Zillow is an online real estate marketplace, matching buyers and sellers and renters and landlords through a massive platform with personalized search and discovery experiences and simple UI for both buying/renting and selling/listing. The company makes money by charging a fee on the sales and additional services like premium agents and mortgage services for buyers.
Zillow is an online real estate marketplace founded in 2006 by Rich Barton, Lloyd Frink, Spencer Rascoff, David Beitel, and Kristin Acker.
It was former Microsoft employee and Expedia founder Rich Barton who would have the most profound impact on the formation of the company. Barton noted that the real estate industry suffered from a high degree of information asymmetry. Public housing data was difficult to access, locked away in various databases and archives. With this lack of transparency, realtors were able to maximize their profits at the expense of the consumer.
In the following years, Zillow would spend months collecting and digitizing housing data to make it publicly available on its website. A feature allowing consumers to determine how much a property was worth caused the website to crash during the beta launch, attracting over 2 million hits in the first two days.
Zillow value model
Zillow is a massive online real estate website which leverages its platform to connects millions of potential buyers/renters and sellers/landlords. Its technology is used to enable a massive listings, easily filtered and discovered by millions of users each month, and a mobile app that delivers the same kind of experience.
As a real estate company, value is enhanced also via real estate services, like premium, dedicated agents, home loans and more.
Zillow mission and vision
Zillow’s mission is “to give people the power to unlock life’s next chapter.”
Thus its vision consists of “empowering consumers with data, inspiration, and knowledge around the place they call home and connecting them with the best local professionals who can help.”
Zillow value propositions
The primary value proposition for buyers and renters is a platform with a wide variety of listings (with over a hundred thirty-five million homes as of 2021) for both buying and renting. And the ease of searching, discovering, and finding the properties that most fit the renter and buyer criteria.
For sellers, the platform enjoys a massive amount of traffic, with over two hundred million unique users each month and among the most known real estate websites in the US.
Over the years Zillow also launched various services.
Zillow technological model
The primary use of technology within Zillow is to power search and discover homes.
Other technological applications comprise the development of models to build solid floorplans based on the house pictures uploaded by sellers/landlords:
Other models yet, are used to refine search based on some contextual information related to the place/city of the search:
Starting in 2018, Zillow also started to model 3D homes based on the pictures uploaded by users on the platform. With a dedicated app, users can easily create 3D models of the house and upload them on the platform:
Zillow distribution model
Zillow’s distribution strategy consists of organic (continuous traffic on the website and mobile app) and paid advertising. Distribution is also enhanced by agreements with real estate agents using the platform.
To gain a bit of context, by 2020, Zillow recorded over 200 million unique users, that led to more than five thousand homes sold via the platform. Precisely, these 5,337 homes got sold at an average selling price of $320K per home.
Zillow financial model
Zillow revenue generation
When Zillow launched in 2006, the company collected advertising revenue as the sole source of income.
Since then, Zillow has diversified into many income streams. We will take a look at some of these in more detail below.
Zillow has data on approximately 86% of the 128.5 million homes in the United States.
This data was incorporated into the Zillow Offers service in 2018. The service allows so-called “iBuyers” (instant buyers) to evaluate complex datasets to make near-instant cash offers to property sellers.
With speed and convenience a priority of most sellers, Zillow often purchases a property below market value. At some future point, it sells the property for a profit.
During the transaction process, Zillow also charges:
- A selling fee of 6% to cover the transactional cost of purchasing the home.
- A closing fee of 1-2% to cover expenses such as transfer tax, escrow, and title.
- An average service charge of 2.5% covering maintenance work, utilities, and so forth.
IMT is an acronym for Internet, Media, and Technology. To bolster its business model, Zillow offers marketing services and other products for real estate professionals.
IMT can be divided into three core components:
- Premier Agent – encompassing the two SaaS products in Premier Agent and Premier Broker. These products allow agents and brokers to track leads or advertise their services on the Zillow platform. Here, Zillow makes money on a cost-per-lead basis which is determined by the services offered and the property price.
- Rentals – where Zillow sell advertising services to landlords and associated rental professionals
- Other – where Zillow sells similar services to individuals who play a role in the renovation or re-sale process. These include photographers, builders, home improvement professionals, and housing inspectors.
For the Rentals and Other components, Zillow is paid on a per-lead basis.
Through its Zillow Home Loans service, the company also makes money on mortgage interest.
The company also works with more than 50 other lenders who pay Zillow every time a customer is referred to them. This is usually a fixed fee depending on the nature of the agreement between both parties.
The cost structure is primarily skewed toward the resources to make both the desktop and mobile platforms (websites, and mobile applications) run smoothly. Together with part of the acquisition costs, that are critical to sell the homes in the first place (things like repairs and updates.
Cash flow generation
The company generated operating cash flows in 2020 primarily due to “cash received from real estate professionals, rental professionals, mortgage professionals, and brand advertisers, as well as cash received from customers for sales of homes through Zillow Offers and sales of mortgages originated by Zillow Home Loans.”
When it comes to investing activities, the use of cash primarily relates to “purchase and sale or maturity of investments, the purchase of property and equipment and intangible assets and cash paid in connection with acquisitions.
Instead of financing activities, incoming cash resulted from net proceeds from the issuance of convertible notes, net proceeds from and repayments of borrowings on for Zillow Offers, and proceeds from the borrowing of Zillow Home Loans.
- Zillow is an online real estate marketplace founded in 2006. Former Microsoft employee Rich Barton created the platform in response to a lack of transparency and disgruntled customers in the real estate sector.
- Zillow began with a simple business model, generating income solely from advertising. With data on 86% of all United States homes, the company has since progressed to allow a free and open transaction experience for buyers and sellers.
- Zillow also generates an income through its Zillow Home Loans service. It also works closely with more than 50 lenders who pay the company a commission whenever it refers a customer.
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