When magazine publisher Future plc bought the GoCo Group, owner of price comparison site GoCompare in a takeover worth £594m, the investing world was divided on the merits of such a move.
Stubben Edge CEO Chris Kenning gives his take on the deal and what it means for the future of the group.
Some have said Future buying GoCompare was an inspired move, while others said the purchase made no sense. Which is it?
There is actually quite an aggressive and compelling logic to the tie-up between the two. One of the reasons is that media websites get a lot of traction in terms of web traffic but don’t make a huge amount of money.
GoCompare isn’t an insurance business, it’s a media site, and it’s very, very good at extracting the most money out of financial services clients. ‘Financial services’ is one of the most expensive search terms and the insurance industry is one of the biggest spenders and heavy users of advertising to generate traction for their products.
It is quite an interesting tie-up for both sides and by linking the two businesses together it makes up a compelling opportunity as there’s a lot of value to be unlocked.
GoCompare has value to Future, and GoCompare will benefit from plugging into Future’s traffic.
So, it was a good deal?
GoCompare and other comparison sites are going to be less profitable because the FCA has cracked down on dual pricing and the ability to offer favoured nation clauses so that people can make more money out of a comparison site.
Dual Pricing, or “price walking” is where you bid an artificially low price to get a customer in and then because people generally don’t pay too much attention to their insurance renewal, you increase prices more for existing customers than you would offer for the same customer coming in as new.
It’s basically a loyalty penalty and it disproportionately affects elderly and vulnerable customers the most. It has been talked about a lot and is a means by which a lot of insurance premiums are generated in the UK.
Because the deal with GoCompare was announced just after the FCA announcement, I think there was a recognition probably within GoCompare that there was going to need to be fundamental changes to the business. So the price of GoCompare probably became more attractive.
And, if you are GoCompare and need to re-engineer your business, why not do that with a captive audience who can generate traffic for you and your customers?
Was it a defensive move by GoCompare?
Yes, but it can also be seen as a defensive move by Future too.
Future plc grew and grew through acquisition and their big trick has been that they made it into eCommerce. This represents an opportunity for Future, not just to further develop their eCommerce business, but it protects them against the threat of the growing rise of eCommerce on platforms like Facebook, Shopify and others.
What is interesting is that Amazon is the number one starting point for search in the US, not Google. So people looking for a product search on Amazon more than on Google.
Also, when you fill in a form for insurance you put in an awful lot of information. and that information is notionally anonymized. However, if you can reverse engineer that to match people’s profiles, that is hugely valuable for augmenting the readership data and that is going to be more and more important as Google cracks down on the cookies.
If they can do that, it would give Future a compelling proposition, a real unique selling point and, excuse the pun, protects them against a “cookie-less Future”.
