Zillow.com, a Real Estate information web site launched in February 2006 was founded by Rich Barton and Lloyd Frink. Lloyd shares the Zillow.com business plan and his thoughts on why the site has seen such phenomenal growth. These are key insights for any entrepreneur looking to launch a new service.
Interview conducted by Nathan C. Kaiser on Monday, June 5, 2006 in Seattle, WA.
Zillow.com is a beta website that has valuations on data on over 65 million homes. It?s available free to anybody, you don?t have to come and register. Our mission is to empower ordinary consumers with information and tools but simplify often very complex real estate transaction process.
The main information that we are providing today is valuations of all these homes. And we get this information, we come up with a valuation or a Zestimate for each individual home by looking at all the different comparable sales that happened in a given neighborhood or they are related to a specific task. And this sales information has traditionally been available from counties, sometimes you have to go down to the county court house or you know some county office to actually get the information. Other times, it?s available from county websites, but what we are doing is taking all of that information that we have gathered from a number of different data sources and then putting it together, making it accessible on the website and then very importantly coming up with Zestimate for each individual house.
Its well documented on your site that both you and co-founder Rich Barton both came up with the idea for Zillow.com. How did you transition that into that actual business model?
Well it started from us determining that there was an unmet consumer need out there. And it really was, we were out there trying to figure out how much we should be paying for these houses that we were looking at. And the process we went through was to go out and get a bunch of comparable sales from King County website and from you know real search where we could kind of find it put it into a spreadsheet and come up with a bunch of different formulas in terms of looking at dollars per square foot or looking at you know appreciation rates over house if there is similar houses that are sold you know 5-10 years ago. And then you know coming up with what we thought the value of the house is that we are looking at were actually worth. And we thought that this was the problem that was in a you know fairly straightforward but complex way to solvable with the website and we thought that that was kind of the tip of the iceberg in terms of being able to provide this very consumer oriented functionality to users on the web.
Yes, so the way that we get the information is through a bunch of different data providers that have already been providing this data to a number of financial institutions or to people that are interested in the data for insurance purposes. So this data has been you know collected and aggregated by several different sources of people. Again so we were able to go and work with a bunch of these people to get the data.
The site was launched in February of 2006, did you expect the type of growth you have seen in the last few months?
Probably the most surprising thing has been the popularity of the website and you know kind of the word of mouth that we have had in terms of people liking it and telling their friends. You know it?s probably you know 10 times as many people are coming to the website as we had expected. The marketing plan all along has been to invest in the products and to spend your money there and then let that be you know kind of the way that we attract the people to the website as opposed to going out and spending dollars on you know radio or TV or print or online advertising. You know kind of traditional marketing needs, we kind of work with the let?s do it, build a great product and if we build a great product then people will come to see it. And it?s been a lot more successful than we had anticipated.
Yeah. I mean fundamentally what it comes down to is that real estate is incredibly provocative subject. And that if you go to a neighborhood barbecue or cocktail party, people are always talking about the values of homes and you know how much this home is on the market for? How much that home sold for? Talking over kind of backyard fences and what we have really done is kind of you know struck a cord and you know being able to provide people with kind of real data for those conversations.
Well, I mean you look at the increase in home ownership, you look at the amount of assets that individuals are carrying in their homes compared to savings or brokerage accounts.
Yeah according to the, think if it?s a US census but you know it?s 75% of people actually of households you know own real estate whereas maybe only a quarter of them own stocks. So it is something that, real estate is something that?s much closer and it?s near and dear to people than even stocks. And they have to start at nearly as many tools and you know information in different services on the web about real estate other than just listings. And that?s where we kind of you know we are able to do something that was really doing different and kind of has kind of pot fire.
It?s actually really simple. It?s just an advertising business model. Where as if people are spending a bunch of time on our site and they are making a lot of decisions about you know homes that they want to buy and sell or trying to figure out how much their home is worth because they want to take out you know refinance or do a home equity loan and that audience of people, home owners, buyers and sellers is a very attractive audience for advertisers to be able to reach and to degree that we can have you know millions and millions of people coming to the site on a monthly basis then it?s you know an attractive vehicle for them to use to reach to their target audience.
In future are their plans to expand to potentially other types of revenue model? Such as a Zillow.com brokerage or premium content?
It is going to be advertising and you know maybe very flavors of advertisements in terms of you could imagine somebody wanting to pay for you know a lead for something related to getting a loan or something like that. But it?s just another kind of form of advertising what we will not do is we will not actually be an agent in the transaction and collect you know any of that commission. But something that is very different than what we are doing at Expedia previously where we were actually a replacement for the existing agents and we kind of worked, complete the whole transaction on Expedia whereas in this instance we are not a replacement for the agents. What we are just you know kind of an information service for consumers and then you know the vast majority of them will use agents to complete the transactions.
I am really interested in your experience at Expedia and Microsoft. I know that you joined both organizations fairly early. Have you had to change or modify your management style or your levels of engagement with the organization based because it is a smaller startup?
