Zillow in the M&A crosshairs?
A recent post on real estate 2.x stirs up the old question about Zillow’s business model once again. According to an anonymous commenter on that site (who lays out a lengthly calculation) “every man woman and child on earth must visit Zillow 2.0 times EACH per year” in order for Zillow to be profitable enough to pay back its investors.
Clearly, following that logic, advertising can’t be Zillow’s only planned revenue source. Now you have Yahoo’s CFO warning of a slowdown in advertising sales, and their stock drops 11% in response. Zillow has repeatedly said they are a media site - but I just don’t buy it. To bet the future solely on advertising revenue would be suicidal, in my opinion.
Of course there’s potential licensing fees from its partner deals, but even that seems limited since they’re just giving away their API. Some have even fretted about Zillow’s potential entry into the real estate brokerage game, but I doubt that’s likely to happen - I’m sure they don’t want the hassles.
What’s a site like Zillow to do?
WebHomeUSABlog brings up an interesting point that maybe Zillow’s endgame isn’t profitibility after all, but rather acquisition by one of the big three Internet giants (Google, Yahoo, Microsoft). I suspect this is the most likely exit strategy Zillow’s executive team is gunning for.
So, just out of curiosity, I thought I’d throw the question out to the crowd. If Zillow were to be acquired - who’s going to do it?
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Robbie | Oct 12, 2006 | Reply
You could make a good argument for all of them.
1) Yahoo, because they already have a relationship with them.
2) Microsoft, because a fair number of Zillow folks are ex-MSFT and Seattle is 15 minutes away from Redmond.
3) Google, because if they can justify $1.65 billion for YouTube, the can justify $x for Zillow.
John | Oct 13, 2006 | Reply
Assuming Zillow truly is a purely advertising driven play, they would need to grow their audience and start making a heck of a lot more money than they are right now in order to justify the 1.32B valuation that the other blog post cited.
If they do go the transaction based route, they will be even less aligned with Google, Yahoo!, and MSN’s businesses. I think all of these companies will likely shy away from the heavily regulated real estate transaction business and stick to advertising for this vertical.
Yahoo! won’t liklely acquire Zillow because it’s not aligned with their core social media strategy (look at their recent acquisitions - flickr, delicious, jumpcut).
Microsoft likes to build everything in-house and I’m not convinced they even have a solid online strategy in place.
Google has tons of cash to burn, but I just don’t see them buying Zillow. They already take a piece of the Adwords that are sydicated on Zillow’s site. If they make a solid push into real estate, it will likely be through Google Base (acquiring listings feeds and crawl), not an acquisition like Zillow.
jf.sellsius | Oct 14, 2006 | Reply
Zillow took financing in July and hired an advertising firm Barton used with expedia. Wait for their ads to find out the direction of the company.
Our guess is a National owner driven MLS.
Step 1: By using public data they were able to list every home (no need to get permission from owners or brokers
Step 2: Allow homeowners to supplement (correct) faulty data which bogged down their credibility
Step 3 (next): Allow owners to put a “for sale” sign on their home, thus cutting out the broker.
Step 4: By obtaining brokerage licenses it will allow them to collect a fee from owners for putting up for sale sign or facilitating the sale
Barton will not sell until he creates a profitable site. He is not a newbie who needs to sell.
PS Zillow has not recognized an Owner right to opt-out. There is likely to be litigation over this. An owner cannot be forced to change or update incorrect data so as to negate a grossly inaccurate zestimate. He should have the right to have it removed completely. A zestimate is not public data.
REBlogGirl | Oct 15, 2006 | Reply
With the recent love-fest between Google and Zillow and the blossoming Google Base component- I think Google may very well be interested in Zillow.
Matt Heaton | Jan 3, 2007 | Reply
Assuming Zillow is strictly an advertising play…
I think Yahoo is probably a much more likely suitor given that they already have a strategic alliance of sorts with Zillow. Zillow also fits the acquisition typical profile of a Yahoo acquisition more than one of Google.
I think the calculations may be off in one department. I really doubt if an exit through acquisition is in the works that it is 5 years off. If that is the plan it will almost certainly come MUCH sooner.