Questions Renewed About Zillow’s End Game
Oh boy. Dustin Luther at 4Realz just dug up some old dirt in Zillow’s Cellar. Definitely some good weekend reading in their 2005 patent application where they describe their vision of an online auction tool for real estate listings.
For some reason though, as I was reading his post, Dustin’s use of the word ‘marketplace’ tweaked something in me. And then I remembered what it was. Rich Barton in his interview with me on InmanTV had said that too, that his vision for Zillow was for it to become, in his words, “a vibrant real estate marketplace” (about 5:10 in to the piece).
Marketplace, by definition, implies some sort of transactional nature. I’m not sure why I didn’t pick up on this at the time.
Despite many recent and repeated denials that they are just a media company - the patent application reminds us Zillow clearly at one time had eyes on, as Dustin puts it, “playing a central role in the real estate transaction”.
The question is, do they still have eyes on a piece of the proverbial ‘transaction pie’ as part of their product roadmap? Moreover, do they have time they need to execute on it (see Put Pen to Paper - Zillow Predictions Anyone?)?
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AdamD | Jan 5, 2008 | Reply
Really interesting stuff, Joel. Despite their continual denials, I think Zillow *has* to be more than a media company, based on the amount they’ve raised. They have to put big revenue up and the only way I see them doing that is to get in the middle of the transaction.
Hawaii Life | Jan 5, 2008 | Reply
Well, they have a “make me move” option.
retrove.com | Jan 5, 2008 | Reply
The are using the home value bait to engage and identify the consumer. Obviously no matter who the user one of two things is happening with that property - a transfer or a refinance. No matter which transaction it is there are alot of people interested in these transactions - agents, lenders, title, escrow, appraiser , movers, etc. Z can and most likely will try to be the referring source much like traditional agents are currently to truly monetize the site. They will only do this AFTER getting as much listing inventory as possible as mentioned by Dustin.
Sol Sek | Jan 5, 2008 | Reply
It might have been a coincidence but right around July, 2006 I had emailed Zillow and one other online venture to sell my registered trademark Name Your House Values.
A week before the mark was published by U.S. Patent & Trademark office, I noticed that Zillow had filed for registration
Make Me Move.
Here is the filing:
Word Mark MAKE ME MOVE
Goods and Services IC 038. US 100 101 104. G & S: Telecommunications services by e-mail; providing e-mail services; e-mail forwarding services; secure e-mail services, namely, confidential e-mail and e-mail forwarding services in the field of real estate; secure e-mail services, namely, providing confidential e-mail and e-mail forwarding services for negotiation of real estate transactions
Standard Characters Claimed
Mark Drawing Code (4) STANDARD CHARACTER MARK
Serial Number 77021107
Filing Date October 13, 2006
Current Filing Basis 1B
Original Filing Basis 1B
Published for Opposition July 10, 2007
Owner (APPLICANT) Zillow, Inc. CORPORATION WASHINGTON Suite 4600 999 Third Avenue Seattle WASHINGTON 98104
Attorney of Record Heidi L. Sachs
Type of Mark SERVICE MARK
Register PRINCIPAL
Live/Dead Indicator LIVE
Sol Sek | Jan 5, 2008 | Reply
Some interesting background info:
I filed Name Your House Values: 5/2/2006
Mark Approved for publication: 11/28/2006
Mark Registered: 2/13/2007
Zillow filed Make Me Move: 10/13/2006
Mark Approved for publication: 5/22/2007
Mark Registration pending
david losh | Jan 6, 2008 | Reply
Good Morning!
I like zillow because it’s fun. It’s entertainment. Obviously it’s a lead generating site that we all go along with. Why not? The real estate market place is now big enough for lots, and lots of individuals.
In the world of real estate things have a tendency to stay the same. When I started in the business it was the index cards, then it was the printed book, then the computer lists of homes, now the internet, transparency, web 2.0.
