Zillow Advertising – Funding the Demise of an Industry ???
I thought long and hard before choosing that title for this writing. So many different ideas went through my head. A couple of days ago I saw an agent refer to real estate agents spending money with Zillow as Funding their Success – or something to that affect...
On May 21, 2014 I attend Agent Reboot at the Anaheim Convention Center. There was an excellent turn out and the information was generally good to excellent. I took lots of notes and plan on checking out some of the tools and strategies mentioned. By nature I am a skeptic. I believe most people have an agenda they fail to tell you about. They are trying to sell you something, they are pumping up their own ego's or just looking for the biggest audience to preach and pitch to. I am not much for true networking events. When I am talking to someone, I usually am engaged and interested in conversing. At networking events, it has happened many times where I was engaged in a conversation, only to be left hanging when the next biggest fish walked into the room...
Regardless, as you might be able to tell, I can be a little long winded. I personally do not like Yes or No questions, meaning I always like to justify the thought process before a simple answer, unless of course the question is straight forward and simple...
Back to the topic. At Agent Reboot, a presenter made a comment that caught me way off guard and made me gasp. It was that comment that caused me to question if I lived under a rock for the past 10 years. This information, if true, could have a great impact on the real estate industry, and I felt as though I should have known this long before today... Instead of running right out and posting what I had just heard, I thought it prudent to fully research the facts, take my time and craft the message I want to craft, and share it with real estate professionals and let them make their own decisions based on the information I learned. I was also on my phone, and the only way I could have shared anything was by typing on that little keyboard, no spell checking, no formatting and no real ability to proof read it.
If you already feel I am a bit long winded, feel free to scroll down near the bottom to the area where I summarize what I had found out and checked out, or continue reading for a more in-depth explanation.
Let's take a moment and go back in time a bit and think about the travel industry. I know when I was a kid, if we were going to go on a vacation to Disney World, for example, or anywhere outside of driving distance, my parents would contact a travel agent. The agent would research options, prices, hotels, airfare and more and present my parents with a package based on what they were looking for. As I grew and began living on my own, I found myself doing the same thing. I was born in 1968... By 1986 I was in the Air Force, by 1990 I was back in Massachusetts in the Air National Guard.
It turns out, a certain GENIUS named Richard Barton, was born less than a year before me in Connecticut. He was the son of a teacher and a mechanical engineer. He graduated from Stanford in 1989 and began working for Microsoft in 1991. I think it is fair to say that we would have experienced the same types of technological innovation in regards to daily activities even though our career paths were distinctly different. At Microsoft, he was immersed in future technology and would theorize how the coming web would have dramatic changes on industries. He recalls the thought of people, just like my parents, speaking to their travel agent over the phone, only for people like my parents to hear the clicking away of the travel agent on their keyboard. He remembers wanting to jump through the phone and look at the screen himself and just take control. He also felt he could do a better job because he knew what he wanted, what his preferences were, and the travel agent didn't have a clue... He also states, “That was the inspiration, frustration. And at that time, it seemed pretty obvious to me that the travel industry, real estate industry, jobs, financial services and healthcare would each be transformed by super-empowered individuals. It was at that point I founded Expedia inside Microsoft (1994)”. Or, how about this quote, “People like to be provoked, and if you are provoking with information that is on the side of the angels, on the side of the consumer, the louder the industry reacts. And they just can't win. It's the greatest way to market, pick a fight with somebody who can't win”. Let’s think about these quotes for a moment. Mr. Barton identified a traditional model, a model that had worked for decades and employed tens of thousands of people, and virtually transformed it through the use of technology. He mentions the real estate industry in the same sentence as the travel industry, and claims it is best to pick a fight with somebody who can't win. That somebody this time is the real estate agent.
Expedia was spun out of Microsoft in 1999 and Mr. Barton stayed on until 2003. He is now a member of the Board of Directors for InterActiveCorp – the parent company of Expedia.
Now let’s take a moment and think back to the movie rental industry. When I was a kid, we would go to the local video store, rent either a VHS or Beta movie, bring it home, put it in the player and watch the movie. Then came mega-stores like Blockbuster Video virtually putting all of the local operators out of business over the course of a few years. Technology advanced and we started rented DVD's which continued to improve over the years. Then came NetFlix. I almost forgot this until writing this, but NetFlix was founded by Reed Hastings when the idea came to him after being forced to pay a late fee of $40 for returning Apollo 13 past its due date. NetFlix model was to deliver DVD's to homes around the country and changed to a subscription model in 2000. By 2005, they were shipping 1 million DVD's every single day!!! By 2007, they had delivered their 1 billionth DVD!!! It was right around that time they began to shift their business model to video on demand via the internet. Mr. Barton has been serving on the Board of Directors of NetFlix from 2002 until present and has played a major role in transforming another tradition industry model, injecting technology and totally changing the industry. How many Blockbuster's do you visit anymore, inperson or online?
