Does Co-Dominance Spur Disruption?

Outspoken Zillow CEO Spencer Rascoff made headlines this week by using an industry event to publicly describe his arch-rival, Murdoch-owned Move Inc., as “a crappy company.”

There’s no love lost on the Move side either. Move, which operates the Realtor.com real estate listings site, has previously cut off listing fees to Trulia right after Trulia was acquired by Zillow, and now has Zillow in court over its merger with Trulia.

Certainly, the stakes in the real estate listings data business are huge, so bare-knuckle competition isn’t surprising. What is surprising is that both companies are finding success with radically different business models.

Realtor.com has what I view as a very conventional “just the facts ma’am” user interface. It offers basic parametric search, with listings displayed as summary listings, each offering fast access to listings detail. Real estate agents can pay to advertise themselves or highlight specific listings, and are provided with sales leads as well.

Zillow, as you may recall, burst onto the scene with its “Zestimates,” its estimate of the value of every home in the country. This got Zillow immediate interest and tons of traffic, and it quickly became a major player in the market. Zillow also distinguishes itself with a map-based user interface and somewhat different listing detail than Realtor.com. But the “Zestimates” that helped Zillow rocket to the big time are a two-edged sword. Sellers almost always feel they should be higher, and buyers tend to assume they are much more authoritative than they really are. Zillow also sells advertising to real estate agents with essentially the same suite of offerings as Realtor.com.

Does it make sense that both can thrive? Certainly, we see examples of “co-dominance” in many very large BTC markets simply because they are so large. But while more subtle, it appears that the biggest weakness of both sites – neither has 100% of all listings – may be a strength. That’s because lots of people use both products, leaving real estate agents uncertain about where to place their advertising dollars.

It’s the same situation we saw play out in the heyday of the yellow pages industry. Independent yellow pages directories sprung up everywhere as lower-cost competitors to big, established telephone company directories. But advertisers, rather than cheering and running to advertise in the new, cheaper upstarts, found themselves confused and fearful. Which directory did their customers use? Did they use both? Well, the safest course for many advertisers was to advertise in both directories, meaning their cost to reach the same market went up significantly. Not surprisingly, advertisers were not happy with this outcome.

There are rumblings of discontent in the real estate market as well. Indeed, a new initiative called National Broker Portal Project, meant to be run by and for real estate agents and brokers, is gaining steam. It wants to create a major site that will be both dues-funded and run according to rules developed by the brokers themselves. It’s a long shot to be sure, but it shows once again that being the dominant player in a market is tricky, and sharing that dominance is even trickier. We must all remember that disruption in any industry is not inherently a one-time event.

How Many Ways Can You Monetize Data?

I watch the real estate sales vertical with great interest. There’s a lot of data, and money here, which in turn means a lot of innovation and competition. Companies like Trulia, Zillow (which are poised to merge shortly), Move (which operates the Realtor.com site) and a host of fascinating and scrappy regional players such as PropertyShark makes for endless creativity and impressive user experiences. The first thing you notice about all the online real estate information services is that none of them is trying to disintermediate real estate brokers. Indeed, these services typically have business models that depend on agents for revenue. Thus what has happened in this very unusual market is that customers have taken on the primary work of discovery (formerly a big part of the agent’s job), even though agents haven’t reduced their commissions to reflect this.

The second thing you notice is the wealth of structured data that is available for parametric searching. Search by zip code, price range, bedrooms, lot size, and much, much more. In fact, such powerful searching is table stakes now. Map integration? Done. Alerts? Done. Rich multimedia? Done. So what’s left to innovate?

Zillow burst onto the scene (beautifully timed to coincide with our late, great real estate boom a few years back) with its audacious system that put a price valuation on every home in the country. That brought it tremendous visibility, but also introduced consumers to the power of predictive analytics.

Trulia later upped the ante by overlaying neighborhood crime statistics on its database. Not to be outdone, its competitors overlaid school district boundaries to map the schools nearest to each home. Trulia then upped the ante again, licensing data from our Model of Excellence winner GreatSchools.org, that showed the relative quality of each school. And that’s where the market seems to be headed today – qualitative assessments of neighborhoods, along with more predictive analysis.

As you might expect, qualitative assessment starts with Census demographic overlays. Real estate site Movoto.com is already there, with zip-level income, education and ethnicity. Some other sites are hesitating because of the vagaries of real estate anti-discrimination laws. But that is not an impediment to third-party data providers such as Onboard Informatics, which provides a raft of local data, including an innovative “lifestyle search engine.” Other sites like neighborhoodscout.com provide sophisticated demographic views of local areas. And we’d be remiss not to acknowledge diedinhouse.com for those who need to know if former home occupants left on their own power or not.

But what’s most fascinating is that this lifestyle analysis of neighborhoods has even been elevated to a personalized, consultative model. The New York Times recently profiled a New York area firm called Suburban Jungle that helps homebuyers target areas based both on demographics and deep market knowledge. Suburban Jungle doesn’t sell real estate; it refers its clients to real estate agents in exchange for a fee-share, another great example of how many different ways data can be monetized.

Deals of Excellence

It’s been a banner few weeks for deal making for companies honored as Models of Excellence by InfoCommerce Group.

In the mega-deal category, we have 2006 honoree real estate data powerhouse Zillow, entering into a $3.5 billion deal to acquire arch-rival Trulia. This will of course put pressure on market leader Home.com, which operates the Realtor.com website. The whole real estate vertical has been one to watch from a data perspective. Zillow was not only an early innovator in the area of map-based user interfaces, it also blew more than a few minds by not only aggregating property data on almost every home in the country, but creating a home price estimate for every home as well. If this merger goes through, expect even more extreme innovation as these two giants battle it out for audience and advertising.

In the smaller (but hardly small) category, we have the $175 million acquisition of 2009 Model of Excellence honoree Bizo by 2004 Model of Excellence honoree LinkedIn. From a strategic standpoint, I’d rate this acquisition as nothing short of brilliant. At a high level, you are putting together “who” (the LinkedIn database, with “where,” (the Bizo B2B ad network). The potential opportunities are endless.

And while we’re in the world of high finance, a shout-out to 2010 Model of Excellence honoree SmartZip also seem in order, as they’ve just closed on a new $12 million financing round.

Where do these and other Models of Excellence companies meet each year to get their deals on? InfoCommerce Group’s DataContent gathering, now part of an even bigger show, the Business Information & Media Summit. See you in Miami!