Here’s the deal for generation X; I have more useless knowledge in my head about Real Estate for all of you. Each deal is different, each buyer and seller transaction is a deal or no deal. I have a home inspectors license around here some place for a company I own called Aardvark Home Inspections. It took me a week to get certified. Real Estate license or Mortgage Loan originator; forget about it. You don’t need to do anything to be in the Real Estate business. So who do you trust? Do you trust a web master in a basement apartment some place to handle hundreds of thousands of dollars for you? Maybe it’s a large complex of brick buildings that are making you feel secure? Let’s buy a house from those guys because they have offices in a brick building complex.
I like this site, it’s put together very well. I like zillow much more than rodfun. Zillow contributes to the real estate business. I’m just saying this is what I do on a Sunday morning before the kids wake up. It’s entertainment.
jdquicksand | Jan 6, 2008 | Reply
Of course, Zillow is about the transactional component of the real estate business. Here are a few other factors:
1. Valuation. Zillow’s last round of financing must have had Zillow valued in the low hundreds of $ millions ($1500-300 million.) I imagine Zillow currently does less than $20 million in ad revenues. As a media company, the benchmark in revenues would be Realtor.com; Realtor.com does $300 million in revenues and the company is only worth $400 in the stock market. Obviously, no investor would have invested in Zillow at a $150 million+ valuation if Realtor.com with $300 million in revenues is worth only $400 million. The logic that Zillow will grow its revenues from $20 million to $300 million and be worth $billions in market cap couldn’t be justified because of Realtor.com’s (MOVE) current public valuation. There has to be another story being pitched to Legg Mason, Benchmark and others. If Zillow is a pure media company, Realtor.com is a much better value, private or public as investor. However, if Zillow is looking to transform the transactional component of real estate, we can see how several hundred $million valuation can be justified if they even have a chance of transforming this business.
2. Founder and Investor history and provenance. Benchmark, one of the early and substantial investors in eBay, is also a primary investor in Zillow. This is also where Rich Barton is a current venture partner. Rich Barton and Lloyd Frink’s initial pitch to Benchmark, I speculate, went like this: What Expedia did to travel agents, Zillow will do to real estate agents. Today, airlines don’t pay travel agents the 5% commission on airline tickets that they used to pre-Expedia. It changed the travel industry. When a founding team like Barton/Frink have been incredibly successful like this in transforming the travel industry through the Internet, it is hard to imagine that they went after a much bigger commission pool in real estate expecting to sell advertising. Especially, given that even if they sell $300 million worth they will only be even with Realtor.com…Zillow has to be playing a bigger game.
Does this make sense?
Sol Sek | Jan 6, 2008 | Reply
If Zillow attempts anything more than advertising they’re going to fail. We’re not dealing with a half dozen airlines but 1.3 million independent realtors. Each Realtor does an average of 3 sales a year.
You can systematize how to buy tickets from 10 airlines but it’s not possible to do the same with a million agents and thousands of different commission models.
Keller williams tried homesbyauction.com in ‘01 and failed. The challenge with using auctions to sell properties is the agent learning curve. Homebid.com failed due to lack of inventory. Most auction sites failed for lack of exposure.
Zillow has neither the exposure, inventory or system to motivate Realtors. I see them trailing Homegain at best. If they attempt to become a real estate company Realtors will drop them overnight.
Jake Massengale | Jan 6, 2008 | Reply
I have stated on this blog at least 5 times over the last year that I can not believe that Zillow raised 87 million on an advertising play. The numbers never added up. It is very basic math. The only way they could ever make the type of money they need to support a 150 employees and give their VC’s the return that they are looking for is by a transactional model.
They had been up and running for a year before they hired the head of sales. That is not how advertising based company works.
The thing that amazes me about RE 2.0 is the lack of success stories. All these companies trying to gain some market share, when even the companies that have market share can not make any money. Loopnet is the only online real estate company that has experienced any real success by VC standards. There are only a handful of us that are profitable.
