The real estate industry has already been revolutionized by the Internet, but according to Zillow chief executive Spencer Rascoff, those changes haven't gone far enough.
Zillow (Z) has agreed to buy rival Trulia (TRLA) for $3.5 billion in stock, with the purchase expected to close next year. The merged company will continue to operate both the Zillow and Trulia sites, Zillow said in a statement.
While the brands will remain separate, Zillow has big plans for upgrading its access to real estate market data, noting that the two companies currently have very small overlap between users. The bigger company will take a play from IAC (IACI), which owns many of the top brands in online dating, such as Match.com and OkCupid. By keeping separate brands but accessing shared infrastructure and data, Zillow wants to attract more house-hunters and advertisers.
The big loser in this equation? Media sites that draw real estate advertising, such as newspapers (which have already suffered huge advertising losses as real estate agencies increasingly rely on online ads) and rival online services.
"The addressable market for residential real estate advertising is massive, at approximately $12 billion annually," Rascoff said on a conference call to discuss the acquisition. "Yet, on a combined basis Trulia and Zillow have less than 4 percent share of this market; said another way, over 96 percent of the ad dollars available in our category are spent elsewhere, and mostly offline."
The "most effective channels" will succeed in attracting the most advertising dollars, he added.
The acquisition comes as consumers change the way they sell and buy homes, with 90 percent of home buyers now searching online as part of their buying process, according to a 2013 report from the National Association of Realtors and Google. In the last four years, real estate related searches on Google more than tripled.
While the combination of the two firms may provide wider access to listings for home buyers, the transaction is causing some concern in the real estate industry. One issue is the potential for higher fees, with a bigger company squeezing realtors to pay more to reach its audience, while others are concerned that the sites could put agents out of business.
"There's a great deal of anxiety in this category over the growth of portals. Some view them as valuable partners, some as a mortal threat," 1000watt Consulting partner Brian Boero told The Wall Street Journal.
While it's unclear at this point how the acquisition will impact the listing fees paid to Zillow or Trulia, the online dating industry may provide a glimpse into what the future holds.
As the online dating industry grew -- and consolidated -- fees have also surged. Match.com, for instance, charged $9.95 per month when it started in 1995, although that had more than tripled by 2013, according to MarketWatch. During the same time period, the consumer price index increased 53 percent.
Neither Zillow nor Trulia charge to list properties. Instead, they make money through fees paid by real-estate agents to have their contact information listed in searches.
Zillow plans on finding $100 million in cost reductions through the merger over the next two years, such as by sharing services and marketing costs, Rascoff said.
But the biggest plan involves boosting new products and services, such as creating new mobile products. More buyers are searching for properties through mobile devices, while GPS capabilities in smart phones are aiding in home searches, the company said. According to the study from Google and the NAR, consumers are using their mobile devices to research properties while standing in line, eating at a restaurant, or while visiting other peoples' homes.