Buckle up for the 2024 portal war

2024 is shaping up to be the year of the portal wars in the U.S., with CoStar Group, owners of Homes.com, leading the world’s largest effort to unseat a No. 1 real estate portal.

Why it matters: This multi-billion-dollar game of financial chicken will certainly shake up the portal landscape and will force competitors to change strategy — if they can — or risk the specter of irrelevancy.

The primary driver of CoStar’s Homes.com growth is the near doubling of its annual advertising spend to almost $600 million, a massive investment that keeps increasing.

• Keep in mind this advertising spend also includes brands like Apartments.com and other commercial real estate portals — but the big increase is being driven by Homes.com.

Comparatively, CoStar’s advertising spend – all to drive consumer traffic and build awareness – dwarfs its real estate portal peers.

• In 2022, CoStar outspent Zillow by a factor of two, and is on track to outspend Zillow by 3.5 times this year.
• Momentum is important: While Zillow and Redfin have been slimming their advertising to cut costs, CoStar continues to increase its investment.

Competition between portals is a marathon, and cash in the bank is not only a requirement to play the game, but a critical prerequisite for success.

• CoStar has an enormous war chest of over $5 billion in cash, enabling it to outspend the competition, while Redfin simply does not have the resources to compete at the same scale.
• Note: News Corp is the media empire that owns Realtor.com and dozens of other businesses, including TV, newspapers, publishing and more.

The ability to invest with cash flows from a profitable core business is another key factor in this race.

• Once again, CoStar outstrips the competition with its cash-generating core business, as opposed to Redfin and Zillow, which both posted a net loss in the most recent quarter.
• As a massive media conglomerate, News Corp generates a good deal of cash, but also pays a dividend and is more conservative with its investments.

An effective strategy should be simple and straightforward — and as I like to say, compete where you can win.

• CoStar is demonstrating clarity in its strategy; it knows what its unique advantages are and is leveraging them to the fullest.
• And it’s targeting a gap in the market: the 97 percent of real estate agents that aren’t buying leads from its competition.

Critically, CoStar is focused on one key point of difference for each of its two main audiences, agents and consumers — in areas where it is betting that it can win.

• For agents, Homes.com offers “Your listing, your lead,” which prominently positions the listing agent to collect leads directly, instead of being auctioned off to the highest bidder.
• And for consumers, Homes.com is building exclusive content that’s actually good for consumers: Rich media on over 20,000 neighborhoods across the U.S., including custom promotional videos, created by a team of over 1,000 human employees.

The bottom line: At its core, this is a case study in the importance of a clear strategy and focused execution.

• Love or hate it, CoStar’s strategy is crystal clear and its tactics are aligned with its strategy and competitive advantages, while some of its peers are stuck in reaction mode with disbelief, discredit and distraction — which is not a strategy.
• Without a cogent strategy, CoStar’s competitors (especially Realtor.com and Redfin) are at risk of being stuck with a waning value proposition, decreased relevancy and not enough resources to mount an effective defense.