updated below
Trulia, a web site that lets you search for homes, today launches a way for real estate agents to pay to to reach you with their listings.
The feature comes at a time when Trulia is showing traffic momentum, even as a competitor Zillow is struggling with stagnating traffic.
For $50 per month, agents can pick up to ten of their home listings to be featured in Trulia’s results when people search for homes. Better yet, they’ll be listed among the top three search results. The prominent placement means users are more likely to click them to find out more.
In testing of the feature, called Agent Featured Listings, agents who participated received four times more traffic to their featured listings than other listings received. Trulia did not report if the additional traffic actually led to more home sales. A featured ad may deliver more clicks, but it remains to be seen if those clicks convert to dollars.
A big challenge for real estate websites like Trulia, a San Francisco company, and for competitor Zillow, of Seattle, is that home transactions occur offline. This makes it difficult for advertisers to track results, because clicks may generate leads, but big question marks hang over the rest of the transaction. So it’s hard for an efficient market to develop around the real estate sites. The big challenge for these sites is how can they capture more of the value, such as a portion of agent commissions, simply by generating clicks.
Trulia’s new subscription-based service model contrasts with the model most companies rely on. Zillow relies on both CPM (a rate paid by an advertiser for every thousand ads viewed) and CPC (cost per click), meaning advertisers pay Zillow a certain amount if users click on their ads). These CPM and CPC models work well when traffic and CPC prices are high. CPM ads account for about 90% of Zillow’s revenue and the rest is CPC, according to Zillow Chief Financial Officer Spencer Rascoff.
Recently, Trulia’s traffic has grown rapidly, while Zillow’s traffic has trended sideways, and lately, possibly downward, depending who you believe. Over the past year, Zillow’s U.S. traffic is up only 11 percent, to 1.9 million unique visitors per month, according to Comscore. Meanwhile, in the past year, Trulia’s U.S. traffic is up 130 percent, to 1.2 million unique visitors per month, according to Comscore. Of particular concern for Zillow is user engagement. In the past six months, U.S. daily unique visitors to Zillow are down about 20 percent, according to Quantcast. [Update: Zillow's monthly uniques are up 20 percent from last year, at 4 million, according to its internal data.]
At left is Zillow.com’s daily U.S. unique users, according to Quantcast.
Trulia CEO Pete Flint said the company spends hardly any money to market itself using ads on other sites, such as on Google or Yahoo.
Despite considerable press coverage given to Zillow’s controversial practice of providing estimates for home values, and its large staff of 155 employees, it’s not clear how the company plans to make money. Zillow appears committed to the CPM and CPC models, but will Zillow follow Trulia and offer a subscription service? We’ve requested comment from Zillow, and will update accordingly.
In September, Zillow raised $30 million from an institutional investor, Legg Mason Capital Management, bringing the total raised to $87 million. Legg is led by legendary investor Bill Miller, who until last year had a 15 year streak for generating returns beating the S&P 500 benchmark each year.
But why is Legg — known for its investments in public companies — investing in private internet companies? Legg started by investing in Spot Runner in March. Since, Legg has made five other investments (some of them not publicly announced), including in Ning, a social network service. Legg invested after Rascoff put out a request for bids in July, according to Legg Director of Research Randy Befumo.
Befumo said Legg has expertise investing in the internet sector and pointed out Legg is a major shareholder in Amazon, InterActiveCorp, Yahoo and Expedia.
Befumo said institutional investors like Legg will take the role formerly served by IPO’s in 1997 and 1998. At that time, internet companies without business models went public to raise capital in order to figure out how to make money. Befumo said institutional investors are better suited to assume that risk than individual investors in the public markets. Befumo acknowledged investments like these can have “binary” outcomes, either making a lot or none at all.
In the meantime, Zillow is throwing money at hiring engineers, though it’s not certain why. Zillow has 155 employees, and 108 of them are technical workers, of which the “vast majority” are software developers, according to Rascoff.
Zillow has 30 open positions and the company targets an employee count in the low 200’s, according to Rascoff. He said new hires are important to building the ad business (Zillow has 25 people on its ad sales team) and developing new features to attract users. Given competitor Trulia is rapidly catching up with Zillow despite having only 47 employees, the lingering question is why isn’t Zillow’s traffic growing faster?
Zillow’s user community appears weak. See Zillow discussions in Seattle, the company’s home turf. They’re essentially non-existent. Trulia, by contrast, shows much more life . Zillow’s local discussions pages are not as active because Zillow has chosen to not actively promote them yet, according to Rascoff. Zillow’s Discussion boards have over 85,000 posts since launch. Still, a vibrant local community may be important to helping local home buyers interact with real estate professionals in their area, and in that Trulia has an edge.
Both Zillow and Trulia are working on how to build profitable businesses. With today’s launch, Trulia is experimenting with a new business model. Flint said Trulia will be profitable before most expect it to be, but would not estimate a date. Until then, it remains to be seen what business model will be effective enough for real estate websites to justify the investments, especially for Zillow.
13 Comments
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onlinerealestateguru said:
Good analysis VB. Legg was clearly an example of dumb money that was willing to pay up to get in on a perceived hot private deal. Coulda been a hedge fund from the Middle East as the likely alternative.
If your traffic figures are correct, then Zillow is in trouble. They are trying to be a media ad sales player and the last time I checked you needed to have impressions to pull that off.
Also great point on CPC vs subscription. Realtors are too dumb to do the math with a CPC model which is ultimately why this market stinks.
Some big yellow pages company will someday put these guys out of their misery becuase the one thing you haven’t called out is how do you actually sell to and service all these agents.
