How Zillow Grows: Building The ‘Housing Super App’
What operators can learn about owning demand, supply-side strategy, the power of free tools, multiple network effects, and the essential evolution of a marketplace from aggregator to integrator
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If you live in the United States, Zillow doesn’t need much of an introduction. Whether you’ve bought a house or not, you’ve more than likely snooped around the broke millennial’s digital fantasyland, daydreaming about places (even Zillow says) we can’t afford. Sigh.
While researching this piece, I was sucked into several Zillow binges. Searching for listings in different neighborhoods, exploring the plethora of housing data and mortgage prices available, taking virtual/3D tours, sharing apartments with Julia to see which ones she likes, and even going so far as to save spots to my watchlist. 🤦
Thankfully, I’m not alone. And that’s indicative of a powerful force the $10.4B online real estate marketplace has going on under the hood: bringing non-customers into the game through an emotional tug, building brand recognition and trust with them, and being right there when they’re ready to buy.
Because if I ever am serious about buying a home, Zillows the first place I’ll go. In other words…Zillow controls demand.
Today, we regrettably won’t be going down any home-browsing rabbit holes together. But—surprise—we’ll be going deep into the workings of Zillow, what’s made them such a success, as well as what their current progression from an aggregator (Act I) to an integrator (Act II) looks like.
And there are a ton of practical lessons in here for starting, growing, and evolving a startup, especially for anyone interested in marketplaces.
Before we begin…
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Here’s what we’ll be covering in our Zillow analysis:
How Zillow Started: Lighting up the housing market
Rich Barton, and his “Power to the People” strategy
Before Zillow: Home buying, in the dark
Zillow: Hello transparency, fantasy, and practicality
Zillow’s GTM, and kickstarting the marketplace
Zillow’s supply-side strategy (including various network effects)
Acquiring more marketplace demand. (4 tactics)
Building demand-side defensibility with a Data Network Effect and a diversification algorithm
Monetizing an online marketplace with offline transactions, and Zillow’s core flywheel
Accelerating marketplace growth
Expanding the marketplace via acquisitions + the mighty Market Network Effect
Zillow’s big picture strategy: Aggregator to Integrator
Actionable insights 🧠 🛠️
If you only have a few minutes to spare, here are a few of the main takeaways from Zillow — from a building perspective.
Transparency > the black box. Zillow was built on the back of a simple question, “What piece of marketplace information do people crave and don’t have?”. Look for ways to get rid of information asymmetry in your market, give people power, and make openness a core value/principle — you’ll win deep consumer loyalty.
For marketplaces, “owning demand” is the surest path to sustainable growth. And ultimately, the key to controlling demand and attention is by having the supply…that’s why 80% of marketplaces start by concentrating there first with a supply differentiation strategy of either: Comprehensiveness, Exclusivity, or Curation. But, one lesson from Zillow is you don’t necessarily need supply first to get demand.
Free tools can be used to overcome the chicken-and-egg dilemma and kickstart a network. TheZestimate was a simple, game-changing, tool that required no supply to attract buyers. It was novel, it was fun, it was voyeuristic, and it helped Zillow acquire demand through a “Come for the tool. Stay for the inventory” approach. The lesson: if you’re starting a network (which is hard), brainstorm a single-player tool that is valuable to your customer and can serve as a hook to start bootstrapping it.
A remarkable story is a great distribution advantage. The more interesting, unique, or surprising your product, team, or events are, the more you’ll be able to leverage this distribution advantage and drive virality. There are 6 other main distribution advantages, and you want to make sure you have at least one for any GTM.
When you face multi-tenanting, look to build a Data Network Effect for defensibility. When it’s costless and easy for sellers to list on other platforms, one way to lock in demand is by creating a flow to capture user data. The more information you get, the more valuable your product becomes, making it more likely that people with continue to add more data.
If your transaction value is big, and your supply is a commodity, build a Market Network Effect. A Market Network is a sector-specific SaaS tool with an integrated marketplace, deeply embedded in a user's day-to-day workflow. It’s stickier than your average SaaS, more prone to network effects and less to leakage than your average marketplace, and has higher revenue potential than the typical network.
Go from aggregator to integrator. It’s one thing to sit on top of an existing industry and consolidate others’ supply, but without some sort of integration into the value chain of the industry you’re operating in (ideally, as close to the transaction as possible) you will struggle to be transformative. AKA — aggregation doesn’t transform value chains; integration does.
Cool. Grab a coffee, and let’s get to it. ☕
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And when you look at how he’s changed the travel, real estate, and recruitment industries — a common thread between all three companies (besides entrepreneurial finesse) emerges.
So let’s start there.👇
Rich Barton, and his “Power to the People” strategy
If you got up right now and walked into a second-hand car dealership looking for a new set of wheels, you’d quickly find yourself talking to a salesman. And that salesman would know a lot more about that car than you do…like if the red Prius you’re eyeing has been visited by Dirty Mike and the Boys.
And because they’re privy to private information, it creates an imbalance of power in the transaction. A monopoly of knowledge, if you will.
That’s why buying used things on Facebook Marketplace or eBay is so sketchy — sellers have the upper hand and can use it to take advantage of buyers.
