The Internet has become the first place to look for real estate. In 2007, more than 80% of home buyers actively used the Internet as part of their research process before buying real estate and before contacting an agent. This proportion keeps increasing, making online real estate a very attractive market. However, competition in this space is very fierce. Most real estate agents and companies have already built their own sites, and invest heavily in online marketing.
Companies that provide a differentiated online service may have a chance to win this huge market. Online real estate company Trulia uses interactive maps and strategic acquisitions to capture market share. Competitor Zillow , on the other hand, emphasizes its "hidden inventory." The company has rich information regarding pre-foreclosures and homes under construction. Then there's Move , owner of Realtor.com, a huge database-driven website with more than 94 million properties. Which of these three companies has a bigger chance to win the promising real estate online market?
Trulia's graphically rich environment may be its best competitive advantage
Founded by Stanford University graduate student, Pete Flint, in 2005, Trulia offers sellers, owners, and real estate professionals valuable information regarding properties, prices, neighborhoods, schools, commute times, and crime rates. Trulia tries to differentiate its service by constantly adding new features such as Trulia Local Maps, which can help users identify median sales prices and price-per-square-foot in a given area, using easy-to-understand maps.
Because submitting a listing is free, Trulia makes money from selling data and tools to real estate professionals, and from premium advertising. However, while Trulia has one of the best user interfaces, and a rich database, it may need to search for additional revenue sources in the future. Despite amazing traffic growth, the company is not profitable. In the second quarter of 2013, it had record revenue of $29.7 million, and lost $1.5 million.
Although Trulia isn't profitable yet, management decided to acquire Market Place, a company that specializes in software as as a service for real estate agents. Market Place experienced operating losses of $2.8 million on $13 million in revenue in the first quarter of 2013. The acquisition will likely bring long-term synergies. However, Trulia's short-term profitability remains worrisome.
Zillow's mobile emphasis is paying off
Like Trulia, Zillow also makes money from real estate agents, who register to Zillow's Premier Agent program to gain more mobile and web presence on Zillow's platform. The company became famous thanks to its Zestimate statistic, which estimates the value for a home based on a range of publicly available information.
Zillow used Zestimate to create a strong user base. Later, the company expanded its portfolio by creating several complementary sites, from Zillow Mortgage Marketplace, a meeting point for borrowers and lenders, to Zillow Digs, a new home improvement marketplace. The company also created Zillow Mobile, the largest and most popular real estate mobile suite, with five applications that can be downloaded for either Android or iOS systems.
Zillow's emphasis in mobile and portfolio diversification are starting to pay off. The company is the fastest-growing online real estate application. Last year, Zillow added the equivalent in unique users of almost two-thirds of Trulia, or all of Move.
Move is profitable, but needs more traffic
Move has been around since 1996 and currently owns Realtor.com, Moving.com, and several other real estate websites, capturing more than 20 million monthly visitors. The company is actually profitable, earning $0.12 per share last quarter, representing an 82% gross profit margin.
However, despite being a new application, Zillow's skyrocketing success has already surpassed Realtor.com's traffic numbers. This suggests Move's applications may have little economic moat. A stronger emphasis on mobile, social mechanics, and more entertainment could help Realtor.com stop losing market share.
Final foolish thoughts
The war for the online real estate market will be fierce. The key to success is an emphasis on differentiation and permanent innovation, both from a technological and business perspective. Zillow is a great example of a company that permanently innovates. It has a rich and diverse portfolio of sites that are truly complementary, several mobile applications, and an interesting revenue diversification strategy -- selling not only ads, but also premium accounts and professional tools. This company is a giant in the making.
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The article How to Play the Online Real Estate Market originally appeared on Fool.com.Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Facebook, Google, and Zillow. The Motley Fool owns shares of Amazon.com, Apple, Facebook, Google, and Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.