The big news for the local recruitment industry today was SEEK announcing, via an email to customers this morning, their long-anticipated move to variable pricing. No specific implementation date has been released other than it’s going to be post 1 December 2019.
Variable pricing is the Holy Grail for job boards looking to leave as little money on the table as possible and it’s a move that SEEK flagged in their May 2019 Investor Update, released on 30 April 2019.
The Investor Update proved to be a catalyst for the subsequent sharp improvement in the SEEK share price, which had been on a downward drift since the highs of just under $23 in September 2018.
On the day of the Investor Update SEEK’s shares were trading at $18.21 Within a day they were up 50 cents and just over three weeks later the SEEK share price had climbed 16% to reach $21.13. In early July the shares broke through the $22 barrier but, on the back of a string of negative broader economic news, the share price was back below $19 just six weeks later.
The roller coaster ride for SEEK’s shareholders has continued with almost all of the losses since early July having been recouped by late last week as the $22 mark was breached again. SEEK shares are trading at $21.58 as I write this (the morning of Monday 21 October).
The SEEK analysts, broker and investors were clearly getting on on board with what SEEK was selling in their Update (as I outlined in my blog of 17 May 2019) with respect to ‘dynamic pricing’.
Dynamic pricing is about the capacity of the job board to charge more for an ad that delivers higher value to the advertiser.
Currently the only charge for a SEEK job ad is based on the space the ad occupies. The basic SEEK product (Classic) can be upgraded to StandOut or Premium. Each of these upgraded options provides an increasingly higher level of visibility to the ad. These higher levels of visibility are designed to improve the quantity and quality of applicants.
As per SEEK’s customer email this morning, SEEK’s move to ‘dynamic pricing’ means that the basic ad (Classic) will increase “…..based on a number of factors, including candidate availability and the location you’re hiring in.”
As to the specifics, you’re out of luck if you want more than the vagaries of the FAQs:
“This means that we may be lowering the prices for roles where there is high candidate availability in the location your (sic) hiring in. (is it really so hard to spell-check an important customer communication?)
In turn, if you are looking to hire for a role where there is low availability of candidates in the location you’re hiring in, the price of your Classic ad may be higher.
This also means that the price of a Classic ad for the same role in the same location may vary at different points in time, as candidate availability varies.”
Given SEEK has plenty of advertisers that place ads for low to semi-skilled roles where there is a high volume of applications I think it’s a safe bet that any price decrease for this sort of ad will be minimal. Almost certainly SEEK’s decision to (as of 1 December 2019) raise the price of the StandOut ad upgrade (to $49.95 plus GST) is designed to negate any total revenue loss from a price decrease that may apply to some categories of Classic ad.
Although many in the recruitment industry would no doubt think that the likelihood of SEEK actually decreasing ad prices is about as likely as snow falling in Sydney Harbour I suspect SEEK will feel obligated to do so, at least in some market segments.
You can be assured that the categories of job ad that see a reduction in their price will be dwarfed by the categories of job ad that will now be subject to higher pricing.
In the same way that ride-sharing companies like Uber are able to take advantage of location-specific and time-specific variations in demand and supply to apply Surge Pricing, SEEK now has the technology that enables them to do the same.
SEEK’s (self- identified) pricing conservatism is about to become a thing of the past as today’s announcements demonstrate that they are aggressively tackling their pricing.
Consistent with the introduction of surge pricing on job ads is the second piece of unwelcome news for recruiters: the recruitment industry’s traditional higher rate of discount for ad spend, compared to direct-hire employers, is coming to close.
As SEEK Co-founder and CEO, Andrew Bassat, outlined in his press release today:
“Over a two year period SEEK will transition to a discount model based solely on committed annual job ad spend for all customers. There will no longer be specific additional discounts for different customer types. Recruitment agencies will likely be most impacted by this change due to their historically high discount rate.”
“We understand that recruitment firms are likely to be most impacted by our decision to standardise discount rates. We carefully considered the impact when making our decision given our strong partnership with the recruitment industry. But we concluded that the changes are necessary to make the market more equitable and efficient and is therefore the right thing to do.”
This newly-found pricing aggression is inspired, in part, by the substantial upside that REA Group Limited (owners of the realestate.com.au brand) have been able to deliver to their shareholders with their own version of variable pricing.
SEEK’s May 2019 Investor Update outlines how REA’s Depth Revenue has grown by a factor of eight, to $582 million between 2011 and 2018
Here’s how the two companies compare across the past 8 years:
|REA Revenue||$238||$875||+ 255%|
|REA Net Profit||$68||$295||+ 334%|
|SEEK Revenue||$343||$1537||+ 348%|
|SEEK Net Profit||$97||$180||+ 85%|
Note: all figures are for the full financial year ended 30 June, are rounded and stated in AUD
The impact on results and shareholder confidence is clear.
In the past five years REA’s share price has improved 157 per cent (currently $108.57) while SEEK’s has only improved 35 per cent. During the same period the ASX All Ordinaries has risen 23 per cent.
REA Group’s market capitalisation currently sits at $14.26 billion , almost double SEEK’s market cap of $7.59 billion.
SEEK has been left a long way behind and they have decided that now is the time to start aggressively pursuing the profit they have not captured in the era of one-size-fits-all job board advertising.