6 Important Real Estate Education Lessons from Zillow
What does Zillow’s latest round of financial data teach real estate companies, business owners, and independent professionals?
Zillow’s recent acquisition of Trulia has captivated the real estate industry media headlines. It’s a big, bold move, and the impact will be seen over time. There is a lot for business owners and independent professionals to glean from this, both inside and outside of the real estate industry. However, there is perhaps far more business and real estate education and insight to be gained from Zillow’s financial data and fiscal performance.
What good and bad lessons can be learned from Zillow? How can these be applied to running a better, more profitable business, regardless of the amount or size of the competition?
1. In Real Estate, It’s All About Marketing
While Zillow has evolved and added many new features and tools over the last decade, its foundation and continued visibility has largely relied on the initiate home valuation tool, and its ‘Zestimates.’ Few would dispute this home value guessing tool has been seriously flawed from the beginning. Many real estate industry professionals would say it has killed far more potential deals than it is has created. Various studies and comparisons have also found major inaccuracies amongst home listing data, and other claims about the traffic quality it generates. Still, none of this has slowed the giant down. It has continued to expand. Why people really use Zillow today may be a very cloudy area, but they visit by the millions. This highlights how real estate often comes down to marketing. While it is no excuse for putting out a lousy product or service, even the worst can succeed with the right marketing. While even the best quality products, and most valuable and needed services can fail miserably or never gain traction unless they are marketed well.
2. Internet Traffic Has Value
Zillow draws millions of website visitors every month. Some estimates have put the value on this at an average of $89 per visit. There are many ways to capitalize on web traffic. This ranges from directly selling product or service, like selling physical homes, to selling advertising, earning commissions on third party advertiser’s product sales, selling visitor information (not that you should ever do this one), and more. All businesses and especially real estate companies are wise to invest in content, and other ways to draw organic website traffic which can pay out in many ways. This can directly pay out in sales, as well as create multiple, diverse, passive income streams.
3. Buyouts as a Strategy
Buying the competition has long been a very profitable strategy used by legendary investors like Warren Buffett, and many others. Google and all of the major tech giants engage in this activity too. It cannot just help take the competition out of the game and increase market share, a without having to spend in wars against them, but can be a very effective tactic for acquiring talent, and growth. The $3.5B all stock Zillow – Trulia deal shows that you don’t even have to have cash in order to do it.
4. The Internet isn’t Everything
Many businesses and real estate professionals in particular have gone 100% virtual in recent years. It only makes sense with over 90% of home buyers turning to the web today. It can be more efficient and profitable in terms of operations, while lowering risk. Still the internet isn’t everything. In fact, we are seeing a rebound in offline lead generation and deal making too. While Zillow is most well-known for being all virtual, what few may realize it that it has been acquiring its own clients via telemarketing to real estate agents.
5. Quality Still Trumps Quantity
Zillow’s second quarter 2014 financial data shows that while it beat estimates, with a 68% increase in sales to $78.7 million, it is still losing over $10 million a quarter. While there may be many reasons for this, the most obvious is likely the churn of clients, and big spend on acquiring new ones. Buying business is expensive. It is way more expensive than referrals and repeat business. There is time to spend on ads, and paid promotion, as well as investing in infrastructure. If this is done well, an increasing percentage of business will come from past clients. If it doesn’t sales costs will notorious keep growing, and keep eating away at profit margins.
6. Focus on the Bottom Line
The big lesson from Zillow’s ongoing inability to turn a profit, even as it expects to bring in almost $1 billion in revenues in 2015, and even more annually after that, is that the top line means very little when it comes to real profit. There are many real estate pros and small businesses which are far greater net profits each year that you have probably never heard of. If you are in business or real estate for money you can bank or spend, and not just for the temporary ego boost, then focus on the bottom line. It’s way better to make millions in a couple hours a week, and spend the rest of the time doing what you love, than to be running around like a maniac and not seeing any net profit, but being able to claim you have a lot of cash flow. Size isn’t always an asset.