This weekend Zillow announced on its blog that it had turned three. In this short time, Zillow has almost become a household name in the US and in January, they reported a record number of visitors to the site. It now seems a good time to look at what we can learn from the rapid growth of Zillow. Here are some lessons.
People have an insatiable thirst for property pricing information
It is clear that people have an insatiable thirst for information about home prices – irrespective of how accurate that pricing information may be. According to Zillow, nearly 60% of all homes in the US have been viewed on the site. This appetite for information appears to be strong in both bear and bull markets with people wanting to track their most valuable asset. There have to be opportunities for players in other markets to provide similar information.
PR is a great builder of traffic
It seems that PR (and Google) has been a great builder of traffic for Zillow. They have mastered the PR game and are generating interesting stories and statistics on the market almost every day. The press (and bloggers) are feeding of these stories and thus not only creating awareness of the brand in the market, but they are also creating back links (2.4 million) to the Zillow site and therefore helping page rank and of traffic from Google.
The stories are a mixture of CNN, Fox News and Entertainment Tonight. One of my favourites is how much the White House is worth ($287m for those wondering). However, I am not sure of their algorithm as on the same page under “Similar For Sale Homes” they have a $527,000 single front home. I can’t quite see President Obama in that home!
You need a good story to raise significant equity
The founders of Zillow have also demonstrated a great ability to raise significant amounts of equity off the back of the Zillow concept. It has been reported that they have raised around US$87million to date. It is clear that these capital raisings occurred in a more enthusiastic time and the challenge now is to use this capital wisely, as it is likely to be difficult to raise more capital at valuations existing shareholders will find acceptable. Therefore it is not surprising that the company announced last year that they would be laying off 25% of their workforce.
Traffic does not equal revenues
Over the last year Zillow has significantly increased its traffic to somewhere between 3 and 8 million unique visitors in January 2009. According to Zillow, traffic was 7.5 million unique in January. However, according to other sources such as compete.com, traffic is much lower. Irrespective of this, it appears that having lots of traffic doesn’t necessarily mean that you have lots of revenue. The rumour is that Zillow has revenues around the US$10m per annum mark. Now if you compare Zillow to sites such as rightmove.co.uk (UK) and realestate.com.au (Australia), while they have less traffic than Zillow, their revenues are probably 10 times those of Zillow. Even the move.com and realtor.com sites (owned by Move Inc), with traffic that is more than Zillow’s, have revenues of around US$120m. Therefore, while they have done a good job a generating traffic, there is a long way to go at converting that traffic to revenues.
Business models are hard to create
Related to the previous topic, although you have traffic to the site, coming up with a business model that makes sense is actually quite hard. The team at Zillow appear to have tried a few different models over the last three years. The challenge with any of these models is coming up with one that is scalable and has longevity. For example, selling display advertising to banks has longevity but may not be scalable – especially in today’s market. It is rumoured that Zillow was also looking at going into real estate transactions. However, in November it was reported that they gave up some of their brokerage licences as a cost cutting measure. The challenge that Zillow faces appears no different from other high trafficked sites like Facebook.
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{ 17 comments… read them below or add one }
Thanks Simon.
Zillow has done a fine job in creating brand awareness.
Getting visitors to their site,however, with White House Zestimates and celebrity home valuations probably does not equate to quality traffic for their realtor customers who are looking for buyers or sellers of homes.
I would think the dueling digs (hot or not) feature on zillow where users get to pit different bathrooms against each others encourages page views but again this type of mindless clicking is probably not quality traffic.
Zillow likes to tout that their visitors have a very high net income. I would point out that even rich people go to the circus, but few look to transact business there.
If the business model is blogging adoration and press mentions then Zillow is a run away success.
I find it amusing that zillow pulls a press stunt like the white house zestimate, drives loads of visitors, then isssues a press release on their traffic driving prowess which drives more traffic.
Dueling digs anyone?
