The Dirty Topic of Money in Real Estate
Friday, April 4, 2008 at 08:17AM Greg Swann asks a good question (make sure you watch the South Park video).
I might not have as busy a day today as I thought -- 2 reschedules. So, perhaps I can write a little more. I have a feeling in about a month I won't be able to write much at all, but who knows, this market is like a sputtering jalopy right now.
Monetization might be the most important question of all for RE's future, especially when you include RE sites into the mix of prognostications. Even RE brokerages will need to consider ways to monetize their internet efforts. If RE brokerages don't consider a full internet presence and diversfication of service-offerings and diverse streams of income, they'll be dependent on partnering with RE sites and lose control of their destiny.
My belief is that somewhere along the line in the Land of The Free someone will have to charge for something. Before Louis throws a gorilla at me, I understand that Homegain has developed a profitable business model. Does anyone know if HouseValues (or whoever their parent company is, I can't remember) is profitable? I don't hear much about them lately, except they invested in Active Rain. Is Trulia profitable? How about Frontdoor, do they bring in revenue exceeding their costs, is Zillow close to profitability? I understand Realtor.com is profitable. How is Roost doing? How close is Redfin to turning a profit? What about all the others - it seemed like there were dozens at onetime that I hear nothing about: CyberHomes, Oodle, Homescape, Hotpads, Propbot, CLRSearch, VideoHomes, The Housing Pages, Second Space, Backpages.
I have no idea how these sites are faring, but I don't hear much about them. Sometimes it seems as if there is a reaction to the question of monetization, as if it isn't polite in the Land of The Free to bring up such a banal subject. But it has to be discussed at some point unless RE.net is going to violate every economic law known to man. It all might be about more than money, and it might be admirable to give consumers free access to information, but if it's done in a way that COSTS money, then those costs have to be recouped, then exceeded, to make it worth the investor's time and effort. Otherwise, investment money will flow elsehwere.
We all applaud every time a technological advance is made at these sites, but I will applaud louder when one is confident enough, good enough, brave enough to find a way to monetize their efforts outside advertising. Say my fictitious brokerage company, Zedeck, had a site equal or better to the current RE sites and had become the Google of RE, would consumers who are in the information gathering stages for buying or selling real estate, or investing, pay a fee for Elite Services?
If it was good enough and comprehensive enough, I think they would, once trust was developed. To receive a steady stream of local information that is personalized in a slick presentation that includes a plethora of photos, local information, taxes, insurance, market information, lenders, information about local attorneys, inspectors, home furnishings, restaurants, home stagers, repair people, grass cutters, schools, nightlife -- all the infomation that is spread out in different places brought together and delivered in a great presentation that aids in interpretation of all the information, and all the vendors have been vetted and meet the requirements for recommendation. I only know for sure that I would pay a monthly fee, if I had a home to sell in Georgia and I was moving to California -- to receive packaged, personalized information during the 3 to 6 month process, yes, I would pay a fee.
It would make the process easier and more efficient and ultimately more profitable. The fee could be small, but with local teams feeding the information to "headquarters" kept in a giant database all that would need to be done is the personalization based on consumer criteria, and if enough consumers pay the small fee it could create a giant stream of income.
I might be wrong, but I think this is what RE sites need to do now, if not like the fictional Zedeck where everything is kept inhouse, then with local partnerships with RE professionals of all stripes -- have all the free stuff, but for personalized, Elite Services, charge a monthly fee. And RE sites could charge local RE professionals to be a part of it. This is where I think Zillow's recent offering lacks in a monetization plan (except, as Greg says, the advertising possibility). I think it should be based on some variation of the above model, where excellent lenders are chosen for their excellence and consumers pay a fee for the oversight, management and delivery of the information -- this way the lenders will pay more for inclusion, knowing the consumer is paying a fee and is serious, and the consumer knows the lender has been thoroughly vetted. It could even be set up on a bidding system with the three highest bidding lenders getting the lead.
