Zillow's CEO on growth during a housing crisis | Decoder

I mean, it's uh, entertainment on Zillow has been a growing phenomenon really since I've been there.

No, I'm glad you asked that question because that is—we get asked about rates so often and the demand side, but the affordability crisis is an availability problem.

I think that's well said.

Thanks for having me. Happy to be here.

Yeah, I mean, we're here for the week. Zillow's 20th anniversary was yesterday. We're celebrating it today. So it worked out really well to be in person, so I'm excited to do it.

I think that's well said. And so I'm dying to just dive into that.

I mean, it's uh, entertainment on Zillow has been a growing phenomenon really since I've been there. Absolutely.

2009. 16 years.

Yeah, about a year and a half ago. August 24th.

So Zillow started 20 years ago, today as we're recording this, and it was founded on the principle that real estate information wasn't available to the average buyer and seller. So our co-founders, Rich Barton and Lloyd Frink, they had come off of Expedia. They had built a bunch of marketplaces. They looked at real estate. They were shopping themselves and they said, 'Wait, I can't find out what homes are for sale or what houses are worth, or, you know, the data is locked in a professional's database and I have to go pay for access.' And so that was the kind of founding inspiration was let's turn on the lights. Let's give people access to information. The other categories on the internet by then had gone that way. You could start to get access to travel and all the other verticals, but real estate really hadn't come to the internet circa the mid-2000s. So we launched in February 2006 with the Zestimate. That was our launching product. And it was just trying to answer one question, right? Just what are homes worth? Not a perfect answer, but an estimate of okay, take some comps and build a machine learning model to figure out what these houses might be worth to help you be smarter when you start to shop. And Zillow grew out of that into an advertising business, right? In the first probably decade plus, it was just a classic ads marketplace. It was okay, let's offer great products to buyers and sellers. They come and use it. They dream, but they also shop and they buy, and advertisers, professionals are going to want access to that audience. So we'll just sell access to the audience and sold leads and sold advertising. And probably about, I don't know, 10, 11 years in, we had built this great brand, right? We were very proud that Zillow was searched more than real estate in Google. That was sort of the, you know, we have become a category term. People love the brand. The cocktail party story was always, wow, can you change my estimate or, you know, how do you do that? But we're customer obsessed and we would ask customers how it was going and they're like, well, I love using Zillow. Like, okay, well then what? Well, I cried when I bought my house. And the data point I always remember was we surveyed the average home buyer, we do this every year now as a housing trends report and sort of percentages and demographics and trends. And one of the things that stuck out back then was more than half of buyers cried during the process. We're like, well, that's not great. We're like, we're the preeminent brand in the category. We're helping people with the start, but the rest of it is still broken. So we shifted and pivoted the business to be more transaction focused, right? And we obviously still have ads and ads as a part of the business model. But what we've been focused on for a while now is actually building the software to help the buyer, the renter, the seller transact, right? Not just find the agent, but coordinate and collaborate with the agent, the software for the agent to help you buy and sell the house, the software for the agent to help you list the house, the services for you to get the loan from us, the software for you to coordinate all that together. And we measure our growth and our success now as the amount of transactions that we actually participate in with the buyer and the seller. And so that's been the journey we've been on. We're not done. That's like you said, there's no more complex database than the real estate one. That's what makes building this integrated experience so hard is you have to coordinate so many things which we can talk about. But that's really the history of Zillow. And it's fascinating because we're celebrating a 20-year anniversary and the brand has come so far, but the goal of building a one-stop shop for real estate, we're really just getting started.

Or you're walking the beach and you can say, wow, I want to move here. What's that house worth, right?

Over 500.

That's right.

It's a great question. I think from the outside you would assume it's contentious because we're the innovator. We came in, we're the technologists, but the reality is we love the MLSs. They are the marketplace. And your comment on we have this real estate database that is the MLSs and it's available to everyone. Whenever I talk to people about our industry and they don't work in the industry, they are surprised to learn that the listings that are for sale are broadly shared by every person in the real estate market to everyone else. So the listings that are on Zillow, the listings that are on Realtor.com, that are on our competitor websites, we all have the same listings. There's no differentiation of what's for sale, right? And what that means is it's an incredible public good. Buyers and sellers, big brokerages, startups, innovators can all get access to the same information because the real estate industry has agreed to cooperate and share it. And we're the only country in the world that works this way. Every other country, they are private databases. They are somewhat controlled. That creates less competition. That creates less transparency. And it actually creates a worse consumer experience. So we have grown up and the internet coming to real estate actually allowed the MLSs to build this so that it's commoditized, right? And Zillow then has to differentiate on top of that, right? We have to fiercely compete for audience and win that audience with better products on top of commodity.