Yeah I would say that the main thing that we learned from Microsoft and from Expedia is there is a core asset of any company, it is the people that it has and the quality of people that you can get. And you know we are looking for kind of they are very smartest and greatest as well as the people that you know are motivated and that you know want to do the job and you know enjoy their work and are able to kind of get along with everybody else. And I think that that you know it?s very similar across all three of the companies.
Can you talk to me a little bit about the roles between both of the founders. What are the roles, how well do you work together, and what are each of your key strengths?
Sure, Rich and I are pretty complimentary in the sense that it tends to be, I would say kind of more on the marketing inspiration and these are good at being kind of externally focused on as well as kind of the high level strategy. And I would say that my strengths are more in the kind of the technical side and the, you know actually designing the product and coming up with kind of a concrete revenue streams if you will.
I would say that having complementary skill sets is probably one of the most important. And you know the most important is you know just a mutual respect for what the other person brings to, brings the party, if you will.
I would like to actually go back a little bit into the changing in business dynamics between say ?96 and today and the barriers to entry.
The technology side has impact that’s very much I mean if we were doing it using a bunch of open source or using a bunch of you know traditional things and we kind of have a mix of that if that we are using, that didn’t have that much of an impact. The biggest impact is really the potential for a revenue stream which is advertising based which means that we can make all of our services available free to consumers. And that has only been possible because of the number of people and the amount of time that they spent on the Internet that advertising is shifting from offline to online and therefore you know that business model of building a very compelling destination site and being able to be profitable just off of advertising, has you know kind of only in the last several years, it became a really you know a viable way to do business. And you know the best examples of that being Google and Yahoo and MSN. And there are lots of just very large businesses that are built off of purely advertising.
It seems to me and the smart algorithms that are driving that advertising, so it’s very contextual and relevant to the information that the consumers were looking at, would you agree?
I guess I would say that the most important part of advertising on the Internet is in comparison to advertising in other media is that it?s much more measurable. And you know because it?s measurable you are able to do the type of targeting that you are talking about and you want to get much more to the individual persons, so that it’s more effective.
What percent of your visitors are people who are looking to gage the value of a home that they are either living in versus those they are looking to gage the potential cost for home that they are looking to purchase?
Yeah we are just doing some surveys on that. I would say that you know that the ratio is probably 2:1 in terms of people who are kind of actively in the next you know the majority of people, who are coming to our site kind of two portion of that users of end users who are coming to site or you know have homes and they are kind of in the, how much is this worth and they are kind of looking around but they are not in the immediate market for buying or selling a home. And then kind of the other third is more in the immediate market for buying a home.
And the reason I am asking that is I want to determine which market has the higher propensity to click on an ad or to exit the site and look at the advertising that are presented?
Oh I think the people or advertisers are going to target you know two different types of audiences, right. There are some people who are very interested in people who want to make a transaction associated with you know the purchase or sale of a house, which you know different kinds of mortgage is different you know real estate people, different moving companies, different banks etc. And then there are other people who you know their target market is people who own existing homes. If you want to do a refinance or you want to do a home equity model or you know you want to go by some hardware do a refurbishing and so there are different segments there. And you know they have different sets of value too you know who are depending on the advertisements.
Well both were in the business of doing today is predicting what you know all the individual houses that we have, will sell for today. And that’s what this estimate is. We are kind of not in the business of predicting, what we will sell in the future. You can look at some of the graphs on any of the home details page and kind of look at the nation wide index kind of over the last 10 years. And you can see that you know it?s starting to plateau out over last I don?t know several months. But looking it?s kind of reaching a plateau but that doesn’t necessarily say whether or not it?s going up or down.
Yeah, we are predicting, what house we will sell for today which is you know that?s the hard enough problem onto itself, trying to predict what these houses will sell for going forward in the future, we haven’t done that yet.
To a degree that that?s valuable to consumers, yes that’s something that we will try to do when it’s not imminent but yeah that would be logical kind of step forward.
Could you elaborate on the key characteristics that you look for and the people to join your team and to help you with the kind of fulfill your passion for the faith in the business?
Yeah I mean I think the word that you said there that’s most important is you know that they are passionate. That we kind of first and foremost look for people who are really smart and bright and motivated and kind of all that adds up to being passionate about wanting to create something that’s compelling for consumers. And then at the same time in the kind of their day to day activity, if people are really excited about what they are doing and they enjoy their jobs, it just makes it much more pleasant place for people to come and work. And you know people tend to be a lot more productive when they are happy so I would say that kind of in a nutshell is what we are looking for?
Can you talk to me little bit about your key insights into entrepreneurship, what does it take to be a successful Internet entrepreneur in that mean time?
I am trying not to be redundant but it?s a good team of people. And if you got a good team of people, then you kind of have to have an industry too. When they have potential, but if you have a good team of people then you know you are going to come up with good ideas and you are going to be able to kind of attract other people to help you execute and fulfill those, you know those dreams you have.
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