Will Real Estate Merger Create Godzillow?
Will a combined Zillow and Trulia lord over the online real estate kingdom as a marauding "Godzillow," as some property pros have taken to calling the pending merger with some alarm
Or will the merger, if approved by regulators, look more like a gentle giant, nicknamed "Zulia," merely offering more content to consumers looking for information on homes to buy or sell
The answer is probably somewhere in the middle, but leaning toward the less menacing side.
Zillow (Z) and Trulia (TRLA) are the top two online real estate companies in the U.S., which may explain at least partly why the Federal Trade Commission has twice asked for more information from the firms before greenlighting or nixing the deal.
According to ComScore, Zillow and its Yahoo (YHOO) affiliate attracted 57.7 million unique visitors in July, up 26% from a year earlier. Trulia grabbed the second-largest audience with a 29% gain to 35.8 million, including its RentPath Network.
Together their unique visitors outnumber by more than three times the next biggest rival, Realtor.com, which is the National Association of Realtors' official site and the main one run by Move (MOVE).
A merged Zillow and Trulia would dwarf just about every other real estate website further down the ladder, too.
Location, Location, Location
Other real estate websites are by no means out of the picture, though. Real estate is a local business at its core. Buyers and sellers often look up listings and other information at websites that focus only on their communities.
"There are literally thousands of real estate websites that are local and regional, run by brokers and agents," said Zillow spokeswoman Katie Curnutte.
The operator of Realtor.com welcomes the merger of its two bigger rivals. "I guess I would be No. 2 — I think it's better to be the other choice," said Steve Berkowitz, CEO of Move. "Agents want to be with at least two Web portals. So we will continue to gain (consumer) share and also get a bigger share of agents' wallets.
The top sites provide consumers with reams of home listings and related content.
Realtor.com has the most home listings directly from the more than 800 multiple listing services, due to its affiliation with the NAR. Berkowitz says it also has more "buyer ready" consumers on its site than do Zillow and Trulia, which he says attract lots of "voyeurs.
Inside The Web Business
Zillow and Trulia make most of their money selling buyer agents preferred placements on listings pages. They also sell display ads to a variety of advertisers.
A study this year from PAA Research concluded that large real estate brokers "increasingly dominate the Zillow ecosystem.
That might sound good, but it has a downside: "Available ad inventory on Zillow is actually shrinking, which will make it almost impossible for the company to achieve the kind of growth in premier agents (that) bulls are expecting," said the report, which came out Sept. 5.
It also said that real estate brokers who advertise with Zillow are wielding more power by increasingly blocking other agents from advertising next to their listings.
Analysts don't see Zillow and Trulia gobbling up every ad dollar in sight anytime soon.
"Even together they still account for a single (-digit) percentage of all the real estate advertising in the U.S.," said Mark Mahaney, an analyst with RBC Capital Markets.
Zillow and Trulia together, analysts say, comprise less than 4% of all money real estate professionals spend on advertising. Most is still spent on traditional advertising, such as direct mail, newspapers, billboards, pamphlets and the like.
But Mahaney says that's slowly changing. "A lot of the advertising will go online over time just as it has for other advertising, such as help-wanted classifieds and used autos," he said.
How Americans House-Hunt
According to a survey from the NAR last year, 46% of homebuyers found sales associates through referrals; 9% did so through the Internet. The rest cited open houses, walk-ins and even yard signs, among other things.
One of Zillow's and Trulia's largest advertisers is real estate brokerage giant Realogy Holdings (RLGY), which franchises some well-known brands. They include Coldwell Banker, Century 21, Sotheby's International, Corcoran Group, ERA and Better Homes and Gardens.
Realogy's recently announced acquisition of ZipRealty will give it new residential brokerages spanning 23 offices in the U.S. and technology to help brokers operate more effectively.
Realogy also owns the property brokerage NRT, which has 710 U.S. offices and 42,600 sales associates.
"We are in the business of marketing to where the consumers are and they are not just in one place on the Internet," said Mark Panus, a Realogy spokesman.
Realogy's company-owned NRT has "listing distribution strategies" with Zillow, Trulia and "700 other websites," he says. They range from national sites such as Homefinder.com to local sites.
"There's no shortage of real estate websites," Panus said.
But Zillow and Trulia are a "vast source of information for consumers" and NRT brokers want to advertise with them in order to acquire and capture buyer leads, he says.
Still, Zillow and Trulia haven't generated a whole lot of profit, as they have invested to build their online real estate platforms and attract consumers and advertisers.
"I wouldn't expect mature profit levels for three to five years," Mahaney said. "It's still early stage. There's also a lot of product development and marketing spend they need to do first.
Homebuyers Are Road Warriors Mobile innovation has been one of the biggest priorities at Zillow and Trulia.
"Real estate lends itself well to mobile," Curnutte said, adding that about 70% of Zillow users are connecting through mobile phones. "We often design for mobile before we design for the Web.
Rentals are seen as another growth channel.
Some real estate brokers have openly worried that the Zillow-Trulia merger could threaten their own business if the two were to get involved in e-commerce or the transaction side of the business.
After all, Zillow co-founder Rich Barton founded Expedia (EXPE), the largest online travel agency. Expedia and rivals disrupted travel's traditional model by bringing air, hotel and other travel booking online.
But as analysts point out, if Zillow and Trulia were to take on homebuying transactions, they would in effect be competing with their chief paying customers, real estate brokers and agents.
Zillow's Curnutte says online travel and online real estate are "different beasts." Unlike an expensive and complicated home purchase, booking travel is relatively simple.
"Zillow has never expected that real estate agents would play a lesser role," she said. "We're not taking over the transaction. We're a media site.
Asked about a Zillow-Trulia merger's implications to property brokers, Realogy CEO Richard Smith said on an August conference call that lead generation from the Web is "far from robust" and "hasn't materially changed since 2005.
"The combination of the two may improve that a little bit, but it is a very low base to begin with," he said. "We have been doing this a long time. We know how to do it well and an improved media channel doesn't change that value proposition at all."