Dutch estate agent set to enter Irish market by investing in website, writes Barry O'Halloran

Dutch online estate agent Funda has chosen Ireland as the starting point for a planned international expansion. It's no coincidence that the company has come here, according to Ronan Higgins of Funda, who says it regards Ireland as a "hot market".

Funda has bought into the Irish Auctioneers' and Valuers' Institute (IAVI) website, realestate.ie. It will pay a total of €4 million, most of which has been deferred and will be paid to the institute in the form of a profit share.

Realestate.ie has been trading in the shadow of the big players, Daft.ie and MyHome.ie, which The Irish Times Ltd recently agreed to buy for €50 million.

The Netherlands-based company is planning a relaunch for realestate.ie next week that will be supported with a marketing campaign. "It was a property portal that never really got treated as a commercial entity and fell behind the times," Higgins says. "Funda is planning to invest in it and put money into a proper marketing campaign."

The website will advertise properties put on the market by the IAVI's 2,500 members and will carry ads from all 32 counties. Until July next year, estate agents will be able to advertise their properties on the site for free. It will earn revenue from general advertising and from "enhanced" services, which is basically giving more details on individual properties.

Websites of this nature are regarded as a good bet by investors. The Irish Times Ltd (which publishes The Irish Times) had to fight off stiff competition to get Myhome.ie. According to Diarmuid McNamee, director of NCB Corporate Finance, who advised The Irish Times Ltd, these businesses are attractive because they generate a lot of cash. "Private equity investors are getting involved, and they don't go near anything unless it's got good cash flow," he says.

Venture capitalists 3i recently spent €60 million on a French property website. Other buyers who have been active in the market recently include ITV, eBay and Google. According to the published figures, in 2005, MyHome generated €2 million in cash from a €5 million turnover. That's expected to rise to €2.5 million and €6.2 million respectively this year. The steady rate of growth in both figures illustrates another attraction of this kind of business: costs are predictable.

"Operating costs are fixed, so any new revenue generated goes straight to the bottom line - 30 per cent to 40 per cent margins are not unusual for a good website," McNamee says.

Strong revenues and good margins are not characteristics that investors readily associated with internet plays during the dotcom bubble. In fact, some of these businesses boasted about the money they spent on their operations - the "burn rate" - while others never tired of predicting that they would be "cash flow positive" in the next quarter.

McNamee points out that MyHome and Daft survived the bubble with proven businesses.

"What's happening is that these businesses are now more established," he says. "They have been through the internet boom and have ridden out that wave. There is much greater substance to the players that are in the market now."

He stresses that the key to success is establishing where the revenues will come from early on in the business. If websites begin by not charging for services for which they ultimately intend seeking payment, then they're going to find it hard to keep customers once they switch.

Three estate agents, Sherry Fitzgerald, Douglas Newman Good and Gunne Residential, established MyHome in 2001, when the internet boom passed its peak. But it thrived on the back of the strong property market. These days, around 850 estate agents advertise on the site and it gets 300,000-plus visitors a month.

Daft.ie is slightly bigger, with 450,000 visitors a month, a figure that allows it to claim to being the country's biggest website. It began as a lettings website in 1997, and subsequently expanded into selling property.