This imbalance is called Information Asymmetry.
Luckily for us, the phenomenal entrepreneur that is Rich Barton doesn’t like it one bit. And since his days as a PM at Microsoft in the early 90s, he’s been obsessed with how the internet can unlock info-asymmetry disruption — leveling the playing field for the consumer.
And he started out with what is now one of the world’s largest travel booking sites. In 1996, he launched Expedia as a division of Microsoft. His work at Microsoft had shown him how technology was able to disrupt traditional industries, and when he was given the chance to shift from operating systems to consumer products, he saw an opportunity to apply this same approach to the travel industry, which at the time was dominated by brick-and-mortar travel agencies.
While I never booked my own travel as a 2-year-old, from what I’ve heard, travel information (like flights, hotel, and car rental info) was only really accessible to travel agents through a global distribution system (GDS). In other words, there was a lopsided distribution of information in favor of the middleman. Rich’s goal with Expedia was to blow up the black box of previously-hidden travel information and give consumers the power to book their own trips.
In 1999, Expedia was spun off from Microsoft as a public company, and under Rich’s leadership, it ate away at the traditional travel agent business with his “power to the people” play. And we know how that panned out for travel agents.
He was CEO there until the company was acquired by IAC in 2003.
Then, in 2005, Rich teamed up with Lloyd Frink (also from Microsoft) and turned his attention to another massive industry. He was coming for the asymmetry in real estate.
Before Zillow: Home buying, in the dark. 🌒
In the early 2000s, there were no home-scrolling binges. No scoping out how much your neighbor's house cost. No virtual touring of a multi-million dollar townhouse near Central Park you can’t afford, going so far as to even imagine where your couch would go.
That’s because home buying was significantly more opaque and difficult for consumers before Rich and Lloyd came along.
If you wanted to buy and learn anything about a potential property, real estate agents were basically the only ones who had all the information about what was on the market. This often meant going through multiple agents to find the right fit, and there was no easy way for buyers to independently search for homes or learn about their neighborhoods.
Plus, you’d often have to rely on print publications like real estate magazines or your local paper to find homes for sale. Of course, what you’d find in them would be limited in scope and often outdated by the time you got to reading it — making it difficult for buyers to stay up to date on the latest listings. And the same was true online. There were a few websites that listed homes for sale, but they were usually incomplete and out-of-date.
Finding accurate info about homes for sale, anywhere, was hard.
Here was the issue, as described by Pete Flint (co-founder of Trulia, which sold to Zillow)
The problem was that the massive real-estate market was dominated by powerful incumbents, most notably the National Association of Realtors [NAR]. This organization had over one million members and it controlled the 800 so-called “Multiple Listing Services”, which were real estate listing databases that could only be accessed by other realtors. But the fragmented nature of the MLS system, and the fact that it was closed off to the public, made it particularly hard to access real estate information and make it fully available to consumers.
And, while the NAR’s site (realtor.com) and the thousands of brokerage sites like Century21.com, remax.com had access to a comprehensive set of high-quality listings, they lacked the consumer focus and expertise to build a great online consumer experience. Furthermore, they were inclined not to give consumers all the information they possessed, such as historical housing transaction data. Doing so might alienate the agents they worked with, who used such information to attract customers in the first place (although it was already publicly available).
In other words…there was another black box of info being controlled by sellers, putting homebuyers at a disadvantage.
As Rich Barton recalls:
With Expedia, we were giving power to the people, giving travelers the power to plan their own trips. After Expedia was acquired, we took some time and we were trying to figure out what the next thing was.
It turns out Lloyd and I were shopping for homes while we were trying to hatch a new business idea. We were having babies and we were really frustrated that we could not find the basic marketplace information that we needed, so the idea came up and punched us right in the forehead while we were thinking about these other things.
It was just like, “Wow, it’s 2005, I can’t believe that we can’t access all this marketplace information. We should give power to the people in real estate, too.” That’s kind of the way we got going.
So, seeing the opportunity for a novel consumer product—one packed with the most comprehensive and relevant housing information available—Rich and Lloyd set out to fill the gap by building the first online real estate marketplace focused on excellent user experience.
Zillow: Hello transparency, fantasy, and practicality 🔦
The first idea for Zillow was basically to replicate the Expedia model. In other words, just allow people to buy a home online directly from the seller. Zillow would then fill the real estate agent and brokerage roles themselves with an online home auction platform — getting rid of the middleman, as Rich had done with travel.
But, as you can imagine, that middle layer is fairly complex. Home buying is a huge transaction for people, and they soon learned the Expedia model didn’t apply to real estate the same way.
The middlemen in this world provided a lot of value. They were not the problem, the problem was that people didn’t have the same information that they did.
So, the goal shifted from being a transactional marketplace (i.e buy the house) to more of a destination for information and discovery (i.e learn about the house).
Zillow’s go-to-market value proposition became to empower home buyers with more options and unprecedented access to information as well as transparency in an industry that was characterized by fragmentation, gated info, and localization.
And Rich and Lloyd did that by creating an online marketplace with consumers on one side and the real estate industry on the other.
