The Future of Online Real Estate? – ActiveRain Secures $2.75 Million Series A Investment

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Big news in the online real estate industry.  ActiveRain is one of the fastest growing professionally focused social networks and blogging networks on the Internet.  ActiveRain was founded about 18 mos ago and, in that time, they have attracted close to 70,000 real estate agents and mortgage broker members, who are very very dedicated to the service.  Their traffic has grown significantly since the beginning of 2007 and is generating significant consumer and real estate professional traffic.  What is most interesting though is that the major online real estate players – Zillow and Trulia, etc – are trying to attracting hyperlocal real estate blogging.  ActiveRain is the online firm that I can think of that has been able to attract significant real estate agent participation online. 

Today they announced a $2.75m strategic investment from HouseValues.  HouseValues is one of the original online marketing firms.  Ironically, HouseValues had a very active agent-to-agent message board called the MasterMind Forum, where agents provided advice and referrals to other agents.  ActiveRain expanded this concept exponentially.  ActiveRain is doing something really special.  I encourage everyone in the real estate industry and online marketing to check them out.  

Real Estate Blog – ActiveRain secures $2.75 Million Series A minority investment

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Online Real Estate Traffic Off to the Races

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

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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.

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We’ll keep watching the trends over the first quarter of 2008 to see how the online real estate industry plays out in 2008.

The Evolution of Your Media Mix

HouseValues was started in 1999 by Mark Powell who was a second generation real estate agent in Seattle, WA.  Mark had worked for ValPak before entering real estate and had a strong understanding of direct response marketing, particularly among local businesses.  As a real estate agent, Mark took out a number of small ads in the Seattle Times offering consumers a free home evaluation.   The ads generated leads for Mark in his target markets of Bellevue, but he also got a number of consumer inquiries throughout the greater Seattle-Tacoma market, areas that Mark did not work (like Tacoma or Everett).  Mark referred the leads he did not want to other real estate agents and collected the standard 25-35% referral fee on closed deals.  The more Mark advertised, the more “out of area” leads he generated.  Mark knew that there was a bigger business opportunity here.  Mark incorporated the business and raised a small angel round before finally landing Second Avenue Partners as the first institutional capital for HouseValues.  Nick Hanauer and Pete Higgins immediately liked the business opportunity.

 The key to success for HouseValues was bringing down the cost per lead.  Refer to the chart below for the evolution of the HouseValues media mix, which I assume is very similar to other traditional and online companies.  The company started using print to generate its leads, but there was a bigger opportunity to scale the consumer marketing. 

In late 2000 / early 2001, Mark hired Bob Schultze to manage the media buys.  Bob is an experienced long and short form TV media buyer, working on campaigns such as the George Foreman Grill and the Juice Man.  Based on Bob’s TV experience in local media and local broadcast relationships, Bob was able to reduce the cost per lead by 2/3rds, immediately making the business model profitable.  At this point, HouseValues started rolling the business plan out aggressively across the country and limited the amount of capital that was needed to fund the company.

The next step in the evolution came in 2002 when HouseValues was national in nearly 220 markets buying local boardcast in most of the markets.  At this point, we started to test cable television.  Cable again dropped our cost per lead significantly such that we were able to scale back on our local broadcast spend and aggressively grow our cable spend.  

Finally in late 2002, after numerous tests with banner advertising, HouseValues tested search.  Search was able to drop the cost per lead significantly again.  Search generated results at 60% of the cost of cable television and about 25% of the cost of local television.  Banner advertising was largely comparable with cable television.

The below chart covers the evolution of the HouseValues media mix for its primary products and the cost improvements that the business saw transitioning from media to media.  Of course, with each media form, we saw volume limitations and it was important to maintain a mix and constantly both the volumes and price points by product.  We will talk more about the local media mix, volume, and price points. 

Evolution of Media Mix