{"id":3702,"date":"2017-02-24T20:58:26","date_gmt":"2017-02-25T01:58:26","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/zillow-the-platform-for-homes\/"},"modified":"2017-02-24T20:58:26","modified_gmt":"2017-02-25T01:58:26","slug":"zillow-the-platform-for-homes","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/zillow-the-platform-for-homes\/","title":{"rendered":"Zillow: The Platform for Homes"},"content":{"rendered":"

Since its founding in February 2006, Seattle-based Zillow has become an integral part of buying, renting, financing, and selling a home. The company, which is now worth more than $6.2 billion[1]<\/a>, is an outstanding example of how a business can fashion itself into a powerful platform. After an early failure as a public home auctions website, Zillow, which was named by combining the words \u201czillion\u201d and \u201cpillow,\u201d rapidly grew\u00a0and acquired its way to dominance U.S. real estate, recently achieving 164 million unique monthly visitors and over $840 million in annual revenue[2]<\/a>.<\/p>\n

The platform today: How Zillow creates and captures value<\/strong><\/p>\n

At the most basic level, Zillow is all about leveraging indirect network effects. The business attracts millions of users to its portfolio of websites and mobile apps[3]<\/a>, and then, using data from users’ browsing behavior, Zillow sells services and highly targeted advertising to a range of businesses. Zillow achieves\u00a0a virtuous cycle: additional users attract additional listings and advertising revenues, and broader access to both listings and real estate professionals in turn attracts more users.<\/p>\n

To attract home owners, buyers, and renters to its platform, Zillow offers free information and tools. For example, Zillow users can post or view home listings without charge, and they have unfettered access to public square footage and sale data on homes and land, even when they are not on the market. Additionally, users can see their home\u2019s estimated market value (Zestimate), read and post questions about buying or selling homes (Zillow Advice), calculate mortgage payments (Zillow Mortgage Calculator), get customized mortgage quotes (Zillow Mortgage Marketplace), find real estate agents (Zillow Agent Finder), and get ideas for home redesigns (Zillow Home Design). As users engage with these free tools, Zillow learns about them and shows them additional advertised listings, as well as the best local professionals who can ultimately help with their sale or purchase.<\/p>\n

On the other side of the platform, Zillow sells qualified leads, advertising space, and CRM services to a range of companies. For example, property management companies pay to list vacancies on Zillow and acquire qualified leads; mortgage lenders pay on a per-click basis for highly targeted advertising space in the results when users search for custom mortgage quotes; and real estate agents pay monthly subscriptions for varying tiers of Premier Agent services, which include Premier Agent web pages, a CRM tool for managing Zillow-generated leads, and highly targeted advertising space across Zillow\u2019s full portfolio of consumer sites and apps. These Premier Agent\u00a0accounts represent nearly 70% of Zillow’s revenues, as detailed in the breakdown below:<\/p>\n

\"\"<\/a>
Zillow 2016 revenue breakdown and growth, Zillow Group 10-K<\/figcaption><\/figure>\n

Beginnings of the platform: Using free data and tools to build a massive audience<\/strong><\/p>\n

The platform began as a very basic, free real estate information and media website that targeted home buyers and sellers. Specifically, Zillow organized publicly available market data, offered free listings for owners, and attached Zestimates to most properties in its database. Interestingly, in spite of early and fairly public controversies over the Zestimate\u2019s accuracy \u2013 for example, it supposedly overweighted square footage \u2013 the founders believe it was a particularly potent and provocative tool for getting curious buyers and sellers to visit their site[4]<\/a>. Over time, the company gradually added more tools and content, such as those listed above, and even produced entertainment features of famous homes. Only then, once it had a substantial and engaged audience, did the company begin making concerted investments to build up and monetize the other side of its platform.<\/p>\n

Scaling the platform: How Zillow has approached competition and growth<\/strong><\/p>\n

Zillow\u2019s approach to scaling the platform has been highly acquisitive \u2013 the company averages at least one acquisition per year \u2013 with three apparent types of targets in mind: companies with strong local listings, platform enhancing technologies, and new user groups.<\/p>\n

In the first case, where companies have built up a strong subset of local listings, Zillow has been ready to pounce and buy up its competition. Such was the case in 2013 when Zillow spent $50 million to buy StreetEasy, a rising player in the New York apartment rental market.<\/p>\n

Additionally, Zillow Group has acquired companies that have built platform-enhancing innovations, as in the case of its $108 million acquisition of Dotloop, a software company that eliminates transaction paperwork for agents and buyers, as well as its $16 million acquisition of HotPads, a player in map-based real estate search display.<\/p>\n

Finally, in terms of acquiring companies for their users, Zillow spent $3.5 billion in 2015 to acquire its single largest competitor, Trulia. In spite of substantial overlap in property listings across the two platforms, Zillow revealed in the press release announcing the merger that\u00a0about half of Trulia\u2019s visitors weren\u2019t using Zillow, and about two-thirds of Zillow\u2019s visitors weren\u2019t using Trulia.<\/p>\n

Conclusion<\/strong><\/p>\n

Zillow\u2019s playbook for building a platform is an insightful one. Starting with little more than public data and some basic tools, the company gradually built up an engaged user base. Armed with data about the homes people want to buy or sell, Zillow was then able to find a role as a matchmaker for real estate professionals and businesses. Making highly strategic acquisitions along the way, Zillow has become a truly unrivaled player within its industry.<\/p>\n

 <\/p>\n

\"\"<\/a><\/p>\n

 <\/p>\n

[1]<\/a> Market cap as of 2\/24\/17, Yahoo Finance<\/p>\n

[2]<\/a> Investors.Zillowgroup.com<\/p>\n

[3]<\/a> Includes Zillow, Trulia, StreetEasy, HotPads, Naked Apartments<\/p>\n

[4]<\/a> http:\/\/www.geekwire.com\/2016\/zillow-10-years\/<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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