I am a big believer in the idea that traffic in niche industry sites. Zillow and Trulia are perfect examples. Take Homegain – a perfectly successful industry company that gets little mainstream fanfare- the traffic is targeted and converts, now take Zillow and Trulia they go for every single eyeball, convert almost none ad run off borrowed moneies… kind of reminds me a lot of seeing the differences between old money and and new money at boarding schools. Old money was happy to drive a Volvo for a couple of years but new money needed the latest Porche every year. New money just like new web 2.0 companies especially in the REnet need to flash their wad while the old stable companies are happy to sit back ad do some business and make some dinero for their shareholders. I think i kinda like old money better.
I for one admire them
They created a great 2.0 site.
Gave the stodgy NAR a scare
Acquired traffic very cost effectively and spawned a heap of copycats like zoopla etc.
The next metamorphasis will be very interestsing to watch.
Thanks Simon! It’s always fun to see how people view your company from the outside.
There’s still opportunity to educate homeowners about home values. Any real estate pro can now add Zestimates to their site using Zillow’s API’s:http://www.zillow.com/howto/api/APIOverview.htm
If there’s something I’d add to your post it’s ZMM (and constant innovation in general.) If “Zillow” and “Mortgage” are not yet synonymous for you, please check out Zillow Mortgage Marketplace. More than 1 million mortgage quotes have been provided to borrowers by more than 4,000 confirmed lenders on Zillow. IMO, Zillow Mortgage Marketplace is even more revolutionary than Zestimates were. We’ve introduced transparency to lending and have implemented the industry’s first robust system for customer feedback. Borrowers are anonymous on Zillow and lenders truly compete for their business in an open and transparent marketplace. Thanks to ZMM, there are multiple lenders who earn 100% of their income on Zillow – it’s a beautiful thing! So … if Zillow had stopped at Zestimates, the company wouldn’t be where it is today – constant innovation and merchandising of our content is key to maintaining our lead.
Louis – since you went there, I am intrigued: do you find that spending your days commenting on your competitor’s every move has been a successful business model for Homegain? And if so, do you advise that we try that instead of PR? (That White House Zestimate coverage really got under your skin huh? Bonus!)
Mary – volvo??? boarding school??? Got issues???
snoop – THANKS!
Zillow has done an incredible job at building traffic and have by far the best marketing and pr team that I have ever seen. Their mortgage product is really neat as well, but it does not change that fact that they are living on borrowed time. They need to come up with some ways to innovate their revenue streams.
Jake
Too many sites confuse traffic with buyers, but to Dave’s point, if there’s a back-end model, i.e. the Zillow Mortgage business, it’s a totally different story. Kudos to Zillow for creating a lending branch of their business. It’s an ingenious way to capitalize on the highly targeted traffic on the site. More websites could stay in business if they found ways to monetize their targeted traffic. Way to go, Zillow!
Hi David
If possible it probably would be fun to trade places for a day.
We would gain a better appreciation of what we both really do.
Louis
Yep Very interesting
Multiple players in the finance lead gen space and zillow has stolen the march on them.
I wonder if the monetisation strategy is enough
Guess we will see this on zooppla coming up!!!
A fascinating concept to have a household name and to struggle with less that 10M revenue… hmm thanks for the story it will be interesting to watch that space in the coming months.
David,
Did you just say that anyone who makes an analogy (you know compares one thing to another) has issues? Also, what is the difference between you running around the Internet and Louis running around the internet commenting? I could care less about what Zillow and Trulia do – I figure the industry just lies in wait and stops building your sites for you – you guys will run out of money. Last I checked, Homegain shows a profit, and Zillow? Is your model returning anything to investors?
Putting my cards on the table…being a fan of the REALTOR, I view Zillow as a competitor…but I am happy to see that they are blowing out the birthday candles…congrats.
With me, what Zillow has done matters little. One thing that I learned in the previous dot com bust is to follow the guys who were generating the profitability. Ebay, Amazon, Travelocity and others were able to. So many others did not.
While I can debate the idea of traffic vs quality of traffic all day, I think that Zillow’s survival to age four hinges on it’s ability to generate enough revenue to offset the burn rate. Works that way with any business. Profitability is the key.
