NEW YORK–HouseValues CEO Ian Morris has spent many months explaining to investors the deep change the real estate industry is about to undergo: the massive shift of marketing spend from print classifieds to online media. The transformation involves the $11 billion spent on real estate advertising annually.

Morris and his team have been successful in getting the point across, as evidenced by the company’s extraordinarily successful IPO last month. HouseValues has a market cap of $352 million, Morris pointed out today.

In defining winners in the online real estate space, Morris this morning during Real Estate Connect NYC highlighted three key points: that there would be a big shift from print to online advertising, that any solution introduced in this space would need to be complementary to existing players, and that solutions would need to solve real problems for real people.

Services like HouseValues have long touched sensitive issues with the traditional industry. The company sells leads to real estate agents and companies it gets through its and Web sites. Critics argue these services act as middlemen, taking the proverbial piece of the sales commission from agents. However, the success stories are growing, with some agents reporting more leads and more business than they ever could’ve imagined from these services.

“Three quarters of consumers are now starting the real estate process online, but only 11 percent of advertising dollars have shifted online,” Morris said. That opens a huge window of opportunity for more entrepreneurs to launch businesses to facilitate the expected shift to online ad spend.

“That type of margin will not last,” Morris said.

Today’s winners in the online space are those companies creating value real estate professionals rather than seeking to compete with them and replace them, he said. Looking back to the early Internet days, chatter centered around displacing industry players that were already there.

“We think that lead generation is just a tiny part of the solution,” Morris said. “Real estate agents not only need leads, they need a steady flow of leads,” he added, and they need tools to manage them.

According to the National Association of Realtors, 84 percent of real estate agents have no prior marketing experience, Morris noted. HouseValues has addressed this statistic by offering coaching and software tools to help its customers manage their leads and market themselves.

“We know not all the world’s problems can be solved online,” he said.

HouseValues IPO followed the heels of online brokerage ZipRealty’s public offering in November. Zip CEO Eric Danziger also spoke about the coming change in real estate during Real Estate Connect NYC this morning.

My perspective is simple,” Danziger said. “The Internet and real estate are married and you ought to start throwing rice right now.”

Zip’s focus centers on the customer and the company has taken a unique approach with real estate agents by employing them as staff rather than independent agents. The company boasts public access to the MLS in all of its markets, so consumers can do much of the research work themselves.

Danziger’s vision of the future is “Change is inevitable; progress is optional.”

When asked what the company would be doing with all the cashed raised by the IPO, Danziger explained that ZipRealty had been profitable before hitting Wall Street and that the company decided to go public to gain the credibility and mark itself significant. However, expansion may be on the horizon.

Morris said HouseValues has always had a market-by-market strategy for growing, focusing on reaching profitability in each market before expanding to the next.

“We did not go public to raise piles of money,” Morris said. “It was about recognizing that shift from print to online” with the goal of emerging as a leader in that space.


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