Property Portal Wars: biggest doesn’t mean most profitable

Biggest doesn’t mean you are the most profitable (or profitable at all). Zillow revenue vs expenses (they are almost profitable).

source: http://www.propertyportalwatch.com/zillow-is-profitability-in-sight/

But by pumping enough money into a market segment over a long time with enough investors, you will kill most of your competition and capture market share. This is very much the game-plan of all the big portals, including South Africa’s Private Property and Property24. This creates a challenge for self funded portals like MyProperty, ImmoAfrica, Homehunt and others.

In the end portals need to recover their excessive marketing spend from estate agents and need to keep their investors happy with positive growth. Price increases are inevitable in situations like these.

Premier Agents are the lifeblood of Zillow’s revenue stream. This helps them to monetize its advantage in the marketplace:

Source: http://zillowgroup.mediaroom.com/press-releases?item=122531

Agents basically buy a spot as featured agent next to an advertised property listing, and in the process, increase their chances of getting a lead:

Agent rating are provided for premier agents

This is not necessarily a bad thing, as these agents are willing to spend money to get business, and know that if they can get the deal, they can recover their costs if they provide great service. The problem is that it also pushes out really great upcoming agents that don’t have the funds to feature, and increases the operational costs for agents. As a buyer, I would want to use the best agent, not necessarily the one who paid to feature there.

Every year, big portals are eating into the traditional property sales commission. Some only focus on the advertising while others get more involved in all virtual aspects of the sales transaction, leaving the physical listing capture process, negotiations and communications for the agent.

It would be interesting to see how Zillow will increase premier agent advertising fees and how agents respond. My gut feel is that it would (over the long term) push smaller sales volume agents out of the market. Wouldn’t it makes sense for Zillow to rather work with a smaller group of agents, who are willing to spend more, and who can calculate a positive ROI on their premier agent spend?

Biggest doesn’t mean the most profitable, but it comes at the expense of higher fees for agents. Big property portals are willing to stick it out for years making a loss, and recuperate their losses much later. For estate agents, their best bet would be to pay more attention to hyperlocal advertising and try to add more value to their own websites than what is provided by the portals. Word of mouth referrals, including social media, is still free.