Just saw this news today – Zillow has started to charge for mortgage leads, just like LendingTree, LowerMyBills, or the number of other companies in the space. Zillow had entered the real estate space saying that Zillow will only charge for advertising and not enter lead generation or become part of the transaction. The challenge is that the revenue opportunity for local advertising on a CPM basis is pretty small. Zillow has done a great job at growing traffic to more that 10 million UU per month. Assume that they get 20 page views per UU and a $3CPM. That puts Zillow at a $600,00 per month in revenue or $7m in annual revenue. The problem is that there is a finite number of in-market customers at any point. In order to become a bigger business, Zillow needs to decide whether they go broad or deep. i.e. Do we try to attract 20m UU who may be interested in a broader variety of home related services or go deeper with the advertising customer providing leads or becoming part of the transaction like Redfin. Based on the below, it looks like Zillow finally decided that the market of mortgage advertisers is actually efficient and it is a bette rbusiness for them to sell leads. Check it out. Would be interested in hearing people thoughts.
Well, after much anticipation, Zillow has launched their Mortgage Marketplace. In typical Zillow-style, they are doing things in the reverse of the lead generation industry which generally has benefitted the consumer, which is to be applauded. In a nutshell, Zillow’s Mortgage Marketplace requires the consumer to go to Zillow, fill out a form that is similar to a mortgage long form found on LendingTree or LowerMyBills. The consumer is REQUIRED to register with Zillow to receive bids. The mortgage information is anonymousely sent to registered mortgage brokers and banks on the site. These mortgage brokers and banks then respond to the consumer with offers. It is the then up to the consumer to follow-up with the mortgage broker to get more information. Consumers rate the mortgage brokers based on their responses and service.
The Positives: In general, like most things that Zillow launches, I think it is a pretty bold service that will result in great value for some consumers. For consumers who want to fill out a mortgage request and receive bids and spend the time to follow-up on those bids, those consumers will likely save some time and get a good deal. Assuming Zillow is able to build a significant market of mortgage brokers who are willing to respond to lots of different types of loans (which is the challenge in mortgage – all brokers and banks want the same loans), consumers should win through a competitive bidding process. If the mortgage brokers were able to see how their competition was bidding and then drop their fees even further, that would be really interesting.
For the Mortgage Broker: The Zillow Mortgage Marketplace reminds me a lot of the HomeGain Agent Evaluator product that HomeGain launched with in 1999 or 2000. It was a pretty innovative product that went against the grain of the industry. Of course, HomeGain was charging a referral fee and Zillow is not, it was a challenging product in that it required the real estate agent or sales person to do a lot of work upfront before receiving contact information or having a strong sense if the lead was qualified or valid. Lead generation as a marketing medium is challenging in that the sales person must follow-up with the leads to really understand how qualified they and on what time frame the person is going to be buying – really buying, not just what they put info into the form. With the Zillow Marketplace, the mortgage broker must do a decent amount of work upfront before knowing whether they can even compete for the deal. I can see a % of very motivated and hard working mortgage brokers using the Zillow Marketplace, but I think the fall off in participation will be significant if brokers feel it is not a good use of their time to respond to inquiries versus their own web sites, direct mail, or purchasing leads.
For the Bank: Those who have managed a mortgage lead gen business know that the business revolves around the large mortgage brokers and banks that have massive call centers that need to be productive. The keys to these call centers are highly qualified leads and VOLUME, VOLUME, VOLUME in a very narrow set of loan parameters or filters. Zillow Mortgage Marketplace is doing something very different than the way the mortgage industry currently operates. LendingTree launched in 1998 and the mortgage industry has been adapting to working LendingTree leads over the past 10 years. Now most banks have large call centers dedicated to working mortgage leads. It has taken 10 years. Assuming that Zillow can drive significant volume of mortgage inquiries, Zillow will need to invest in coaching the large brokers and banks on how to operationalize this kind of marketing to get them to be interested and successful. If Zillow can not drive significant volume, I doubt the big banks and brokers will participate at all.
For the Consumer: BankRate and many of the reputable lead generation firms like LendingTree and LowerMyBills spend a significant amount of time and resources on assuring ethical lending practices, fraud prevention, and preventing predatory lending. Zillow should easily be able to address this, but consumers should be wary of the different participants in the Zillow Mortgage Marketplace, especially initially until the mortgage rating system is viable.
Zillow continues to be an amazing company. In real estate, Zillow gives the home valuation information away for free making up the the gap between the $1-3 banner ad CPM in real estate and the $250 lead gen CPM with volume of consumer impressions. Now in mortgage, they are giving away free leads to mortgage brokers and banks. Those leads when monetized by 3 lenders are worth close to $200 a lead. I assume Zillow is planning on long-term relationship with the consumer and targeted banner advertising opportunity at a CPM ranging from $30-90 on sites like BankRate.
Regardless, Zillow is fun to watch. My five year ARM is coming to a close and I submitted a lead on Zillow. Can’t wait to see what happens.
There is no doubt that BankRatehas the most powerful business model in the online finance world. They have established themselves as the “gold standard” web site for consumers when checking interest rates on home mortgages. BankRate provides objective information on interest rates and loans and then has rate tables where they list the rates from local banks and mortgage brokers. Just like movie trailers, the best part of their business model is that the advertisement is the entertainment or the content that consumers are looking for. Tom Evans and Steve Horowitz engineered an Internet Hail Mary for BankRate in 2005 when they shifted their business model from a paid listing business to a pay per click business that really scales with traffic. Since early 2005, the BankRate stock has soared from about $10 to $40-50 a share. It would probably be higher if not for the real estate and mortgage mess the country is facing. Interestingly, BankRate is one of the only companies in the space that is not seeing wide spread defection from customers.
