The Storm Revisited

In a post over at CNet, Rafe Needleman tagged Zillow as one of “the next Kozmos” (for more on Kozmo check out Wikipedia). Needleman writes:

The real-estate site’s revenue model is advertising. Real estate and bank advertising. Unless the real-estate research site starts charging for foreclosure listings, I don’t see it doing too well in a hunkered-down economy, in which people are trying to hold on to their homes for dear life, not upgrade.

Similarly, Simon Baker at Property Portal Watch says today the portal is “in for tough times“.

Given all this speculation, I thought it would be interesting to revisit a couple posts I wrote last year; specifically one I wrote in September of last year.

I think much of it still holds true.

* * *

Storms Ahead for Real Estate Sites by Joel Burslem on Thursday, September 13, 2007

Tech pundit Om Malik writes that the slowdown in the housing sector, and the greater uncertainty in the U.S. economy as a whole, is likely going to have an impact on advertising spending. I’ve been saying the same thing for a while (see What the Subprime Mess Means for Real Estate 2.0) now.

Om quotes a recent report by TNS Media Intelligence that says:

Total advertising expenditures in the first half of 2007 slipped by 0.3 percent to $72.59 billion versus the same period in 2006…

Strangely, August’s Neilsen Netratings report (PDF) of the top 10 Web advertisers also came out this week and it actually shows that three of the four mortgage/financial advertisers on the list (including Countrywide Financial) have increased their spending over last month (PDF).

But does this mean the gloomy prognostications are off base? I don’t think so.

Rather, I suspect that online ad spends in real estate are reaching the top of the curve, with perhaps just a minor boost in spending to counter the bad news last month. According to Internet Outsider, the month-to-month growth in spending by Countrywide, for example, is slowing; from $30 million in June to $35 million in July to $35.4 million in August.

It’s really too early to tell how this trend will play out – but if there is to be any large scale slowdown in spending I’m guessing we’re only at the beginning.

There’s one more factor to consider in all of this.

Malik goes even further in his post to suggest that this impact will be felt most severely at the large portal destinations, whose margins may be being squeezed by growing inventory levels at other destinations.

Social networks and social media sites are creating inventory at a rapid clip, and are one of the main reasons why the CPMs (cost per 1000 impressions) have stalled.

Hypertargeted advertising is the holy grail of online advertising; and social networks and social media can deliver that more accurately than a portal or destination site. Social networks like Facebook deliver authentic consumers, rather than faceless “uniques” and can do so in specific niches. Likewise, blogs can deliver passionated readers rather than random “surfers” – just look at the passionate communities Blown Mortgage, SocketSite and Curbed have built. The final link in this chain are the vertical ad networks like Blogads or Federated Media that are making it easier for big brand advertisers to reach out to these readers.

Finally, as advertisers start to shop around, a glut of inventory means only one thing – lower prices and less profit. Sound familiar? This hardly news to anyone trying to sell a home right now.

So, in a way, the prospects of the big ad-driven Real Estate 2.0 plays (Zillow, Trulia, et al.) could very well mirror what’s happening in the housing market. Money’s coming off the table (buyers are holding back) and profits are getting pushed down (too much inventory on the market). Bad news all around.

I could be wrong in this assessment. Part of me hopes I am.

, ,