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CoStar celebrates 100 million users

The CoStar Threat Part 3
Why Homes.com 100 Million Users Isn’t What It Appears

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In the first article in this series regarding the CoStar Threat, we outlined the ongoing battle over buyer agent commissions and the impact it would have on the property technology landscape. The second article explained why CoStar considered acquiring Realtor.com, and why that was not a good strategic move.

This, the third article of the series, will explore the issue of internet traffic unique users, and why it is crucial to the CoStar strategy. CoStar needs tens of millions of website visitors to compete with Zillow and Realtor.com and be a player in this industry. The nature of this competition is different than the traditional pursuit of website visitors. I think this traffic battle is setting the stage for something much bigger to happen in the future. Let’s dive in.

In March of 2022, CoStar participated in a sell-side investment analyst event focused on its expansion into residential real estate. During those presentations, CoStar outlined the following forecast for unique visitor internet traffic growth for Homes.com:

Early 2022 – 8 million
Early 2023 – 25 million
Early 2024 – 50 million

Well, they were way off with that forecast.

During the third quarter 2023 CoStar earnings call, CEO Andy Florance announced that Homes.com actually received 100 million unique visitors in September, a 1,290% increase over the same period last year. They did not even have 100 million users as a future benchmark during the 2022 analyst conference. This is pretty amazing considering real estate portal competition is strong and Homes.com only had 5 million users when they bought it in April of 2021. Getting this level of visitors reinforces the theory in the previous article that it never made sense to pay $3 billion to acquire Realtor.com and its 70 million visitors. But what does it mean when they say they have 100 million unique monthly visitors?

Before we get into what those 100 million unique visitors mean, we should probably understand what a monthly unique visitor is. According to Google Analytics, a monthly unique visitor refers to an individual who visits a website at least once within a given month. If you visit a website five times in that month you are only counted once. Google says they exclude known bots and website spiders from this traffic. So yes, they are more or less saying that 100 million PEOPLE visited www.homes.com in September 2023!

That Does Not Make Any Sense!
Let’s assume you have to be at least 18 to be legally eligible to buy a house in the United States. According to the 2020 U.S. Census, the number of eligible U.S. home buyers (18 or older) is approximately 258.3 million people. For this traffic to have value, it would have to mean that 38.7% of all eligible home buyers visited Homes.com in September 2023. This becomes even more challenging as a useful metric when you realize that not everyone over the age of 18 was in the market for a new home in September of 2023. For the traffic volume to continue, these people would also have to visit month after month. Maybe there are a bunch of tech-millionaire kindergartners in the market for a house that I am not aware of. This leads to my next point.

Less Than ½ of a Percent!
According to Redfin, 419,968 homes were sold in September of 2023. Let’s assume EVERY home buyer in September found their home on Homes.com. That would mean only .42% of all Homes.com visitors ended up buying a house. This would be a lot less than .42% because obviously not every house sold in September was bought because the home buyer visited Homes.com. Only a tiny fraction of people who visit Homes.com, Zillow, or Realtor.com are going to buy a house as a result of that website visit!

Some people may argue that monthly visitors are a way to gauge the relative website popularity of Homes.com and its competitors, Zillow and Realtor.com. Those people would be wrong.

Because of How Homes.com gets its traffic, it is not an indication of how popular the site is, it is an indication of how much money they have to spend to generate traffic with search engine marketing. According to SimilarWeb, between August and October of 2023, 42% of the Homes.com traffic came from paid search versus 8% for Zillow and 5% for Realtor.com. It is also worth noting only 18% of Homes.com traffic is direct, meaning someone typed in www.Homes.com to get to the site. Zillow’s direct traffic is 41%, and Realtor.com is 32%. They say you can’t buy love, but it appears you can certainly buy website traffic.

According to a National Association of Realtors (NAR) research report, 78% of new home shoppers visit 3+ sites before taking action on a real estate site. The reason they visit so many sites is because they fear one site may have homes listed that the others do not. They will visit Homes.com, Zillow, and Realtor.com to see what is available in their search area. For most people, this will be the largest, and most important purchase of their life, and they want to be sure they get it right and find the best home.