JDquicksand’s numbers are great; there is no basis for Zillow to raise 87 million on an advertising play. I have said this from the beginning. I think Z underestimated the power of Realtors in the industry from the start. Once they saw how much control Realtors had in the market, they came up with this advertising angle to try and get the Realtors on their side so Z could get some content and gain traction with consumers. I think if they ever gain real traction in the industry, they will move to a transactional model.
They might grow an incredible online market place and it might end up being great for the Real Estate industry. They are very sharp people. I just don’t buy the idea that they raised 87 million and have 150 employees to build an advertising based company.
If I am wrong, I will be back on this site to admit it.
Jake Massengale
CEO
LandsofAmerica.com
jdquicksand | Jan 6, 2008 | Reply
Jake - Speaking of marketing by commenting. It works. I am looking to buy a farm in Vermont and found a bunch of good prospects on your site. Very cool site.
JD
Gordon Gekko | Jan 6, 2008 | Reply
Sol Sek - First of all, the transaction isn’t the agent’s, its the broker’s. While I agree with you regarding the comparison you draw between the travel industry and a few airlines, there are a handful of broker conglomerates that control most of the space. The difference is that if those brokers want to participate in a broker model, they could do it themselves. What makes Zillow so unique? The “rooftop” values is the only thing drawing people to their site. That data can be purchased from DataQuick or directly from the First American, Stewart, or Fidelity so Im sure if, say, Realogy wanted to move in the direction of an auction, they could do so without Zillow and with a much higher chance of succes.
Either way, you don’t eliminate the inherent problem. Buying an airline ticket is not the same as buying a house. I mean lets get real, what percentage of car sales are sold to the public via an online auction?
And to JD Quicksand…I can tell you with almost a 100% degree of confidence that their revenues are nowhere near $20 million. In addition, you should go to Yahoo Finance and take a look at the annual report for MOVE. First, their combined portal assets generate almost 10X the traffic of Zillow. They are diversified into the builder and rental space which are huge verticals by themselves. In addition, you will find that their TopProducer software is one of the big diamonds in their ring. With that, now ask yourself what percentage of that $295 million comes from banner ads, sponsored and featured listings.
just some different viewpoints to consider.
Sol Sek | Jan 6, 2008 | Reply
Gordon Gekko, when you say inherent problems are the problems created by consumers or agents?
Actually if you want to get technical, the broker is the agent for the consumer. In some states there are only brokers and broker associates. And then there are 1 million+ independently operated salespersons that bring 1-5 clients a year to the brokers.
Even if brokers wanted to participate in a broker conglomerate model as you stated, let’s not ignore the possibility of anti trust when a group of brokers cooperate to implement a single business model. That’s why franchisors
disclaim “all offices are independently owned and operated.”
The U.S. Government has been using auctions + MLS exposure to sell houses for years.
http://www.homesales.gov
And so has the auto insurance industry.
http://www.iaai.com
Although I agree that online auctions cannot sell retail properties price bidding does not always require auctions.
I maintain that Zillow’s biggest problem will continue to be the independently operated nature of the 1.3 million realtors. To change it requires a complete makeover of existing systems and processes.
jdquicksand | Jan 6, 2008 | Reply
GG - The only reason I used $20 million is to pick a number I know they don’t do. I have posted in comments for DavidG to confirm over $15m for 2007. I am interested to know what the exact number for 2007 is. As closely as DavidG monitors the site, I am sure he would have confirmed with a solid “yes” with the intent of leaving the impression of much more than $15m if Zillow did in fact achieve this level.
On MOVE, $208m from real estate services (72% of revenue) which includes Realtor.com and Top Producer revenues. I have never seen the breakdown between ad revenues on Realtor.com and Top Producer, it’s not in the annual report (page 35), but I imagine at least $120m comes from advertising on Realtor.com based on the strength of the wording in the paragraph.
Lance | Jan 6, 2008 | Reply
Zillow as a lead generating site–who does zillow partner up with?
Aleksandra | Jan 7, 2008 | Reply
Really nice stuff, Joel. The impressive one is the “make me move” option.
