Zillow lost $1 billion over the past 3.5 years.
It’s a dent big enough that Zillow is making some huge changes. Ending Zillow Offers isn’t enough to make up for the loss – but Zillow already has the pieces in place to make up for lost time.
The plan is so obvious, you may already know what direction it’s headed. But are you prepared for the changes it will (once again) impart on the real estate industry?
Before we get to Zillow’s dirty plan, let’s rewind a bit….
How did Zillow become the Google of real estate?
It wasn’t an accident. Before founding Zillow, Rich Barton and Lloyd Frank founded Expedia – so it’s safe to say they knew exactly what they were doing from its inception in 2006. Zillow’s strategic moves quickly secured the #1 spot in residential real estate for consumer search.
Just ask any hopeful buyer, homeowner eyeing their neighbor’s closing price, or bored millennial in search of real estate porn: Where do you source your information?
The answer will be the same: Zillow.
Just like Google quickly became interchangeable with an internet search, it didn’t take long before Zillow rose to the top for residential real estate searches.
As far as Zillow’s competition, well…there really isn’t any. The Zillow app holds the #1 spot in online residential real estate 3x over that of its nearest competitor, according to February 2022’s Zillow Group Investor Presentation.
How did Zillow dominate its competition?
- Aggressively bought more Google Adwords than any other real estate search website. Zillow knows that to gain attention, you need to be where the consumer is. At all times and in all places. So it took up as much space as they could, buying excessive amounts of Google Adwords to get the attention of the consumer.
- Gave consumers what they want. Before Zillow, listings were confined to the MLS and buyers were at the mercy of their agent. Zillow listened to what consumers wanted most: access to millions of properties at the click of a button.
- Told homeowners what their home is worth. If you’re an agent, you cringe when you hear the words, “But my Zestimate says….” While we know its accuracy is a joke, the Zillow Zestimate is a quick and easy way for homeowners to get information about their home’s worth. And quick and easy always piques consumer interest (even when it’s wrong).
Where did Zillow go wrong?
There was a lot of skepticism about Zillow Offers, Zillow’s iBuying platform, from its start in 2018. In November 2021, we all heard the news: the iBuying platform lost the company $1B in 3.5 years. Zillow shut down Zillow Offers and started the process of laying off 25% of its employees.
These big losses don’t mean Zillow is about to give up its #1 spot. In the Q3 2021 Shareholder Letter, Zillow stated:
“…we believe there are better, broader, less risky, more brand-aligned ways of enabling all of our customers who want to move.”
So…what’s Zillow’s plan?
First, it will go back to the basics.
I first predicted Zillow would go back to the basics by focusing on transactions in November 2021:
Zillow cemented my prediction by focusing its February 2022 Zillow Group Investor presentation on what it calls a “significant transaction opportunity.”
Zillow’s Q4 2021 earnings proved my point about going back to basics. The slide above shows there were 6.1M existing home sales, which means there were 12.2M total customer transactions in 2021. But Zillow capitalized on just a fraction of that opportunity, with about 25% of homebuyers reaching out to Zillow, and just about 5% of buyer transactions in 2021.
The clear focus in the short term is for Zillow to expand on the transaction opportunity, and double its Premier Agent revenue by 2025.
Zillow is bringing its entire focus back to its best and most predictable way to generate revenue: Zillow Premier Agent.
What’s the dirty part?
You might be thinking Zillow Premier Agent is nothing new. But if you zoom out and think about how Zillow will get more customer transactions, their dirty plan is laid out in front of you.
Going back to the basics and focusing on total transitions means Zillow has only one option moving forward…
My prediction: Zillow will buy real estate brokerages and become a broker in every market.
At some point in the near future, I believe Zillow will want to operate as a traditional brokerage to capture full control of the ancillary products that will drive the revenue necessary for Zillow to succeed. To do so, they will buy independent brokerages across the country and attach mortgages to the growing number of customer transactions. Why get into mortgages? Because this is where many traditional brokerages create their largest margin product (going back to the basics).
So, the only question left is….