Real estate software and marketing company Market Leader Inc. says it’s looking to grab a bigger piece of what it says is an $11 billion pie by continuing its strategy of partnering with franchisors and brokerages to upsell their agents premium services, squeezing out small providers in the process.
In reporting fourth quarter and 2012 results this week — Market Leader said trimmed its net loss for the year to $7.8 million, down 45 percent from 2011, as revenue grew by 32 percent to $45 million — CEO Ian Morris laid out the company’s strategy to more than double its revenue by the end of 2015.
In a conference call with investment analysts, Morris said Kirkland, Wash.-based Market Leader "is quickly becoming the central nervous system of the real estate industry," and is looking to "increase our share of wallet."
Thanks in large part to its partnership with Keller Williams Realty International, the company is now providing its integrated lead generation, customer relationship management (CRM) and marketing platform to 125,000 agents, up from 20,000 two years ago.
Having signed similar agreements to provide its platform to agents at brokerages affiliated with Realogy Holdings Corp. franchisors Century 21 LLC and Better Homes and Gardens Real Estate, Morris expects that number to grow.
Market Leader is using its software as a "beachhead" with franchisors "in order to gain access to the thousands of real estate agents in their networks," Morris said. "By tightly integrating our platform with their enterprise-level systems, we’re increasing the adoption and the stickiness of our software, as well as our ability to efficiently upsell our premium services."
This strategy works "because franchisors are realizing that they can’t keep up with the pace of change in technology, so they are more and more open to outsourcing this function to technology providers," Morris said.
Market Leader estimates that the provision of real estate marketing and technology services is a $24-billion-a-year business, with $11 billion in spending by residential real estate professionals.
For now, the business is highly fragmented. Morris described real estate software as a "cottage industry" serviced "by hundreds of tiny little companies that provide narrow point solutions and simply don’t have the wherewithal to be trusted with an enterprise-level deployment," Morris said.
He said Market Leader — which expanded its customer base and capabilities of its platform’s capabilities in 2011 by acquiring Denver-based Sharper Agent for $1.75 million — is using its scale, "as well as the breadth of our system to squeeze out these small providers, paving the way to upsell our tightly integrated premium services."
Market Leader Chief Financial Officer Jacqueline Davidson noted that of 125,000 agents using Market Leader’s platform, about 24,000 are also buying premium services.
Morris said agents typically pay $100 a month for premium software upgrade. Market Leader’s "marketplace offerings" – which include the provision of leads from sites like RealEstate.com and HouseValues.com – can generate "a few hundred more" dollars per month, on average, he said.
Market Leader is not alone in seeing opportunities in "enterprise" partnerships.
Rival Imprev Inc. powers Re/Max LLC’s Design Center. The roughly 70,000 Re/Max agents in the U.S. and Canada can use the Re/Max Design Center for free, and have the option of paying for premium features that allow them to generate single-property websites, video home tours and ready-made marketing campaigns.
Cloud-based transaction management provider dotloop recently reported that more than 16 percent of Re/Max agents and 75 percent of Keller Williams Realty agents are using its platform to close deals.
Morris said the first of Market Leader’s new enterprise rollouts, with Century 21, began in the fourth quarter of 2012, but "requests for additional integration and functionality required more time than we anticipated."
While the delays dented fourth quarter revenue, "this is exactly the type of integration that further deepens our enterprise relationships and will assure even more extensive access to these real estate professionals," he said.
In addition to completing the Century 21 and Better Homes and Gardens Real Estate rollouts this year, Morris said the company expects to bring additional partners aboard this year that will "further extend our access to real estate professionals in the quarters and years ahead."
Morris said franchisors like Market Leader’s platform because "seamless integration" with their existing systems helps "drive agent productivity and loyalty, while also providing business insight not previously available at the franchise level."
After Keller Williams launched its new eEdge agent platform with Market Leader integration in February 2011, he said the franchisor’s agents boosted transactions by 17 percent — more than double the average gain seen by other franchisors in the same period.
Market Leader is also looking to increase revenues from its lead-generating offerings. In December, the company announced it was revamping its HouseValues.com product to sell agents a guaranteed number of leads in exclusive territories on the site.
Having acquired RealEstate.com in 2011, last August Market Leader announced that it had agreements with multiple listing services in more than 150 markets that are providing Internet Data Exchange (IDX) feeds containing information on about 1.6 million listings to the site, which generates revenue by charging brokers and agents to display their brands and receive leads from cities and towns on an exclusive basis.
A full transcript of Market Leader’s call with investment analysts is available at Seeking Alpha.
Other highlights from the company’s earnings release:
Fourth quarter sales and marketing expenses were up 9 percent from a year ago, to $7.3 million, which represented 61 percent of revenue. That figure includes $4.2 million in customer acquisition costs — up 20 percent from a year ago — and $2.8 million customer servicing costs.
Despite growth in its customer base, customer servicing costs were down from a year ago, evidence of "significant operating efficiency," Davidson said.
Davidson said Market Leader is shooting for $100 million in revenue by the end of 2015, with 25 percent EBITDA margins (earnings before interest, taxes, depreciation and amortization).
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