Patrick Duffy, a real estate agent with @Properties in Chicago, uses search engine giant Google to score sales leads off the Web. He, along with the tens of thousands of other brokerages and sales agents who use Google, will be affected by the company going public.
Google, launched six years ago by graduate students Larry Page and Sergey Brin, today filed the papers to start the process toward its long-awaited initial public stock offering. The Google IPO carries significant implications for real estate companies.
Since most consumers now start their home searches on the Web, Google has become a leading source of online real estate leads. This already positions the company as a leader in the real estate industry, though seemingly a benign one.
Mountain View, Calif.-based Google intends to raise up to $2.72 billion and list its shares either on the Nasdaq market or New York Stock Exchange. The company generated revenue of $962 million and earned a profit of $106 million in 2003, according to documents filed with the Securities and Exchange Commission. Google’s first-quarter profit was $64 million, more than double the profit earned during the same period a year ago.
Google’s crossover to public stock ownership means more pressure for the company to generate revenue. And that means Google will push for more advertising and products for local search, an area well suited for real estate, according to Greg Sterling, managing editor and program director of The Kelsey Group.
Google’s paid search program, which is similar to Overture, enables advertisers to create text-based ads to appear as sponsored links on relevant search results pages. Advertisers bid on keywords and pay only when consumers click-through on the ads. Real estate agents were among the first local advertisers to adopt paid search.
“The IPO may ultimately be a boon for local advertisers, if it motivates Google to keep developing those products as a way to generate growth,” Sterling said.
Google likely will target online classified advertising as another revenue opportunity, David Hallerman, senior analyst at eMarketer, said. The real estate category generates the second highest amount of revenue for classified advertising after job listings.
Hallerman suggested Google might be weighing ways to entice consumers to spend more time on its Web site than they now do as part of the revenue equation. The nature of search engines is to point users to other Web sites, but Google’s main competitors–Yahoo!, Microsoft and AOL–have Web sites that hold users’ attention for longer periods of time.
“What we’ll see from Google in terms of developing additional revenue streams is they will try to see the competition and raise the stakes further,” Hallerman said.
Google might decide to launch a real estate page similar to those found on Yahoo! and Microsoft, where consumers can find real estate agents and mortgage lenders along with information about home improvement. That strategy would require Google to restructure itself as a portal, however, and Sterling thinks that’s unlikely to happen.
The competition among Google, Yahoo! and Microsoft already has heated up in the local search category. Sterling believes that focus will become even more crucial after Google goes public.
Google’s Local Search feature, which debuted in March, shows geographically targeted search results similar to Yellow Pages directories. It lists businesses by distance and relevance to a local search query. The company plans to offer advertising opportunities to local companies, including real estate, to display ads on its local search pages.
Sukhinder Singh, Google’s general manager of local search, said earlier that once Google incorporates its paid search program into the local function, advertisers who use the program automatically will be displayed in relevant local search results. Local paid search soon will be another way for realty agents to skim leads off the Web.
“Real estate is already a strong category for us, but we look forward to making it an even stronger category in the local function,” Singh said.