Zillow is Already the Google of Real Estate

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Zillow continues to make waves in the Real Estate industry as the company has recently:

  • Acquired a Mortgage Lender

  • Expanded it’s Homes Division and iBuyer presence

  • Continued it’s foray into the Rental Market

The company that was once feared as disrupting the entire industry got off to a slower than anticipated start, but is now putting together the pieces to bump up the blood pressure and heart-rates of industry incumbents.

Zillow the broker? Not quite, but Zillow is wading deeper into the waters by creating more transaction-based offerings, as it has become a home buyer, real estate investor, and mortgage lender.

Zillow is assembling the end-to-end transaction pieces and with it, creating a platform for consumers (demand). Naturally, this brings in agents and their advertising fees (supply). With that, Zillow is becoming the Google of Real Estate.

Google’s business model relies heavily on advertising revenues. It created the best search portal available to the web, has a similar anthropomorphic usage (‘just Google it’), and offers complementary transaction based services (gmail, storage, products), that combined have created one of the largest companies to ever exist.

What’s enabling Google’s continued growth is not the products per se, but the reams of data it collects, uses, and redistributes. Similarly, with Zillow’s 175.5 million average unique monthly visitors, mortgage lending business, iBuyer offering, and rental platform, the company is acquiring massive amounts of data on real estate participants and transactions. Add to this the third-party data it pipes in and you have one heck of a competitive moat. Despite Keller’s best attempts at collecting and storing data in-house by relying exclusively on Keller-designed tools, the firm, and it’s peers, has peanuts compared to Zillow.

Could Zillow Become the Largest Virtual Brokerage?

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Zillow is not going to reach mega-size by simply acquiring a few businesses here and there. As Uber, Netflix, AirBnB, and Amazon will tell you, once you have troves of data, you can do really interesting — and big — things. What might this look like for Zillow?

How might Zillow find new revenue streams? The obvious question to ask is, “When will Zillow become a brokerage?” but that still seems to not be the case. Zillow has agents under it’s thumb due to their value in introducing leads, not unlike Google with it’s AdWords platform or Facebook (perhaps more significantly in the past) and it’s granular targeting for advertisers.

Could Zillow become a virtual brokerage? Virtual brokerages like eXp Realty shun the necessity for brick-and-mortar storefronts, instead replacing them with technology that hosts communication, training, document management — all via the cloud. Zillow would simply need to establish market centers in key markets and convert it’s backend technology to open channels for agents to manage leads, clients, search for homes, and manage their careers.

The value of virtual brokerages is in lower overhead, expansion opportunities, and being able to divert capital traditionally spent on office space to higher ROI opportunities, like mining and leveraging data. Zillow, as CEO Spencer Rascoff recently alluded to in its last earning call, knows what hundreds of thousands of people are looking for in homes, when they’re looking, and how they’re searching. Zillow has an incredibly valuable distribution funnel to the largest home buying and selling audience in the space. Adding the ability to now offer homes directly for sale (while still offering services through agents), Zillow can quickly gain a competitive advantage over competitors such as OpenDoor (by following in execution with better scaling).

Wall Street Doesn’t Care…Or Get It

The market has been unimpressed recently with Zillow’s moves, as evidenced by the large selloff following the mortgage acquisition announcement. The street cannot see the forest from the trees, looking at the moves as adding incremental risk and potentially unnecessary complications to the company’s business model.

But if you just look at the data that we have on our funnel of how much consumer demand there is for instant offers, we know that we can build a big business that generates listing lead opportunities for agents and brokers from Instant Offers — Rascoff, Zillow Q1 Earnings Call

Over time, Zillow’s iBuyer offering can develop into a large listing lead generation business for it’s already high-paying customer base. Zillow hasn’t announced how exactly they’ll monetize these leads, the company is confident that the demand it’s seen already support a big business opportunity.

Zillow may deploy the Gillette model, losing money on the homes (the razors) and making up for it with the listing leads and advertising revenues (razor blades) due to their size and scale. Being able to offer a near-guarantee of their home sale for someone looking to sell and buy offsets much of the fear and challenges consumers face in today’s low-inventory market, and this can provide much needed liquidity to the system, making Zillow a market-maker of sorts. For smaller players, this requires adding leverage in order to see adequate gains, but Zillow can do this with far less risk with a diversified portfolio of revenue streams.

Where To Next?

Zillow is going to continue to grow as it reaps benefits from its economy of scale, Premier Agent program, margin on buying and selling homes, and whatever they decide to do next.

So the question becomes less of, “When will Zillow become a brokerage” and more, “Does Zillow even need to become a brokerage?”

Zillow can follow in the footsteps of Google and offer a free service to consumers via it’s portal and leverage the millions of data points it acquires for virtually no cost at scale unmatched by its competitors. So where is Zillow heading next? We’ll have to wait and see.