Where's Dogbert when you need him?

Before Reba posted her article on the upcoming House Values layoffs, I recently ran across an interesting article about HouseValues on MSN Investor. It was basically a press release from Zacks Investment Research that stated HouseValues (SOLD) made their list of the top 5 stocks to sell now. Needless to say, this is not a glowing recommendation.

Also during that same surfing session, I stumbled upon an article about AutoByTel (ABTL). At first glance, it may not be that germane to the issues that face HouseValues, but AutoByTel is essentially a variation of the HouseValues business model. AutoByTel’s business model is essentially, generate lots of internet traffic and sell leads to auto brokers/dealers. HouseValue’s business model is essentially, generate lots of internet traffic and sell leads to real estate agents/brokers.

A problem with this model (as the article noted), is that traffic acquisition costs are going up. The deals that a company like this are going to strike with Google, Microsoft, Yahoo or some other major internet portal that brings in a lot of traffic are increasingly low margin / high cost deals. After all Google, and it’s fellow portal competitors know what the value of their net traffic is (and it isn’t going to get any cheaper).

Furthermore, there’s the $50+ million gorilla on the horizon…. Zillow. They have a more customer centric business model,  superior technology, lower head count expenses (last I heard they were about 100 employees), and would probably fare better in a beauty contest as well. Even if HouseValues were to reverse course by attempting emulate Zillow’s business practices, I get the feeling that they’d be less successful than Microsoft’s search efforts have been against Google.

Another problem, is that nationally the housing & mortgage market is cooling down. I guess this means there are fewer agents out there who are able to buy leads from the company (either that or there are fewer agents out who willing to buy leads, which portends an even bigger problem). It’d be interesting to see if this problem corrects itself when the housing market heats back up again or if the company has hit a strategic inflection point.

[photopress:sales_dropping.jpg,full,alignleft]What’s also interesting is ABTL has 377 employees (and $116.6 million in annual revenues), while SOLD has 522 employees (and about $101.9 million in annual revenues). Even though HouseValues just laid off 60 employees, it still feels there’s more head count there than what they need. Especially since their Selling/General/Administrative expenses are over 8 times what their Research & Development expenses are! For comparison sake, AutoByTel’s ratio is closer to 2.5 times, Microsoft’s ratio is a little under 2, Google’s ratio is a little over 2. It appears that the PHB (Pointy Haired Boss) hired too many sales drones and not enough Dilberts.

Frankly, if I ran the company, I’d probably try to get InterActiveCorp (IACI) to buy me. Why? InterActiveCorp is a diversified internet commerce company with 28,000 employees and had revenues of $6.6 billion last year. They own many popular web sites (Ticketmaster, Ask, Match.com, Home Shopping Network, Evite.com, Lending Tree, RealEstate.com), and they used to own Expedia, Hotels.com, Hotwire, and other travel related properties prior to their spinning off.

Because HouseValues would complement IACI’s LendingTree / RealEstate.com business units nicely and since a IACI spin off (Expedia) is already located in Bellevue, I’m sure there’s a way that IACI could extract more value out of the combined company that than HouseValue’s current management could do alone. Perhaps there’s a way in which the HouseValues employees who stuck around would only have to change their Kirkland commute to Bellevue commutes?

So is this the beginning of the HouseValues death spiral, or is just a temporary hiccup on the road to better days?

9 thoughts on “Where's Dogbert when you need him?

  1. The folks at IACI’s LendingTree already have a similar program to HV that they bought a year or two ago – Service Magic. They had a different lead service system that had agents competing for leads for a roughly $25-50 per lead fee and 3 agents would have to respond. They might be able to fold a HV into their business pretty easily by buying out their contract base of agents.

  2. I thought ServiceMagic just sold leads to home improvement contractors? There’s no mention of selling real estate leads on the ServiceMagic web site. Do you have a link to that?

    Regardless, I think emulating a LendingTree model might be good move. I have used LendingTree before and I had a good experience with them.

    The whole “when lenders compete you win” concept is an idea customers would like. The customer thinks they are getting a good deal because multiple lenders are competing for their business. They may not be getting the best deal, but having multple people respond to your inquiry practically guarantees you’ll get a competitve offer. Also, it probably generates more internet traffic since customers have a reason to visit.

    I suspect the lenders like it better too. I assume “spliting a lead” is less expensive than the “guaranteed lead” that a HouseValues model appears to offer. Is LendingTree’s business model better than HouseValues?

