The Recession and Online Marketing – for the Real Estate Industry

Let me say right off that this is just one guy’s view of a pretty big elephant. I don’t claim to have all of the answers, but Glenn’s post over at the Bloodhound Blog, sparked me into writing my thoughts (as he often does.).

Glenn asks about the future of the landscape in the real estate space. More brokers or less? Big VC players using BIG ideas and BIG capital or smaller sized players that have proven profitability, yet may be slower to grow due to lack of capital.

In the current environment, VC’s have shut down the flow of capital (essentially) into the pipe. This leaves the big idea crowd in a tough spot. Yes, as Glenn claims, it is true that relatively few have hit Tech Crunch’s dead pool to date. If this flow of capital doesn’t change for say another 18 months, though, MANY will, IMO.  Glenn would know this better than I…given their current burn rate, how long can many of these firms last without profitability? Have they managed cash by cutting staff and reducing expenses? To a point they have done well. But the key to ANY VC these days is gonna be PROFITABILITY. The P word. Plain and simple.

Will some survive? YES. Must they drive towards profitability? YES. What we are seeing is that an organization like Zillow or Trulia for example, throws out a cool looking interface for the public. They are the FIRST. Bleeding edge. They cut down the trees and create a road. Then, savvy REALTORS (a VERY small subset of REALTORS in general mind you), drive down that road and collect much of the goodness. Currently there is no way to monetize the logging business on the net. Timber has no value. The ROAD IS the value and thanks to open source CMS’s like WordPress, Joomla, vBulletin, and MANY others, toll on that road is forever and increasingly cheap.

The takeaway: In a recessionary environment, BIG ideas cost BIG money and are often easily imitated or tweaked by enterprising folks that have the tools to re-create the goodness at 1/100th the cost. Why should a VC invest the capital when they presume that the BIG idea is not defensible. If it is defensible, it is profitable.

Second point. Earned media. One thing that aided Big Idea folks in the past is the concept of big media buys were the only way of building defensible and profitable traffic. The only ones doing that successfully these days in the real estate space that I am aware of are HomeGain and REMAX.com. HomeGain uses PPC and other media buys to drive traffic to their sites. Their organic search component is a relatively VERY small component of their mix. RE/MAX uses large media buys to promote REMAX.com very successfully. They have generated over 6 MM leads to date with the millions they spend. It is defensible because RE/MAX brokerages do not see them as competition. They receive the leads at ZERO referral fee. They (associates)  have already paid into the effort with their advertising funds. This is a cooperative effort that produces results.

The little guys have a different tactic: Earned media. This was not available to us 10 years ago. Or really even five yearss ago in the form it exists today. I can build an effective social networking platform (blogging, forum, etc…you name it) for literally pennies these days. I can then promote it online for pennies. Funny part is: It is everybit as effective as the big media buy. (just a different marketing channel, mind you).You can then PROMOTE it via big media (or not). Look at how much earned pub Twitter is getting from the press these days.

I think the VC’s maybe realizing that you don’t need five MBA’s, tons of capital, massive investment capital, policies, procedures and an exit strategy to execute a BIG idea.

A few savvy folks who trust each other and know an industry, some spare time and a few bucks from each may now be far more effective in simply producing profit and ROI on a smaller scale. Neccessity is the mother of invention. It also forms the friction and heat that forges strong organizations. Too much capital as often is the mother of failure as too little.

One thing about starting with nothing. You are reluctant to add costs when it is your own money. That is a good business habit in any environment, but crucial these days.

Once the concept (and profitability) is proven in the fires of lean times, then there is adequate capital opportunity and facilities from the SBA or other sources if there is need.

Now for brokerages:

I think this was one of Glenn’s best questions. He asked if there’d be a general increase or decrease in the number of brokers, in spending on web infrastructure, advertising and etc.  I indicated in my comment that it did not matter. Here’s why:

a) All real estate is transacted locally. It is geotargeted. A national site simply cannot do what a local site can PROVIDED the local site is willing to INVEST THE TIME and PROMOTE the SITE. (most are not. I grant that.) They HAVE the TIME. In a slower real estate environment they CAN do it. Labor is cheap for a REALTOR promoting their own brand when they are not busy, where a national site must hire it done.

b) I think there will be battle hardened large brokerages that have local branding dominance. They will be populated by teams who dominate niches, but do not wish to be their own brokerage. I think there will be established individual agents with large books of business in those offices who offer great service to their spheres of influence and protect those relationships. They will slowly diminish in size as these folks reach retirement and / or transition their clients to new agents. I also think there will be a large number of Jay Thomspson / Greg Swann type brokerages…small independant and feisty as hell. They are by nature internet savvy and have the local connections that a national level entity cannot easily replicate.

Most everyone else is going to suffer an ugly and painful demise. (There, I said it.)

I do think that Glenn’s model of being IN the real estate business as a broker rather than a third party along with similar strategies by folks like Galen Ward @ estately, are FAR preferable to the strategies of third party guys like Zillow and Trulia. Why? Because they actually are in the business. There is often too much time WASTED in trying to differentiate rather than simply connect with consumers. In this, I think Estately has the upper hand. Promote. Market. Traffic. Connect. and then Refer or Convert (get the cash).

There is a blogger in my office who has cashed tens of thousands of dollars off of a simple WordPress blog with the right effort, correct principles and a solid plan from the get go. $150 plus about 40 hours of solid work = tens of thousands in the last five months alone.  That’s right. The blog was started 6 months or so ago. We refer to him in our blogging group as “Direct Deposit” (hehe- True Story.). He is a living, breathing and blogging example of what Glenn was referring to in the drive to profitability being a shorter path with less steps. Why do “Off the wall, down the stairs, off the backboard, nothin’ but net!” when you can do “He shoots. He scores.”

These kinds of savvy folks (in my opinion) are the ones who will come out ahead and will shape the future of real estate after the recession.

Ok, finally. Thanks Glenn for the great questions to stimulate my mind. PLEASE critique my thoughts and add your own opinions to it. I would value that.  ( That goes likewise for everyone else as well. )