This weekend Zillow announced on its blog that it had turned three. In this short time, Zillow has almost become a household name in the US and in January, they reported a record number of visitors to the site. It now seems a good time to look at what we can learn from the rapid growth of Zillow. Here are some lessons.
People have an insatiable thirst for property pricing information
It is clear that people have an insatiable thirst for information about home prices – irrespective of how accurate that pricing information may be. According to Zillow, nearly 60% of all homes in the US have been viewed on the site. This appetite for information appears to be strong in both bear and bull markets with people wanting to track their most valuable asset. There have to be opportunities for players in other markets to provide similar information.
PR is a great builder of traffic
It seems that PR (and Google) has been a great builder of traffic for Zillow. They have mastered the PR game and are generating interesting stories and statistics on the market almost every day. The press (and bloggers) are feeding of these stories and thus not only creating awareness of the brand in the market, but they are also creating back links (2.4 million) to the Zillow site and therefore helping page rank and of traffic from Google.
The stories are a mixture of CNN, Fox News and Entertainment Tonight. One of my favourites is how much the White House is worth ($287m for those wondering). However, I am not sure of their algorithm as on the same page under "Similar For Sale Homes" they have a $527,000 single front home. I can't quite see President Obama in that home!
You need a good story to raise significant equity
The founders of Zillow have also demonstrated a great ability to raise significant amounts of equity off the back of the Zillow concept. It has been reported that they have raised around US$87million to date. It is clear that these capital raisings occurred in a more enthusiastic time and the challenge now is to use this capital wisely, as it is likely to be difficult to raise more capital at valuations existing shareholders will find acceptable. Therefore it is not surprising that the company announced last year that they would be laying off 25% of their workforce.
Traffic does not equal revenues
Over the last year Zillow has significantly increased its traffic to somewhere between 3 and 8 million unique visitors in January 2009. According to Zillow, traffic was 7.5 million unique in January. However, according to other sources such as compete.com, traffic is much lower. Irrespective of this, it appears that having lots of traffic doesn’t necessarily mean that you have lots of revenue. The rumour is that Zillow has revenues around the US$10m per annum mark. Now if you compare Zillow to sites such as rightmove.co.uk (UK) and realestate.com.au (Australia), while they have less traffic than Zillow, their revenues are probably 10 times those of Zillow. Even the move.com and realtor.com sites (owned by Move Inc), with traffic that is more than Zillow's, have revenues of around US$120m. Therefore, while they have done a good job a generating traffic, there is a long way to go at converting that traffic to revenues.
Business models are hard to create
Related to the previous topic, although you have traffic to the site, coming up with a business model that makes sense is actually quite hard. The team at Zillow appear to have tried a few different models over the last three years. The challenge with any of these models is coming up with one that is scalable and has longevity. For example, selling display advertising to banks has longevity but may not be scalable – especially in today's market. It is rumoured that Zillow was also looking at going into real estate transactions. However, in November it was reported that they gave up some of their brokerage licences as a cost cutting measure. The challenge that Zillow faces appears no different from other high trafficked sites like Facebook.