Real estate portal consolidation and the changing path of revenue growth

Real estate portals started as a way to provide consumers access to real estate data. This access was then converted to revenue by selling leads to agents. But portals have saturated consumer traffic and agent lead revenue. And they are now beginning to branch out into other areas as they try to generate more revenue.

Portals own consumer attention

Real estate portals provide consumers with access to real estate data. But they still allow agents to build a brand around helping consumers buy and sell a home. This partnership between agents and portals started off well. But over time, the traffic dominance that portals have gained has given them incredible market power.

Zillow, Trulia, and Realtor.com are virtually impossible to catch near-term

Around 5.5 million homes are sold each year. That means there are around 11 million buyers and sellers. Let's assume twice as many people research homes but don’t buy or sell. On top of that, a few million real estate professionals are researching housing data. That means there are roughly 25 million people in the US requiring real estate portals for data. You would think a top portal captures some fraction of that 25 million. But not only do top portals garner that level of traffic, they win over ten times that volume. Zillow and Trulia collectively have over 250 million monthly visits. Realtor.com, owned by News Corp, captures almost 100M monthly sessions. Redfin is closer to 50M. After those three, the drop-off is steep. The top-ranked brokerage site after Redfin is Keller Williams. It has almost 3M monthly sessions. Zillow Group captures almost 100 times the traffic of the top real estate franchise in the US.

Competition for consumer traffic isn’t even close. Zillow Group, Realtor.com, and Redfin dominate. Sources: Similar Web 1, 2, 3, 4, 5, 6.

Zillow, Trulia, and Realtor.com have always been successful at capturing traffic. But they weren’t this dominant earlier. In 2008, Zillow already captured over 5M monthly sessions. But by 2012 it was generating over 30M. In 2013, a top pack emerged, but it still wasn’t a runaway. Zillow, Trulia, and Realtor.com made up the top three but they were only leading the next tier by 5% or less. 

The top real estate sites in the US by monthly visits in 2013 were closer together than they are today. But Zillow, Trulia, and Realtor.com still led the pack. Source: Inman.

Things changed significantly when Zillow acquired Trulia in 2014. The two largest portals in the US combined their traffic. And they became a clear leader. Simultaneously, Redfin’s market expansion allowed it to gain significant traction with consumers. Realtor.com grew uninterrupted as an alternative funded by agents. And beyond those players, other sites became less relevant. As a result, marketing spend from agents became consolidated in Zillow Group and Realtor.com.

Redfin climbed real estate traffic ranks with its nationwide expansion in the mid-2010s. Source: Redfin.

Home search experiences are similar. New entrants typically focus product investments outside of search. 

I talked about Real Estate Portal products earlier. At this point, home search sites look virtually identical. And this is driven by the complete dominance of the major portals. Whether consumers like these experiences or not, it’s what they are used to. Shifts in the product experience typically have to start with Zillow, Realtor.com, or Redfin for there to be widespread adoption. Naturally this can change if a new strong player that consumers love appears.

Alternative approaches have focused on solving something separate from home search. Agent search portals like Homelight help consumers search for agents, not homes. Other approaches may emerge as well. But it's unlikely that a new platform can compete on a home search experience alone.

UpNest focuses its search experience on finding agents rather than homes. Source: UpNest.

Portals saturated lead revenue and need to grow elsewhere

The core business model of every real estate portal is selling leads. Excluding Zillow’s iBuying business, in 2018, 70% of its ~$1.3B in revenue came from Premier Agent. This is its program that sells leads to agents via advertising. The remainder of revenue was still mostly from leads, but in rentals and mortgages. And the amount that Zillow has generated from leads has grown significantly. In 2013, they generated under $150M from agent leads. However, growth has slowed. In 2013, agent leads were growing over 50% each year. By 2018, with almost $1B in lead revenue, agent lead revenue was growing under 5% annually. And this is the problem portals are faced with. They receive a ton of traffic, but agents are paying close to as much as they can afford for real estate portal leads. Portals need to find out how to use the same traffic to make more money.

