Why Zillow Needs More Money

28 Comment(s)

1. Niki Scevak | Sep 20, 2007 | Reply

   Joel, the 10x rule of thumb is on post-money valuation, not money in. So for Legg Mason that’s around $3.5 billion, for PAR Capital $2.5 billion and for Benchmark/TCV probably a few hundred million.

   But folks like Legg Mason would be happy with 3-4x as they are not traditional venture investors. They also don’t have the liberty of waiting 5 years for an exit though.

2. David G from Zillow.com | Sep 20, 2007 | Reply

   Hi Joel – some clarifications;

   2) Compete’s data for Zillow.com is totally incorrect. 4,4M people visited Zillow in August – that’s up 17% y-o-y. Our investors obviously have the benefit of accurate metrics.

   1) 6,000 advertisers only represent EZ Ads customers. $10 is the minimum spend for EZ Ads but far below the mean spend per EZ advertiser. Banner advertisers spend way way more than $10. And most importantly, valuations aren’t based on current revenues.

   I’m surprised you don’t get why Zillow didn’t stop at valuations. Our promise to consumers is to be their edge in real estate. You simply can’t deliver on that goal without including real estate agents, mortgages and the ability to search for homes.

3. David G from Zillow.com | Sep 20, 2007 | Reply

   oops >> I’m counting backwards >> just to keep you on your toes.

4. Philipp from Hamburg | Sep 20, 2007 | Reply

   In Germany, online real estate listing site [URL=http://www.immobiliensocut24.de]www.immobilienscout24.de[/url] [URL=http://www.abcmoney.co.uk/news/142007134932.htm]was bought by Deutsche Telekom[/URL], the 66 percent stake is worth €360 mln, that means the whole company is worth €540 mln!! Revenue of €53 million,EBITDA of €21 million, 2.5 million visitors per month in 2006, and there is a [URL=http://www.immonet.de]second[/url] big real estate listing website in Germany. [url=http://www.zillow.com]Zillow.com[/url] has [url=http://realdiablog.typepad.com/weblog/2007/08/realtorcom-losi.html]6-7 mln visitors per month[/url]. So what might be the right price for that website?

5. Tony Arko | Sep 20, 2007 | Reply

   Joel, I’m glad someone else is seeing what I’m seeing. David G likes to say compete is inaccurate but if it low on zillow’s traffic count it is probably equally low on Trulia’s traffic count. He doesn’t see it as an apples to apples comparison. Those investor better hope for a killer app because the current product just isn’t very good.

6. John K | Sep 20, 2007 | Reply

   Joel, one thing I have to say, you’ve got to be pretty important if you get CEO’s and COO’s of major real estate companies to respond to your blog entries.

   I’ve been assuming all along that Trulia & Zillow merge, at some point.

   Not logical?

7. Joel Burslem | Sep 20, 2007 | Reply

   @David – I admit, I was being a little facetious when I wrote that line. Of course most people spend more than $10. My point was simply that I still don’t buy the party line that advertising alone can support what Zillow aims to build.

   As far as traffic – Compete, Alexa etc. aren’t exactly accurate, but are the only public point of reference (unless Zillow is willing to release its internal data ). Taken by themselves, sure, they are meaningless, but when used as a comparison they can be insightful – per Tony A’s comment.

   I still maintain that (right now) Zillow’s public strategy is muddy, unclear at best. When Zillow launched, it was about finding your home’s value. Now it seems it’s morphed into finding listings. Sweeping statements like “Your Edge in Real Estate” do little to help the confusion.

   I don’t doubt that you guys have a vision of where you want the site to go. I’m just saying the rest of us have no clue.

8. Incredible Agent | Sep 20, 2007 | Reply

   This certainly brings up an interesting discussion. How much is too much money? The confusion of what Zillow is up to makes it that much more difficult to really pin down how they plan on paying that back. No doubt they have a significant amount of traffic and have been successful branding their name, but I too am left wondering what their end model will be. Am I to believe that EZ ads and Banner ads are the end game for Zillow? It doesn’t seem right.

