Consolidation in the US property portal market

by Alistair Helm in


This week saw the announcement by Zillow that it had entered into a definitive agreement to acquire its competitor Trulia for US$3.5 billion. The move by Zillow is an aggressive one that further cement its position as a key part of the future of the real estate industry in the US market.

Zillow has long held the mantle as the largest real estate website in the US surpassing the effective incumbent Realtor.com many years ago as it has headed for an aggregated audience of over 80 million unique users per month. Trulia has played a powerful game as the challenger as it has also surpassed Realtor.com and carved out an audience and support base within the industry.

Both companies rely on advertising revenue from agents and 3rd party companies as the US model with industry owned MLS’s (Multiple Listing Services) effectively making access to listings open and free for portals negating the opportunity to build a business model of a subscription as operated in most other countries. Agents are sold advertising packages to provide profile to secure listings as either buyers or sellers agents. With over 1.5m agents there is a large customer pool and with $12 billion of marketing spend across the industry each year these two leading portals and others have a significant cake to carve up between them, especially as the US industry effectively ceased print advertising for real estate a few years ago.

Neither company is as yet 10 years old and equally neither really makes any serious amount of money. For Zillow the 2013 year saw revenues of $197m and EBIDTA of $29m; for Trulia revenues of $143m and an EBIDTA of just $17m. Yet these two companies have a collective market capitalised value of $8.2 billion that is a staggering combined price earnings ratio of 178:1.

Trulia and Zillow are very different operations strategically, culturally and in regard to user experience and consumer brand experience and this has been part of the reason for the healthy and respectful rivalry.

Zillow has always been about data and the desire to empower consumers as home-shoppers with all the information and insight to make better decisions in the real estate process. They began originally as a site with no listings, merely a valuation estimate for every house in the US, matched to historical sale price records which was instantly a much talked about and compelling reason for almost every American to visit the site. This razor sharp focus on data off-sided them in the early days with the industry of agents and brokers as the accuracy and credibility of these valuation estimates “Zestimates” were challenged by the industry. However applying huge technology to the problem their data insight and analysis has turned them into the leaders in property tracking in the US with the largest and most valuable database on US households.

Trulia on the other hand has always been about the agents and the listings, working to empower agents through creating a community for home-shoppers to learn, ask questions and establish contact with trusted agents.  They have tried to engage their audience on a hyper-local basis so that you feel that Trulia is there at your side as a trusted friend, unlike the Zillow role as a trusted advisor.

In terms of business development Trulia has been focused on getting closer to their customers especially through the acquisition in Market Leader last year a leading SaaS CRM provider to the industry. Conversely Zillow has been more focused on the consumer engagement first by powering the leading media portals of Yahoo and MSN and then moving to acquire the New York portal Easy Street last year. They have also outspent Trulia in advertising and has lead a massive social media and PR campaign that has effectively intertwined Zillow into the vocabulary of US home-shoppers.

So Trulia and Zillow are different very different brands, different in culture, focus and user experience; however they are competitors. They both fight for the same advertising dollar of agents and brokers, as well as 3rd party advertisers eager to engage with home-shoppers. For this reason I hold no long term belief that Zillow will continue to operate both websites - Trulia as a website and a brand has a finite life. Zillow will be the gorilla in the market. A portfolio strategy as advocated by Spencer Rascoff Zillow’s CEO is a laudable strategy when the portfolio is made up of regional players or segment specific portals for rental property or holiday property or commercial property, but two national residential real estate portals - I don’t think so.

This acquisition will drive Zillow’s growth and earnings. For a start, the combined companies were due to be spending over $100m on advertising this year - no point in wasting half that money to try and out-flank your sister site! A single site will allow Zillow to begin to leverage their massive audience to drive lead generation solutions for agents and brokers, unchallenged by a competing offering from Trulia.

