My wife and I recently sold our home in Merritt Island, Florida for downsizing reasons. We also bought a new home in Melbourne, Florida, about 30 miles south. We had been living in the Merritt Island home for 12+ years, so it has been a great while since we have used the real estate industry. For that reason, I spent some time researching Zillow and the Zillow real estate business model.
For decades, the dominant view of the strategy was based on Michael Porter’s ideas about competitive advantage. In essence, he argued that the key to long-term success was to dominate the value chain by maximizing bargaining power among suppliers, customers, new market entrants, and substitute goods.
Yet digital technology blew apart old assumptions. As technology cycles began to outpace planning cycles, traditional firms were often outfoxed by smaller competitors that were faster and more agile. Risk-averse corporate cultures needed to learn how to “fail fast” or simply couldn’t compete.
Are you familiar with the Zillow business? A very interesting business. You will find the Zillow business model even more interesting. Were you aware that the founders of Zillow were former Microsoft executives and co-founders of Expedia? But wait … this story gets even more interesting.
Zillow was incorporated in 2004 by Rich Barton and Lloyd Frink, former Microsoft executives and co-founders of Expedia. The website, an online real estate database, features information such as home values and rental rates for homes that are for sale and rent.
It uses a proprietary formula (a “Zestimate“) to calculate these values. Its name is a combination of the words “pillow“ (where one’s head is rested) and “zillions“ (the number of data points it aims to offer).
In 2005, as the company was in the process of developing its website, Barton set a goal – within six months of its official launch, he wanted it to be attracting a million visitors per month.
The task was not going to be easy, as the firm did not have an ad budget. It had to be creative and rose to the challenge – collecting data for homes in 300 cities. It even included data on foreclosed homes.
Zillow grew to the point that it felt comfortable pursuing an IPO. It went public in 2011, and over the next few years acquired some companies, including Trulia. The company changed its name to Zillow Group in 2015.
Is Zillow profitable?
Zillow business model … data bases
The company offers one of the most comprehensive real estate databases on the market, covering the full cycle of home living, including buying, selling, renting, financing, and remodeling.
The system has more than 110 million U.S. homes, and features a wide breadth of property facts, listing information, and purchase/sales data. Its vast size gives visitors access to more types of content than they would normally be able to get.
The database gives customers a personalized experience. They can save home listings as “Favorites“ on both the website and the firm’s mobile app.
They can also sign up for monthly e-mail updates on changes in these homes’ values, price changes, listing status, and other data.
Users also have the option of creating “Saved Searches“ for a given zip code or neighborhood and obtaining daily e-mail updates on new homes listed for rent or sale, as well as price changes for already-listed homes.
Channels
Zillow’s main channel is its website, through which it markets and enables usage of its services. The company also engages in large-scale national TV advertising.
Further, it has its staff of real estate industry experts provide commentary in national broadcast and print media outlets, as well as write blog posts and guest opinion pieces.
Lastly, it communicates with customers through social media.
Customer focus
Zillow’s customer relationship is primarily of a self-service, automated nature. Customers utilize the company’s database while having limited interaction with its employees.
Also, its website has a detailed Help Center that provides answers to many potential questions and a forum for receiving assistance from other users.
However, there is also a personal assistance component as its website features contact information (addresses) for Zillow locations.
The company maintains a common platform between two parties: consumers and real estate agents.
The platform consists of the main website and its suite of mobile real estate apps.
The partnership foundation
Zillow maintains partnerships through the following programs:
Affiliate Program: This program recruits website owners with a real estate focus to promote the company on their platforms.
Partners receive access to a customized dashboard that they can use to monitor traffic to Zillow through their sites. The more visits, the more they get paid.
Zillow Pro for Brokers: Zillow makes companies establish a direct feed to Zillow; afterward their logos and an outbound link to their websites are included on their listings, making it simple for buyers and sellers to connect with them.
Zillow puts the firms‘ listing agents first in buyers‘ contact options so they can start receiving leads right away.
Zillow Partnership Program (ZPP): This is an alliance between Zillow and MLS (a real estate property listings company) that improves listing accuracy and accessibility through direct listings feed to Zillow.
The collaboration gives buyers the latest information, gives sellers timely exposure for their homes, and provides agents with relevant outreach on properties.
Is Zillow profitable? revenue streams
Zillow has two main revenue streams, which are as follows:
Subscription Revenue: The company generates revenue from the sale of subscription packages that allow real estate and mortgage industry professionals to promote their services on its site.
Display Revenue: The company obtains revenue from the sale of display advertising packages to companies of all kinds who desire to promote their brands on its website, its partner websites, and its mobile applications.
The packages are sold on a cost per thousand impressions (“CPM”) or cost-per-click (“CPC”) basis, and pricing is based on ad position and size.
The Zillow Group
The Zillow Group acts as a real estate and home-related information marketplace both through the mobile and Web interface serving homeowners, home buyers, sellers, renters, real estate professionals, and lenders of all types.
To attract customers, the companies employ different brands and products aimed to help people find vital information about homes, rent, mortgages, rebuilding, and connection with local professionals.
The Zillow Group portfolio of brands includes Zillow.com, Zillow Mortgage Marketplace, Zillow Rentals, Zillow Digs, and Zillow Mobile.
Trulia offers 15 mobile apps across multiple platforms. Zillow highlights on its website that it can present homes not yet on the market. Trulia gives the user the ability to learn about agents, neighborhoods, schools, crime, and commute times. The database is central to the value the companies provide to consumers and real estate professionals.