Let the lawyers work out the language to avoid liability, but quality assurance systems could be built to avoid most problems with incompetent lenders slipping through.
I know, I know, it won't work, but it's a thought. And for all the people worried about how an RE site would choose "excellence", it's amazing how many of us know what is wrong with incompetent players in the field, but we can't come up with criteria that proves competence.
Reader Comments (22)
Great post! Our team at HotPads has been somewhat quiet lately, working behind the scenes on a bunch of projects, most important of which is our new Featured Listings service. Because HotPads has over 120,000 apartment and rental listings (the most on the web with the possible exception of Craigslist) we now give folks the ability to make their listings stand out from all the others with an oversized, animated icon on the map and a photo preview bubble. The property owner/manager sets the duration of the campaign, the daily cost, and total order cost (which can be as little as $5.)
Check it out at http://hotpads.com/pages/featuredListings/about.htm.
It looks like you have a monetization plan -- how is it working out?
My understanding is that Zillow's monetization plan all along has been advertising.And their Mortgage Marketplace has HUGE ad potential. Think about how much they will know about a potential borrower -- their current home value (roughly), an approximate FICO score, where they live. That's powerful info.
They can serve up ads for BMWs and Rolex's to Paradise Valley residents, and ads for Escorts (the car) and Casio watches to students at ASU.
Maybe even some real estate agent will pay to be placed on pages served to buyers in particular areas.
Yes, I understand that and perhaps it will be enough for them. I wish them success; however, I fall into the camp that doubts if an advertising model will be enough for them to be successful financially. Advertising is only one part of what I see as a sucessful plan. I predict they will be bought in about a year. I hope I'm wrong, and I have nothing against them.
Mike, good post and some fair questions. While I cannot speak for the others, for us much of our monetization for now has indeed been based on the advertising model. However, I must agree with your observation. In order to grow and maintain profitability, a business plan must exist with more than one means of monetization (the old "all your eggs in one basket" saying fits here). While I cannot elaborate on the model we will be introducing (for now anyways), we have contemplated long and hard regarding how to keep the site free for our users while allowing for the extra revenue to keep the lights on and programmers fed. Perhaps when we go live with it, you will allow me to come back to discuss on whether or not it was successful ;)
The other thing to think about, which I don't see anyone having mentioned yet, is the anonymity factor. Real Estate searching has become as much about voyeurism as it is research on where one wants to live. How do you monetize the anonymous along with the "premium"? Or do you give up on the anonymous and just focus on the stream from the "premium"?
Alex, thanks for stopping by. Yes, I would love for you to return and discuss the new plan.
I think you somehow have to find something of value to monetize the premium. Many places have given the dreamers and picture-junkies much free material to keep them going, but somehow there must be some service that's separated to add value for the premium.
I was thinking about the advertising strategy based on "free" last night and I will write a little bit on it today.
Housevalues is a publically owned company.
Here is their latest financial report:
http://biz.yahoo.com/iw/080221/0364780.html
Also Check again on your opinion that Move.com is profitable:
http://biz.yahoo.com/bw/080228/20080228006110.html?.v=1
Mike you know I don't throw gorillas, I give them!
Jay
HomeGain has a little experience in selling mortgage ads.
We have the numbers around it. There is some money to be made there but you need boat loads of qualified traffic AND the mortgage company needs to see a ROI.
You may think the potential is HUGE, but it all comes down to whether "huge" willl pay Zillow's bills.
At HomeGain mortgage revenue is incremental but not HUGE and we have similar traffic to Zillow.
FWIW, Zillow's monetization strategy for the Mortgage Marketplace has little or nothing to so with selling mortgage ads. Their plans might well turn out to be flawed, but what they are doing is far beyond the world of unique visitors and page views. All of us can learn a great deal from this, provided we stop insisting that we already know everything. What's interesting about Zillow are the things they do that <I>no one</I> has ever done before. If you focus on the similarities, you will miss out on the utterly unique differences.
Hi Greg
I understand that what Zillow is doing is selling targeted ads (some may be mortgage)to closely match the information that consumers fill out.
