By Frederic Lardinois
Zillow (NASDAQ:Z) just announced that it has acquired the San Francisco-based rental and real estate search site HotPads for $16 million in cash. The deal is expected to close in the fourth quarter of 2012. This acquisition marks the first time that Zillow has acquired a primarily consumer-facing company and Zillow says it is making this acquisition to "expand the size of its growing rental audience and extend the reach of its marketing tools and productivity solutions for rental professionals."
HotPads has been around for a while. The company launched in 2005, with a focus on rentals. It expanded to include real estate sales in 2007 and started including vacation rentals and hotels in 2009. The company, which competes with the likes of Trulia, Apartments.com, Craigslist and, of course, Zillow itself, raised $2.3 million in a Series A round led by Meakem Becker Venture Capital in 2007, but hasn't raised any funding since. The company has 19 employees and will continue to operate from San Francisco and join the Zillow Rental Network once the acquisition has closed.
The basic idea here, as Zillow CEO Spencer Rascoff told me Monday, is to create one single database for rentals that will be available on Zillow, HotPads and the company's other properties. HotPads, he stressed, will continue to exist as its own brand and Zillow will commit additional engineering resources to help the company grow.
HotPads, Zillow tells us, attracted about 2.8 million unique users in October. Nearly 70% of the listings these users looked at were apartments for rent. On Zillow, about 6 million users look at rentals each month according to the company's own data.
Between Zillow Rentals and HotPads, Rascoff expects, the company can now offers a rentals marketplace at scale - something that wasn't previously available to users in the highly fragmented rentals market. For Zillow, this is also an opportunity to build a relationship with a younger audience - the kind that's shopping for a first rental apartment but not ready to buy yet. Once they get to the point where they are looking to buy, they will hopefully come back to the Zillow brand.
"This acquisition represents a significant step-change for Zillow Rentals, allowing us to dramatically increase the number of leads we send to landlords. HotPads has a younger, complementary and rental-focused audience. Now Zillow will become even more relevant to consumers at the beginning of their real estate life cycle," said Spencer Rascoff, CEO of Zillow in a canned statement Monday. "In addition, by acquiring an amazing engineering team, with a deep understanding of how people search for rentals and become tenants, we expect to accelerate our innovation and monetization of our rental marketplace."
Zillow, of course, has lately made a number of investments in the growing online retail market, including the recent launch of its free marketplace with tools for rental professionals that was largely based upon the company's June 2012 acquisition of rental relationship management service RentJuice. For Zillow, this is the sixth acquisition in the last two years. Just this month, the company announced its plans to buy mortgage technology company Mortech. In October, the company acquired Buyfolio and in June it acquired RentJuice. In 2011, it acquired Postlets and Diverse Solutions.