This consolidation is very unlikely to be challenged as anti-competitive even allowing for the shear scale of the combined audience share; as the marketing of property listings will not be impeded by the deal with the MLS structure still effectively allowing any real estate company to be a local portal with all the listings; after all real estate is far more a local business than a national business, especially across 100+ million homes and 300+ million people across the vast continent of 50 states.

Zillow have however not won the war with this acquisition, they have merely avoided a distracting skirmish with a competitor on the road to their ultimate goal of getting closer to the advertising cake of $12 billion a year. They will continue to innovate and acquire on their path as they will continue to grow in influence and power. Both companies have been highly innovative with technology across all platforms and whilst the acquisition could potentially be seen as a chance for Zillow to take a breather on such innovation, I suspect not. Zillow is all about empowering consumers and they are at their core a tech company so I see no easing up in the flow of smart user friendly innovative future tech. This is good news for the consumer and the real estate industry in the US who have nothing to fear and much to gain from this consolidation. However within the US real estate industry the general feeling is of the threat this acquisition brings to the core operation of real estate. That view is in my view more a function of the industry's inherent lack of confidence that their business model (with dual agency services and c. 6% commission fees) being ultimately sustainable.

As to the implications and ramifications for other countries and specifically for NZ. This deal demonstrates the stakes that the key players are playing for in the global property portal space. Zillow is by no means the poster child of the industry, those accolades rightly belong to the likes of Rightmove in the UK and REA group in Australia who deliver significantly stronger financial results from far smaller markets. Those operations though do have very significant competitors who have gained significant ground over the past few years. The likelihood of consolidation in these markets of the #1 player acquiring the #2 are less likely. What is far more likely is regional consolidation with more acquisitions of emerging market players by these two key specialist portal players and other media companies such as Axel Springer and Schibsted.

In NZ Trade Me has no need to consider acquisition, nor would it probably be able to as the ownership of Realestate.co.nz is more a strategic asset for its shareholders than a financial investment. The key focus for them as it is for Zillow, will be cementing the relationship with the industry customers at all levels, agents and business owners. More likely on the agenda may well be the benefit of an integrated CRM system as Trulia saw with the Market Leader acquisition. In NZ and Australia new operations offering SaaS solutions for real estate CRM look to be redefining the digital backbone of the industry and this could be key for Trade Me and other property portals who all rightly recognise their core customer are agents and brokers / business owners.

The fact is that nowadays the property portal industry is far exceeding the value of the real estate industry they support and rely on for their business. This is largely a function of a continued belief that the digital transformation of the whole industry process will occur at some time and smart tech companies will be the ones to take advantage of any such trend. For real estate companies there are massive efficiency gains to be made through working with portals, however collectively the industry around the world still holds an adversarial relationship with their local portal. 



Spring has arrived in the US and with it a new battle of real estate websites

by Alistair Helm in ,


There is a war being fought right now in the US - a high stakes tussle between the 3 aspirants of the property portal industry. The prize is a slice of the more than US$6 billion a year spent by the real estate industry in marketing, coupled with the potential of a foothold into the influence of more than US$60 billion in transaction fees a year. By comparison the NZ comparable numbers are around $100 million in marketing and $1.4 billion in fees.

The three players in the market for the eyeballs and influence of the buying public of the US are Realtor.com, Zillow and Trulia and each have today rolled out their new season TV commercials perfectly timed for the Spring home buying season.

I have always been partial to TV advertising and in some ways I'm sad that the heyday of TV commercials is past and their relevance is diminishing - they are the ultimate creative medium, as creatives and production crews combined with massive clients' budgets all seek out that holy grail for that one special ad that transforms a company and becomes enduring and memorable - think Coke ads and Toyota ute ads.

The latest collection of adverts for these real estate portals reflect perfectly the differing personality of these three companies and their distinct point of difference and viewing them further reinforces these differences.

Realtor.com

The industry stalwart, serious, factual, professional. The site is the 'official' site of the National Association of Realtors and as such focuses on facts - more listings, more accuracy, more up-to-date. All wrapped up in a warm 'idealised' family of wholesome values from a place only existing in TV commercial land - lightly glazed with humour.

