Since our company (Zillow.com) is right at the center of both of these issues — declining home prices and the online advertising environment — I felt compelled to comment.

Our “Zindex” (the median Zestimate, or our estimate of a home’s value) for the nation was down about 3% last quarter versus the year before. So our data shows that housing prices aren’t cratering the way the mainstream media would have you believe, but they’re certainly declining. And of course some areas (e.g., FL, CA, AZ) are much worse than others.

Regarding the alleged slowdown in online advertising for real estate and financial services companies… Obviously this is something that we think about a lot at Zillow, since it’s how we make our money. I can tell you that so far we haven’t found this to be the case at all. Of course some of the mortgage lead gen companies and many of the subprime lenders are facing tough times, most advertisers are doing fine. In fact many companies are using this opportunity to INCREASE their ad spend to steal share.

I’ve read every piece of research on this topic that I can get my hands on, and the most thoughtful piece I’ve seen was written by Brian Pitz and Brian Fitzgerald, equity research analysts at Bank of America. Dated 9/11/07, their piece was titled “Is There an Online Financial Services Ad Slowdown?” They answered their own question with this:
“We see few signs of online advertising weakness in Q3 to date.”

They go on to say: “Our research suggests online financial services advertising is intact… An analysis of third-party data and channel checks reveals that online financial
services advertising growth remains strong, despite recent subprime and housing
concerns…We believe competition among
mortgage companies is increasing as more lenders focus on retail mortgage and
agency eligible loans. This, coupled with higher measurability and targeting
capabilities (relative to offline media), could increase demand for CPM and CPC
based online advertising, we believe.”

[Unfortunately I can't upload their report to this comment, but if anyone wants a copy, just email me at spencer AT zillow dot com.]

In fact there’s a case to be made that online media properties like Zillow should welcome this type of shock to the system, since it will likely accelerate the online migration of advertising dollars.

I agree with your observations, but using TNS data about online advertising — see footnote 5 below in larger type — is like looking at TV advertising data excluding cable and satellite. Quick, name the largest and fastest growing online ad unit? Paid search (likely $13 billion in 2007 in the U.S.). Name the fastest growing unit? Video.

Footnote from TNS Chart:
5. Internet figures do not include paid search or broadband video advertising.

Keep up the great work at GigOm — I enjoy reading your observations.

Chris

But even today, we compete with ad networks, there is a lot of confusion among advertisers on what works and where, and a lot of misunderstanding and misguidance on what constitutes a solid media property, so making money is still very hard. In reality, the internet media platforms and social networks really aren’t that much different than traditional media (niche magazines have smaller circulation, are more targeted, others are larger, etc.) but we are a LONG way away before anybody in any aspect of the business starts to realize it and apply the old rules from before. It’s unfortunate, but reality. Smart players will develop other means of revenue, period. We just launched our marketplace component (www.lookshoplist.com) for this reason. It has always, since 2004, been in our revenue model. We have only just started building it right now.

I think we should expect internet ad revenue to slow because now the new thing is mobile. I suspect it’ll be a good few years before things die down on the development/evolution side of the web to where we can find concrete ways to make and spend money in the business element.

Just my .2