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David G from Zillow.com said:
Hi Doug, it’s David from Zillow,
FYI - Zillow makes its money by selling advertising. Our self service advertising product for Zip-code targeted ads is actually a CPM model. CPC doesn’t suit many local advertisers who don’t have great websites and just want their phones to ring. Most of the rest of the ads on Zillow are also CPM, though we’re open to advertisers’ suggestions for CPA and even CPC ads. It is however free for real estate agents and brokers to advertise their listings on Zillow. In the context of this news, it’s important to note that real estate agents using Zillow, associate with and promote their listings on the site for free.
Regarding traffic - the hitwise stats should have tipped you off that Quantcast’s numbers are horribly wrong. Traffic to Zillow is in fact up 20% YOY and about 4 million people use the site each month.
As you know, you have an appointment to talk with Zillow’s ad exec’s this morning. I hope that call provides you with some more clarity regarding our ad products. It would be GREAT if you updated your post with what you learn.
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David G from Zillow.com said:
Hi Doug, it’s David again,
I just caught your comment about Zillow Discussions. You seem to have totally missed this: http://www.zillow.com/forum/site/Index.htm. This is an extremely vibrant real estate forum with arguably more consumer participation than any other real estate community on the web. Please update your post with a link to Zillow Discussions.
I’m frankly surprised you found the Seattle Discussions. Local pages on Zillow are in a very early phase and we’re intentionally not sending much traffic there. Expect more action in this area over the coming months.
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Spencer Rascoff said:
Spencer from Zillow here.
The fact that Comscore, Hitwise and Quantcast are consistently wrong has been well-reported by many respected news organizations. See for example this recent article in the New York Times: http://www.nytimes.com/2007/10/22/technology/22click.html?_r=1&oref=slogin
We pay Omniture a fortune to track our traffic internally, and as DavidG said above we’re very pleased to see such sizable traffic gains (+20% y-o-y) despite the overall online real estate category being down significantly. Thank you for updating the story with the correct data.
Also, you wrote: “In the meantime, Zillow is throwing money at hiring engineers, though its [sic] not certain why. Zillow has 155 employees, and 108 of them are technical workers, of which 30 are developers.”
Where did you get these numbers from? The statement that “30 are developers” is incorrect. And to say “its [sic] not certain why” is ridiculous. The reason why is that we’re a media company and we rely on our talented development staff to build exciting products that attract consumers and then advertisers. It’s basically the same reason why news organizations hire reporters — to produce content that attracts readers and advertisers. That’s why. -
Matt Marshall said:
David, we’ve updated the account for CPMs.
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Spencer Rascoff said:
Spencer from Zillow (again) —
I want to clarify the comment on our technical staffing. We do have over 100 technical employees out of the 155 total. The vast majority of those technical people are software developers. Our apologies for any misunderstanding there. -
David G from Zillow.com said:
Thanks Matt.
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Sramana Mitra said:
Matt,
I had raised questions about Zillow’s business model not being commensurate with the amount of money it has raised earlier.
http://sramanamitra.com/2007/07/11/ziprealtyzillow/Sramana
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Doug Sherrets said:
Spencer, thank you for commenting. As we covered on our phone call, the numbers stated in the original post for total employees, technical workers and developers came directly from an email from Zillow PR in response to my questions. The post is now updated to reflect your count of developers.
Thanks,
Doug -
Ray Burt said:
Lots more discussion on this topic at http://blog.seattlepi.nwsource.com/venture/archives/125345.asp
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Jay Haus said:
Legg has made mistakes before. Zillow’s competitors advertise their venues on TVSellsRealEstate.com. With a month-long national TV ad campaign of as little as $3K (including the production of the ad), that can’t be beat. If Zillow incorporated some of these Cheap TV Spots into their model they might have a unique angle on their market, too. Featured listings can be accompanied by TV ads, down to a specific zone, right to a single zip code if required.
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Bobby said:
Are there estimates for Zillow’s revenues?
The fact that Legg Mason is over paying to get into these deals is very scary for existing Zillow shareholders - UNLESS, they don’t take anymore money from VC’s. I smell a MAJOR down round on valuation coming unless they start controlling expenses. There is no way that the revenue is ramping at a level to offset expenses in the near term. Please notify me when the first round of pink slips goes out to Zillow employees this Holiday season (or early part of ‘08).
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Andy said:
So all of the independent metrics say that Zillow has less than 2 million UVs, and they claim more than twice that amount.
Not that Zillow necessarily has to justify this claim, but without some independent measure it seems a bit hollow. On this basis, realtor.com could just say that they have 12 million, because the “measured it internally”. This is important because the variations that apply to one site are very likely to apply to other similar sites; and the relative size is important to advertisers looking for the “best” vehicle.
If it isn’t both independent *and* independently verifiable, it is fair to question these claims — especially since they are so far out of whack with everyone’s metrics. This could be that they are simply siting “Visits” as “People”, which looks about right against the numbers.
Spencer/David: This isn’t a dig at you or the business - so please don’t interpret it as such. It is just that accepted practice among “media companies” (which is what Zillow calls itself, and what it in fact is when it asks advertisers to pay) is to site independently verifiable statistics. NBC can’t simply claim to “dominate Monday night TV” because they disagree with Nielsen. No one remembers the score, they remember the ranking.
I say, put up some verifiable facts or site the independent numbers. When websites refuse to do so it raises the potential for deceptive claims of advertising reach. I am certainly not saying that Zillow is being deceptive, but if there is “no truth”, others will be.
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