Zillow

Last month I indulged in some year-end speculation about the state of the RE.net in 2008. One of the things I predicted was that we'd soon see one of the traffic measuring firms show Trulia's web traffic cross over Zillow's. I just didn't expect it this soon.

ht: techcrunch

Dustin Luther is on a tear. 4Realz.net has instantly become the insider's go-to guide to the real estate technology market. Recently unbound, Dustin is busy breaking news and publishing lucid insights on the market. Today he cites The Motley Fool speculating on a Zillow IPO in 2008.

“Zillow was the brainchild of Expedia’s founder, so it’s really just a matter of time before the company follows suit and goes public. Even with dot-com realty plays like HouseValues and Realtor.com parent Move trading in the mid-single digits, Zillow has enough Teflon to make it as an IPO.

I'll go on a limb and say, Not a chance Zillow IPOs in 2008. Rather, Dustin has motivated me to organize these predictions for Zillow (and the rest of the RE.net) for 2008:

• Barton moves to chairman-only by mid-year. He's got the venture and hedge funds to keep him busy.
• In addition, I'd bet maybe 5 of the current 11(!) VPs rotate out in 2008. Is this a company that can actually keep it's General Counsel busy full time? Doesn't make any sense to me. Clean house, drop the burn rate, focus on the core business.
  

There's no question they're building that company to take it public and have the right product and team foundation, but think about it in context of the Kayak/sidestep news. That's a combined company of 60 people with $85 million in revenue. There's your IPO. Zillow has 165 employees! That's a big burn rate. Plus how many IPO investors are going to be excited about getting into a residential real estate play in 2008? 2010 is my guess for Zillow - after some wrenching changes, and some smart revenue moves. (David G, what say you? Am I full of it?)

In related re.net developments, here's another prediction to think about:

• Redfin.com will introduce premium-level, full-service, full-price product lines.

I've grown less sanguine about the Redfin business model this year. Champion of the discounters, Redfin's gotta scale its revenue. CEO Glenn Kelman posted some of his business metrics on Guy Kawasaki's blog (which took some serious cojones, so kudos to Glenn for stepping up.) In that post, one thing is clear: he needs to marshal Redfin to $100 million in revenue, fast. If you assume that Redfin clears ~$5000 on it's discount home sales transactions, that means they have to scale to 20,000 home sales in the next couple years. In this market.

Glenn also pointed out that they have more people driving around in the field than they originally planned. (i.e. the model scales less efficiently.) But if you introduce premium services and can bring your average-revenue-per-deal closer to $10,000, that's a much more achievable target. Not surprisingly, this was also the path that Zip Realty took several years ago.

One last one:

• Trulia's traffic overtakes Zillow's.

Paul Kedrosky took some flak the other day for citing a single traffic source highlighting declining web traffic for Zillow.com. Web traffic is a black art, so we can divine only a few things for certain: 1. Zillow's new feature introductions are only marginal page-view increases on top of the core value proposition. None of these create the power curve in traffic growth. 2. They started with the biggest bang you can. It's hard to go up from there. Furthermore, when you're in front of the fire hose, it's hard to discerne which site/product tweaks lead to organic growth. So Zillow's current growth was actually retarded by their early success. 3. Trulia's growth is more organic (and more visible in the monitoring services). It's based on start-small, test often, repeat-what-works. So Trulia's growth seems to be oriented on increasing market penetration, search optimization, and product improvement. As a result, in mid 2008, we'll see the first of the compete/quantcast/alexa charts that illustrate Trulia crossing over Zillow. Mind you, I'm not convinced that Trulia has their revenue proposition nailed yet. I'm sure there's a prediction in there somewhere too. Just haven't found it yet.

Drew Meyers from Zillow called up last week and interviewed me about last week's Carnival of Real Estate. If for some reason you don't get enough of my pontificating in written form in this blog, you can hear Drew and I chatter on about Altos Research, the contributors and articles in last week's Carnival of Real Estate, blogging in general, and the state of the real estate market.

So Trulia.com and Zillow.com booked booth space at Prudential Real Estate's convention this week in San Diego. 20 minutes before the show floor opens, they're asked to leave. Zowie.

Apparently, the Prudential / Yahoo partnership is to blame. Trulia and Zillow, with their no-referral-fee businesses, threaten the entrenched model that Pru/Yahoo have had for years.

What's less clear is who flipped his lid at the last minute. Was it someone at Yahoo saying, "Get my competitors out of here"? That's at least a little odd, because Yahoo and Zillow also have a partnership. Was it Russ Capper from Prudential? Most of us never think about the vast sums of money in the real estate lead referral business and it makes sense that some of that flows to Prudential from the Yahoo real estate search pages. But Pru has partnerships in place with these guys too.