They rallied a team and spent several months building a database of millions of properties, including information on their value, location, and history. With these data points, they then developed an extraordinarily powerful hook (which became their core GTM product) — one no home buyer had ever seen: An algorithm that could estimate the value of homes. It was called the Zestimate. 👇
In February 2006, Zillow went live. It allowed people to search for homes by location, view property details and photos, and get a more objective and accurate assessment of the property's worth, based on public data.
The Zestimate quickly became a popular feature of the site (attracting more than 1M visitors in its first two days) as, practically, it provided people with a quick and easy way to get an idea of what their home was worth.
And of course, giving people a way to know what something like a home costs pulled on a deep thread of curiosity, snoopiness, and fantasy. That emotional tug is what made it go viral.
We just lit up the marketplace. People had been in the dark. We showed them what was available, and we got them all junked up and fantasizing about what to buy.
Zillow’s timing was also fortunate, as they rode the tailwind of the rapid growth of the internet and the increase in mobile adoption. As more and more people started using the internet to search for homes, Zillow quickly became a go-to source for real estate information. Rich and Lloyd also made sure they continued to innovate — adding new features like rental listings, mortgage calculators, and more neighborhood information.
In 2011, with over 100M homes listed and a strong grip on demand, Zillow went public.
In this sense, the first phase of Zillow is a textbook example of "Aggregation Theory", a term coined by Ben Thompson that describes how internet companies channel (and own) demand based on superior user experience and free distribution and transaction cost.
The best distributors/aggregators/market-makers win by providing the best experience, which earns them the most consumers/users, which attracts the most suppliers, which enhances the user experience in a virtuous cycle.
— Ben Thompson
Aggregators like Zillow are typically marketplaces that commoditize and consolidate supply, leveraging the power of network effects enabled by controlling demand. They benefit from aggregated instead of self-created supply. For Zillow, that’s home listings, and making sure anyone who wants a home comes to Zillow first.
The flip side of an aggregator is an integrator. Integrators have a strongly differentiated product that they create and directly distribute to customers. For example, companies like The New York Times, Apple, or Peloton own the entire value chain. The goal of integrators is to maximize margin by integrating vertically.
Why do I mention this? Well, as Zillow has grown up to become the biggest online real estate marketplace—controlling demand with incredibly comprehensive supply coverage—the next phase of their growth is characterized by an evolution from aggregator to integrator.
But, before we get into how Zillow is becoming the super app for all things housing, let’s look at what we can learn from how Rich Barton got their aggregator marketplace got going. 🛠️
Zillow’s GTM, and kickstarting the marketplace
For anyone starting an aggregator marketplace where you don’t have exclusive supply (i.e Airbnb, Uber, DoorDash, Zillow), you should have a lot of questions to work through.
But, two of the big ones should definitely be:
How do you build the supply side (i.e. property listings and information) so that it can incentivize the demand side (i.e. homebuyers) from a cold start? This is the classic “chicken-and-egg” problem.
How do you efficiently (a) acquire and (b) retain users with a commoditized supply side? In other words, what’s your competitive edge in an environment of rampant multi-tenanting, where it’s costless for suppliers to go and sell on other marketplaces?
And for Zillow, a third one emerged:
How do you monetize an online marketplace when the actual transactions are taking place completely offline between buyers and sellers? Plus, in the middle of a terrible market (2008).
So, let’s take a look at what Zillow did. Because, for their first seven years, they had no advertising/paid acquisition budget, relying primarily on their product to drive interest.
1. Zillow’s supply-side strategy
Building a Marketplace Network Effect: Bootstrapping supply with public data.
The first big challenge, one which every online marketplace must reckon with, is which side of the market to concentrate on first. How do you attract a consumer audience (homebuyers) without any listings, and how do you attract agents and their listings without an audience of buyers?
For marketplaces, “owning demand” is the surest path to sustainable growth. In practice, that means users come directly to you, rather than going through intermediaries like Google or Facebook, and that they exclusively (or almost exclusively) rely on your marketplace instead of comparison shopping with competitors.
It’s one of the key challenges of any marketplace. “Demand efforts” like SEO, SEM, CRO, and amazing UX are necessary, but not sufficient; ultimately, the key to owning demand is through supply strategy.
The right supply strategy varies based on the product being offered and those customers’ needs. If users value consistency and predictability—like, say, UberX—the path to long-term success generally lies in being both better and cheaper than the competition.
However, in most marketplaces, users value having a high variety of supply. For these marketplaces, there are three main strategies for supply differentiation: comprehensiveness, exclusivity, and curation.
And this tracks with what Lenny’s research into marketplaces found: 80% of them start with getting sellers/listings.
But Zillow’s move was somewhat unconventional. Sticking with the chicken and the egg analogy here (and assuming chickens are home buyers)— Zillow decided to start with some chicken feed.
The idea: Attract buyers into the coop with something other than homes to buy
This was a brilliant move, executed by taking publicly available data on homes across the US, packing it into a valuable tool [the Zestimate], and using that in lieu of actual supply.
Our case is a little strange because we started the marketplace by getting supply that wasn’t really supply (we used public data). We used that to get demand, which we in turn used to get the real supply (listings). We would not have been able to get listings without demand.
