Startup Stories

The DigsConnect rocket ship – where to?

I recently sat down with Alexandria of DigsConnect fame and tried to tease their future plans out of her. So stone walled was I with “we’re focusing on building the best experience for students and landlords on our platform” that the only option left to me is to speculate myself. But don’t get me wrong, Alexandria is a serious dreamer. She’s just trained herself with that response to keep herself focused on the current mission. But I as a keyboard hero have no such constraints and will take the liberty of speculating wildly on where I think Alexandria and DigsConnect will go from here.

The Background

The rapid rise of DigsConnect has been well covered (mostly by Alexandria herself in this post). The story goes something like this. Alexandria got on to the SRC at UCT and worked on the student housing portfolio. She noticed there was (i) a problem with students not being able to afford housing and (ii) students not being able to find adequate housing even if they could afford it. She moaned about this problem a bit but then decided hang on, I can solve this. She taught herself to code well enough to get a website up and running and boom, DigsConnect was born. Not quite. That first site was pretty much a bulletin board where students could go to see listings of properties. Being tapped into this market, Alexandria knew a lot of landlords on the supply side which got the bulletin board/early market place going.

With a lot of interest in the board from students (demand) and landlords (supply) she had enough proof that a genuine market place for student housing could be built. One of the first things you realize when talking to Alexandria is that she is really good at selling without explicitly selling. That’s what true, unashamed passion feels like, and Alexandria oozes it. I have no doubt that this allure (along with the genuinely compelling business case) was what made the opportunity too good for her co-founder Greg Keal to pass up on despite him running with his own startup at the time. Shortly thereafter, Brendan Ardagh got on board and the dream team of coder, marketer and visionary got cracking on building the DigsConnect Product and brand.

Platform businesses, when they get going, have an inherent network effect. For each new party to the supply and demand side, they benefit from a wider range of selection, leading to more supply and demand joining and so on – the network effect is enhanced by the flywheel effect of a powerful platform. It’s for this reason that growth is often slow in the beginning and no one gets much benefit from the platform, but as soon as a critical mass of supply and demand is reached, growth goes wild. The flywheel/network effect combination generally makes platform businesses a monopoly in their space and DigsConnect is no different (Brian Arthur argued this monopoly effect is in fact inevitable when increasing returns are in play). If you back the team to create a platform of significant size, it’s a hugely compelling investment opportunity. Monopoly over a niche of people buying and selling things through your channel – it’s a money spinner and a half. Enter the publicly undisclosed investor, who backed the team with R12m to do just that.

The killer combo

So how’d they do it? From what I’ve seen, great product and killer marketing strategy. The product is slick and smooth. It’s really easy for landlords to list properties on the platform. The map interface (Air bnb style) makes searching for housing really easy for students (I honestly don’t understand why all agents don’t list properties like this). I could probably write a whole article on the product and why it works so well, but suffice to say, they have reduced the friction of listing and renting property dramatically, while embedding the opportunity for future additions nicely at the same time.

The marketing campaign was designed to get novelty and legitimacy craving students excited about the DigsConnect brand and they succeeded in doing just that. Also a full article to be written here, but a combination of guerilla marketing, key influencers, a huge campus presence and traditional tools like competitions with prizes, got them lots of attention and engagement. Students will only go on to a platform where they can find actual accommodation, making the supply side key. DigsConnect started out being free to list property, creating a free additional channel for landlords to list property. A no brainer – everyone loves a free option. It’s also important to note that the brand and product are key to each other’s success. Create a killer product but don’t market and no one uses it. Have a killer marketing campaign around a brand focusing on genuineness, but have students hit a product that’s clunky and doesn’t work and the entire campaign falls flat. Product and marketing need to be in perfect symbiosis for a platform to really work. DigsConnect seems to have nailed it – their growth numbers are astounding as a result – kudos to them!

As a dinosaur fan myself, I can’t help but love the Digsaur
Speculation time

But now the fun part. What to do next? Alexandria is right to stay focused for now. There are a million students in SA in any given year and with a monopoly opportunity on the cards over their housing, DigsConnect would be silly to focus on anything other than locking in that monopoly. But once they’ve got it, what do they do with it? Let’s speculate on a few business cases, ranging from pretty standard monetization to vertical and horizontal expansion.

