I’ve always been skeptical about online real estate companies with revenue models based solely on advertising. There’s just not enough money and too much inventory. And, as Joel at FOREM has pointed out, the housing slump makes for even tougher sledding. But I have been willing to accept that the folks at Trulia and Zillow may know something I don’t.
But two things happened in the past week that make me think that’s probably not the case.
First, the IAB (Internet Advertising Bureau) released its Q2 Internet Advertising Revenue Report, which notes online ad spending reached nearly $10 billion in the first six months of 2007. Good news. The not so good news for vertical sites is that 91% of those dollars were spent with the top 50 publishers. In other words, the vast majority of ad dollars still don’t trickle down below the likes of Yahoo! and Google. Smaller vertical sites are left to scramble for the remaining 9% or unload their inventory at a discount through AdSense or by participation in networks like Tribal Fusion and Federated Media.
Moreover, 17% of the $10 billion was spent on classifieds, a category that simply does not apply in our real estate world, where listings are viewed as content, not advertising.
Second announcement of note: ReachLocal, the local advertising services company, closed a $55.2 million round of financing yesterday. ReachLocal is a turnkey platform for businesses (real estate shops, for example) that want to advertise online locally, but have no capacity to manage such an effort on their own. This company is a high-powered machine for funneling small advertisers onto Google, Yahoo!, MSN, and Ask.com.
It is safe to assume that people using Trulia and Zillow are also using the major search sites. Both companies are hanging their hat on delivering a "targeted audience". But what is that, really? Is not search advertising all about pin-point targeting? If you’re a broker or agent, are you going to spend money on a Trulia campaign or a Zillow EZ ad, or are you going to work with a company like ReachLocal to cost- effectively play the long tail?
With every new ad supported real estate 2.0 launch, another fork is sunk into a small slice of the pie. There’s simply not enough to nourish an entire category.
— Brian Boero