CoStar's homes.com bet targets Zillow's structural flaw
The bull case for CoStar's heavy investment in homes.com is that its 'your listing, your lead' model exploits listing agent resentment toward Zillow's practice of selling buyer leads to competing agents.
The argument
The guest argued that while Zillow dominates web traffic, its monetization model creates friction with listing agents by routing buyer inquiries to paying 'premier' agents instead of the listing agent. CoStar's homes.com counter-positions by guaranteeing that leads go directly to the listing agent, which could win over industry support.
The thesis, stress-tested
✓ What validates it
- ✓Continued triple-digit year-over-year growth in member agent leads on homes.com
- ✓Acceleration of homes.com's annualized run-rate revenue beyond the $100 million mark
▸ Risks discussed
- ▸Massive marketing spend (over $1 billion) has severely depressed CoStar's operating margins
- ▸Sunk cost bias could keep CoStar spending on a residential strategy that may not displace Zillow
- ▸Consumers are highly familiar with Zillow and may resist changing platforms
Hear it yourself
"And so Zillow still manages to dominate web traffic, but CoStar's pitch is that Zillow's monetization model creates these frictions and conflicts of interest with listing agents."
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