I was thinking this weekend about all of the rumors about Trulia and Google buying them and all of that. I was thinking as well about how both Trulia and Zillow are both seeming to be angling to be the next Realtor.com…
What does that mean…trying to be the next Realtor.com….hmmm…my mind hearkens back to a certain Russ Shaw post here in October of 2007…something about a pencil sharpener. When they say they want to replace Realtor.com, they MEAN it! It is about folks standing in line to take money from REALTORS…right? If not that, then what?
If Trulia is not lining up to give us a ..ummm…sharpening (dare I say that?) then their valuations should NOT include ANY REALTOR MONEY. So here’s the contest:
This contest is for someone to explain in the comments below HOW Trulia is going to generate enough revenue to justify a $300 Million valuation (that is an arbitrary number – just guessing here, boys!) given their current burn rate AND
The contest winner cannot allow ANY revenue to come from REALTORS. Revenue can come from current CPM rates for ads on their site, but how much of their site would need to be covered with ads to generate that revenue? Not sure but my offhanded guess is about 125% of the above the fold area. Revenue can come from other creative ideas. Just not from the REALTORS wallet. 😉
The Prize: 1 hour SEO consultation with me.
See- I don’t get it. I wouldn’t pay $150MM for Trulia let alone $300MM or (heaven forbid) $500MM …so what gives?
Please submit contest entries below!
One last thing: The only thing “stoopider” than a Trulia valuation of that size would be Realtor.com’s valuation of $1.81 per share (it was down at $0.89 when Russell Shaw proposed buying them out…)
Ryan Hartman says:
A free framable, highly customizable property search solution for agents to embed in their sites. [Or maybe, Free with ads, cheap monthly fee without.]
A good enough solution will yield widespread adoption, eyeballs, and mucho revenue for Trulia?
[Could also kill local/national boards who seem todo little more than permit access to mls/idx?]
January 23, 2010 — 2:55 pm
John Kalinowski says:
Eric – I know I can’t win the prize with this one, but I wanted you to hear it anyway. There is a way that a Google/Trulia national listing system could make money from agents that would actually save Realtors money.
What if they added a co-broke compensation agreement on each active listing, just like an MLS does, that could only be seen by agents who pay to subscribe?
Right now I pay my MLS $360/year and I just paid $415 for the total bill to the local, state, and national Realtor Associations. That’s $775/year. Let’s say Google/Trulia charges agents $100/year that allows them to directly input property info and to see the compensation agreement info. How many Realtors are there now in the US? Maybe 2 million? That’s $200,000,000 per year in revenue, and agents each save nearly $700 per year. It would probably also kill the NAR since most agents join solely to get MLS access. Google could still generate ad revenue from the site, which would be a huge number since it would then be THE national listing system. I would call it the Google Listing System, or GLS 🙂
January 23, 2010 — 3:44 pm
Eric Blackwell says:
@Ryan – Interesting…
“A free framable, highly customizable” REALTOR charger -violates the contest rules because it charges REALTORS for an ad free model(GRIN) but I LIKE the creativity!
A good enough solution will yield widespread adoption, eyeballs, and mucho revenue for Trulia? Enough to support a $300MM valuation?…it better have flames coming out it. (GRIN) I don’t think that is possible and even if it is, it would take about 30 minutes for other companies to imitate it and water down its value.
“[Could also kill local/national boards who seem todo little more than permit access to mls/idx?]”
This is where your solution and John’s come together…charge the REALTORS, but hopefully rEALTORS will get charged less because NAR will go die. Hmm…
Let me ask you this, as of 2008 there were 1.2 MM REALTORS…now there are arguably less.
NAR (god bless ’em and as much as we’d want them to) is not going away. We will still get charged.
And to add a log on the fire, what happens when TruliaGoo or Goolia or whatever sees that they have us by the ummmm…listings? (grin)
Do you think they are going to benevolently say “We love REALTORS so much that we are going keep our $100 per year fee in perpetuity or will they “sharpen” us?
My guess is the latter.
You guys are providing very creative thought though. Thanks for great input.
More thoughts from folks?
Eric
January 23, 2010 — 4:50 pm
Tom Johnson says:
Eric: You nailed it! Additionally I guess there is no more money forthcoming from the REALTOR play.
You might call it PEAK REALTOR:
All the vendors are competing for a shrinking pool. I do not see an expansion of the REALTOR ranks. I do not see the number of transactions exploding over the next 5 years, nor do I see prices exploding over the next 5 years, so it seems to me that the REALTOR money gusher is about to become a stripper well. There is payout, but it must be treated with care.
A million REALTORS. NAR & downline gets their $700($400 dues and $300 MLS fees)-mileage may vary.
How much more can you get per REALTOR? $100/year makes it a maximum $100 million gross revenue deal plus PPC. I know my marginal propensity to consume seller pleasers is way below $30/month- more like $5 month or Animoto size prices: $30/year.
Shoe leather, fuel and IDX/wordpress are where my customer acquisition dollars go. From my colleagues in the kennel here, I have learned that if I can dominate the organic long tail in my local area, I can very efficiently compete where it counts. When the Texas economic development SWAT teams bag a California company and incentivize it to move to Houston, how are the employees going to find their new house online? Barring an epiphany, I am content to furiously stake out my little zestifarm and find out.
