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Changing the way we think about Zillow: It’s a media company, not a home valuation site

Kevin Boer, Broker Owner, 3 Oceans Real Estate, Inc. ()

December 22nd, 2006 · 12 Comments

Ok, class, today’s quiz has two true/false questions. No copying!

  1. Zillow is like Cyberhomes
  2. Zillow is like NBC

Time’s up…here are the answers:

2006-12-22_15-53-59-078.png

So, how’d you do?

Much of the criticism of Zillow centers on the fact that its estimates are not the last word in accuracy, and in many cases can be far off. If Zillow were, in fact, strictly a home valuation site a la Fidelity’s Cyberhomes, that would be a pretty damning indictment. Zillow’s only hope would be to consistently have the best, most accurate estimates in the business, and Cyberhomes would arguably have a better platform to achieve that, since its affiliation with Fidelity gives it access to more data, more accurate data, and more timely data.

These criticisms are valid, but they simultaneously miss both a relatively minor and a crucial point, both of which can be illustrated by another analogy, this one between Zillow and Google, arguably the best known online media company.

  1. 100% accuracy simply isn’t possible: When you type in a search on Google for, say, “Radish recipes,” what you typically get is a “good enough” set of search results to help you find the content you want. It’s an amazing testament to the brilliance of Google’s search algorithm engineers how often within the first page of results you find what you’re looking for. Sometimes, however, the answer isn’t on the first page…or the second or the third…or it simply isn’t found on Google. Somewhere out there on the Internet is the answer, but Google hasn’t found it or classified it or interpreted it correctly for your particular needs. A computer algorithm, however sophisticated, simply can’t always give the right or best answer. Similarly with Zillow, what you often get is a “good enough” estimate. The home’s true value might be $400,000, but Zillow might say $370,000 or $440,000. For many purposes, that’s a “good enough” answer for people to keep coming back, and when they need a more accurate answer — say, they’re planning on selling their home — they bring in an appraiser or a Realtor to give a more accurate estimate. As with Google’s search, sometimes the Zillow answer is way off. As frustrating as that is, it’s just the nature of the beast: A computer algorithm, however sophisticated, simply can’t always give the right or best answer…no matter how smart the engineers, no matter how many data points, no matter how powerful the computer.
  2. Successful media companies are all about content and entertainment Google monetizes its search pages by selling relevant ads just like NBC monetizes Saturday Night Live by selling ads. Google’s “content”, its “entertainment” is the search result and experience.Zillow’s content is all real-estate focussed. During its first season, there were two shows: “Home Value Estimates” and “Sales Prices and Details of Neighboring Homes.” We’ve just entered the second season with the release of a few more shows: “Make Me Move”, “Homes for Sale”, and “Real Estate Wiki.” Just like NBC, some of Zillow’s shows will be hits, and some will be flops. With any enough hits, Zillow will become successful.Don’t get hung up on the fact that Zillow’s “Home Value Estimates” show has inaccuracies in it. These estimates will improve, but they will never be 100% accurate, not only because they can’t be, but because what Zillow is providing is real estate entertainment, not the be-all and end-all of real estate valuation.

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Tags: Eppraisal.com · Google · Online advertising · Real estate · Zillow

12 responses so far ↓

  • 1 Larry Cragun // Dec 23, 2006 at 12:44 pm

    Kevin, I think there is a 3rd choice a FSBO site or a hybrid first then a FSBO site. I think they are into a hybrid to pacify the real esatate agent industry. Better yet, instead of pacify, divert. I think they think they can win the consumer over by creating a gradual perception the agent has less value thanks to zillow. Lower commissions and even no commissions thanks to zillow I believe is their mission.

  • 2 John // Dec 23, 2006 at 2:07 pm

    “Lower commissions and even no commissions thanks to zillow I believe is their mission.”

    You honestly think that Zillow’s mission is to ruin agents’ commissions? That is rather silly in my opinion. This post is pretty accurate, they are building products to engage online real estate consumers (bring eyeballs to their site) so that they can sell advertising, just like any online media company. Their real mission afterall is to make money. If Zillow were to kill the real estate industry (maybe when hell freezes over), they’d be taking out their target advertising base and would no longer make any money given their current business model.

  • 3 jf.sellsius // Dec 23, 2006 at 8:23 pm

    I tend to agree with this post. Valuation is a red herring. Zillow only used the valuation angle as a means to list every house in the public database. In this way it bypassed broker or MLS approvals. They had free data courtesy of copyright free government public data. But they really didn’t bank on the data being stale, inaccurate and incomplete. That led to enhancement 1: let the owners fix the data. But every owner has not done so. Nor will they if it raises their value to invite a higher tax bill.

    Z valuation is hit or miss, totally UNPREDICATABLE to the unknowing. It’s NOT even good enough. Here’s why. If you dont know an area & I ask you if the Z value is close—you have no freakin’ idea. How’s that good enough? –it’s bad. If you already know the area, of course you know if its close enough–duh. Think about it—You only know if zillow is close enough if you already know. YOU validate zillow value not the other way around. People have trouble grasping this.

    A listing site is the logical progression and admittedly part of the Z game plan. Free for now.