Zillow’s agent lead growth slowed from 80% annually 2013 to just 3% in 2018. Source: Zillow 1, 2

Adding consumer fees - Zillow expanding into iBuying

In 2017, Zillow launched instant offers, marking its entrance into iBuying. There are many reasons that Zillow likely started iBuying. One is because the chairman viewed it as an existential threat to Zillow’s business. But Zillow was also running out of ways to increase revenue with its existing traffic. iBuying offered this opportunity.

If we look at Zillow’s revenue from 2014 through 2017, it climbed from ~$326M to ~$1.08B. But annual growth slowed from almost 100% to under 30%. And Zillow’s traffic growth has slowed too.  Zillow can only make more lead revenue by charging more per lead or generate more leads. Both of these were reaching their limits. iBuying was a chance to generate more revenue per session. And it uses a system that takes advantage of Zillow's existing traffic and data long-term. As a result, revenue per Zillow session skyrocketed from $.71 to $1.32 from the first year to second year of iBuying. Without this shift, it’s possible Zillows revenue per visit would be declining.

Zillow was faced with slowing growth and a ceiling on how much revenue it could capture per site session. iBuying is potentially the way to reverse this trend. Sources: Zillow 1, 2.

Increasing price per lead - Realtor.com acquiring Opcity

Realtor.com is owned by News Corp, which has a few different real estate assets in its portfolio. But we can look at their digital real estate financials to see the problem they were running into. Quite simply, their traffic was growing much faster than their revenue. In fact, their revenue per visit declined from $1.51 in 2017 to $1.34 in 2018.

Realtor.com, via News Corp’s digital real estate, was seeing revenue grow slower than traffic. Sources: News Corp 1, 2

Because Realtor.com has a close partnership with NAR, it can’t compete with agents. This means that becoming a brokerage or an iBuyer is off the table. Instead, Realtor.com acquired Opcity, a lead generation and screening company. This allowed Realtor.com to explore three opportunities:

  • Sell existing leads for more: Realtor could offer an option beyond existing ad placements on site. Opcity allows Realtor to sell pre-screened Realtor.com leads at a premium.
  • Monetize leads that weren’t sold before: By offering leads through Opcity’s platform, there is always a buyer of Realtor.com's lead. Opcity can take leads that would have been unclaimed, screen them, and sell them. And the buying agent might not even be an advertiser on Realtor.com.
  • Create a new service line for existing customers: Many agents and brokerages don’t want to pay more for Realtor.com leads. But they have a relationship with Realtor.com and trust the brand. If they buy Realtor.com leads they may want also additional lead handling and screening. This is an opportunity for Realtor.com to then sell a new service to this customer. And this service may help the agent or brokerage get more value out of Realtor.com leads, leading them to buy more leads each year.
Opcity allows Realtor.com to sell Realtor.com leads through a different channel. In addition, the partnership offers a new revenue line from existing agent customers. Source: Opcity.

Other routes to increasing revenue per user

It’s worth noting two other routes quickly that some portals take:

  • Expanding the market: Companies often go into other business lines like mortgage, and title and escrow. This means existing searchers can generate revenue from non-agent commission revenue. This unlock a market beyond the $70B+ in real estate commissions. For example, Homelight acquired a mortgage startup to accelerate its entry into mortgages.
  • Taking a direct share of commissions: Some startups begin as portals but become brokerages. This is so they can capture the full commission. And a full commission is often significantly higher than the lead cost. But its more expensive to support operationally. Zumper is a rental platform that elected to launch its own brokerage. It still offers marketing services and leads for landlords and agents. But the brokerage arm can generate more revenue in high rental commission markets.
Agent finder Homelight launched a home loan service. This helps it  grow the revenue opportunity per user. Source: Homelight.


This post was last updated on: 
April 1, 2020
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