We don't have that. We have to build better touring experiences. We have to build better AI-powered virtual touring. We have to build better financing. We have to attract buyers and sellers to want to use our services because one click away is the same listings on another website.

I think many MLSs would say the transaction data is definitely a public good, right? That's just literally public.

That's right.

Yeah, that's right.

I think many see it as complementary. I think the challenge with 500-plus is there's 500-plus groups. So there's not—we can't have one conversation. There are many MLSs that are very consumer-focused and most of their rules, as you put it, are pretty consumer-friendly because they want to support broad membership. Their interests are how can we have more members? How can we have more folks come and use our service? So there are some that are more industry-focused and we would actually take issue with some of their rules and we do, and we're allowed when we think they have anti-consumer rules. I guess to answer your question, on balance, the idea of not having a shared cooperative database and we go sign up and get all the listings, which by the way we did before all this, like we did not get our listings from the MLS until six or seven years ago. We still had most all the listings on Zillow because people want to put their listings on Zillow. It was just way less efficient to get it that way. You're talking about tens and thousands of feeds and relationships and changes and all the things. So on balance, the idea that the database is coordinated and broadly available is 80, 90% good and there's 10, 20% friction and rules that we don't love that we work hard to lobby and advocate and change.

Yeah, I mean, I don't have the history perfect. But the internet broadly I think helped them evolve that way. There's a standard that they created that I'm sure if we go back to when Zillow was founded, it wasn't available where brokerages, the real estate industry, the MLSs could make available a feed for any internet site or any internet brokerage-based site to display. That came about as the internet was coming, as sites like Zillow were coming. So they reacted to that I think in a, again, in a pro-competitive and pro-consumer way. It probably happened over the last 10, 15 years. I mean, the other part of the Zillow history is we didn't start that way, right? Because back then there wasn't this sort of internet-powered set of MLS rules. They were before the internet. They hadn't thought about this. So we had to go sign up and get all these things on our own. And we did that and we built these great brands and consumer experiences and then I think the industry kind of caught up.

All right, I'll answer both those questions. The company structure pre and post my taking over CEO didn't change too dramatically mostly because the CEO transition was pretty planned, right? So I was COO before and we really planned for succession and so we started organizing the company back then. So the question probably better answered is how did we set up the company at that stage and that's largely how it's structured now. We are, I'm sure you get this a lot, we're kind of a classic matrix. We have functional teams and functional expertise that then sits alongside business groups for our most mature businesses. So great product, marketing, engineering, and design teams that are fully integrated with dedicated leaders that matrix into the business team. And most of our mature businesses are run in one group. So that's most of Zillow.

So most of our for-sale business is how we think about it. We think about for-sale and rentals. So most of the buyers and sellers that are using the Zillow brand that you see and most of the agents that are talking to them and most of the loans and home loans that you're getting in our residential real estate is kind of the most mature part of—and I don't say mature in terms of market share and growth, but in terms of how long we've been at this. We also have startups, acquired businesses, smaller businesses that we intentionally run more independently for some period of time until we need to think about how to better integrate them. Rentals is a great example. We have a rentals marketplace that's now, you know, north of 20% of our company, but that was largely a startup inside of Zillow for a long time. And it operated and still operates relatively independently with a GM of rentals and had a lot of its functional teams fully owned. And as it's matured and now, you know, it's going to be our next billion-dollar business. That's one of our goals is we are starting to intentionally think about okay, well how do we fold some of that back into the functional expertise capabilities. StreetEasy here in New York, which I know you all know well, that was something we acquired and maintained its independence and have continued to maintain its independence because there's not a lot of value and there's actually a lot more value in keeping it independent and thinking about New York because it's such a unique market. So we don't have a one-size-fits-all, but broadly speaking, we have kind of a functional business matrix that we look at. Does it make sense for the next thing we're doing?

We are approximately—don't get my count exactly right—approximately 7,000 people.

I mean, product and engineering is probably the largest group. You know, we are first and foremost technology innovators and that's kind of where we got our start and that's still, as we talked about earlier. Yes, the business model has evolved but building the best products and services, even if that's becoming software for the real estate agent or if that's becoming software for loan officers, that's still how we get to our end goal of more transactions. So that's still the largest investment we have. But as the businesses are growing, right, staffing more loan officers, staffing more account managers to work with agents, that is variable growth that comes as we see more share come. So those are growing as well. And those are probably on a percentage basis growing more even if on a dollar basis that's still a smaller part of the company.