— Nate Moch (VP Customer Engineering & Services at Zillow)
I mentioned the Zestimate earlier, but let’s expand, because it’s the kernel of Zillow’s success. Plus, it gives us an excellent lesson on the value of a free tool as part of an acquisition strategy.
The Zestimate: Zillow’s attention grabber and the power of free tools
The Zestimate is probably the most engaging and controversial feature of Zillow. Controversial, because as soon as Zillow went and told people they had a valuation for their home available, they (1) rushed over to check, and (2) often debated it.
Of course, there’s also the “Let me check what John paid👀” element — making it provocative, personal, and a little voyeuristic.
And, some spice like that is wonderful for getting people talking about you. As Spencer Rascoff (founding team and former CEO of Zillow) recalls:
I knew before we launched that we were going to have a great reaction because I remember when the test site was up, I was Zillowing all of my friends and family, for a couple of weeks, just pulling up any address that I could remember or had some association with or had lived in or had a friend that lived in.
I saw how fun and interesting and exciting it was to do this. Like the feeling that you had when you first Googled yourself or Googled a friend, and now, of course, it’s second nature.
So, when it hit the streets (pun definitely intended) as a simple “Enter address” to see how much any home in America was worth…people flocked, shared, gossiped, etc.
Importantly, the tool was not only engaging, valuable, and informative to both buyers and sellers, but it also emphasized everything Zillow was about…open data, transparency, and power to the people. This helped establish Zillow as a credible source of real estate information and gain people’s trust.
Another huge hook of the Zestimate was that because Zillow isn’t involved and financially incentivized in the buyer-seller transaction — there’s no principal-agent dilemma where Zillow could be biased.
"You looked at other industry professionals, and they would tell you the bottom's right around the corner, things are going to get better. And month after month after month, we were the only ones saying home values are bad and they're going to get worse," Humphries says. "Our business only works if people trust us to be telling them the unbiased truth. We don't want to tell them now's a good time to buy and sell, because we believe that now can't be a good time to be doing both."
Comprehensiveness, and finding supply-side defensibility with a Protocol Network Effect
In the US, real estate listings are gathered in hundreds of local multiple listing services (MLSs) run by local realtor associations, and access is restricted to brokers in that local area. In order to get homes listed in the beginning, Zillow relied on brokers manually uploading listings themselves —which they did because of the audience and attention Zillow had built up.
Where there is attention…commerce follows.
Again, this was Aggregation Theory in action:gain users with a new kind of user experience, then leverage that user base to get suppliers to come onto your platform on your terms, further improving the user experience. And, eventually, Zillow was able to leverage that user base further and tap into a much larger and automatic feed for supply growth. They got direct access to the mother load— pulling in a feed of all listed homes from local MLSs and brokers directly who understood how important it was to be on Zillow.
Arguably the only reason they were able to do that was because unlike Expedia, Zillow didn’t cut out the middleman. Theypositioned themselves as a channel for agents to market their houses, allowing them to avoid direct competition. And as soon as Zillow had reached a tipping point, they created a new network effect for themselves: when more agents join the platform, other agents are pressured to join in order to take advantage of the increased leads/sales and stay competitive.
Now, going back to what Casey Winters said, “…in most marketplaces, users value having a high variety of supply. For these marketplaces, there are three main strategies for supply differentiation: comprehensiveness, exclusivity, and curation.”(learn more)
For Zillow, the play is clearly comprehensiveness, as it’s all about how many options buyers have when browsing. With this strategy, the focus is on building an extensive and diverse supply base and giving customers a lot of choices. And for many winning marketplaces, comprehensiveness is the core value proposition that allows them to own demand and provide a sticky product.
But, Zillow’s supply side is clearly commoditized. Meaning, they were not able to build defensibility there based on a typical 2-sided marketplace network effect, as it was in the interests of the brokers to syndicate their listings through every possible channel.
The 2-sided marketplace network effect. Source: NFX.com
So, how did Zillow make sure brokers kept coming back should the incentive of a big audience (strong demand) not be enough?
Establishing a Protocol Network Effect
First, what the hell is that?
A Protocol Network Effect arises when a communications or computational standard is declared and all nodes and node creators can plug into the network using that protocol. Bitcoin and Ethereum are recent examples of protocol networks. The protocol setter can be either an individual company, a group of companies, or a panel.
Protocol networks coalesce around communication and computational standards, which form the basis for the links between nodes (e.g. Bitcoin miners and Bitcoin wallets
Once a protocol has been adopted it is extremely difficult to replace. Note how the fax protocol is still in use, or the TCP/IP protocol (even though other, better protocols now exist for those purposes).
It’s also true that the protocol creator doesn’t typically capture most of the value from the development of the network, as they normally do with other direct network effects.
The success of such an adoption strategy is often less about technology and more about marketing, social engineering, and choice of market niche. That’s why VHS beat Betamax, even though Betamax was arguably a better standard. It’s also part of why Bitcoin has taken off as a digital store of value, when it is costly to operate and less transactional than many other digital currencies.
In 2007, they created an XML feed standard (a protocol) that allowed real estate agents to syndicate their listings to Zillow from their own sites — saving brokers from having to go through the hassle of posting the same thing across all the different channels.