  3. The piece that was for real estate leads got sold off to LendingTree so you don’t see it on Service Magic’s site any longer. I used it briefly and did get a couple of sales from it at significantly less than the money I paid for the short while I was using HV. Basically though I’ve determined that none of these are any better at growing my business than me being professional and working with my own contacts and implementing our focused business and marketing plan. Even if you cite specific areas or zip codes from a lead service you still don’t get to determine what the price points are or what neighborhoods you have contact you. One sale that we lovingly refer to as my “good deed” client was a $12,000 mobile home owner. While I got a commission, I lost money on the deal because of the amount of work involved and such – but that was okay because sometimes it’s just the right thing to do.

  4. The lending tree banner ads are inherently deceptive. The bait-and-switch low monthly payments quoted are for negative am, interest only, option ARM products.

    (*terms and conditions apply) was recently added to their banner ad.

    I do not recommend any lender or real estate agent buy leads from a company who uses deceptive advertising. You’re just making a conscious choice to kill your own attempts to market your services in an ethical way.

    I don’t watch much TV (except for Saturday Night Live) so I never really did see what House Values was doing for advertising in order to get consumers to log on to their site and click on the “connect me with a Realtor” button. I did get the impression at one point that they advertised using TV, radio, and magazines as well as the web.

  5. Lending Tree is now partnered with RealEstate.com to get/trade leads. RealEstate.com is now licensed in several states as brokerages, plus they sell leads to individual agents licensed with different brokerage houses.

    Lending Tree also owns another lead-generating site, http://www.domania.com and http://www.internest.com/, some sort of new home construction rebate website. They’re not licensed here, so I’m guessing they’re funneling money through the licensed RealEstate.com instead. From their website: “iNest does not list homes in the MLS. For its services on a completed transaction, iNest receives a real estate brokerage referral fee from the homebuilder.”

    And, checking further, Service Magic IS still making real estate referrals: http://www.servicemagic.com/category.Agents-Real-Estate.9983.html by passing them back to http://www.RealEstate.com

    Oh, what a tangled web we weave….

  6. Robbie, While Lending Tree may work to get a loan for a competitve rate, remember, you don’t even have to meet with the loan officer. It’s all paperwork. If you’re a well qualified buyer and all goes well, the loan process can be handled by a processor.
    The only real estate model I can think of that could be handled this way is when a buyer wanting to buy one specific home, without an inspection, with their own attorney to review, already knows the neighborhood, schools,market values, etc etc and just want the agent to write up the contract. Maybe that agent can compete with fees and write up the offer and live with the consequences of representing a buyer without really representing them. Seldom is this the case, however, but when it is, then the buyer might consider using an online lending tree type model. Otherwise, what is an agent bargaining with? I can get the house cheaper than agent B can? I’m more fun to drive around with, or my car is nicer than hers? Real estate agency value is found in the face to face meeting with the buyer not thru a competitive agent platform.
    Re: House Values. Here’s what I think went wrong. HV sold new agents by having them talk with the experienced Housevalue agents. The problem? Earlier the agents were sold zip codes and the number of leads/mo was unlimited. These agents were incentivized to sell the newer agents. What no one pointed out was the success of those mentoring agent was due to zip code areas bringing in possibly 100 leads/mo, the new contracts were only guaranteeing 10 leads/mo. Those contracts were sold for one year. When that one year was up and no one renewed their contracts since they were so oversold, that was the beginning of the end.

  7. I have been buying realestate.com leads for about 6 months at $249 per month. Never been happy with them. Just a few reasons: unless you are sitting in front of the computer they text msg you to call them to get lead infor, and if you aren’t johnny-on- the-spot the lead is taken by another agent, & I was not aware the lead was sent to several agents. Finally, I did some testing. Three test for buyers looking for an agent, and not once did my company/name get a referral. They were all for the large franchise companies. Prudential seemed to be their favorite. I am in a small town, so it’s not like several companies would have signed up for realestate.com leads. I put in made-up names, phone #s, addresses, just a valid email address. Their website accepted it all, and immed I received responses emails from Prudential. I have sent them an email I want out of this 12 month contract. That’s it for me buying leads, from now on I will pay Google, etc. to generate my own leads. Previously thru a mtg company I received HouseValue leads. At least I thought they played fair/honest with me. I notice with Prudential they are offering buyer rebates thru Home Depot, etc., why I was never offered this option? Of course being an independent broker I offer my own rebates. I would be interested in other agent opinions.

  8. Doesn’t lending tree ask the buyers for their social security #? Do they run the buyers credit and then send to 5 lenders? If they don’t do that do they just sell the lead to 5 lenders? The 5 lenders don’t run the credit – this would obviously hurt the buyers credit. Can anyone please explain?

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