Are T or Z or Goolia worth such large sums? Was AOL when AOL owned the web? Is it worth $100 million or more for Google to own the real estate ‘real estate’ beyond the revenue? Maybe for Google the information has so much value it will improve their search so they render more relevant ads across the whole G-verse. Maybe the numbers work for Google. I cannot think of anyone else who would cash out the VC funded RE portals.
January 23, 2010 — 9:32 pm
pistol pete says:
Hey Eric,
First, I’d say that your following statement doesn’t setup the right criteria for the contest:
‘HOW Trulia is going to generate enough revenue to justify a $300 Million valuation’
I’m not saying that because I don’t think companies should be valued based on revenue, I’m just saying that they are not when it comes to the reality of how online media and tech companies get purchased.
But let’s take a look at the numbers anyway and try to guess revenue. The following are the rough stat’s for Trulia (quantcast data):
Trulia generates between 150mm and 200m pageviews per month and gets app. 2mm visitors monthly. With two ad units per page (industry average), that means 300mm ad impressions. Of those 300mm ad impressions, roughly 90% of them are in the property listings pages. Typically, the rates that advertisers will pay for this inventory is extremely low. Let’s be generous and call it a $1 CPM and say that the remaining 10% of inventory goes for a $25 CPM.
That totals a little over $1mm in revenue per month, or $12mm annually.
Now, Trulia also has what looks to be like a substantial bus dev deal with RealtyTrac. This deal is likely a cost-per-click or performance deal (non-CPM). If Trulia has 2mm monthly visitors, assume 20% of them go to the foreclosure center, and then 10% of those people actually click through to RealtyTRac. This means 40,000 monthly clicks to RealtyTrac. Let’s be generous again and assume they make $2 per click. That’s another $80k in monthly revenue, or almost $1mm per year.
That brings total annual revenue to $13mm per year. At a $300mm valuation, that 23X revenue. An extremely high multiple. Assuming a more reasonable (but still pricey) multiple of 10x, that means that Trulia would need $30mm per year in revenue. And I know that Trulia doesn’t generate anywhere near $30mm in annual revenue excluding realtor fees.
That said, I’ll go back to my original point. Trulia will not get a $300mm valuation because they’ve generated enough revenue to justify it. They’ll go for $300m because Google is in a bidding war with Yahoo, Microsoft, and AOL. Or, because Google pays for it in all stock. Or, I’m sure there are other reasons, but justifying a $300mm valuation based on revenue alone isn’t one of them.
January 24, 2010 — 8:48 am
Dan Connolly says:
Eric,
Well if they don’t make money from Realtors, (which would mean that they are not the next Realtor.com) then they would have to make money from the general public. I suppose they could charge FSBOs for placement, or charge the general public for their market evaluations….
Neither of those options would generate enough income to justify that kind of value, so I guess the answer is that without charging Realtors for “enhanced listings” or selling leads, they simply won’t be able to generate enough income to remain in business.
January 24, 2010 — 10:43 am
Keith Lutz says:
In the beginning it will not matter, Google will just buy them and lose money (like google did, until they figured out a way to make money).
Sometimes I can not figure out Realtors. We dislike Trulia, Zillow, NAR and Realtor.com. What do you like? Our own websites I guess.
January 24, 2010 — 11:45 am
Mike Stefonick says:
Eric,
There is a very simple solution to the issue of competing against Realtor.com.
However it will not be presented in comments here.
It can be built in 6 months and will eliminate the need to be a so called Realtor:-)
Sorry but secrets are secrets but know it will happen and it will not be by buying Trulia or anyone.
Call me when you have time about my pending proposed project.
January 24, 2010 — 4:32 pm
Eric Blackwell says:
Only going to respond @ Pistol Pete for the moment.
I agree with your ENTIRE statement except for the last part. Yes Google MAY pay more than 10x. (That is IF they buy them at all). I don’t understand for the life of me why…
How much of Trulia’s traffic actually already COMES FROM GOOGLE? Why pay to do for yourself what you already can do for yourself…
And why would YahooMiAOLsoft et al get in a bidding war for it…simply to make sure it costs Google a little more? At the end o the day, the revenue has to arrive. I don’t see a bidding war in today’s business environment for a company that is dependant on getting listings from the REALTORS and dependant on organic rankings on Google to provide it traffic for its very survival both for CPM revenue and REALTOR relevance.
I agree with you that sometimes companies like Google view stock swaps as kind of “funny money” deals…but those are built in valuation bubbles in my opinion..kind of like you can spend more stock than cash and it is OK…but as I said…If I had the cash I would not buy them for $150MM let alone 300…
January 24, 2010 — 5:42 pm
pistol pete says:
Eric – right … i just used stock swap and competitive bidding as two examples for how a $300mm valuation could be obtained, i don’t think these are going to happen either.
Also thinking about Googles new Comparison Ads product that they’ve been testing for mortgage rates. Goog may also see a Trulia acquisition as a means to better test and refine new ad units in the real estate vertical. If it’s $100m or $300mm, it’s still chump change for them.
January 25, 2010 — 5:14 am
Russell Shaw says:
LOL !!! Thank you for the shout out, Eric.
January 25, 2010 — 10:43 am
Robert Worthington says:
Many great ideas from all the comments! I am all for cheaper mls dues as well. Nicely said John.
January 25, 2010 — 9:19 pm