By now, you either know what I am going to share or you are wondering what this has to do with anything? Zillow was founded in 2005 by Richard Barton and Lloyd Frink, both former Microsoft executives. Based on previous actions by Mr. Barton, it is my opinion that he identifies traditional industries, injects technology into them and totally transforms them from what they once were. Do I fault his approach??? Absolutely not. I do feel that our industry is at the beginning of a major transformation and Zillow will play a major role in this change.
- In 2011 - Zillow acquired Postlets
- In 2011 – Zillow acquired Diverse Solutions
- In 2012 – Zillow acquired RentJuice
- In 2012 – Zillow acquired Buyfolio – which is now an agent product at Agentfolio
- In 2012 – Zillow acquired Mortech a mortgage based technology company
- In 2012 – Zillow acquired HotPads
- In 2013 – Zillow acquired StreetEasy
Some people in the industry believe that Zillow has plans on squeezing the real estate agent out, a claim that Zillow has denied. You know what??? I actually believe them!!! I do not believe their grand plan has anything to do with squeezing out or eliminating the real estate professional. If this is the case, they are not lying as so many people think.
Let’s also not overlook the financial industry, specifically stock trading. I personally am shocked to find out that Rich Barton was not involved in the founding of either eTrade or Scottrade. In many ways, this is an industry that parallels the real estate industry. Unlike travel, we are talking about an industry that deals with people’s money, major decisions and long term investment. Stock brokers were licensed. They marketed for clients through their personal sphere, networking, advertising. etc. Companies like eTrade and Scottrade did not eliminate the stock broker, but sure did have a dramatic impact on their business and the industry. I myself had an eTrade account. I made stock trades for as low as $7.00. Why would I ever pay upwards of $100 to a stockbroker for a single trade, when I could do it for a fraction of the cost. I was able to do my own research and my own transactions. Not every stock broker had value. Some were just people facilitating transactions, others were skilled at their profession and brought expert advice to the table. Again, an industry very similar to the real estate industry, and an industry that was totally changed because of the injection of information and technology.
The title of this is Zillow Adverting – Funding the Demise of an Industry. What could I mean by this if I am saying that I believe Zillow is telling the truth??? The industry I am referencing is the industry of the real estate professional. Being a real estate brokerage owner, our clients are our agents. In the Phoenix metropolitan area alone, I believe there are upwards of 5000 real estate brokerages. Some are big, some are small. The client of each and every one of them are the real estate agents and brokers. These agents and brokers choose where they are going to work based on what they are looking for in their career. Some make their decisions based on finances, some on technology and training, some on culture, some on location and many more for a myriad of other reasons. It is my opinion that because the average consumer does associate Zillow with the real estate community, that is the plan of Zillow to disrupt this industry, the same way the visionary Rich Barton has with the travel industry and the movie rental industry and the financial services industry. Zillow is the technology giant poised to take control and limit the number of choices real estate agents have and they choose to do business with. Zillow provides their opinion of value as a Zestimate. In 2006 they added the option for consumers to add a Make Me Move price. In 2008, they created the Zillow Mortgage marketplace – where consumers can receive loan quotes without providing things like social security numbers and phone numbers. In 2009 they began including rental homes and data. I am not going to even guess what they have planned, except it will be something big that will affect a lot of the agents and brokers reading this. The writing is on the wall.
In summary, and probably more concise and to the point than all of the supporting information found above.
- In 1994, Rich Barton founded Expedia – transforming the traditional travel industry through the use of technology. He was the President, CEO and director from 1999 until 2003. I believe he is still on the board of IAC - InterActiveCorp, the parent company of Expedia.
- In 2002, Rich Barton joined the Board of Directors of NetFlix. In the following years, the traditional movie rental industry was transformed.
- In 2005, Rich Barton founded Zillow. The website and the information found there is amazing. Their current business model involves selling leads generated from the site back to real estate professionals. Some will claim that travel agents and real estate agents have nothing in common. Each state currently has different requirements regarding licensing of travel agents. In the past, prior to the influx of technology, there were states that had requirements for travel agent licensing, similar to those required of a real estate agent, including mandatory classroom training and testing. There are also states with Seller of Travel Laws. Travel Agents who sell or recommend travel insurance (most of them) are more likely to be licensed.