As you point out in your excellent discourse on cookies, you, as I would imagine many others are immune to ads.
All:Please listen to this for a primer on cookies and their use: http://www.bloodhoundrealty.com/BloodhoundBlog/?p=2890
My original premise stands. While the original allure of "targeted ads" may appeal to advertisers. Conversion for the advertisers is all that matters.
Indeed one point you made that stuck with me was why Amazon can't get it right with respect to your preferences. (Greg please provide that link) > Advertiers on Zillow may have a similar difficulty crafting ads to match the profiles. And even if they get it right, will the consumer notice?
Ad sales are something HG does know something about having supplemented our real estate income with ads to the tune of tens of millions over the years.
The concept may be interesting but the success if in the execution and the result is not preordained.
Thanks for info, Louis.
Greg, yes, I think Zillow is doing some innovative things, but I'm not clear on "what they are doing is far beyond the world of unique visitors and page views."
I understand that by using information they gather, they can focus advertising way beyond the mortgage world -- I just don't think that will be enough for long term success.
I certainly don't know it all, and hope I haven't given that impression - but I do have opinions and I'm open to learning.
Amazon can't get a bead on me. To be fair, we use my account for me, for my wife Cathleen, for my son Cameron and for gifts to friends, family and clients. If I were buying only for myself, I think they'd probably be fairly accurate.
> Conversion for the advertisers is all that matters.
Indeed, and this may be the fly in the ointment for the entire internet.
There was talk for awhile of a TIVO style application that would allow the user to AVOID ads altogether.
That wouldn't be the fly in the ointment but the nail in the coffin!
Mike
I don't think Greg's comment was in reference to you.
I am the know it all! :-)
> I certainly don't know it all, and hope I haven't given that impression - but I do have opinions and I'm open to learning.
My apologies. I was needling Louis.
> I'm not clear on "what they are doing is far beyond the world of unique visitors and page views."
Take a look at this post: Zillow.com takes advertising demographics to never-before-seen places.
And give a listen to this podcast if you have time: Want to learn how Zillow.com bakes a sweeter, tastier browser cookie? Scratch the FUD from your recipe.
Target-marketed advertising is an old idea. If you pick up <I>Cigar Aficionado</I> magazine, you'll see ads for lots of very plush luxury products. That's cool if you like that stuff, as many high-end cigar smokers do, but it's a complete miss if you happen to be a nine-year-old girl.
What Zillow has planned is target-marketed advertising with pin-point accuracy -- presenting just the right ads to just the right prospects almost all the time. No one has ever done anything like this before, not with this rich a demographic profile.
As Louis says, it may bomb anyway. But it's radically new thinking, and, as is discussed in the podcast, we can borrow and deploy our own versions of these ideas whether or not they play out for Zillow.
> There was talk for awhile of a TIVO style application that would allow the user to AVOID ads altogether.
You can have this now as a Firefox plug-in. Eventually there will be similar plug-ins for every browser. As with turning off cookies, most people won't bother. I read somewhere that a huge number of Tivo users watch the commercials!
"But it's radically new thinking, and, as is discussed in the podcast, we can borrow and deploy our own versions of these ideas whether or not they play out for Zillow."
and the Greeks will carry on with the learning (or a least the bloodhounds will)
here is a banner ad blocker
http://adblockplus.org/en/
> and the Greeks will carry on with the learning (or a least the bloodhounds will)
You've got me figured out. If I could eat ideas, I wouldn't bother with anything else. ;)
Oh, yes, I understood that, Greg, and i have read the articles -- I thought you were referring to something else. I was recently reading some of John Battelle's predictions of that sort of targeted advertising. Amazing stuff. He had a scenario where different sources were connected with the information showing how it would lead to something like free movies you watch that have a little package of ads you have to watch to get the free service and the ads being scarily targeted to his pregnant wife and him as a father.
Speaking of Amazon, they get it right about half the time, but I'm such an eclectic reader I think I've confused them.
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