Zillow: We don’t build up houses, we build up values for houses

Source: Zillow, all rights reserved.

Imagine you are moving to the United States and looking for a place to stay in. You go googling local listings, then you pay visits to rental agents, and after several scheduled appointment for checking the candidate apartments, eventually you will be largely likely finding yourself sitting in front of a spreadsheet of places with different locations, conditions, features, and prices, wondering “which is the most worth?”

Yes, the core question is always the price performance; however, how can we tell whether the quoted price is above or below the market price where “it should be”?

With Zillow, now at least you can find some hint: the Zestimate®.

Before we dig further into this interesting and inspiring term, this essay will firstly provide a brief introduction of Zillow as the leading online real estate company in the United States, along with a short history of this company. Secondly, we will take a step further to see the key factors behind Zillow’s success. Thirdly, this essay will present an analysis about Zillow’s internet ecology system. The last, a closer examination of Zillow’s innovative contribution to online real estate field.

 

What is Zillow

Zillow, founded in 2006 and based in Seattle, is a leading online real estate marketplace in the United States. According to Zillow’s official introduction, they “serve the full lifecycle” of owning a house, including buying, selling, renting, financing, remodeling and even more. Interestingly, Zillow tends to emphasize their outstanding capacity in providing data and tools for users with all different purposes, rather than a real estate listing platform which covers most areas of the States (Boeing, 2020).

“Our next chapter”, Zillow Group. All rights reserved.

As what they addressed as their value, “to give people the power to unlock life’s next chapter”, Zillow does show more user-orientated. They focus on providing users on both the buyer side and the seller side with the necessary information and knowledge they need, and empower the users with the tools based on big data analysis and models to find their best match. Meanwhile, with widely cooperation and connection with real estate agents, and furthermore purchasing Mortgage Lenders of America in 2018 and then later launching their own mortgage program, Zillow Home Loans, in 2019, Zillow has been growing into a giant company which can provide “one-stop shop” alike experience for both buyers and sellers (Green and Walker, 2017). The reason they are focusing more on the user-end instead of the agent-end can be traced back to the very beginning of Zillow’s building up and its founders.

The making of Zillow

Zillow was founded in 2006, the peak of the latest wave of America’s real estate industry bubble, after which the real estate industry has been shrinking ever since and never came back to the same level (Ba and Yang, 2016). At the historically high point of real estate industry, seller, buyers, investigators, and agents are pouring into this field, and people were eager for a platform which can provide more information about the value of the properties they are selling, or feel interested in purchasing.

Rich Barton, one of the two founders of Zillow, has been one of the most famous and successful tech entrepreneurs of our time, and besides his other outstanding capacities, his sharp industry vision and keen business sense have set the cornerstone for his personal success. Joining Microsoft in 1991, when Microsoft planned to enter the travel industry by creating and distributing a travel guide in 1994, Barton realized that the HTML-based service, especially for business travelers, was taking off and would receive large welcome, which can be a great opportunity for Microsoft. Two years later, expedia.com was launched, and instantly, this website embraced a huge success.

This same keen business sense moved Barton to more fields. After leaving expedia.com in 2003, Barton has been noticing and putting more and more attention to the information asymmetry phenomenon, and he believes that information can and should be collected, analyzed, and used to empower people such as normal users, who got frustrated by the lack of information transparency and the lack of access to reliable data. With Lloyd Frink, who held the same idea with him, they founded Zillow in 2004 and launched the website in 2006. In 2020, Zillow has reached having 196 million users and $1.1 billion in advertising revenue.

Barton and Frink, co-founders of Zillow. Photo: Nicolo Sertorio, all rights reserved.

Behind the success of Zillow

Zillow has been able to keep its leading position in online real estate industry due to its huge database, advanced and user-friendly data-based tools, and continuous efforts to keep up with the latest technological and industrial trends.

A key tool Zillow provides for users is Zestimate®. Based on database collected from public information and user self-submit information, Zestimate is able to calculate an estimated price for the sellers. According to Zillow, Zestimate can be as accurate as having a national median error rate of 4.3%, which means nationally more than half of houses’ final prices are closer than 4.3% different from Zestimate prices, while the rest is much more different from Zestimate price, higher or lower. However, there are also several reports pointing out that the average error rate was actually around 10% (Beverly-Hanks, 2020; Mohr, 2018). Users generally held a very positive attitudes towards Zillow (Langan et al., 2007; Rascoff and Humphries, 2015; Smith, 2015). And Zillow has kept a very wide, stable, and growing popularity among users (Cherif and Grant, 2014; Gainsboro Capital, 2019; Tan and Cheong, 2008).