Curious as to how that’s going. Also curious if it is not going, is there a plan in place to make that happen? That’s the part I see missing. When does the cash run dry. When does the founder stop pumping cash in…or start pumping cash in?
We can debate theoretically about the cash flow generation capabilities of an automated zestimate that may (or may not) get you within 10% of reality. But the real answer here is…does Zillow have a plan to stop the cash bleed?
In my opinion, only time will tell.
And for the record. I am TOTALLY fine that they gave / are giving NAR / R.com a scare. They needed it.
Eric
Thanks Eric – always a pleasure. Indeed, time will tell. And hey; I won’t stop trying to find something on Zillow that will get your attention.
Actually – you should check out the PR on our profile pages. Many Realtors and lenders now maintain PR3 and PR4 profiles on Zillow – some with very little effort beyond posting their listings on the site.
Where I disagree with you is that I believe you can be a (huge) fan of the REALTOR and Zillow at the same time – I know that we are.
Very interesting comments, especially the last one from Mr. David Gibbons.
We found an interesting quote from Mr. Barton in a Feb 8, 2006 CNNMoney.com story…how quickly we all forget.
“Founder and CEO Richard Barton says new tools like the ones being offered by his company are going to make real estate agents less important, and quite possibly lower the fees homebuyers and sellers pay. “Realtors currently sit at the middle of the transaction,” said Barton. “I think in the future they will sit more on the outside offering specific services.” Here’s the link http://money.cnn.com/2006/02/08/real_estate/money_zillow/index.htm
As the official Web site of the NAR, a trade association that’s been in business for more than 100 years, REALTOR.com is in it for the long haul WITH and FOR REALTORS®.
Julie -
Is a 3 year old quote taken out of context truly all Realtor.com has to differentiate itself? How sad.
Why don’t you directly address my last comment? Would you care to explain to everyone here why REALTOR.com has gone to war with REALTORS in terms of SEO? Why is it that REALTOR.com won’t even recognize REALTORS as the source of their own listings by following their links? You guys are intentionally blocking Google from finding Realtors websites. With friends like that, who needs enemies?
It’s not what you say – it’s what you do that counts – or at least that’s how I was raised.
David,
The quote is not taken out of context, everyone knows that Barton started Zillow to disintermediate Realtors just like he had just done with Travel agents. There is no way he could have raised the amount of VC money with your current business model. Barton quickly found out that unlike travel agents, Realtors had their act together and would not go quietly into the night. Barton knew that the real money was in the real estate transaction and not in Zillow or Realtor.com’s current advertising business model. Once it became apparent to Barton that Realtors had more control than he had thought and he was not going to be able to get a piece of the transaction, he lost interest and moved on to working on his next project; glassdoor.com. I am sure he is still involved in Zillow, but the public does not hear much from him anymore about Zillow; like we did when Zillow just started.
I don’t think this is a bad thing. Everyone is out to make money and companies change directions all the time. Zillow has done some incredible stuff and I think Realtor.com has responded well to the competition. For any of these companies to ever make the type of money that they need to justify their startup capital, they have to become the dominate player in the US residential market. None of these companies will ever make any money with an advertising business model as long as the market is as fragmented as it is today. For an advertising business model to work and make any real return on the invested dollars, they will need to gain at least 20% market share in the US. That is going to be very hard to do and take a lot of time. Time is not on any of these companies side, as their burn rates are very large.
Without a doubt online real estate marketing has been pushed forward dramatically in the last 3 years by Zillow and their competitors. The real question is going to be will they be able to monetize in time to reap the rewards of their work?
Jake
Don’t trust websites like compete.com, alexa.com etc to give accurate traffic rankings.
If a large website quotes an internally measured traffic number, then you could probably reduce that figure by 10-30% and get an accurate number.
Alternatively that may have quoted figures from 3rd party measurement services (netratings.com comes to mind) in whcih cas the 7.5mil UBs would be right on the mark.
Either way, generating revenue by ‘creating’ a business model after the fact is very hard to do. Especially when websites these days rely so much on consumer trust. Changing the site and it’s model can quickly turn visitors away, and kill off traffic.
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