Either way, the incident is merely the most recent hallmark of our massively shifting world. Like any innovator's dilemma, the old guard has to defend their bread and butter while the new guys eat away at the business. The scraps they take now are too small to sustain the existing players but enable the new guys grow to steal the whole loaf. Yahoo and Prudential are not alone as endangered incumbents here: HouseValues and HomeGain, and even Zip which has it's vast network of website referral partners - all face unbelievable risk.

As an aside - it is this essence that underlies my preference of the Trulia business model vs. Zillow's over the long haul. Of the basic questions that the sites answer: "what's for sale?" vs. "how much is my house worth?" the Trulia question is much closer to the transaction itself, and thus better positioned to capture a greater share of the referral dollars away from the incumbents.

Sami at Trulia takes the whole episode in stride, and it sounds like he got his customer meetings anyway, they just couldn't do the exhibit-floor booth. (Ironically, doing booth duty at these types of shows rarely results in new business. Rather it's simply a means for a partner to show a little support when they're going to be meeting and greeting anyway. Likely the Trulia and Zillow guys saved a few days of aching feet and a pile of throw-away business cards. I'd be saying Thank-you.)

The Sellsius guys, broke the story, natch.

Kevin Boer points us today to the most insightful real estate statistic I've seen in a while. The evidence is in and it proves that the more photos you take of your home, the higher the price you'll get for it. Kevin credits this value add the realtor; our hypothesis is that the pictures improve the value of the property itself (clearly this amount of price increase can't be attributed to negotiation!)

We'll be incorporating this variable into an AVM regression and patenting it (with license royalties to Kevin of course) before Zillow tries to ape it into their zesitmate.

The Sunday New York Times today ran it's latest work on the Internet Real Estate renaissance today.

Actually a collection of several excellent articles, the one closest to our hearts and the hearts of most of our blog readers is the one by Rebbecca Fairley Raney titled, "Forget the Gimmicks, Buyers Want the Numbers"

Offering packages of detailed data is becoming a new method for brokers to build their clientele and a way for general Web sites to feed consumers’ interests.

...

When Barbara G. Cox trains real estate brokers, she says, she encourages them to go beyond listings and use the Web to position themselves as specialists. For example, a specialist in horse properties can use a site to demonstrate knowledge about stabling,
feeding and grooming.

“I’m telling them, in positioning, you have to distinguish yourself,” said Ms. Cox

We couldn't have written it better ourselves. Well, yes we could have. We would have led with all the great work that Altos' Realtor subscribers are doing providing real-time market research to their clients at a depth never before available. Our only challenge would have been which of our very cool clients to highlight for them. But that's just us. We're a bit biased.

Alas, the email requesting to interview Altos must have been trapped by our spam filter and the Times had to settle for Zillow and Trulia and Realtor.com.

[Warning: (more) Shameless Self Promotional Statements Follow]

So if you read that Times article and said to yourself, "Thats exactly what I've been thinking I need to build my real estate business." Then you, my friend, are reading the right blog. Why haven't you contacted us yet?

[End of shameless self promotion]

The rest of the Real Estate section today includes more great stuff for Realtors developing their Internet marketing strategies. From "Making Every Pixel Count":

“Good photos will grab people’s attention and help you sell a home,” said Jacky Teplitzky, an executive vice president of Prudential Douglas Elliman Real Estate in New York. “Bad pictures will absolutely give you trouble, because you won’t have any calls on it, and nobody will come to see it.”

Eighty percent of people across the country who bought a new home last year used the Internet while house hunting, and they rated photographs as the most useful tool in their search

...

But there is little point in having good photographs or beautifully written prose describing a home if you don’t have a Web site that is easy to find and easy to use — and this holds true whether you’re using a broker who will list your home on an agency Web site or you’re trying to sell your home yourself and are creating your own Web site or listing your home on a site like Craigslist.

Words to live by.

I've said frequently I am a huge fan of the predictive power of futures markets. Today the DEMO 2007 conference brings us the latest prediction market innovation in the form of an ambitious startup and new Altos Research partner (more on that below), My-Currency.com

[update] My Currency's DEMO Demo is here.

The concept behind "predictive markets" is that the collective wisdom of enough properly incented people can provide insights beyond the abilities of any individual.

Usually the incentive is your cash. My Currency does a cool twist and incents its market players (Realtors or other service providers for example) by tracking their reputation with points on how well they trade on a market. Later, a consumer can come to the sight poking around for say, South of Market Condo market information and find the experts with the best reputation for knowledge in that part of town. Could be a great marketing channel.

The company has already been positioned as the anti-Zillow. And the concept may have some legs. You know how everyone has an opinion of the Zillow price for your home? Well My-Currency let's you put your reputation where your mouth is.

