What Future For Online Agencies? - the investors will decide

However mild the weather may have been for most of us, it’s a cold autumn for the online estate agency market - and it promises to be a positively Arctic winter.

The temperature of the sector has plummeted thanks to the closure of Connell’s’ online operation Hatched, the long-term share price fall of Purplebricks, and the high-profile financial problems hurting Emoov.

All three have generated strident headlines on EAT and other industry titles but the thermometer measuring the success of this sector isn’t set by journalists or commentators - it’s set by investors.

For unlike the traditional agency business, investors are uniquely important to the online operators.

Of course all firms - bricks and mortar, or virtual - need funding; but in the case of online agents they need regular injections of money to pay for hugely expensive marketing, which is their only real way of generating high-volume business.

Emoov’s claim to be taking on 850 listings a month is not down to word of mouth or generations of families trusting the company name: it’s down to extensive and expensive advertising.

Purplebricks citing high levels of brand awareness in its trading report a few days ago isn’t something to fill up space in a statement to shareholders - it’s vital for the very existence of Purplebricks that advertising, marketing and public relations generate brand awareness, which is how the firm wins instructions.

The funding for such expenditure comes from two places - investors (Northern & Shell for Emoov and Axel Springer for Purplebricks, for example) or crowdfunding (Emoov and Doorsteps have had highly publicised crowdfunding campaigns in recent months).

So as the industry struggles to forecast what comes next for online, it’s the next round of funding that should make the picture clearer.

The trade press headlines might or might not be right in signalling a crisis for online - but the investors will be the ones who decide for sure.

If Axel Springer agrees to bankroll further Purplebricks expansion overseas, or funds a significant growth in UK Local Property Experts in early 2019, one can say that the online sector will survive - at least for the short term.

And the same would be said if the next crowdfunding campaign by an online agency produces the sort of over-subscription that we’ve seen in the recent past - you know, the target set (intentionally) low and then, predictably, handsomely exceeded.

But if instead we hear about Purplebricks consolidating, and if we don’t have breathless press releases from other onliners about amazing crowdfunding performances, then we know that the ‘online shake out’ is well underway.

In that case, the online sector won’t die completely of course.

But it will see more high profile casualties. The online agents will reduce to a number appropriate for the sector’s current five to seven per cent share of the transaction market - and appropriate given its apparent inability to get into double figures.

My guess is that we’ll see more contraction, more closures. Some will be predictable, others more surprising. In that case, it’s going to be a chilly few months ahead for onliners, and even frostier 2019.

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