Soon, other platforms started adopting the same protocol. And as adoption of the XML standard grew and Listing Syndication became a thing, Zillow was able to take advantage of a Protocol Network Effect, as well as their existing marketplace network effect. This accelerated their growth on the supply side, and thus their defensibility.
Plus, syndication was a huge win for the consumer too. Since listing data was easier to manage and in sync across channels, it made home data more accurate and complete.
Now, having used the Zestimate as a free tool to bootstrap demand, in turn kickstarting real supply growth and giving Zillow comprehensive listing coverage, supply wasn’t really the concern for them anymore.
This takes us to question #2: How do you efficiently (a) acquire and (b) retain users with a commoditized supply side?
Let’s start with the first part.
2(a) Acquiring more marketplace demand
Getting your product in front of the right people at the right time, and even just getting people to know you exist, is increasingly what separates the companies that win from those that don’t. As Peter Thiel once put it, “Poor distribution—not product—is the number one cause of failure.”
Now, marketplace operators have three different distribution elements to think about:
The channels used to bring supply into the marketplace
The channels used to bring demand into the marketplace
Making sure you’re distributing value between S&D in the marketplace (e.g: in a job marketplace, are qualified candidates finding/applying to the relevant available jobs).
We’ve covered Zillow’s supply-side strategy, so let’s get into demand acquisition and look at how they made sure to own home buyers’ attention. Starting with some theory on distribution advantages; as Lenny describes:
To break through the noise, and often to even raise money, you need a unique distribution advantage. You need to find a way to go directly to your early target audience more cheaply and quickly than your competition.
[There are] seven unique distribution advantages that new startups can take advantage of:
Starting with a pre-existing audience
Developing a unique viral loop
Being first on an emerging platform
Having a remarkable story
Starting with pre-existing strategic relationships
Closing early strategic partnerships
Bringing extraordinary hustle
Zillow had two things going for them:
Incredible founders who were riding the tailwind of Expedia's success
A GTM product with a unique hook (the Zestimate)
Together, they unlocked Zillow’s distribution advantage: a remarkable story. And here’s how Rich leaned into it to create Zillow’s core growth engine or virality. 👇
PR and Word of Mouth
Zillow’s first spout of brand awareness came from press coverage. As Nate Moch explains:
Zillow is a unique story in that we started our growth with PR. We created a controversial product (putting values on homes and showing aerial images) and shared a lot of housing data and stats. We made public data accessible that was previously hard to find and empowered people with lots of data and information. It helped create a lot of brand recognition and generate traffic. Our timing was also incredibly important because we had created a single source of truth on housing market data when home values were dropping during the Great Recession. Data about home values was crucial for the media to cover, so we were able to bolster awareness and trust of our brand and get into the news cycle because people wanted to know what was happening in the housing market.
Spencer Rascoff: It was between 4 and 6 months from when we came up with the initial idea and when we actually launched the site. There was a long period of time there where we were bringing on new employees and raising capital and working on the product, but nobody knew what we were doing. There was a lot of intrigue of what were the Expedia people up to. People knew it was real estate, but nobody knew what. For about two weeks prior to launch we went on a media tour.
We met with probably 100 different journalists around the country, we showed them test versions of the site under embargo, which meant that they promised not to write about it until it was time. Then, the day that we launched there was a huge hub-bub. There was a big article in the Wall Street Journal, you John helped break the story at the time in the P-I. It was in the New York Times, really, mass media picked it up very quickly. We had over a million people visit the site by the second day and I think by the fifth day we had over two million people and the site crashed. We were down for, gosh, probably about 6 hours or so and we were scrambling to add capacity and to get the site back up. It turned out to be a blessing in disguise of course, because going down …
John Cook: Another news cycle.
Spencer Rascoff: Yeah, exactly, it extended the story and it created even more intrigue. “I want to go to that website.”
With PR acting as a turbo boost, the users it bought in fed a more sustainable flywheel of viral growth driven by WoM and sharing of the Zestimate.
Takeaway: The more interesting, unique, or surprising your product, team, or events are, the more you’ll be able to take advantage of this distribution advantage.
“How might you create this advantage? Find ways to make your story more ‘remarkable. What impossible obstacles have you overcome? What’s something you’ve done that is insanely clever or creative? What’s something people won’t be able to stop talking about?” — Lenny
Apart from PR, there were three other things Zillow did to bring in demand: Partnerships, SEO, and getting big on mobile.
Tapping into partnerships to expand reach
Zillow's partnerships strategy was critical to the company's growth in the early days. By teaming up with other companies, Zillow was able to tap into their well-established channels, expanding their own reach, as well as in a few cases enhancing Zillow’s value proposition.
Here are some examples of what they did:
Zillow formed partnerships with major real estate brokers and listing services, like Coldwell Banker, RE/MAX, Century 21, and ForSaleByOwner.com, to increase the number of listings on their platform (creating a more comprehensive supply).
In 2006, they announced a partnership with Yahoo Real Estate that would integrate Zillow's property listings directly into Yahoo’s real estate section. This partnership was huge for them in their first year, as it gave them access to Yahoo's user base.
In 2009, they announced a partnership with Google that would integrate Zillow's property listings into Google Maps — tapping them into Google’s gigantic user base.
