CoStar's Homes.com May Not Need to Win Traffic Game to Out-Earn Zillow

It might be growing fast (and shouting about it) but CoStar-owned US  challenger real estate portal Homes.com is still a very long way off Zillow in terms of traffic.

The upstart claimed that it saw 156 million unique visitors in Q1, but that number included the company's entire "network" of residential marketplace assets (including multifamily specialist Apartments.com and at least 10 other sites). Even with all its stablemates tallied up alongside it, for now, Homes.com's traffic still falls well short of Zillow— which regularly sees unique monthly audience figures of 230 million.

The thing is though, CoStar didn't get into the residential game for visitors. As an S&P 500 company with more than 50 consecutive quarters of double-digit revenue growth, it got into the portal game to make money.

And there's perhaps some evidence to suggest that CoStar could make more money than Zillow without having as much traffic.

Zillow has a great brand and likely more visitors than any other real estate marketplace in the world but it does a relatively poor job of monetising those visits.

Is Zillow's business model holding it back?

Where most portals around the world charge the agent selling the home to list on their websites with additional fees for increased visibility, Zillow makes most of its money by selling leads to agents representing buyers.

It's a model that has some drawbacks.

For one, Zillow sells leads to buyers' agents who may not necessarily know much about the listing they are receiving a lead for. As CoStar CEO Andy Florance has repeatedly pointed out, this doesn't necessarily make for a good user experience.

It also doesn't seem to scale that well. Only a small percentage of the total pool of US agents pays for Zillow's services and the company actually wants to further reduce that percentage by extending its 'Enhanced Markets' program across the country.

CoStar's Homes.com on the other hand works a so-called 'your listing, your lead' model. It's looking to get as many listing agents as possible to pay for their listing to rank at the top of its results pages.

In short, Zillow wants to provide a deeper level of service and take a bigger slice of commissions from a small set of top-performing agent customers while CoStar just wants to sell visibility packages to anyone that wants to pay.

Although the usual caveats about apples-to-apples comparisons apply, one of those models has seen portals around the world make obscene amounts of money and the other has seen Zillow make a $1.25 billion net loss over the last five years.

Sell to one in eight US agents—seems like an attainable goal

CoStar is good at selling. If it can sell to one-eighth of the estimated two million agents in the market every month (at current ARPA) it will have overtaken Zillow's residential revenue of $1.4 billion from 2023.

It has a very long way to go but few bet against Andy Florance.

The CoStar CEO said that Homes.com's average revenue per agent (ARPA) was between $475 and $500 per month in Q1. He put current customer numbers at around 8,000—a figure that annualises to almost $50 million in revenue.

Florance described the Homes.com membership as "easily the fastest-growing new product in company history". If the sales team can go from 8,000 customers to 250,000 agents using Homes.com, the portal will be generating $1.5 billion (that's assuming no price increases).

Homes.com doesn't have to demonstrate the value of its particular visibility packages relative to a competitor either. It just has to prove the concept of paying for increased visibility on a portal to residential agents.

Making a few hundred dollars per year from every agent in the market is not such a pipe dream. Most leading portals in developed markets around the world make much more than that—CoStar doesn't have to look further than its recently acquired British portal OnTheMarket to find an example of a challenger portal with those unit economics*.

Two companies with very different DNA

Zillow wants to reduce the total number of customers it works with and increase the average revenue it makes per customer. It also wants to increase the control it has over the lead and the agent at every point of the sale, like a brokerage.

CoStar is using a much simpler model that has been tested in the multifamily rentals space and internationally. It just wants to do what has historically worked very well in the rest of the world—sell visibility to as many agents as it can and let them get on with the rest of their job, like a portal.

Most US brokerages haven't made a profit recently, most big-name international portals have.

* OnTheMarket's unit economic numbers are based on an assumptive revenue figure of $50M for 2023 which is in line with previous growth. Also based on an agent population of 51,000 in the UK (no official figures).