also as an addition to its widening pool of data. It is not hard to see how the terabytes generated by a business such as OnTheMarket could be repackaged and sold to a customer base that already deals with CoStar for its information needs.
It is more confirmation – if any was needed – of the ever-increasing importance of data to the real estate industry. A sector that could once be accused of sticking to traditional methods has started to embrace data with alacrity, building it into everything from investment models and lending decisions to space planning and rental agreements. As with so many areas of modern life, data has come to be the lifeblood of the market, and whoever controls access to it rules the roost. CoStar is betting that it can make OnTheMarket a success in its own right, but it is the underlying data that could represent the bigger prize.