There are some companies so deeply entrenched in the American psyche that, even though they're not perfect, we just can't quit them. Perhaps the best example is Craigslist, that black hole of listings that inevitably turns apartment-hunting into a tedious chore. It's a user-experience nightmare of scammers, phony listings, and duplicate (or in some cases, quadruplicate) posts. Sending out 10 emails to brokers gets maybe one response. Then there's the hectic process of scheduling a walkthrough---that is, if the apartment ever really existed in the first place.
Which is why it should come as no surprise that investors are pouring millions of dollars into Urban Compass, a New York City-based startup that offers an antidote to Craigslist chaos. On Monday, the company announced it had raised $40 million at a $360 million valuation to expand its service beyond New York.* This follows another $25 million round the company raised last September.
But all this money is not simply another example of the frothy venture capital environment. With Urban Compass, founder Ori Allon, a serial entrepreneur who previously sold startups to Google and Twitter, may actually have a viable and lucrative Craigslist competitor on his hands.
Urban Compass is equal parts listing aggregator and brokerage firm. Customers looking to buy or rent a home can go to Urban Compass and search for listings by neighborhood, price, and size, just as they would on Craigslist. Then Urban Compass's sleekly designed site turns up a map of listings, along with a neighborhood guide for each listing and other helpful information such as, for instance, the length of the commute to Times Square and which subway lines are closest. Users can then schedule a time online to meet with one of Urban Compass's own brokers for an in-person walkthrough. If all goes well, they can fill out the application paperwork right on the site. Urban Compass owns the entire experience, from the initial search to the lease signing, an approach that Allon compares to Apple's.
"Apple controls the hardware and the software to make sure everything is totally compatible," he says. "We also want to make sure you have the best experience from the time you go to the site until you sign the lease."
Strange as it may seem in a disjointed market like real estate, it's rare to see a company take on both the listing and the brokerage side of the business, says Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School. Instead, there are sites like Zillow and Padmapper that pull listings from a variety of other websites but don't employ their own agents. They make their money on advertising. Then there are agencies that only manage a small selection of properties and make their money on commission. The fact that Urban Compass is marrying the two, Wachter says, is a very big deal.
"Unlike many of these information providers, this gives people an instant connect, which is terrific. It's like a one-stop-shop, potentially," Wachter says. Plus, she adds, the broker business is where the money is.
Allon, who has a Ph.D. in computer science, began building Urban Compass in 2012 after selling his last startup, the real-time search engine Julpan, to Twitter. After spending his career developing algorithms, which may be important but are relatively abstract concepts for consumers, Allon says he wanted to build something that "solved a real-life problem."
Home-hunting seemed like both a problem in need of solving and one that Allon believed could be vastly improved with his technical expertise. Lucky for him, shortly after starting Urban Compass, venture capital money began gushing into the real estate tech space. According to CB Insights, during the last quarter of 2013, investors poured $429 million into 102 real estate tech companies, a 47 percent increase from the year before.
Urban Compass isn't just working on a big problem for consumers. The goal is to make agents' lives easier, too, by giving them access to Urban Compass's mobile app, where they can list property, remove listings, and schedule and manage appointments with clients. The hope is to have Urban Compass's 70 agents update the site as frequently as possible, so listings will always be fresh. If they waste less time, agents can close deals faster, which makes them more money. Meanwhile, customers can also rate agents and report them for behaving badly. After a series of bad reports, Urban Compass will remove that agent from the site altogether.
"Our mission was to remove all the dishonesty and bad stuff about this industry, the stuff that makes people hate brokers," Allon says.
So far, it seems to be working. Though Allon won't disclose revenue, he says it has grown tenfold since last year. And all this is just one piece of what he eventually envisions Urban Compass becoming. As the company continues to grow, Allon plans to launch something called the Urban Compass Network, essentially a marketing channel for local businesses. Any time people move to a new neighborhood, Allon says, they're always looking for new local restaurants, coffee shops, dry cleaners, and other local businesses they'll habitually visit. In time, Allon is hoping to establish relationships with local businesses and allow them offer discounts to newcomers who arrive in the neighborhood via Urban Compass---sort of like a highly targeted Groupon. "It's an effective marketing tool if you do it right," Allon says, adding that it will also serve as a nice perk for customers.
Wachter agrees. "There are all sorts of potential advertising opportunities when customers finally choose the neighborhood," she says. "We don't have the killer model for this out there, yet. This may be it."
But first, Urban Compass has to acquire enough customers to make the deals worthwhile for businesses. To do that, it will have to work harder to build awareness with consumers. Lousy as the experience may be, Craiglist is still the first and last place many people look for homes, unaware that there may be better options out there. Until that changes, it won't matter how seamless Urban Compass's service is.
"It's really a critical mass issue," Wachter says. "Why look them up? Name recognition. That's the key."
* One of Urban Compass's investors in this round was Advance Publications, the holding company that owns WIRED. However, Advance Publications has no editorial input into WIRED's content.