Takeaway: Partnerships can be an excellent way to distribute your product. To leverage them, first identify the things your customers love, and where there are gaps. Then go pick brands with great distribution advantages in those markets, find a relevant way to collaborate with them that adds value to both of your audiences, and then cross-promote each other so that both user bases win.
SEO
We didn’t start out focusing on SEO, but as we were growing via PR and word of mouth we noticed a competitor with no brand awareness growing almost exclusively via SEO. We knew at that moment we needed to be best in class at SEO and we put a lot of effort into building that skill. You don’t necessarily need to start with SEO as a small company, but as a huge free traffic source, you want to make sure you are positioning yourself to get that traffic as you grow.
— Nate Moch
And SEO continues to be an important channel for them. Zillow invests in content marketing through their blog, hyper-localized SEO landing pages, continuous technical improvements for SEO like page speed and mobile optimization, as well as social media optimization and link building.
If you Google homes in any area, Zillow is likely at the top of your search.
Moving to mobile before it was cool
This may sound crazy now, but moving quickly to the mobile platform was a huge growth driver for us. We made an early commitment to mobile back before it was obvious everything was going mobile. We even built our own mapping solution for Blackberry because they didn’t have the mapping tools we needed. We consider moving fast on new platforms and technology really critical. We take advantage of new technology (ipads, apple tv, 360 cameras, etc) because we get extra attention (Steve Jobs featuring the Zillow iPad app) and first mover advantage.
— Nate Moch
Being on mobile now is table stakes — so the takeaway here is always to be keeping an eye out for emerging technologies, new platforms people are moving to, and trends worth taking seriously (i.e, AI right now).
When there is a greenfield opportunity (like the new Substack Notes for content creators) — people who tap in early get a chance to build momentum and enjoy first-mover advantages.
—
And that’s demand-side acquisition. So let’s chat about retaining users when you don’t have an exclusive supply.
2(b) Building demand-side defensibility with a Data Network Effect and a diversification algorithm
Even though Zillow was well-capitalized, the market for online real estate was still hyper-competitive. And the consumer could technically find the same homes listed on sites like Trulia. So, why should they stick with Zillow?
Layering in a Data Network Effect was Rich’s answer to building a moat around “owning demand”.
We spoke about DNEs in more detail in our last deep dive on ByteDance/TikTok — but here’s a very brief/simplified recap: when a product’s value increases with more data, and when additional usage of that product yields data, then you have a Data Network Effect.
In Zillow’s case, to produce a DNE they provided tools for consumers and agents to add data and content themselves. For example, by contributing to their Q&A forums or by getting people to add and change property information for more reliable estimates. Combined with data captured from peoples’ searches, this powered a core feature, Zillow’s recommendation engine: “If you like this home, check out these ones”.
Home recommendations at Zillow are delivered via several channels, including email and mobile push notifications, to present a prospective buyer with a collection of relevant homes. Real estate poses several unique and interesting challenges for designing such a system. For example, in many high-demand real estate markets newly listed homes are of great interest and relevant to prospective buyers. Although new homes have not yet been seen and interacted with by a sufficient number of users — hence implicit signal about them is lacking — they need to be promptly recommended to relevant users. A content-based model can address this new-listing cold-start problem by scoring the relevance of each home for each user by evaluating the match between the user’s preference profile and the home’s attributes.
So: The more information Zillow had, the more valuable the site was for people and the better the user experience was, making it more likely they’d continue to add more data.
And this brings us to the last question Rich and Lloyd had to consider when bringing Zillow to market…how do you make money when you don’t touch any money?
3. Monetizing an online marketplace with offline transactions, and Zillow’s core flywheel
When you buy something on Amazon, order a ride on Uber, or book a place on Airbnb — it’s very easy to see how Bezos's pockets get bigger. Simply, because marketplaces like that facilitate the transaction online, making it easy for them to take a cut.
The problem with monetizing Zillow is that people just use it to find a home and then do everything else offline, often after a sales cycle of several months. So, in typical pricing theory, they looked at what their unit of value was, and from there figured out how to charge for it.
And simply, since they owned demand, Zillow built their business model around charging agents for leads and promoting their listings.
Unlike the big brokerage franchises, individual agents had the biggest incentive to pay for Zillow’s help in attracting new leads and consumers because they were much closer to the transaction. So, to scale their first monetization strategy targeting smaller customers, they built cost-effective marketing (like ads) and lead-gen products for individual real estate agents.
At a high level, Zillow’s initial core flywheel looked like this:
Zestimate: As we saw, this drove virality through PR and word of mouth.
Traffic: The success of the Zestimate brought eyeballs/attention, making it the most popular place to begin the home-buying process. Each new consumer opening a listing becomes a potential buyer.
Leads: Agents pay to be the go-to contact on listings pages. When a user books a tour or reaches out for info, this funnels into some variation of a “Contact Agent” flow that generates and qualifies them leads. This is where Zillow gets their kickback.