    BUT even with all the eyeballs, ask yourself WHY haven’t the mainstream brokers begun advertsing. I’ll tell you why. The powers that be do not want to fund zillow because of the Expedia model. And zillow is not forthcoming, nor does it have to be. Z as a listing site was not advertised but David G admitted on FOREM it was always part of the plan. Z has broker licenses–why?

    Somehow the word is out—do not advertise on zillow. Do not fund them. I can’t prove it—yet.

  • 4 Kevin Boer, Three Oceans Real Estate // Dec 23, 2006 at 9:32 pm

    Larry — I just don’t think a FSBO model is what Zillow is up to. Google has proved there’s a ton of money to be made in advertising, and Zillow’s demographics are a pretty valuable one to get your real-estate related ad in front of. I have to agree with John that if they were indeed to find a way to kill the broker business, the only advertisers left would be mortgage people.

    Sellsius — I agree with you that the main reason brokers aren’t advertising in mass yet is that they’re afraid Zillow does, in the end, have an Expedia concept in mind. I happen not to agree with that reasoning; call me naive, but for now I honestly believe they’re all about creating compelling real estate content, monetizing it through ads…and nothing more.

    Re. only knowing if Zillow is close if you already know the area…interesting idea, but I’m not sure that’s necessarily a deal killer. The same problem is true with Google’s searches: The only way I know if the top 10 searches Google gives me back are really the ten best sites on the Internet for that topic is if…I really already know the answer to my question. And yet I keep going back to Google to get answers, despite not really knowing for sure that its giving me the best sites, or that those sites actually contain the best information about the topic, or for that matter whether those sites are telling me anything accurate about the topic.

  • 5 Marlow // Dec 26, 2006 at 10:18 pm

    I think Zillow’s making it up as they go along. They had the basics of the idea when they started and are tweaking it as they go along, adding features when needed or in response to an unintended consequence. Rich Barton is quoted as saying “People want Realtors, but is it rational to pay Realtors what they are paid?” He says he thinks they are overpaid because customers are doing more of the work themselves.

    I think they started out thinking they were going to revolutionize the way real estate is bought and sold, but then realized that if they succeeded in reducing or eliminating Realtors (and the accompanying commissions), there wouldn’t be anyone left to buy advertising.

    It remains to be seen, however, if PPC will bring them the revenue they need to be self-sustaining. Google can charge pennies per click because they sell millions and millions of clicks for every conceivable product under the sun, real estate included. But just selling real estate clicks? That’s a very limited market segment.

  • 6 Kevin Boer, Three Oceans Real Estate // Dec 27, 2006 at 9:38 am

    Hi Marlow,

    Zillow may well have been changing their business model as they progressed. If so, more power to them — a lot of companies fail because they’re stuck on trying to get one idea to succeed, with no flexibility.

    As for the ad model working or not, I think real estate is a big enough business to sustain an advertising model. There are literally billions of dollars spent each year on real estate advertising, and as more and more of that comes online, it will become an increasingly lucrative niche.

  • 7 Bob Ravasio // Dec 27, 2006 at 10:43 am

    Wow. This is the most cogent discussion I’ve seen on Zillow anywhere. Great observations.

    I totally agree they’re a media company, or better, an entertainment company. To some degree then, their success is going to be governed by how much real estate is top of mind in pop culture. Right now, as the market cools, I’d say it’s declining, just like the fascination with Nasdaq stocks did in 2000. Remember when everyone and their brother was a stock market genius? Real estate has been a little like that the last few years.

    With so much money still being spent on traditional media, there is still massive opportunity for someone to capture more with targeted, measurable media - the reason Google makes all of their money.

    Zillow doesn’t have to be accurate, they just need people to show up and click on some ads. If they can do that, they’ll be laughing all the way to the bank, just like the founders of YouTube.

  • 8 Kevin Boer, Three Oceans Real Estate // Dec 27, 2006 at 12:52 pm

    Bob, that’s a great point. The extent to which real estate occupies the popular culture may have a significant impact on Zillow’s success.

  • 9 Terry Smith // Dec 28, 2006 at 5:19 pm

    saw your post on zillow wiki this morning, I agree. I will post something there shortly. They already have an audience. Thank you for the lead…

  • 10 TRANSPARENT REAL ESTATE (www.TransparentRE.com) // Feb 8, 2007 at 9:04 pm

    Elvis = Zillow…

    /images/33632-31387/elvis.jpg”>Happy Birthday Elvis! I’m always up for a challenge, especially one from my favorite non-conformist Marlow… “anyone submitting an article that somehow combines the subjects of Real Estate and Elvis gets guarante…

  • 11 Collin County Real Estate // Sep 11, 2007 at 1:56 pm

    Great point! Depending on how the real estate market acts will impact zillow greatly.

  • 12 Zillow’s New Features: Friend or Foe? Media Company, or Redfin Redux? : Domus Test Test Test // Jul 19, 2008 at 9:07 am

    [...] have called me naive, but I’ve long taken Zillow at its word that it’s a media company with real estate content, not (yet another) disintermediation play.  This new feature [...]

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