Though it has been rumored for months, Zillow just announced that they are getting into the mortgage business. It is unclear what the business model will be. VP Jorrit Van der Meulen posted on the Zillow Blogthat mortgage brokers and banks can apply for FREE access to Zillow traffic. Mortgage brokers have to pay a $25 application fee. Limited additional details are available. This is certainly an interesting opportunity for Zillow. The Zestimates has been very powerful in the real estate industry enabling consumers to do some homework when considering refinancing their house. Now it seems like Zillow is looking to either commoditize the mortgage lead generation players like LendingTree and LowerMyBills or go straight after the BankRate rate tables.
Maybe they won’t charge the brokers for it and just make money from the advertising around it. Zillow is a bold company. They have taken the unusual approach of not charging the industry for advertising, but trying to surround the information with banners from Lexus and Pella windows. The online real estate industry has always believed that best monetization of those eyeballs are from the real estate industry players (real estate agent, brokers, mortgage brokers, banks) and not the associated services.
Zillow may just prove conventional wisdom wrong… Or not.
I thought I would follow-up my previous January post covering the real estate January Effect with a February update. As interest rates decline and we are entering prime home buying season (spring to early summer), we are seeing suprising resilience in the online real estate and mortgage category. The BIGGEST surprise is that Zillow traffic has ramped significantly in the month of February. This is very interesting. Zillow has made a number of big announcements around acquiring more listings. There is a high correlation between traffic, nationwide coverage, and the number of listings that a web site has. Zillow recently broke through the 1 million listings barrier which is a major milestone for the company. I wonder if the recent uptick in traffic has to do with increased refinance traffic.
In Tier Two of online real estate, HomeGain appears to be on a tear growing reach nicely over the past three months. This is largely due to HomeGain’s significant affiliate network and SEO investments. BuyerLink is the growth engine for that business and is probably doing well in this environment.
All players in the mortgage lead generation industry (BankRate, LendingTree, LowerMyBills) are seeing increased consumer demand for information around refinancing their mortgage ever since the Fed made its aggressive rate cuts in January. Notice significant traffic increases in January which appear to have declined in February. LowerMyBills and LendingTree seem to be experiencing steadier traffic levels. It is clear that both LendingTree and LowerMyBills have reduced their ads spends significantly over the past six months. I have been impressed by Experian swapping out LowerMyBills ads with ClassesUSA where appropriate in their banner advertising strategy.
Tier One Real Estate Reach:
Tier One Real Estate Page Views:
Notice how Zillow reach (or unique visitors) seems to be increasing but pageviews have been declining. Interesting trend. Maybe an indication of more people checking the value of their home versus spending increased time searching for homes for sale or neighborhood information.
Tier Two Real Estate Reach:
Tier Two Real Estate Page Views:
Mortgage Page Views:
Posted in housevalues, mortgage, online marketing, real estate, Uncategorized, zillow
Tagged bankrate, homegain, lendingtree, lowermybills, nikesh parekh, online real estate, traffic update, zillow
Interesting article from John Cook’s Venture Blog today. Zillow entered online real estate in 2005, right before the real estate market started to cool at the end of 2005. The company has grown like mad both from a traffic and headcount perspective. For some reason, Zillow spoke with John Cook today to talk about their hiring plans for 2008 – a move which is very very unusual for a private company. Zillow is reducing their hiring rate adding only 16 new employees in 2008 which is about 10%. 2008 should be a low point for the online real estate industry, so it a smart move for Zillow to reduce hiring (or perhaps even downsize as the other firms in the industry have done). Zillow had great timing in raising another $30m in Sept 2007 from Legg Mason right before the real estate bubble started to lose air.
Zillow’s hiring will cool in 2008
Those of us who have worked in the online real estate industry are pretty familiar with the seasonality of the traffic patterns. Generally, consumer traffic starts tapering off after school starts in September and then drops dramatically in November and December. But for some reason, right after Christmas and New Year’s Day, traffic starts accelerating.
Consumers start searching for homes online about three to six months before they get serious about buying or selling and contacting an agent. Consumers get back to work on January 2nd and are still shaking off the holiday blues by casually surfing and visiting real estate sites. The first quarter of the year really determines what web site is going to be the most useful to both consumers and real estate professionals.
Though we are in the worst real estate downturn since the 80′s, consumers came back to real estate in a big way. Take a look at the below graphs from Alexa (we need to make the assumption that trends in Alexa are accurate). Nearly every real estate web site experienced a ncie uptick in traffic in the last week. Realtor.com (owned by Move, Inc. and partnered with the National Association of Realtors – NAR) saw the most dramatic gains. VERY SURPRISING. I am not sure why Realtor.com moved so much more than anyone else. I will need to do some research. Anyone have an idea?
The below graph is the tier 1 of online real estate: Realtor.com, Zillow, Remax, Trulia, Homes.com
The below graph is my Tier 2 of online real estate – generally made of companies focused on marketing services, web sites or lead generation for agents. Though it doesn’t show up on the above graph, Homes.com seems to be doing a very nice job in growing their online traffic. Dominion, formerly known as Trader Publications, bought Homes.com in 2002. Homes.com was a survivor of the dotcom boom and bust and was in difficult shape when they were acquired. Since then, traffic has grown nicely. I give Jamie Clymer a lot of credit for his work with Homes.com and Dominion’s real estate businesses.
We’ll keep watching the trends over the first quarter of 2008 to see how the online real estate industry plays out in 2008.
Posted in housevalues, real estate, zillow
Tagged bankrate, homegain, homes.com, housevalues, nikesh, nikesh parekh, online marketing, online real estate, parekh, realtor.com, reply, web sites, zillow