“Smarter & More Accurate”, Zillow. All rights reserved.

However, interestingly, Zillow is actually “free” for users to use its powerful data tools. Its revenue does not majorly come from the usage of its database and data tools, but from advertising and other segments including rentals and mortgage. From a certain perspective, Zillow can also be viewed as a media company since its largest revenue streams came from advertising.

Zillow’s major revenue can be sorted in several segments. One is from “Premier Agent”, which stands for providing premier service for real estate agents including trend analysis, market analysis, advertising, and others. Another large group of consumers of Zillow’s advertising service is Mortgage lenders. Meanwhile, since 2017, Zillow has also been directly involving house-flipping, buying, and selling houses. In 2019, Zillow announced they were launching “Offers” business, which was the doubled house-flipping business. For serving these property purchasing, Zillow launched “iBuying” with streamlining and online system for house sellers to submit details of their houses and get cash offers from Zillow. And by flipping, remodeling, and selling the bought properties, Zillow expected to add $20 billion in annual revenue (Fontinelle, 2019).

“What Is Zillow Offers? Sell ​​Your Home With Zillow”, Zillow. All rights reserved.

 

Zillow’s internet ecology

With its high popularity among potential house sells, buyers, renters, and other agents, Zillow is mainly supported and supplied by house owners, but also closely sharing connections with users, real estate agents, and lenders.

House owners as suppliers do not only provide properties in real estate market, but also the information about their properties, even in the situation they are not actually having a solid plan in selling their houses, but they would like an estimated price for their houses. For example, the “Make Me Move” program by Zillow allows house owners not technically selling their houses but being able to hear potential offers and eventually reach a deal higher than market price. More importantly, the information provided by house owners enriches Zillow’s database, and with more information, Zillow can reach more accurate estimate market prices, which will attract more house owners to join in, contribute, and get benefit (Gindelsky, Moulton, & Wentland, 2019).

Also due to its leading position in real estate industry, though successful, Zillow is not a giant without competitors. Before being acquired by Zillow in 2015 for $2.5 billion, Trulia has been a very strong competitor. After the acquisition, Zillow still has to face the pressure from Realtor.com, Redfin, Netloop, and other online real estate platforms, though with a top position in annual revenue.

As for regulators for Zillow, considering the wide coverage of Zillow’s service, from advertising to real estate buying and selling, as well as consulting and data tool services, Zillow is under multiple regulations in each field, from the federal level to local level.

 

A diagram is shown as below to present the internet ecology system of Zillow:

The internet ecology system of Zillow.

Reimagine home, reimagine value: does Zillow change the way of doing online real estate?

Zillow’s business success is obvious to see. However, if we take one step back, is its success just another business legacy, or it changes the landscape of online real estate industry creatively and contributes to the overall industry environment change?

From the very starting point of its initial, Zillow has already been showing the ambition to challenge the rules and situation of the real estate industry at that time. Even with online listing platform such as craigslist, people were still confused and frustrated by the lack of accessible and reliable information and had to fathom the market with their own knowledge (Rascoff and Humphries, 2015). Zillow’s user-oriented approach was not the first among internet companies, however, as for real estate industry which has been fully developing to a professional field leaving normal buyers and sellers in lack of access of information and knowledge, Zillow gave them some leverage. For the first time, Zillow helps users to be on the same “page” with other agents.

Besides changing the entire “eco-system” of real estate industry, Zillow’s implication of “big data” approaches including data mining, database analysis, and predictable analytic model development in real estate field is also very revolutionary. Loukissas (2018) brought up the concept of “operational context of data” by studying Zillow as a case. By “operational context of data” the author pointed out that under such settings the analysis of data would more focus on understanding data in the “operational context” and connecting data to the “context” such as the cultural system. By creatively applying “big data” approaches and bringing in new insights and ways of understanding real estate market, Zillow revolutionarily challenges the rule of real estate industry and set a model for more further implications.

 

To conclude…

Zillow is a leading online real estate platform in the United States. By collecting and analyzing database including both user-submitted information and public data, Zillow provides house buyers and sellers data tools and knowledge to understand the market better and get more transparency during transactions. Furthermore, the wide coverage of Zillow’s service, from providing premier service for real estate agents to providing mortgage, along with advertising and house-flipping, enables Zillow to grow into a comprehensive platform and meet almost all the needs during house buying and selling.

Deeply inter-connected with other agencies and organizations and holding the highest popularity among users, Zillow takes an active and influential role in its internet ecology system. Furthermore, it also brings in innovative insights and implications of new technologies, which contributes to both the business success of Zillow and its transformative impact on real estate industry.

 

 

References

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