Rich Barton has a keen sense of identifying industries to transform through the injection of technology. This is a skill that I admire and respect. The fact remains that he was one of the founders of Zillow and stated with his own words, “it seemed pretty obvious to me that the travel industry, real estate industry, jobs, financial services and healthcare would each be transformed”, and “People like to be provoked, and if you are provoking with information that is on the side of the angels, on the side of the consumer, the louder the industry reacts. And they just can't win. It's the greatest way to market, pick a fight with somebody who can't win”, leading me to believe the plans for Zillow have not been fully communicated. It is my opinion that Zillow will not eliminate the need for real estate agents and has no plans on doing so. It is my opinion that they plan on limiting the number of options real estate agents have when choosing where to work. I will not go so far as say they will open a real estate brokerage, but I do believe at a minimum they will create a platform where brokerages may be Powered by Zillow. No matter what happens, I am certain Zillow will be a disruptor in the real estate industry for a very long time. This does not even begin to touch on the affect they may have on the lending industry and ancillary services like home inspections, title and escrow, home warranties, etc. There are companies right now, following a more traditional model, that have their name attached to 19 ancillary businesses, all in support of their primary business, the real estate transaction. Zillow is a publicly traded power house. They must continue to grow, That is the way the stock market works. Investor expectations are high. There is only so much money that can be squeezed out of the real estate agent community - period.
A few related or unrelated notes and comments:
- On an unrelated note – or is it? Do any real estate professionals find it odd that in the last two Zillow promotional videos, showing families shopping for homes, that the entire process takes place without a REALTOR or real estate agent present??? Not letting them into homes, not being with them in the home, etc.??? See for yourself:
- https://www.youtube.com/watch?v=h2AfO-uqF5U
- https://www.youtube.com/watch?v=o3bZz_JHyyA
- If I was just a consumer, I might even LOVE Zillow. They say my $550,000 home is worth between $1,101,386 and $1,120,000 - http://www.zillow.com/homedetails/1105-Woodcrest-Ln-Vista-CA-92081/2120066207_zpid/
- Zillow (and Trulia) knowingly have incorrect data on their sites for upwards of 36% of the homes displayed. (http://www.inman.com/2013/03/06/accuracy-zillow-trulia-listing-data-under-fire-again/#.U34TVvldX-U) They have knowingly provided this data to the consumer with the sole intention of generating traffic to their site which in turn generates leads, which they then sell back to real estate professionals. Zillow does not have to play by the same rules as real estate agents. We are bound by a Code of Ethics. Article 2 of the Code of Ethics states "REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction." Article 12 states "REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations." From there, there are state rules and board rules that get even more specific regarding the standards of practice WE must meet... So......... if a real estate agent knowingly becomes a client of Zillow for the sole purpose of receiving leads, while knowing that the information on the site has accuracy issues - listing accuracy has been argued to be in the range of 36% inaccurate - and Zestimates - well they are just an opinion - and I have not really ever had major Zestimate concerns... then could a REALTOR be inadvertently violating the code of ethics... I say inadvertently because I am not saying anyone is doing anything bad... But it is these grounds that NAR and state and local boards and Departments of Real Estate might have something to get started... ****** To Clarify - I believe an attorney somewhere could argue this point... This is not how I feel or see it. I know how attorneys think
- The market value of Zillow, as of today, May 22, 2014 is approximately $4,600,000,000. The market value of Realogy, a company of real estate companies who participate in ¼ of every real estate transaction in the United States is approximately $5,200,000,000. This fact alone should be troubling and cause for at least a little bit of concern. The market value of Zillow is a direct result of revenue generated by selling leads (they sell traffic now) to real estate agents and other real estate professionals.
- You gotta LOVE that Zillow was named Among the Best Places to Work by GlassDoor – anyone want to guess who founded GlassDoor – yep – Rich Barton!!!! No disclosure about this in the story though - http://www.zillow.com/blog/zillow-among-best-places-to-work-140541/
We, the real estate agent community, is either funding the success of a company or funding the demise of the real estate industry as we know it. There have been over $100,000,000 of insider stock sales in the past 6 months. I am not blaming anyone for cashing out. Insiders also own over $1,250,000,000, so effectively they have only sold off less than 10% of their shares in the past 6 months. You can agree or disagree, everyone has an opinion. The deeper I dig, the more concerned I become.
Sources (not all sources listed)
http://en.wikipedia.org/wiki/Zillow
http://www.wired.com/2013/06/rich-barton-empowers-people-and-picks-fights-very-profitably/
http://ir.netflix.com/management.cfm
http://www.zillow.com/wikipages/Zillow-Timeline/
http://www.inman.com/2014/04/03/redfin-challenges-zillow-on-home-listings/#.U31kD_ldX-U
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