   It makes me wonder even more now that they have another $30 mil. That just means they have more to pay back (in multiples).

   Someone should do an analysis of how many monthly page views it would take to get $100 million in annual revenue. That might clear up some things for people.

   Who knows? There are a lot smarter people than us looking at all these numbers….but then again there were a lot smarter people looking at pets.com and webvan too.

9. Brian Wilson | Sep 20, 2007 | Reply

   Congratulations Zillow – good luck with your acquisition of another company or whatever the reason was for raising more funds.

   $87 million is a significant amount of money but is a molehill compared to what the national real estate brokerages have in cash. It continues to elude me while none of these cash-flush industry-insiders are using this money to truly innovate for their customers and their agents. I would not call Zillow an innovation… yet. They have implemented existing technology, the AVM and Q&A forums, better than anyone else and have done a superb job at public relations; however, they are still “raising” money in lieu of really “making” it.

   When will real estate industry professionals start taking these types of risks and making these kind of bold moves? Why does it always come from Seattle or Silicon Valley instead?

   Brian Wilson, http://www.zolve.com

10. andrew | Sep 20, 2007 | Reply

    I am beginning to think Zillow doesn’t need focus. Doing evaluations is not enough. They want to be a real estate hub. They are going to be everything in RE: loans, search, Valuations, home services, moving, etc…

11. Stats Broker | Sep 20, 2007 | Reply

    I’d seriously like to see a full analysis of Trulia’s claim that they are one of the biggest traffic drivers to the franchisers. Many websites send traffic to the individual franchisees websites, such as Realtor.com – Trulia and Google mostly sends them to the franchiser main website (century21.com). In fact I think Realogy only send feeds to Google, Trulia and Yahoo, whereas other companies get the feeds from the franchisees. If you were to add all the traffic sent to the indivdual C21 and Coldwell Banker franchisees websites, would it be a different story?

12. Zillow Fan | Sep 20, 2007 | Reply

    Let us not jump to conclusions about Zillow just yet. The company is not even 2 years old!
    This reminds me of the time I joined HomeGain in 1999 as an agent member. Their service was free of charge for a long time, suddenly they started charging for memberships, raised their prices every other month and eventually started taking a 30% cut of my commissions. The point is that it takes some time for a company to find its focus and execute. HomeGain now has several products in their arsenal. In fact, I remember a phone conversation with a HomeGain employee a few years ago. She told me that HomeGain raised close to $70 million in A, B and C series funding. Eventually HomeGain was bought by Classified Ventures for a reported $100 million, so what kind of return on investment was that? I think the Zillow management team must have something up their sleeve and only they and their investors know what it is….I can not see Legg Mason giving $30 million to Zillow blindly.

13. Morgan | Sep 20, 2007 | Reply

    Joel –

    Great post. While I am a fan of Zillow and the service they offer (the valuations) they face some pretty huge challenges in the next several years. I think you’re seeing a traffic plateau and decrease in engagement because who wants to really see their home tank 34% in the span of 4 months? That’s not fun at all. This is where accuracy of the Zestimate is crucial. When homes are on the way up consumers love seeing huge numbers; when homes are on the way down people discredit large drops.

    A home owner who looks up their home and feels that the downward revision of their home price is unwarranted or excessive is leaving the site pretty much immediately.

    A second challenge is the limited pocket books of the Realtor ad base. A few tough months and Realtors are going to be very particular where their ad budget is going. They are not NYSE listed companies drawing on credit from their market capitalization for funding – they are drawing out of their savings account for marketing – and its competing with their own mortgage payment. Finding revenue will be a key challenge for them.

    As far as financing goes the investment continues to grow for venture capital companies but there are a few rare exceptions – those companies that defy the odds and make great use of great investment. Amazon.com is probably the most towering of those examples.

    I think Zillow.com while a bit unfocused lately has some great core offerings that can be fine tuned to make a real long-lasting improvement to our industry – it looks like venture capitalists are betting that way too.