You can also track the market by neighborhood with their futures market
on price-per-square-foot by zip code. The spot pricing in this market
is provided by Altos Research.

We experimented last year with a futures market at inklingmarkets.com. There we set up the San Jose median home price market (which by the way successfully predicted San Jose home price changes in 2006). My suspicion is that My Currency, by being focused on real estate, has an advantage over the ad hoc markets of Inkling. In any market, liquidity is the key. So My-Currency should have better volume of real estate traders than someone like Inkling.

The user interface for making a trade on the My Currency market is really simple and it's kinda fun too. Give it a shot and let's see how your expertise flies. I'm trading on the indexes. Is that inside information? Maybe. Can you beat me? If you know your neighborhood!

Joel at FoREM, as usual, has a thoughtful and insightful review.

VentureBeat covered My-Currency's launch story yesterday.

Zowie. Thirty-nine percent of adult internet users went online to look for real estate information in 2006 - according to a new Pew study released last week. While this shouldn't come as a surprise, I suppose, the shear volume is still striking.

More than half of internet users 18-29 have looked for housing info online. Nine percent looked for housing information on any given day. [ob aside: Maybe the only thing more ubiquitous is porn.]

Internet users who are looking for housing information have a vast and growing menu of resources at their fingertips. Much more specific housing information is readily available online than before, including access to Multiple Listing Services, which were formerly in the private domain of realtors, as well as new search-able housing databases, and even housing information on blogs. Also, layers of cross-referencing applications can help real-estate searchers flesh out their searches with maps, links to community information, monthly mortgage calculation tools, and links to virtual tours or photographs.

Two related data points from our own surveys show that users increasingly make use of internet offerings that might be housing-related: by August 2006, about half of all internet users (51%) have taken virtual tours, up from 45% in November 2004. Also, nearly one third of all internet users (30%) have used online classified ads or sites such as Craigslist, up from 22% in September 2005.

2006 was indeed a renaissance year for real estate online. Along with the illustrious premier of Altos Research, we saw Zillow, Real Estate ABC, Fidelity's Cyber Homes, drop their AVM data onto a map; Google Base, Edgio, Oodle and Vast, join Craigslist to nip at the heals of national MLS collections; Trulia, ShackPrices, RealBird, and HouseValues tackle homes on the map; Movoto, Redfin, Blue Roof, Catalist, BuySide, and many others join Zip in the online discounter space; Homethinking, BuyerHunt and many many others. We also saw the advent of the futures markets that we at Altos are so fond of: on the Merc, Inkling Markets, HedgeStreet.

But the Real Estate Blog Trumps All

Pew gives it only a passing mention, but the exploding real estate blogosphere is above and beyond anything contribution measurable by any of the firms above. We'll predict that Pew could in 2007, if they chose to, measure real estate consumers using blog-found knowledge and relationships as the Internet resource second only to the listings themselves. (The trick here is that many consumers will find their Realtor and decision making information and never even realize a blog was the source or the catalyst.)

Rain City Guide is the granddaddy and case study A for local Realtor blogging. 2006 saw many dozens of Realtors join their ranks to build their brands online. But you could just as easily see the impact that the Matrix blog has had on Jonathan Miller's business and reputation. I don't know any financial numbers, but I do know that Miller has gone from a New York city presence to a national powerhouse in one year.

In 2006 we watched entire firms building their businesses around the blog: Sellsius, RSS Pieces, Transparent RE, The Tomato, Future of Real Estate Marketing. Remarkable, useful, valuable. And just beginning.

Of course it's no coincidence the explosion in usage parallels the explosion in resources. We're swirling in a virtuous cycle. At the risk of touching an open nerve, I'll make the parallel to global trade. The more it happens the more we all prosper. Everyone wins. We live in an undeniably exciting time.

Let's not forget that these success stories are blossoming in an offline real estate market that is most charitably described as "changing."

Here's to 2007 that carries us the next order of magnitude in prosperity.

This week's Real Estate Blog Carnival is up at True Gotham, one of a handful of really great blogs about that city. (My absolute favorite, though not really a blog, is Overheard In New York.)

Our post on the Web 2.0 conference is highlighted along with a truly insightful comparison by Realty Thoughts on the differences between the NAR conference and the Inman conference. I hadn't put my finger on it before, but I've never even remotely felt compelled to go to a NAR conference and feel like business is passing me by if I miss Inman. Unfortunately, these guys have me on the Cusp of Old.

When you go to a panel on “Top money making strategies in online marketing” at NAR there is no one sitting on the panel that was born after 1970. When you go to a similar session at Inman you rarely find a person on the panel born before 1970.