Multiple Listing Services (MLS) Agreements: At first, the MLS helped agents create value by making home data scarce and difficult to access. Meanwhile, Zillow was making it open and free. But as we saw already, the more popular Zillow became the more the MLSs realized they needed to stick with the place that controlled demand. So, as Zillow made more and more deals with various MLSs, Zillow’s data advantage became more powerful, which fed back to the Zestimate making it increasingly more accurate. In turn, leading to more traffic…
And over time, that middle part of the flywheel (leads) has become more effective with the development of Zillow’s Premier Agents product. 👇
Layering in a SaaS tool
Launched in 2015, Premier Agents is Zillow’s CRM and advertising portal that gives agents extra abilities to manage leads and ultimately close on a sale.
This strategy of baking in more workflow tools for one side of a marketplace is fairly common, especially as the marketplace grows up and looks to lock in its supply side. Etsy gives sellers tools to manage a store, Airbnb gives hosts tools to manage various listings, and Amazon gives merchants tools to manage sales.
All these tools make selling on those marketplaces more valuable.
For Zillow, the idea is simply to solve as many problems as possible for agents across the transaction lifecycle and package a whole product solution into one SaaS tool for them.
Since 2015, the SaaS part of Zillow has rolled out features like Automated Advertising, Exclusive Relationships, CRM, Broker Management, 3rd Part Integrations, Reporting, and Custom Websites.
With each new feature added, operating as a seller on Zillow becomes easier. Plus, the more exclusively an agent uses Zillow, the more they get to invest in just one tool. This has taken Zillow from much more than a marketplace for just listing homes for sale — but rather, to somewhat of a super app for agents.
And, as we change gears here from Zillow’s GTM to their later stage growth, we’ll see how they’re following a similar strategy for consumers by evolving from an aggregator to an integrator.
Accelerating marketplace growth
Before we get into this Act II strategy, I briefly want to touch on another network effect that’s emerged through M&A.
Building a Market Network, and furthering defensibility
M&A can be a terrific accelerant. It allows you to accomplish something that maybe the company could do on their own, but it would have taken 5, 10, or 15 years.
That’s how we look at M&A: really on a buy-versus-build decision tree. And we think about how many years it shaves from our product plan. As you get to know our company better, you’ll know that a core value of ours is, move fast, think big. Speed is critical to our success, and that’s probably why we’ve been acquisitive. A company that really values speed is typically drawn to M&A, because M&A provides a boost–a turbo boost–to one’s ambitions.
— Spencer Rascoff (Ex-CEO at Zillow)
As an example, before being scooped up by Zillow in 2013, StreetEasy was the second-largest real estate site in New York. Estimating it would take years to overtake their rental marketplace, Zillow acquired them for $50 million. This got Zillow into the rental game much quicker than with a build approach.
They did the same thing with DotLoop, bringing Zillow into the real estate transaction management space, as well as opening them up to professional networking between people in the industry.
Then, Zillow’s largest acquisition was buying their main competitor, Trulia. This expanded the size and reach of their core marketplace, plus the scale of the combined companies (#1 and #2 in the US) fortified their defensibility. It also kickstarted the formation of a final, and very powerful, network effect: the Market Network.
What’s that?
As the name almost fully describes, a Market Network simply combines the elements of a professional network (Dot Loop), an online marketplace (Zillow), and a SaaS tool (Premier Agent) all in one. By bringing these three pieces together, the network effects/moats are much more powerful than the sum of their parts. Essentially, a Market Network is a SaaS tool for a niche, with an integrated marketplace, that is deeply embedded in a user's day-to-day workflow. It’s stickier than your average SaaS, more likely to enjoy network effects, has better churn than a typical marketplace, and has higher revenue potential than the typical network.
As James Currier adds:
What’s unique about market networks is that they:
Combine the main elements of both networks and marketplaces
Use SaaS workflow software to focus action around longer-term projects, not just a quick transaction
Promote the service provider as a differentiated individual, helping build long-term relationships
Market networks are also unique from a monetization standpoint. They combine the strong network effects defensibility and scalability of direct networks like LinkedIn or Facebook together with the lucrative revenue models of SaaS or marketplace businesses.
Zillow knew that their core marketplace was not as defensible as other marketplaces due to the significant multi-tenanting on the supply side. This led them to make a big push to deepen their network effects through M&A. 👇
Source: James Currier
This is all supply-side though, and it makes sense that this was an important strategic focus for Zillow since agents pay the bills.
But, they only pay them because Zillow controls demand. So let’s finish up today with what Zillow is doing on their buyer side to remain enduringly valuable for both sides.
Zillow’s big picture: The ‘Housing Super App’
After digging through Zillow’s recent investor reports (the benefits of studying a public company), it’s clear that their strategic focus right now is vertically integrating across the consumer journey.
Meaning, from the point of wanting to move, up until you’re eating Chinese takeouts on your new living room floor — Zillow wants to be there holding your hand. 🥡
And besides knowing that moving is expensive and a pain in the arse (thus a big problem worth solving for their customers), for Zillow, the real reason to do this is perfectly captured by what Ben Thompson wrote back in 2018:
It is one thing to sit on top of an existing industry and, well, be a media company/lead generation tool. There have been a whole host of businesses that did exactly that, and while there is plenty of money to be made, without some sort of integration into the value chain of the industry itself they simply aren’t transformative. To put it another way, aggregation doesn’t transform value chains; integration does.
