In 2005, Rich Barton, Lloyd Frink, and Spencer Rascoff had come off building successful companies of their own - Expedia and Hotwire. After working together at Expedia for a bit, they caught the entrepreneurial bug once again.
With $5.5 million of their own, they decided it was time to build the next big thing. The three spent the next few months in a conference room in Seattle pouring through problems of their own, evaluating the market for them, and trying to come up with solutions.
One personal need was creating a seamless way to manage all the photos and media they amassed over their time building companies and relationships. Could there be a need for a product that enables people to edit and share photos and other files over the internet? Pursuing the idea for a short while, they figured the revenue opportunity wasn’t there, theorizing that file sharing would be a race to the bottom over time with larger players offering those services for free. Well, Dropbox was founded just over a year later and has created $7 billion of value simply off that very idea.
During this time, Rich, Lloyd, and Spencer were also in need of a home. Coming off some pretty successful stints and flush with cash, they were trying to characterize the best home buying experience for themselves. Aggregating county level economic data, google maps geographic data, and all MLS data they could get their hands on they were able to create an approximate representation of how much homes in their locality were worth.
This massive research project brought on a stark realization. There was a massive amount of information asymmetry in the real estate market. Quality home data available through the Multiple Listing Service (MLS) was available with a huge barrier - you had to be a licensed real estate agent.
Realtor.com and listings on any realtor’s website showed the current homes available, but that was about it. Absolutely no information about the value of one's home existed, meaning a huge knowledge gap for the average person who was in the market for a house. So that’s what they chose to zero-in on.
Finding A Market
Here’s an interesting segue. Back in 2005, Realtor.com controlled the online share of real estate attention. But, Realtor.com was not really a scrappy startup. Rather, it was the online presence of the nation’s largest real estate cult - the National Association of Realtors (NAR). In an effort to appeal to the internet age, the NAR launched Realtor.com as a way for people to see publicly available MLS Data.
But Realtor.com made a grave mistake. You see, they offered a service where third-parties could license MLS data for a fee - something that Zillow jumped on immediately. Starting with the Seattle area, the Zillow team aggregated MLS data from homes all across the country. With a mission to create the estimates for every home in the nation, Zillow ate through all the data that Realtor.com had, combining it with neighborhood income, school zones, and wealth statistics.
After a few months, they were able to generate estimates of home prices for around 40 million homes - coined “Zestimates”. And with this, they went live in February 2006. Got this picture from Wayback Machine.
Over 1 million visits on the first day just from people searching their addresses! Even today, this beats out Instagram, Snapchat, and even ChatGPT! Over the course of that month, they were able to scale to 4 million - but then the troubles started. Zillow finally regained the same level of traffic after spending 2 years adding to the core product.
An Emotional Chord
How did Zillow get so viral? There wasn’t a crazy innovation like AI with ChatGPT. There were no massive network effects like YouTube or Instagram had. And it wasn’t like they had a crazy marketing stunt like Dollar Shave Club pulled. You saw how their website looked - the landing page was basically just some text and a couple input boxes.
What if you had a $0 marketing budget? Bill Gurley, partner at Benchmark Capital, posed this very question to Rich when Zillow was raising their Series A in late 2005. Rich, a massive proponent of bringing “Power to the People”, was obsessed with information asymmetry in industries where customers and agents existed. Just take a look at his accolades - Rich founded three separate billion dollar companies all with the aim of bringing transparency to previously closed off industries.
Trulia built the one-stop shop for seamless home searching, but never added a proper light to house valuations. Trulia became the “Google of Homes”. Zillow on the other hand was focused on the larger opportunity. Using the vast amount of data readily available to solve the knowledge gap in valuations.
There’s one other harder way to create a spark - tapping into a person’s emotions. Zillow’s go to market plan was to use controversy to fuel popularity. By creating a tool that made the general value of everyone's home public - you’re provoking a ton of voyeuristic searches. Maybe you want to look up the value of your ex-girlfriends home, or maybe the boss you really dislike, or even all of your relatives!
Today, Zillow is the 29th most visited site. You might use it when you go on vacation in a new place. Or maybe you pull out the app when you see a cool looking house while driving around town. At the end of the day, Zillow still drives the attention of the average person - the core target market for realtors. When it's time to buy, you can bet the first stop is Zillow.
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