I decided to sit down and give you my take on the all mighty king of the hill. While I have some things to say about Zillow, two of my favorite bloggers have already said much of it (better than I ever could)…I believe they have effectively picked apart the foundation of Zillow’s business – so I am going to try to look at Zillow from another angle.
As we all know, Zillow has raised in excess of $50M from various venture capitalists.
My first question would be – if Rich Barton believes in the viability of this company/business model, why didn’t he maintain 100% ownership of the stock? $50 million is a drop in the bucket for this guy – he literally has 60+ stacks of $50M, and he couldn’t wouldn’t bet one of them on his brainchild? If he doesn’t believe in it enough to bet big on it, why in the hell would anyone else? What are these VC’s thinking?
My second question would be – How are they going to make money? I know the real estate profession is infamous for throwing money away on bad/useless/anti-ROI advertising, but come on. I would think hope that most agents are smart enough to figure out that their odds of actually hooking up with a buyer or seller through a banner ad on Zillow are about nil. Visitors to Zillow are not buyers and sellers searching for a real estate agent to represent them in an upcoming transaction. The good/bad thing about the web (depending on which side your on) is that results are easily measurable. If you are an advertiser wasting money, you can find that out quickly. If you are a website selling ads, you could be screwed.
My third question would be – If the real estate market continues downward, do you think Zillow’s traffic will go up? I am pretty sure that Zillow’s traffic will be directly related to property prices. Everyone loves to see how much money they are making – it is fun, but most people are not going logon each day to watch their zestimate go down (accurate or not). Personally, I find the site quite boring…one visit seems like enough.
My fourth question would be – if the validity of their purpose has been picked apart, and their revenue model is full of fatal flaws – when do they run out of money?
Maybe we should start a pool?
real estate 2.x 
September 27, 2006 at 5:32 pm |
[…] real estate 2.x: If the real estate market continues downward, do you think Zillow’s traffic will go up? I am pretty sure that Zillow’s traffic will be directly related to property prices. Everyone loves to see how much money they are making – it is fun, but most people are not going logon each day to watch their zestimate go down (accurate or not). Personally, I find the site quite boring…one visit seems like enough. […]
September 27, 2006 at 5:39 pm |
A tape measure home run post. Who is this masked marvel X-Man?
The Law of Unintended Consequences:
Owners should read this post at Seattle PI before they volunteer information to Zillow:
http://seattlepi.nwsource.com/business/285883_zillow21.html
September 27, 2006 at 8:37 pm |
Here’s a little question that I think will be fun and interesting to answer… how many visitors will Zillow need to attract to generate the revenue, earnings, and market value that will satisfy their investor’s?
Assumptions
– $50M is all the VC money they raise
– 60% of the company is now owned by VC’s, giving them a current valuation of $83M
– 5 year time horizon to exit
– VC’s want a 75% IRR
This means this now $83M company needs to be worth $1.36B in 5 years for the VC’s to get their IRR.
Housevalues (SOLD) currently is worth $162M with a P/E of 14.7. So if the market values Zillows at the same P/E, it implies Zillow needs to be earning $92.6M in profits by 2011. Ok, so what does that mean for their top-line?
If you assume Zillow will be 2X as profitable as Move.com (3.5% net margin in Q2 07), Zillow need to generate top-line revenue of $1.32B in 2011 to get the requisite $92.6M that will give them the $1.36B market valuation.
So how many users must Zillow attract to get $1.32B in revenue?
Well, it depends on their average CPM (they do claim to be an advertising business do they not, so that’s a fair measure). Let’s assume they generate a very high CPM of $10 per 1,000 page views (Myspace is getting sub $1 CPM’s).
1.316B / 10 = 131 million ad units X 1000 page views per ad unit = 131,684,095,177 page impressions.
Assuming each visitor to their site views 10 pages, Zillow must attract 13.2B visitors to their site PER YEAR by 2011.
Considering their are 6.5B people on earth… every man woman and child on earth must visit Zillow 2.0 times EACH per year in order for Zillow to generate the profits, via an advertising model, that will create the profits to support the market value that will pay back the investors.
My take… Advertising is not really their model.
September 27, 2006 at 9:47 pm |
a dark, green leafy vegetable, very nutritious and Shaastra hit, break, stride (1)
September 27, 2006 at 10:15 pm |
[…] Looks like they also celebrate spam on my blog – and they got Google to sponsor it. […]
September 28, 2006 at 4:03 am |
Mr. 2.0, it sounds like you need askimet. I also strongly dispute your assertions about Zillow. If you look at them as they are today, they will whither – they are not providing a real service. If they continue in the direction they’re going, they may have a great site.
Agreed, though, that their site now isn’t much. I’m guessing that they’re just getting pr and traction for a bigger deal.
September 28, 2006 at 7:29 am |
[…] In the “Oh, good grief!” department, Zillow.com has grown beyond giving you a bogus number for what your house is worth. Now it will gleefully misZestimate your net worth. The reason that the argumentum ad absurdum is so common is that thoughtless people are blissfully unaware that their arguments are absurd. But if you insist on going to the same well every day, sooner or later people are going to spot the path you’re taking. Maybe I should go short on Zillow after all. […]
September 30, 2006 at 2:21 pm |
Zillow Zestimates are way off for Minnesota homes. If they make money I will be thrilled because then I know that with proper marketing a product or service can be sucessful even if it is useless or doesn’t work. Opening the door for me to start a new career promoting a web site that I have not even invented yet. I just need to figure out what kind of wrong data it can have that people will really want.
