Hitwise released an engaging report on the state of online classifieds this week, with conclusions driven by their analysis of their proprietary database of web traffic.

Two things stood out to me: First, Hitwise’s observations about the significant growth in classified website visits is a clear counterpoint to the accelerating decline in newspaper classified revenues. Second, Hitwise’s analysis shows that the real estate category — both rental and resale — is highly fragmented, creating an unique dynamic in terms of how traffic to classified web sites is generated.

Online classified traffic growth and restricted offline distribution

Broad analysis of the traffic to online classifieds shows a 84% increase in visitors over the past 12 months. The economic downturn has driven an increase in usage, but the share gain on the part of classifieds has been steady over the past three years, as the accompanying chart shows.

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The number of sites participating in this growth has increased substantially as well.

In addition to capturing more visits, the industry is also growing in terms of number of websites.
In February 2009, Hitwise reported on 1,048 websites in the Classifieds industry, compared with
814 in February 2008. Much of the growth is from localization of existing classifieds offerings, in
particular the addition of Craigslist properties.

Looking at this chart in relation to the decline in newspaper classified revenues over the past three years demonstrates the power of two things: ubiquitous, free distribution and low-cost to no-cost advertising.

Newspapers have built their business on a restricted offline distribution: you typically don’t get the paper unless you pay for it. They built their classified franchise on timeliness: the newspaper was available every day. Consumers were trained to turn to the newspapers to search classifieds for the most timely information about key purchases: what cars are for sale right now, what jobs are available right now and what houses are for sale right now.

Today, the newspaper is beaten on every count by online and multi-platform competitors. The result has been a $9.7 billion decline in classified revenue. The distinction between newspapers and other free printed classified magazines, such as The Real Estate Book and Apartment Finder, is intentional. While the printed classifieds are not able to compete with the internet classifieds in terms of timeliness and comprehensiveness, they continue to be relevant in terms of ubiquitous distribution. This justifies continued investment by advertisers and help to create a business context for distributing the listings information online and in the printed product.

The Long Tail of Classified Search

The classified category is a uniquely long-tail category, Hitwise’s research shows.

Picture 21.pngNearly 50% of the search phrases driving traffic to the broad Shopping & Classifieds category were one or two word searches (“bicycle,” for instance.) In contrast, only 30% of search phrases driving traffic to classified websites were such short terms.

As illustrated above, traffic from multi-keyword search queries to All Other Classifieds websites is
much higher than average for the Shopping and Classifieds category as a whole.
In the four weeks to February 28, 2009, only 9.93% of search terms sending visits to All Other
Classifieds were one word search terms (such as “bicycle” or “apartment”), compared to more
than a quarter (25.04%) for the Shopping and Classifieds category as a whole.
By contrast, 28.80% of queries sending visits to All Other Classifieds contained five or more
keywords, nearly twice the share as for the Shopping and Classifieds parent industry.

Picture 24.pngOur experience at our real estate websites, Apartment Finder and The Real Estate Book, bears this trend out. For Apartment Finder, for instance, in a recent two week period we had visits to our site driven by more than 1380,000 search terms. The top ten terms — all one or two words and very intuitive — drove less than 1/4 of the traffic. The remainder of the terms — typically three words or more and very specific to the interests of the consumer — drove three-quarters of the traffic.

[This consumer behavior drives an interesting dynamic in sales calls, by the way. We know that the best way to get traffic is to create content that aligns with highly personal and specific searches. Marketing managers want to see that a media partner comes up high on the searches that comprise a small portion of the actual results. To accommodate the needs of our sales organization, we actually end up diminishing the efficiency of our organic search optimization. Nuts.]

The fragmentation of the real estate classified market

Interestingly, Hitwise’s analysis of traffic to classified web sites supports an argument that I’ve made in other posts — the market for real estate information online is much more fragemented than other classified markets.

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In the Real Estate Classifieds market, the top four websites made up 37% of category visits in
February. This is a marked change from the Auto Classifieds category, where the #1 player (eBay
Motors) accounted for 70% of category visits.
With such a large purchase, consumers are likely to do a lot of cross shopping, comparing
listings on various websites. Hitwise clickstream data shows that 15% of downstream visits from
Real Estate Classifieds websites went to another website in the Real Estate Classifieds category
in February.

In addition, the real estate category derives nearly twice as much traffic from search than do the competitors in the Auto or Employment category.

The fragmentation of the real estate category presents distinct challenges to agents who are looking to differentiate themselves from their competitors. By committing to one online service or the other, they are significantly reducing the likelihood that they will intersect with the majority of buyers in their market.

One final note:  While I have not focused on it, Hitwise’s report details the absolute dominance that Craig’s List exerts in the classified website category.  Remarkable.