14. Thomas Johnson | Sep 20, 2007 | Reply

    HomeGain was bought by Classified Ventures for a reported $100 million, so what kind of return on investment was that?

    By my math, 42.8%, hardly the 10x VC looks for, or is there a typo?

15. Mitch Canton | Sep 20, 2007 | Reply

    I think the whole point is that Zillow had access to the capital and had ideas on how to spend it. And in their opinion, wisely. I look to them to try and be (almost) all things to all people about all real estate. The defacto stop for anything a person would need (whether directly or indirectly) when they think real estate online. And they may just figure with the impending “right-sizing” of the real estate market, this may just give them a chance to expand into a declining market, take advantage of the opportunities that a lessor capitalized company could not do. Carpe diem, kind of thing.

16. Michael Price | Sep 21, 2007 | Reply

    Love ya Joel, but it’s pretty easy as a blogger with some insight into the industry to play armchair analyst of business models. I’m not sure how many times you’ve pitched a business plan and I’m not on the inside when it comes to Zillow’s, but I have a pretty good idea that whatever their plan outlined to obtain this additional round had some real teeth and clear path to products that will generate revenue. Products that may not certainly be just standard web advertising plays. Have you ever heard of the numbers that a good Lending Tree Mortgage Broker pays into the LT network? I have and it’s a lot more intriguing than $10 EZAds. A while back an LT mortgage banker stated to me, “When Banks Compete, Lending Tree Wins” and after hearing the numbers I have to agree. I’m not saying I have any idea of what Zillow’s plans are in the mortgage space, I’m just stating the obvious when it comes to a potential value proposition in a single vertical opportunity within a much larger overall business model.

    Personally, I think Zillow is doing some good positioning. It may not be clear to everyone what that is, and for that fact, it might not be completely clear to them. Personally I wouldn’t fault them for it. There is absolutely nothing wrong with building things, throwing them against the wall and seeing what sticks. If you wring your hands wondering if something is a good idea, it loses any momentum you could have gained from just trying it. $30 million bones gives you quite a few moments at the plate. ~MP

17. Zillow Fan | Sep 21, 2007 | Reply

    Hi Thomas Johnson,

    The $100 million figure is not a typo. That is how much Classified Ventures paid for HomeGain in 2005.

18. Athol Kay | Sep 21, 2007 | Reply

    I could be quite wrong, but I still think Zillow will attempt to capture the appraisal market.

    http://www.reagentinct.com/2007/05/23/a-zillow-prediction-appraisal-franchises/

    Just a thought.

19. ARDELL | Sep 21, 2007 | Reply

    Joel says, “Or maybe they know and they just haven’t told us yet.”

    But could they have raised $87 million without telling “them” yet? Clearly WE may not know, but is it even remotely possible that they were handed a total of $87 million by companies who did not know?

    You would think that the investors were handed projections based on a different business model than we are privy to. Could the investors hand over that kind of money simply based on Barton’s past achievements, the way one might buy a book by “a best selling author”? I find that hard to believe.

    The investors must know something that we do not, and that is not readily apparent to us and the general public.

20. Joel Burslem | Sep 22, 2007 | Reply

    Amen, Ardell.

21. Susie Lemar | Sep 23, 2007 | Reply

    As a Realtor doing Comparative Market Analysis for clients in the DC Metro area – Zillow hasn’t even come close to some of these valuations. Either they are too high or too low – and they don’t make sense in a lot of cases. For them to be in the appraisal market, let’s just get serious, they cannot be everywhere at once.
    Anyone in the business world knows that in order to be successful, you cannot be all things to all people. That’s not a niche! You’ll end up saturating yourself right out of the market. There has to be some sort of focus. From what I’ve seen, they are not as successful on the Zestimates as they should be. If that’s their focus, they need to get better at it.
    As far as their investors are concerned – they should be ramping up the best part of their business and hopefully, that’s what the funding is for – anything else and they are wasting their time.

