Rent.com 'Merges' with Zillow - What's the Impact on Multifamily?

Earlier this month, I received a shocking email at the end of my Thursday workday. Essentially, Rent.com would be shuttering its doors and merging with Zillow. As I told my team, I was 'shocked,' but not surprised. We had cut most of our Rent contracts at the beginning of the year. Rent was charging Costar pricing for its ILS product without Costar results. It was an easy decision for me to make once I had the data. We did not see any decrease in performance--just a massive decrease in marketing costs.

There were a few red flags early on that made me dive especially deep into our partnership with Rent.

1) In addition to their ILS product, they offered a large suite of products via their Rent agency. Why was this a red flag? The business model of marketplaces is very strong. You don't own the product (in this case the apartment communities) so your overhead is low. You win by marketing and sales, which Costar has done successfully through SEO and media. It's so lucrative of a business model, if you do that part right you don't need more lines of product. Costar charges an arm and a leg to be on their network because they have a ton of market share and many property managers believe it is the oxygen to their marketing efforts. When you need to sell other products to generate revenue, you're admitting you can't attract enough people to your ILS product. In this case, we see that is true but many of the other second-tier ILS also have a model similar to Rent's.

2) Their pricing model. As I hinted earlier, Rent put a target on its back by charging Costar prices. If you looked at the data, you may have seen it wasn't performing as well as Costar, but even from a branding perspective they are not a household name, don't have a famous-actor on commercials, and overall aren't know by renters other than having the ultimate domain name (which I think we see is overrated in this case). Rent's best solution to clients was to offer a pay-per-lease product, but that would have also hemorrhaged their subscription business. My guess is if they did move to pay-per-lease we would see how little value they drove compared to a Zillow. My guess is it would be on par with an Apartment List.

Red flags don't always spell doom, but in this case these things were indicative of the house of cards that was about to fall in a major way and shake up the industry.

So what happens now? Well, it's a two-man race as Zillow adds some marketshare and value to clients to compete even more with Costar. Together those two own about a dozen assets in the space including their own brands which are household brands. My guess is Zillow may soon be offering a subscription business as they see the writing on the wall and no longer have to live in the world of only paying what they deliver on. Now, they can make you pay because you feel like you have no other choice.