Also of note: Two (count 'em!) Altos Research clients, Kevin Boer and Andrew Maury, have their posts highlighted this week! We like to think we're significantly responsible for encouraging their blogging, if only partially responsible for the millions of dollars in commission checks that these guys are wallowing in.

Yahoo is getting crushed lately. The stock is off over 40% from its 52-week high. Analysts have been tripping over themselves to downgrade the stock as the company makes known the softness in financial and auto advertising sales. The latest culprit? The bursting real estate bubble.

RBC Capital Markets analyst Jordan Rohan (the guy most notable lately for declaring MySpace worth $15billion to News Corp) said recently, "As housing softens, fewer consumers are in the market for a mortgage, reducing valuable mortgage clicks." The implication is for online real estate ad spending in general.

Content and Inventory

Upon deeper review though, the bursting bubble isn't at fault here. Rather, Yahoo's real estate revenue risk is merely a function of declining search market share. Yahoo is losing real estate ad revenue to Google, which isn't even in the online real estate biz. (OK - Google Base is in the real estate business but that isn't monetized yet.)

Yahoo, as a portal, makes a decent chunk of it's advertising dollars on its own content. Compare this to Google which only sells ads on other people's content. In terms of ad-space-inventory, Yahoo will continue to lose market share as long as its content is growing slower than the internet as a whole. This seems likely to continue.

Google sells ads when you search for, say, "Miami Florida Real Estate". The paid ads are around five bucks a click from one of the big real estate brokers. Many of the results lead to content sites, like Trulia and Zillow, both of whom make their own money reselling Google ads.

Yahoo, of course, has the exact same paid search opportunity. But that business only grows if more people are searching with Yahoo.

Meanwhile, despite the housing bubble burst, online real estate ad spending is exploding. Says local-web-advertising firm Borrell Associates

... Internet real estate advertising [jumps] to a $2 billion level this year and [will pass] $3 billion by 2010, surpassing newspapers in terms of advertising market share. [of $11 billion total real estate advertising spending]
... There is huge room for growth. Sixty-one percent of agents do not advertise on the Internet. And 87 percent of agents are not buying keywords on Google or Yahoo.

Borrell is actually projecting overall (online and offline) real estate marketing spending to decrease between now and 2010 as the bubble deflates, so the online percentage gain is even greater.

Beyond paid search ads, the Trulias, Homethinkings, BuyerHunts, Craigslists are providing new channels to reach home buying consumers. Agent websites, blogging, market research and other online tools add to the total spend. These channels, because of their efficiency gains, actually grow the real estate marketing pie, rather than simply transfer from offline to online spend.

In spite of declining real estate activity (maybe because of it), online real estate spending will continue to go through the roof.

In all cases, interestingly, Google increases revenue leverage, where Yahoo loses share. Yahoo may be a great company and may continue to throw off huge amounts of cash. But the company's current woes shouldn't be blamed on the housing bubble any more than say, bad weather.

disclosure: Altos Research creates real estate market analysis tools for Realtors and consumers. We do not make any recommendations to buy or sell stocks, real estate or any other financial product.

Been meaning to catch up with some recommended reading:

• Oliver at Seeking Alpha and Joshua at BiggerPockets both have thoughtful takes on the Housing Bubble as a function of the Lending Bubble. As I've pointed out before, it's clear that creative financing options have been a key driver of our Bubble. But don't kid yourself - sclerotic lending options mean inefficiencies and higher costs. So shifts that reduce the cost of (or increase the flexibility of) borrowing are fundamental improvements that allow costs to be transfered to the real asset, not the transaction. Bubble notwithstanding, this is a good thing. And it's a secular shift: transaction costs down...house prices up. The fact is these financial innovations have been coupled with relaxing standards and a gambling mentality. The big hopper makes our housing bubble. Let's not throw the baby out with the bathwater.
  
• Surprise! The Boulder Market is Hot! My take: Economy? solid. Affordability? high. Quality of life? one word: powder. Immigration from Northeast and California? unstoppable. Mix. Enjoy.
  
• Here's my best opportunity in a long time to link to GapingVoid. I consistently invoke the Hughtrain when talking marketing strategy with my Silicon Valley compatriots. Amazing how many still need hand-holding.
• TransparentRE on the continuing evolution of the lead generation business. The broker angle is one I hadn't considered before, but it makes sense.
• Joel likes our partnership with Homethinking. But Joel, ahem, ixnay on the ompetitioncay with the 800lb orrillagay! Seriously, we don't see our company or service as competitive with Zillow. Let's call it "partners in spirit." We are both working to get better information to more people about the real estate market. And there's no reason that any of Zillow's API users couldn't also leverage ours for complementary information. (in case you're interested, anyone can drop our real-time price charts on your site. More details on our API forthcoming.)