Last week, I had the pleasure of visiting Opendoor, the billion-dollar real estate disruptor, to give a presentation on emerging models in real estate around the globe. The presentation covered my two-year research into the winning models that are changing how houses are bought and sold.
There were some great questions from the audience, both on international models and my thoughts on the Opendoor model itself. These thoughts, in addition to a number of recent conversations with investors interested in the space, led me to contemplate Opendoor’s future strategy and the complex competitive situation it faces.
The end result is what I call the Opendoor paradox, and the premise is simple: the more successful the business becomes, the harder it will be to succeed.
Business model challenges
The business model of Opendoor and other iBuyers (those that buy houses directly from consumers and then sell them) has a number of challenges:
- An undifferentiated product: At its core, all iBuyers offer the same basic product to consumers: certainty and simplicity. There may be price competition or various technologies to support the process, but those advantages lie in the margins. The typical consumer only cares about one thing: instantly selling their house.
- Resource intensive: The iBuyer model is expensive, and not just because it’s buying houses. To be successful, iBuyers need a lot of boots on the ground in each market they operate. These businesses are people-intensive.
- No repeat customers: This is true for all of real estate, but it doesn’t change the fact that without repeat business the cost of attracting new customers is expensive. There are no economies of scale around attracting and retaining a loyal clientele. Most importantly, this levels the playing field and reduces the barriers to entry for competitors.
The U.S. is big, but for whatever reason the growing pack of iBuyers have all decided to launch in the same bunch of cities. Phoenix, Las Vegas, Atlanta, Orlando — that’s the battleground.
It’s a mess of a competitive situation where they will end up spending valuable time and resources competing against each other instead of growing the market.