Thus, Zillow and Trulia are in the business of acquisition of current and accurate real estate listing data from various third parties, including real estate listing aggregators, multiple listing services, real estate brokerages, apartment management companies, and other third parties.
Zillow has stated that it is a media company that generates revenue by selling advertising on its web site.
In April 2009, Zillow announced a partnership to lend its real estate search engine to the web sites of more than 180 United States newspapers as a part of the Zillow Newspaper Consortium.
Zillow shares advertising revenue from the co-branded sites with the newspapers and extends its reach into local markets.
Zillow has a multi-sided business model, with two interdependent customer segments that are both needed to operate:
Consumers: Individuals assess their home values, research home listings, and contact agents.
Real Estate Agents: Professionals advertise their services and connect with consumers.
Website features
Zillow has data on 110 million homes across the United States, not just those homes currently for sale. In addition to giving value estimates of homes, it offers several features including value changes of each home in a given time frame (such as one, five, or 10 years), aerial views of homes, and prices of comparable homes in the area.
Where it can access appropriate public data, it also provides basic information on a given home, such as square footage and the number of bedrooms and bathrooms.
Users can also get current estimates of homes if there was a significant change made, such as a recently remodeled kitchen.
Ad sales
One way Zillow makes money is by charging property management companies to advertise their listings on the Zillow Rental Network, which includes websites from Zillow, Trulia, Yahoo! Inc. (YHOO), Hotpads, MyNewPlace, AOL Real Estate, MSN Real Estate, and HGTV’s Front Door.
Zillow sends qualified leads – prospective renters – to these advertisers to help them maximize the return on investment on their advertising dollars.
The company has identified rentals as a large market opportunity, with U.S. rental property managers spending about $3.5 billion per year on advertising to get and keep renters. Renters move more often than homeowners, and property owners have to spend money on advertising and lease concessions to fill units.
Real estate agents mainly pay Zillow based on the number of ad impressions delivered to users in specified zip codes.
As of 2015, Premier Agent services were Zillow’s main source of revenue, and it was more predictable than the other sources. Not only have more Premier Agents signed up, but Zillow was also earning more per agent.
Zillow’s revenue and profitability
So how much money does Zillow make from all this advertising? Since it’s a publicly-traded company, we can derive this information by consulting its filings with the Securities and Exchange Commission.
According to Zillow’s 2014 annual report to shareholders, the company’s revenue was $325.9 million last year, an increase of 65% over the $197.5 million generated in 2013, which was 69% greater than its 2012 revenue of $116.9 million. This growth is mainly attributable to the Premier Agent program, though an increase in traffic to Zillow.com and the Zillow mobile app drove revenues.
The 2015 annual report specifically for Zillow is not available, but Zillow Group (which also includes Trulia) reported the revenue of $224.59 million for the quarter ending September 30, 2016, and $644.68 million in the year ended December 31, 2015.
Of the company’s 2014 revenue, $239 million, or 73% of total revenue, came from services sold to real estate agents and property management companies; $58 million, or 18%, came from display advertising and $28 million, or 9%, came from mortgages.
At the beginning of 2015, Zillow and Trulia became a part of Zillow Group, and their financial results are now consolidated in the conglomerate’s reports.
Threats to Zillow’s revenue
Most of Zillow’s advertising relationships are short-term, so it can’t take them for granted. Zillow’s advertising revenue, on which the company’s financial success relies, could suffer if existing advertisers ended their relationship and Zillow was unable to replace them.
If Zillow’s user base dwindles or its competitors become more attractive advertisers for mortgage lenders, property management companies, and real estate agents, ad revenue could decline.
Also, as the company relies heavily on ad revenue from its Premier Agent program, revenue could seriously suffer if agents stop seeing value from advertising on Zillow.
Finally, a hit to the real estate market or a drop in consumer interest in home buying and mortgages, both of which are beyond Zillow’s control, would likely reduce traffic to the site and lead to a drop in ad revenue.
The bottom line
To be effective in this new era, we as businessmen need to see our jobs differently. No more just focusing on metrics like clicks, video views, or social media shares.
We must successfully integrate our function with other business functions to create entire brand experiences that serve the customer all the way through their experiences throughout the business.
We can do better. Much better. But first, we need to stop seeing ourselves as crafters of clever brand messages and become creators of positive brand experiences.
There can never be enough focus on continuous improvement on business performance, independent of how well the business is doing. It seems we all are looking to take our success to a new level.
This is an excellent time to make a statement. Changing before you have to is always a good idea.
So what’s the conclusion? The conclusion is there is no conclusion. There is only the next step. And that next step is completely up to you.
It’s up to you to keep improving your business strategy adaptation. Lessons are all around you. In many situations, your competitor may be providing ideas and or inspiration. But the key is in knowing that it is within you already.
All you get is what you bring to the fight. And that fight gets better every day you learn and apply new lessons.
When things go wrong, what’s most important is your next step.
Test. Learn. Improve. Repeat.
Are you devoting enough energy to improving your continuous learning on business strategy for yourself and your team?
Do you have a lesson about making your brand marketing better you can share with this community? Have any questions or comments to add in the section below?
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Mike Schoultz is a digital marketing and customer service expert. With 48 years of business experience, he consults on and writes about topics to help improve the performance of small business. Find him on Facebook, Twitter, Digital Spark Marketing, Pinterest, and LinkedIn.
