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Commercial real estate giant CoStar has plenty of resources to launch a sustained assault on Zillow’s residential market share.
But is this a race that CoStar actually needs to win outright? And is “winning” even its true goal?
These are the questions that come to mind for real estate tech strategist Mike DelPrete as he surveys the field of real estate listing portals, which is currently dominated by Zillow.
DelPrete is on record saying Zillow will be incredibly difficult to dethrone as the No. 1 player in U.S. real estate listings and the leads this type of traffic can generate for agents. In a phone call this week with Intel, DelPrete broke down why he’s skeptical a seismic shift is coming — and what CoStar might actually be hoping to gain from its current efforts to build up its Homes.com portal.
His comments below have been edited for length and clarity.
Intel: CoStar’s spending a lot of money on buying traffic and raising public awareness of its residential portals. It’s obviously a really big company in the commercial space. It’s got deep pockets, and in theory, it could keep up a campaign like this for a while. But you’ve been skeptical whether anyone can challenge Zillow’s dominance in this area, now or in the future. Why is that?
DelPrete: Healthy skepticism — that’s the key phrase. Healthy skepticism.
I used to follow English football really closely, also known as soccer. I don’t know when it was, maybe 10 or 20 years ago, these very rich organizations acquired a number of teams, like Chelsea Football Club and Manchester United. They take this sports club, and they would buy it and then they just inject it with huge amounts of capital.
And that’s what comes up for me as you’re talking about CoStar vs. Zillow. You have this really rich organization coming into an industry, to a market they know something about. CoStar knows something about real estate, for sure, but not necessarily residential real estate, right? That’s new. And they’re injecting money into it.
And the lesson out of the English football leagues was money doesn’t buy you success, at least not immediately. It’s very difficult to succeed without deep pockets, to buy the best players, to build the best training facilities and to hire the best coaches. But it can take a decade to build the culture of winning and the experience, kind of building up the corporate DNA to go out and compete.
I think anybody expecting CoStar to come in and immediately overtake Zillow — it’s crazy. Yeah, they’ve got a lot of money. They can spend. And they are spending. And it’s this direct correlation, where you can buy traffic. They’re spending a lot of money, and they’re buying traffic.
So we’re starting to see that. But we’re still in the really early stages of that. It’s going to take quite a while for it to materialize in any meaningful way.
CoStar’s made bigger percentage gains in its own Homes.com audience. But you’ve pointed out that Zillow added twice as many new monthly users as CoStar in the first three months of the year. Could you walk us through why you believe the number of monthly users is the more important metric to track?
That’s where I think context is really important. You could focus around percent gains and come away with one narrative, but it’s not the whole picture.
I think absolute number of visitors is really important, because those people represent buyers and sellers: Actual buyers and actual sellers.
A percentage doesn’t buy a home. An actual person buys a home. And the power of marketplaces and real estate portals like Zillow is that they have more buyers and sellers than anywhere else.
If you take two periods, you can do all the percentage stuff you want. The company can grow 100 percent, but if they still have one-tenth of the buyers and sellers of the leading portal, it doesn’t matter. It’s just not as useful — exponentially less useful than that.
So if we look at the growth in that, the fact that you have during that high period of growth where CoStar is saying, “Yeah we spent a lot, we grew our audience,” Zillow added double the actual number of buyers and sellers, that’s a really powerful result. It shows the incredible power that Zillow has and will continue to have in that market leadership position.
You broke down how CoStar’s new traffic is coming at a hefty cost, with $55 million spent in the first quarter alone on search-engine marketing to get eyeballs on their listing pages. How sustainable of a way is this of trying to close the gap with a site like Zillow, which has such a big head start?
I’m thinking back to football. That’s the question for the Russian oligarch or the Middle Eastern oil conglomerate. How long do you want to continue pouring tens of millions of dollars into something with uncertain returns? That’s not a question I can answer. That’s a question that CoStar and its shareholders would have to answer. So I don’t know.
But I can say that from looking at this space over the last decade around the world, it’s really, really hard to unseat a leading real estate portal. I can’t think of a worse job or a more difficult task than going after the leading real estate portal. I can’t.
That is just such an incredible business because, in the U.S., we have Zillow. And because we have MLSs, listings don’t matter. Everybody has all the same listings. So there’s no content advantage. You can’t really pull a Netflix or a Hulu or a Disney+ here.
So everybody’s got the listings. You’ve got a leading portal that has exponentially more buyers and sellers than everyone else. They’ve got all the listings. What advantage can you provide? It doesn’t matter if you have a tenth of the traffic or a fifth of the traffic or a third of the traffic. If you have anything less than the traffic that Zillow has, you’re not as good as Zillow. You’re not as valuable an advertising platform. If you want to sell something, you want to sell it to the biggest audience possible. And Zillow has that. So there’s not a lot of room to grow there.
Now, a last thing. I think there’s this interesting misnomer in this. The idea that CoStar’s coming after Zillow, it’s a narrative. It’s a story. It’s meant to generate headlines. But I don’t think that’s what they’re actually doing. The people at CoStar are too smart for that to be the actual strategy. That’s a PR initiative. That’s not the actual business strategy.
The actual business strategy is around an agent’s share-of-wallet. You have a bunch of agents out there. They’re buying and selling houses. They’re making money off commissions, and they have money in their wallet, and they can spend that to grow their business. Sometimes they spend it on Zillow, and sometimes they spend it on Facebook ads or whatever, generating leads.
CoStar wants a seat at the table with Homes.com. They want to offer agents a product, a suite of services to attract more share-of-wallet, more optional spending to promote themselves to grow their business. That’s the strategy, and in that strategy, you don’t need to overtake Zillow.
You don’t necessarily need a massive audience. You need an audience, but you don’t need the No. 1 audience. But that’s a different path to growth that makes more sense than trying to take down the No. 1.