I guess I'm a big believer in find the truth, don't find the right answer. There was a famous quote that I'll get wrong that was like, you know, humans are naturally biased to want to be right and sometimes they want to make the argument versus actually like seek the truth in the data. So our version of kind of customer-obsessed is we're looking for the answer from the buyer or the seller or from the agent using the software. And ideally the data helps us make sure we don't have biases or we rechallenge assumptions. So like we push for data where we can get it and data to make decisions. That doesn't mean we wait for data. Like sometimes you have to make a gut decision, but often we want to be as data-informed as we can.

That policy is really about protecting transparency. So, back to your earlier question, we all benefit—Zillow and our competitors—from these MLSs having most all available listings for free. For free for us, but for free for the agents who work and for free for the buyers and sellers who use any site. There are companies in the space that want to take those listings off the internet and hide them for themselves and not put them as part of the database and we don't think that's a good thing. And if you look at the other real estate markets in the world, that's how they work. Private databases where you have to pay for access leads to consumers having to pay more. So we think that's a bad idea. And so for us it was easy to say, okay, well what we can do as an audience in the industry is we can say, well we don't think you should be able to free-ride and only give the internet the listings that you want and still get access to everyone else's listings. So we just—we won't let you do that on Zillow, right? If you want to do that then that's fine, you can go operate that way, but we don't want to have that listing. And it was more of an educational tool so that people understood there was a trade-off if they did that and ideally in a sense what we already see, which is the majority of sellers and sellers' agents, if given a choice, want their listing on the internet and want their listing on as many internet sites as possible and that's what they choose.

Well, I think you should think about real estate more as e-commerce than as premium content, right? And when you're selling a good, you want to advertise to as much demand as possible, kind of as quickly as possible. I mean, the number one thing, the reason people cry is because it's so hard to buy and sell and it takes weeks and sometimes months to do it and you have people traipsing through your house and you basically have to hire someone to be kind of a part-time job on your behalf to help coordinate all this stuff. So the idea that you wouldn't try and maximize price—when we ask sellers, most people say, 'No, no, no. I want to sell my house for the most I can in as short a time as possible.' So that doesn't really fit with trying to window or hold things out or take longer. And so for us, we're like, well, the goal would be to help sellers do that, to help sellers understand that if you want to maximize price, the way to do that is to broadly market your home as quickly as possible. If you don't, and there are rare cases where people don't, you can do that, right? You can sell your home privately. You can opt your home out of the internet because you have privacy concerns. All those mechanisms exist today and we support all those things. We're not saying you can't do that. You can window. You just can't window by only showing your home to some people and then forcing those people to go work with certain companies over other companies because the toll on all those customers is going to go up.

Got it. The only thing we take issue with is selective marketing. So, you know, there are plenty of ways for you to be private or sell your home in a private fashion today. You can never put your home in the MLS and you can sell it off-market. And that happens in privacy situations or luxury situations. You can put your home in the MLS and sort of opt out of the internet because you actually don't want people traipsing around driving around your street. You can hide the address if you have privacy concerns. Like, you can take all these steps today. And then of course you can put your home on the MLS and it comes to all the sites. You can also list your home as coming soon in the MLS and say, 'Well, I'm actually not ready to sell. I have to do a whole bunch of work.' But I'm going to be selling my home when the spring selling season comes, so I should start to tell people about it. So that's a version of windowing. The common theme across all those is a company is not choosing which customers can get access to the stuff and making it broadly available for some but not for others, which can lead to all kinds of bad behavior. And you're not telling the seller that by doing so you're going to get even more money, right? If you're going to forgo some demand that you'll somehow increase price. That's the only thing we say, well, hey, if you want to do that, like, we don't want those listings.

I mean, we reconcile it by like what's best for the seller. I mean that's again—that is honestly, if we asked 90% of sellers do you want to do something different and they said that we'd go work on that. But you ask sellers do you want to broadly market your home, do you want to sell faster and for more money by public marketing and they say yes. And by the way, agents do too. And I think that's part of the other nuance in this industry that folks don't quite get is a lot of these industry machinations are between the brokers and the MLSs and the associations and NAR and all the legal work. The industry is actually run by over a million independently licensed real estate professionals who are independent contractors and so they inherit a lot of benefits from the companies they affiliate with, but they make their own decisions and they are fiduciaries in many cases and they are supposed to disclose the benefits and risks of how you go sell your good to your buyer and seller. So that's what we're trying to help support. It is not surprising that companies want to find a way to find more margin, maybe at the expense of their end buyer and seller if they're finding their margin challenged.