This is the fear of missing out (FOMO) that I mentioned in the previous article. After visiting all of those sites, home buyers will quickly find out they all have the same houses listed for sale. They all have the same houses listed because they all use the same data feeds from the hundreds of Multiple Listing Services (MLS) across the United States. When a listing agent enters the home for sale information into a multiple listing service database, that data is sold to Homes.com, Zillow, Realtor.com, and other real estate portals, and appears within hours on those sites.

What I will tell you next is the most important thing you need to know about real estate website portal traffic.

After visiting 2 to 3 real estate websites, home buyers will most likely return to the first site they visited because that is the brand they are most familiar with. Real estate portal brand recognition leads that home buyer to use that real estate portal as their primary house search tool and ultimately use that portal to inquire about a house for sale. That home buyer inquiry on the website portal turns into a lead that has historically been sold to a buyer’s agent.

What we are describing is the intentionality of the web traffic. Intentionality is the difference between casually browsing real estate sites and searching for a house you intend to buy. Unfortunately for Homes.com, the share of their monthly traffic that intends on buying a home is much lower than their competitors because they are buying traffic with search engine marketing and those resulting visitors have lower intentionality.

You don’t have to take my word for it, here is the response from CoStar CEO Andy Florance to a question from a Wall St. analyst regarding search engine marketing spending versus brand marketing.

“Sure, on the content side, we will be continuing to build out and evolve neighborhood content well into 2024. We will be initiating more general blog content, part content, more school content. So, it’ll be a shifting mix with some of the same in the first-half of the year and then some evolutions in the year out. In terms of the mix of what is on branding versus what is on SEM versus what is on content that will absolutely shift from quarter-to-quarter. Clearly, we have to build the unaided brand awareness. So, we’ve got a great site, we’ve got some great traffic, we have some great return visitors, we feel very strong, we feel very confident about our roadmap going forward. But you have to have that unaided awareness number grow. So, there will be some shifting and changes in what we’re doing. But we have not done, we certainly have not done our 2024 budgets, we can’t really comment specifically.”

Andy Florance, CEO of Costar. Q3 2023 Earning Call

Fortunately for CoStar and Homes.com they are pretty good at brand development and unaided awareness. Somebody please call Jeff Goldblum.

I have spent this entire article convincing you that 100 million unique visitors to a site is absurd. Now I will tell you why, despite all of its flaws, the 100 million visitors are critical for CoStar to dominate and redefine the real estate portal landscape.

When CoStar bought Homes.com in 2022 they had a credibility problem. You are not a player in this industry with 5 million monthly unique visitors. CoStar thought about buying Realtor.com to get that credibility, but in the last article, we outlined why that was a bad idea. Usually, when the issue of real estate portal credibility comes up, it is about how potential home buyers feel about the site and the ability to find a great home. It is not the home buyers who need convincing, it is the real estate brokers.

CoStar has announced that in the first half of 2024, they will begin selling home buyer lead subscription packages to listing agents. These subscriptions will have different price levels and various add-on products and services which will make Homes.com a competitor to Zillow and Realtor.com in the leads selling business. Homes.com is currently generating leads but they are giving them away for free, kind of like a Costco free sample to get you to buy the 200-pound bag of chicken nuggets.

The subscription packages are all pretty straightforward forward though CoStar will sell their leads to listing agents versus Zillow and Realtor.com selling leads to buyers agents. That difference in customer focus is not why CoStar is a threat and in a position to change the game. What could dramatically change the industry is what I believe CoStar will ALSO OFFER the industry once it has a sizeable number of listing agents subscribing to its leads service. If they use this strategy, it could become a real problem for Zillow and Realtor.com, and result in Homes.com becoming the undisputed champion of real estate portals.

That strategy will be explained in the fourth and final article in this series titled, “The Strategy CoStar Could Use To Crush Zillow”. It will be controversial…

Warren Walker is the Managing Partner of SpringRamp Consulting and has over twenty years of strategy consulting and analysis. Connect with him by email at info@SpringRamp.com or www.SpringRamp.com

SpringRamp Consulting Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or positions of any entities mentioned in the article or of any platform that publishes this article. This article represents an opinion on the possible actions, activities, impact, and results of various companies and should not be considered statements of facts.

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