David G from Zillow.com | Jan 7, 2008 | Reply
Hi Joel. I just left this comment at 4realz:
“In the early days, before Zestimates, we were trying to identify the consumer’s edge in real estate and kicked around a lot of ideas. Auctions were one of them but frankly, the concept did not test well and looking back on our experiences it’s not surprising that auctions aren’t widely employed in selling homes. We then realized that it was access to information and expertise that were the missing from the real estate marketplace and so we settled on the media business model and advertising product.”
@david - thanks for the positive feedback!
@jd - sorry, but as a private company we don’t publish financial performance and so I can not confirm or deny your revenue estimates. I hope you understand.
@all - Zillow is very focused and heavily invested in the advertising opportunity. The more we work on it, the larger and more tangible that opportunity becomes. Zillow’s audience is not just buying and selling homes; they’re an extremely affluent and inquisitive consumer whose engagement in our site yields rich ad targeting information. That data in turn improves performance for our advertisers. It’s still early days but the media model is working quite nicely so far.
Jake Massengale | Jan 7, 2008 | Reply
David G,
You have to understand some of our skepticism. You are telling us that people from Zillow went around and raise the initial 50 million in capital from VC’s while they were still just “kicked around a lot of ideas”. Most VC’s that I have met are not ready to sign checks until you have a very clear cut business model with both specific products and potential clients defined.
They tend to not want to give you a lot of money to build something and then sit back down and talk about how to monetize what you have built. Plus there is not case study to show a successful advertising media play in the real estate industry at this level. That is why all the numbers point at a transactional model.
I also feel that the founders and everyone I have ever talked to from Zillow are very intelligent people. That is why I feel that there is a different plan in the works, other than advertising.
Maybe I am just overthinking everything.
Either way, best of luck.
Jake Massengale
LandsofAmerica.com
retrove.com | Jan 7, 2008 | Reply
“If Zillow attempts anything more than advertising they’re going to fail.”
The difference here is that Z has been able to attract users without listing inventory or participation from agents. Therefore “if” they can continue to attract the eyeballs eventually the RE community will have to follow.
Z has already established itself as “The Site” for home values. Even if all the other can do it (or do it ala cyberhomes, realestateabc, etc) … Z is already branded as the “go-to” site.
If the consumers are visiting in mass numbers the agents / brokerages will follow - there is no choice.
It’s no different than agents who will tell you that advertising in supermarket magazines / newspapers don’t work but they MUST do it because their clients expect it of them.
Also note, by establishing the relationships with newspaper they are already getting active listing data info. which will only help make the Z estimates more accurate making it more difficult for the agent community to beat them up on values inaccuracies.
Sure the agent community is powerful but remember the consumers are the ones paying the bills. I personally think they are in it for much more then just advertising… the question is can they pull it off before they burn all the VC money?
Andrew | Jan 7, 2008 | Reply
To evolve from a media company to playing a role in the transaction will require a few things: First, listing data (nuff said). Second, compelling data (sold info, ownership info, etc..), Three, buyer data. Sellers want buyers and Zillow doesn’t have a buyer database.
The overnight way to become a part of the transaction is to abandon their current pricing strategy and adopt a commission style pricing model. If I list on Zillow and Zillow can prove they found my buyer, I would pay them a commission.
Sol Sek | Jan 7, 2008 | Reply
>>>>>>>It’s no different than agents who will tell you that advertising in supermarket magazines / newspapers don’t work but they MUST do it because their clients expect it of them.>>>>
I recommend educating consumers on what works. For example, an honest agent isn’t going to list a 200K property for 500K just because the client wants it. This adds unnecessary cost to the marketing process and contributes to negative stereotypes.
We can list houses on a hundred websites where no real buyers are going or we can educate them where buyers are.
I think those that are too close to the real estate business see Z as the go to site for property values but most people see Z as one of a dozen go to places. Some people have yet to discover the Z experience.
For all we know their “partners” are probably also their exit strategies.