 

Zillow

Zillow is the leader in eyeballs at the moment with a staggering 77 million unique visitors per month and plays an emotional card creating beautiful vingettes of real people 'looking for a place for your life to happen' rather than a boring functional requirement to move home, or just find or buy a house. It's another tear jerker to complement the homecoming advert from last year. In some ways it is similar to Realtor.com full of purity and the idealised perfection of a perfect couple - mid market, middle America. The search functionality featured in the ad might have been more convincing if the search term was "tree house" instead of 'big tree' but that would have killed the punch line and I just did! 

 

Trulia

Trulia has the appeal of being the battler in this threeway tussle, not the scale of Zillow and not the authority of Realtor.com, however they create a unique experience, they focus on real situatons and inject subtle humour and insight that is hyper-local which is important. It is the subtly l love, the insinuation that is made of the situation - creates memorability and this ties into the campaignable idea of 'Moment of Trulia' - gets my vote. Shame though about the competition as the end frame - seems to spoil somewhat the authenticity and emotional connection.



Trade Me Property adds map based search

by Alistair Helm in ,


Call me cynical, but I struggle to feel that our online property searching experience here in NZ is taking bold new leaps forward with the announcement of 'map based search' from Trade Me Property.

It also appears that I am not alone in this regard as my ever insightful news-service of Twitter clearly shows.

Now the cynicism may be from a 'geek' perspective as both Layton and Dave are certainly respected in the realm of NZ Geek Society. However as Dave rightly asked me "how many years ago did we (realestate.co.nz) do that?" - the answer is 6 years ago,  January 2008 as this article I wrote on Unconditional testifies.

I certainly go along with Layton's view that the solution is well executed - something that Trade Me excels at - delivering a great user interface, great design and an intuitive feel.

However I keep coming back to this fact that this is not so much a step forward as a very long overdue catch up.

To be at least taking a step forward, Trade Me should have executed this service with the ability to "draw your own search area" as many real estate websites offer around the world. This example from Trulia in the US highlights this capability - allowing you to be very granular and definite in your search area for property, in this case, no more than 2 blocks from the beach offering just 7 properties that suit my specific requirements.

Another even better execution I found was by Homely - a new innovative start-up real estate website in Australia - far from being a multi-million dollar company, this small passionate design lead team have produced a lovely execution of "draw your own search area".



Smart marketing!

by Alistair Helm in


This week you could not have missed the annual ritual of creating April Fool's jokes to bring some brevity and lightness to the daily news. For me the favourite has to be the proposal that should Scotland decide to vote yes in their referendum on Independence in September then they would instigate a more to switch to driving on the right from 2017.. with all the consequential challenges that would create! Added to this all road signs would be re-written replacing the 'M' motorway reference to 'S' for Scotland naturally and 'A' roads will be called 'N' for National roads. I commend the Guardian for creating this great spoof - apparently one of 4 such spoofs based around Scottish Independence.

Spoofs aside the other April's Fool joke that caught my eye was of more relevant for property addicts and followers of digital real estate marketing. Trulia in the US produced a great piece of marketing - they produced a completely new site which demonstrated a great brand extension - from property searching, to searching for a partner for those in the real estate industry - welcome to Truluvia

Totally convincing, although these days developing such websites are not a massive piece of work, the concept is smart marketing in my mind. I love the simple idea that match-making can be based around the specialisation of real estate agents - Trulia's target customers. The Trulia brand has always been distinctive for being design based, warm, friendly, a true partner in the real estate process.

There is also a smart call-to-action from this site which not surprising is not that 'deep' in content - you get to update your profile on Trulia, thereby driving users to engage with the main Trulia site.

I think smart marketing speaks these days to demonstrating a genuine personality, showing a personal connection with your customers and being prepared to laugh a little at yourself, especially when the service you provide is so emotionally engaging. Smart work by Trulia!