22. Ron | Sep 23, 2007 | Reply

    You are thinking like realtors, not VCs.

    I worked for one VC-backed startup that raised $35 million and never really got anywhere. I spent time with the investors/board members and asked them why they put in the money – what was the compelling plan. One guy said “I figured there must be a pony in there somewhere” and the main board member said “if they figure out how to get users to install another spinning icon on their status bar, we’ll figure out later how to make money from it.”

    Both of these guys are considered extremely smart and successful VCs, by the way.

    Most likely, VCs look at real estate as a huge, multi-billion dollar market with fragmented players, information problems, and customers who don’t see innovation and value for their large amounts they pay out. I.e. Ripe for upheaval. The VCs are spending amounts that seem large to you but are small to them, in order to consolidate this market. There are at least 30 VC firms currently sitting on billion-dollar+ funds that need to get invested. And there are another 50 sitting on half-billion dollar funds. So, that’s something like $55 BILLION in current funds just in the 80 largest VCs. Spending a couple hundred million on Zillow plus Redfin is a drop in the bucket.

    Agents can make fun of Redfin and Zillow all day long, and these firms may indeed fail. But, some startup is going to crack the code and make a truckload of money and change the industry. I am sure that is how the VCs look at this market, having been in quite a few startup board meetings.

23. Z Insider | Sep 23, 2007 | Reply

    Zillow is steathliy acquiring broker’s licenses in multiple states. Recall that the founderst tried an auction-based brokerage model at first before giving up and doing the AVM thing. Their long term vision is a suped-up FSBO or limited service brokerage offering. Selling ads only gets you so far. At some point, they’re going to have to make the transition to get a cut of the commission. Check with your state’s office if you don’t believe me.

24. Joseph Ferrara.sellsius | Sep 23, 2007 | Reply

    I agree Zillow is losing focus (away from a valuation site). And rightfully so. A site based on home valuation via public data was doomed to failure and would never attract sufficient ad dollars, or support, from the real estate industry. They finally realized that & went to a listing site to get ad money. A good move. Now they are building out from that in the hopes of creating a one stop real estate shop— but it’s happening too fast, creating confusion (they may have no choice). In my opinion, the one-stop-shop is the hardest thing to pull off— especially by people who have zero real estate experience.

    Interestingly, David G commented on our latest Zillow post (link below) that Zillow is still pushing the Kelley Blue Book analogy, indicating to me that they are still under the belief that their home valuations can reach industry or public acceptance. The clinging to the zestimate will either be their undoing or greatest coup— for if the zestimate ever reaches KBB status, they will be indispensable to the real estate transaction.

    http://tinyurl.com/23aazj

25. Debra Parker | Sep 27, 2007 | Reply

    I think its quite obvious what Zillow is trying to accomplish. Think about what Expedia did to travel agents. The Internet has changed the Real Estate industry and there is no stopping it. People want information fast and efficiently. Zillow is not about home valuation.

26. Ron Asteak | Nov 19, 2007 | Reply

    Zillow “Guess-Idiots” appear to rely on public tax records that in some cases haven’t been updated in twenty-five years. The zestimator is a sketchy tool to rely on. I believe it’s best to use a Professional Realtor when appraising property.

27. James Wheelock | Jan 5, 2010 | Reply

    I don’t think they have changed their end goals for the company. I personally think they still hope to side step the agent. And the only way they can do this is to have just huge numbers of buyers trolling the site. To appease the VC guys they have to bring in short term revenue, hence the move to selling add space and promoting their mortgage service.

    I feel that once they have enough eye balls from the buyer group they will try to offer a seller listing service. Where home sellers can pay a few to list on the site in a feature format to try and obtain a buyer and ultimate transaction.

28. Round Rock Realtors - Jacci | Jan 7, 2010 | Reply

    James,
    The sad part is that I think your right, I think that for now they need the realtors to provide the listings. But as soon as they can afford to cut us out they will. I really hope that it’s not true but who knows.

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