Starting with their current business model. As a platform grows its supply, the real estate on the landing page becomes more and more valuable. But how do you know when to start charging for it? Well, in DigsConnect’s case, their landlords told them. They literally asked to give them money to rank higher on the landing screen. The team obliged and v1 of the business model was born and is still the one that exists today. But as supply keeps growing, and word gets out that this is the place you need to list student property if you want it rented, almost all of supply will pay the base fee and you’re back to square 1 of every listing carrying equal weight, which is not what supply wants. It seems natural for DigsConnect to take a page out of Google’s book and set up some kind of auction for the top spots. This has the benefit of massively increasing their revenue potential (unlimited vs fixed fee on listing) through monopolistic pricing, while creating the downside of landlords with more money buying all the top spots, leaving landlords with less resources despondent. Students want choice, and not just the choice of landlords with big budgets. They’ll have to find a balance here and I’m sure they will. The pricing potential is also not really unlimited. Landlords rent property to generate yield, and spending a year’s rent on advertising doesn’t make sense. There is a natural cap on what landlords will spend to make their yield calculations work, which is good for balance on the platform.

Once they’ve perfected their core business of monetizing the rental space of digs listings, what next? Option 1, take the playbook to other countries where no player has the platform monopoly (key given Brian Arthur’s insight). While each country has its nuance, I don’t see why they couldn’t achieve this. The core product is already built. They would use their resources from SA to fund growth in other countries. Never easy, but achievable. Option 2, grow the market out of students. The only issue with students is that they eventually stop being students. Having won their attention for their student years, it would be a shame for them to then leave the ambit of DigsConnect’s reach. It’s hard to build trust with customers and once you have their trust, you don’t want them to leave. DigsConnect moves into rentals for ex-students entering the workforce? I think it’ll be a sitting duck in a few years and easy market expansion point.

Moving away from their core product and looking at the distribution channel that DigsConnect hope to own. Assuming they reach the whole student housing market, there will be a host of services they can provide this channel other than just a place to find a rental. So you’re moving into a digs? What else you need? Digs furniture, Wifi, domestic worker, movers, insurance? Why don’t you just buy it through the same platform? For landlords, we’ve got handymen in your area, security companies roaming the streets where DigsConnect is concentrated and while you’re at it, why don’t you collect your rent through our platform as well? The general startup mantra of innovating where you have to and copying everything else plays well here as well. Two other proptech players in SA, Flow and HouseMe, have some nice innovations. Rewarding good behaviour of tenants and deposit-free renting? Great ideas – no doubt they’ll work for DigsConnect.

Once platforms get really big, their network effect slows. Adding another digs to a platform with 50,000 near UCT adds little value. DigsConnect could enhance their network in other ways. There is a great company out of America that they could look at for inspiration in this area – NextDoor. They perfected a product for localized communities to communicate and gather on. DigsConnect could do the same for their student areas. Set up a game of touch in your area or host a student event for a particular topic. List it on DigsConnect and reach all the students. When I was in uni, there was no way to know where student specific events were taking place (besides bulletin boards at the varsity itself). DigsConnect could become the students’ social network, which would be pretty awesome (and lucrative).

Then finally, they could monetize the data. An overused term in the data-rich world, but a real opportunity for DigsConnect. Property developers only build where they think there will be demand. How do they know where demand will be? They pay someone to do a feasibility study to assess how many people in the target market there are in the area and how much competition there is in the product offering. DigsConnect can one up this, by estimating demand based on searches and speed of rentals for units in certain areas. Developers can then buy and convert houses (or just do new developments) in areas where demand outstrips supply. This unique data set is incredibly valuable and one that their investor will certainly be interested in. I wouldn’t be surprised if DigsDevelop (hopefully with a better name) launches as a sub of DigsConnect, using the data from DigsConnect to develop a property portfolio based on supply and demand mismatches. DigsConnect happens to have particularly shrewd investors and I doubt this point has been missed by them. This strategy has the added benefit of adding more student housing where it’s really needed, which is part of DigsConnect’s core vision at the end of the day.

Right that’s all for my speculating. I’m sure you’ll agree that DigsConnect has mega potential. A world class product, with a great marketing strategy and a visionary founder. I personally am hella excited to see what they do with it!

p.s. let me know if you think my ideas are crazy or I missed something obvious. I do love a good couch analysis of a company’s potential so let’s do it!

 

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