1. In Perspective: Dwelling on the threshold

In Perspective: Dwelling on the threshold

At its most fundamental, there are two business models in the online space, or possibly a third — if we consider it as a combination of both of them.

Published: January 5, 2016 12:26 AM

At its most fundamental, there are two business models in the online space, or possibly a third — if we consider it as a combination of both of them. The first one earns revenues from consumers and the second, from advertising.
In the online real estate business, earning revenue from consumers remains a distant possibility because buying or renting real estate is amongst the highest involvement purchase decisions. Purchase decisions with high financial stakes involve deliberation and an evaluative decision-making process, often with multiple contributors.
For example, a typical real estate purchase may involve a friend, relative or well-wisher who moots the idea, the broker who recommends the brand, the housewife who chooses (or influences the choice), the husband who purchases and eventually the whole family uses it. They have different considerations to determine the best option, making the buying decision a more complex one than, say, for a mobile phone.

Therefore, online real estate players can provide a service in helping narrow down choices to a manageable number, but there needs to be some offline interaction before money is transacted. Another issue is the prevalence of black money in real estate deals.

Given all this, it would appear that the focus will remain on the advertising revenue model, with a possibility of supplementing it through e-commerce in ancillary products like furniture etc.The challenge is that even a business model based on advertising revenue needs a critical mass of traffic, which involves huge marketing spends. Even deep discounting, as evident in the consumer acquisition strategies of some of the big e-retailers like Amazon, Flipkart, Snapdeal etc., makes it difficult to foresee profits in the near term. Not surprisingly, everyone seems to be chasing valuation as the Holy Grail, but even valuation needs to be based on the presumption of profits at some point in time. While profit projections on paper are one thing, the reality is that only a few players will survive in the long run. Some will fail to generate adequate traffic, others will perish from operational inefficiencies and there will be those who will run out of funds. The best chance of being successful is for companies to build in a strong brand differentiator from the start, rather than rely on short-term measures to attract consumers.

By Samit Sinha

The author is founder & managing partner, Brand Alchemist

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