October 1, 2006 at 2:04 pm |
Wow, that’s harsh. Not sure without checking, but the data in Minn may be tax assessments only right now. Did you check their data coverage page yet?
October 4, 2006 at 9:20 pm |
I have been unimpressed with zillow thus far…I think their “zestimates” for my area are way off. Check out some prices on http://www.hearthstoneguide.com and compare them to those on zillow…not even close.
October 8, 2006 at 4:44 am |
I think Zillow will survive fine at the end of the day as a site. However I am curious about the huge VC raise. Seems very very frothy to me and they will need a heck of a revenue model to justify – which I do not see. Anyway, I like the site and the service although the technology needs a lot of work. But it gets you in the range and once you customize your home it’s pretty accurate at least as a guideline.
Deadfin (oops Redfin) is the one that has me scratching my head. That deal is a looser and the crazy Seattle VC guys including Vulcan keep foaming the runway for them. They have very high technology costs, high labor costs, very low productivity amonst their agents as compared to their overall peer group and they are doing business in incredibly expensive cities to do business in and giving away 67% of their paltry revenues…… Now they are going to try and do mortgage brokerage – join the club. Again no easy start there and Redfin has no doubt a much higher cost structure than the other many thousands of competitors in these markets. Believe it or not, I am long on Zillow and short on their neighbors Deadfin errr Redfin. There is going to be some really exciting startups to watch for in coming days.
October 15, 2006 at 5:46 am |
Zillow’s Zestimates in zuffering markets could prove to be dangerous for both buyers and sellers, should they rely on that information for pricing and offers. Zellers run the risk of overpricing their homes, which would languish on the markets–unless a Zillow-reliant buyer uses the same information.
In the San Diego real estate market, it is critical to evaluate CURRENT trends and market conditions for pricing and offers. Relying upon closed data could be dangerous–especially when sales are dropping off so sharply.
February 12, 2007 at 2:29 am |
I believe Zillow provides information that can help some people as long as they are using other sources for market analysis they will learn that the longer the span since the last sale of the property the less accurate Zillow will be. Whether they (Zillow) make money or not is of no consequence to me, I just want the consumers to be informed. It makes it soooo much easier to work with them.
February 26, 2007 at 8:32 pm |
Great post. Here’s a question for you-will Zillow replace MLS or is Zillow a new national MLS? I have seen no better analysis of the mess in the MLS arena than in the new 2007 Swanepoel Trends Report. Do yourself a favor and get a copy of the Report – I got mine online.
April 18, 2007 at 4:22 pm |
[…] “real estate 2.x: If the real estate market continues downward, do you think Zillow’s traffic will go up? I am pretty sure that Zillow’s traffic will be directly related to property prices. Everyone loves to see how much money they are making – it is fun, but most people are not going log on each day to watch their zestimate go down (accurate or not). Personally, I find the site quite boring…one visit seems like enough. […]
April 30, 2007 at 6:33 pm |
Well they won’t die in Arizona, where they are now banned from doing business! (maybe they will die in other states) Good grief.
December 24, 2007 at 12:40 pm |
I don’t think so. Its a beginning tools for sellers before they hire a professional.
February 10, 2010 at 4:02 am |
I’ll be the first to admit I was scared to see The Cleveland Exhibit. Not since of Cleveland, but simply because the direction Spouse and children Gentleman has decided to go. Even though not as blatantly offensive in an attempt to get humorous as Loved ones Gentleman has, it nevertheless tries being humorous on it is private. Its more racially blunt, as with Cleveland’s family and his neighbors enforce negative stereotypes, but that’s that makes it crazy. There’s a motive Joe or Quagmire didn’t move and get their private indicate, they tried so difficult to become created known. Cleveland, even though minor, had the much more witty, sincerely funny moments.
April 16, 2011 at 5:33 am |
I feel zillow needs to be consistent, my experience with zillow was very bad.
http://www.trulia.com/blog/jon_kolsky/
April 28, 2011 at 6:38 pm |
beep beep
June 20, 2011 at 6:24 am |
Zillow is all over the place, their “new algorithm” crazy. Zillow needs reform fast, the public is noticing and leaving, it’s just bad business, transparency is a standard to protect all.
October 29, 2011 at 1:43 am |
Hier klicken…
[…]Will Zillow Die? « real estate 2.x[…]…
September 25, 2012 at 12:15 am |
[…] “real estate 2.x: If the real estate market continues downward, do you think Zillow’s traffic will go up? I am pretty sure that Zillow’s traffic will be directly related to property prices. Everyone loves to see how much money they are making – it is fun, but most people are not going log on each day to watch their zestimate go down (accurate or not). Personally, I find the site quite boring…one visit seems like enough. […]
November 2, 2012 at 7:25 am |
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November 5, 2012 at 2:11 pm |
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