Ben also argues that the main value of being an aggregator—and therefore owning the customer relationship— is that it sets a company up to become an integrator. Take these examples as evidence:
Netflix went from being an aggregator of 3rd party content to leveraging their control of attention to push into original content creation. Thus, undoing the integration of linear channels and content creation.
Airbnb/Uber and other similar services integrate the customer relationship with the driver/homeowner relationship, undoing the integration of cars/property with payment.
Facebook/Google integrated content discovery with advertising, undoing the integration of editorial and advertising.
Aggregators that disrupt their industries (both software and physical ones like Apple) do so by integrating the customer relationship they control with the profit center of their markets (AKA the main transaction in their value chain).
Now, remember in the very early days (before the Zestimate), how Rich and Lloyd tried to achieve that disruption by being the auction house? Well, this would have immediately made them an integrator like Expedia was. But it didn’t work back then because they didn’t have a grasp on demand. So, Zillow grew alongside the original middleman.
Well, Zillow has recently circled back to this desire to disrupt the industry. In 2018, while Spencer Rascoff was CEO, they tried to get into the home-buying space with their iBuying product. However, it no longer operates (and it’s the reason Spencer got the boot from Zillow) as it went after the lucrative hand that fed them.
AKA: Zillow found that disruption became much harder once their revenue was directly tied to the status quo.
But, now with Rich Barton’s return to steering the ship, he has talked about (most recently in this fantastic podcast episode) his desire to take the company back to its roots, and finally be the disruptor he had always believed Zillow to be. Except, through a different approach that disrupts the value chain while not kicking out their core customer.
And this is Zillow’s current big push to evolve from the #1 online residential real estate app, to the “Housing Super App”.
Act I:Advertising / Lead Gen: Search, Find, Connect [2006-2018]
The below two slides from an investor deck capture this perfectly. 👇
The whole problem Zillow is going after: The $26-40K moving experience
Solving it by integrating themselves across the non-linear customer journey
Looking at those two slides, you can see how their goal is basically to capture more customer transaction share—across the entire value chain—for anyone looking to move. Which is a huge opportunity in an industry doing $300B in transaction fees. [Zillow estimate by 2025, they can be capturing $5B of it.]
What’s more, in the future, there are further opportunities to integrate into the selling-and-buying process. For instance, Zillow could build services to enter the markets for:
Renovations ($598B)
Home insurance ($119B)
Moving ($18B)
Appraisals ($9B)
And even, as Packy McCormick fantasized about back in 2020 — doing something in the short-term rental market: i.e try before you buy.
As you can see, none of those current or future services mess with the agent. They still remain core to the transaction. An important lesson on making sure the things you build don’t create a conflict with your paying customers.
And toward this ambitious vision of becoming the everything app for housing, this is how they’re doing it (as represented in their product strategy). 👇
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Zillow’s 5-pillar growth strategy
While navigating a slow and difficult housing market in 2022, we kept our eyes on the future — our vision of building the housing super app. Our consolidated Q4 financial results outperformed our expectations, and we’ve been rapidly shipping products aligned with our five growth pillars. We’re building momentum that will help us scale as we serve customers and the industry with an easier, more seamless way to transact in real estate.
The expected output of this strategy is to grow our share of consumer transactions from 3% to 6% by the end of 2025.
— Rich Barton
The pillars are:
Touring
People who take a tour are leads that are far more likely to convert. To that end, Zillow is making it much easier for high-intent movers to schedule and take tours — from in-person, to virtual/3D tours.
Financing
Once someone finds a home, Zillow wants to make the transition from “We want it!” to “Your offer was accepted!” as qucik and easy as possible. Typically riddled with hurdles and processes, Zillow is preparing customers to be transaction-ready with financing in place early in the home-buying journey. This includes things like pre-qualifications, pre-approvals, and their own Home Loads product.
Expanding seller solutions
While a huge focus is on the buyer side now, Zillow is making sure to never take their eyes off their supply side. So, they are continuing to innovate here to acquire and retain sellers.
Enhancing partner network
Zillow continues to invest in working with more real estate professionals — agents with high customer service ratings, proven abilities to close transactions, and the alignment to grow with Zillow.
Integrating services
The Zillow 360 program is a recent addition to the Zillow offering. It’s a set of connected services providing consumers with an end-to-end service that helps them seamlessly sell, finance, buy and move — with rewards/rebates along the way.
And Zillow is on solid ground as they follow through here in 2023. Their traffic and brand are extremely strong, with about 200M unique monthly users, and roughly 65% of daily active app users for the real estate marketplaces category (3X greater than their Realtor.com, their nearest competitor). Plus, in 2022 Zillow became the most-visited rental platform, according to comScore. This all puts them in a great position for future growth as they execute Rich’s vision of a single digital experience to help people across all their real estate needs, breaking down all the black boxes and complexities along the way.
Power to the people.
And folks, that’s a wrap on our Zillow analysis. This was fun.
I hope you learned something new here today, and walk away with (at minimum) a new perspective the next time you start Zillowing. Speaking of which….🙃
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So much insightful work here. Wow! I'm blown away. Helps me in an aspect of my business. Thank you!