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I don’t know much about homes, other than the fact that I miss it while I’m away and I want to live by myself when I’m there for too long. Different people associate different things with homes. Some embrace their childhood; for some, it is the ancestral belonging, and for others, it means their spouse and kids. Some stay there all their lives, while some leave it for boarding schools as early as thirteen.
But one thing that remains common is that the houses are brought and sold, but homes are created. Out of plain walls and rooms and gardens, the people transform a house into a home. So, today we talk about Zillow- the online real estate marketplace and how it uses emotions and economy to create the next big thing out there. We will also understand what is its business model and how does Zillow make money?
Okay, so what is Zillow?
Like any other e-commerce app out there where you go, explore and buy, Zillow works on similar lines, but you buy houses instead of clothes, electronics, or commodities. So, you can list your house, you can see other listed houses for buying or renting, or you can use the various tools Zillow provides. Sound easy, right? There’s more.
The primary purpose of Zillow was the removal of anxiety and effort while going through the tedious lifecycle of owning or renting. With this idea as the brainchild, Zillow came to life in 2006. By 2011, it was trading on the NASDAQ stock market.
Strategically planning its acquisitions, it acquired StreetEasy in 2013, Retsly in 2014, and Trulia in 2015. By 2018, Zillow recorded 36 million unique visits per month on its platform with its 110 million houses database. It is said that 4 out of 5 homes in the US have been viewed on Zillow. So how exactly is it done?
Buying on Zillow: In a word, easy. They have a variety of homes that one could view by categories such as Open houses, new construction, Foreclosure (I had to Google it as well, so Foreclosure is a legal process by which the lender will seize the property if the borrower is not able to meet their repayment obligation). They also assist you with resources such as the foreclosure center and buyer’s guide.
Renting on Zillow: Renters can manage their listings and payments, whereas tenants can look for places available for rent by choosing between apartments, houses, buildings, making rent payments online, and utilizing the renter’s guide.
Selling on Zillow: The most important thing for sellers is to know how much their property is worth. An inaccurate estimate could cost the sellers a lot. Hence, Zestimate is a tool primarily for sellers to know your property’s neighborhood value and worth and ensure you’re getting the right amount. One can utilize the seller’s guide, set up a home inspection, and get listed on the platform yourself or through a real estate agent once they have decided to sell.
How does Zillow make money? What is the business model of Zillow?
Zillow has multiple revenue streams from which it generates cash and makes money despite being free for the end-users. It is free for anyone to list a property for sale or rent on the website or app, and the online tools can also be used without paying a penny.
Still, it recorded annual revenue of $3.3 billion in 2020, a 22% increase from 2019. That is huge. So let us dive deeper into the revenue model of Zillow and see how does Zillow make money? Zillow has made three reportable segments under which it generates all the revenue- The home segment, IMT segment, and Mortgages segment.
The home segment includes the financial results from Zillow Group’s purchase and sale of homes directly through the Zillow Offers service and the financial results from the title and escrow services provided through Zillow Closing Services.
Zillow wanted to tap onto the house flipping business (Today I learned: Flipping is buying of a security or an asset to sell it for a short-term profit instead of holding on to the same for a long-term to let its worth increase) and started something called as iBuying in 2019.
Here, a customer sends them the details of their home, and it responds back with a cash offer within a few working days. Customers either accept the offer and agree it list with Zillow’s local agent or back out. In case Zillow buys it, it relists it and hopes to sell it within three months. It expects this to be a profitable idea and generate $20 billion in annual revenue five years down the line.
IMT stands for the Internet, Media, and Technology segment, where it generates revenue through the sales of marketing services, software, and other solutions. It also includes revenue from Premier agents, rentals, and new construction marketplaces.
Property management companies use its platform for ad sales. The entire rental network of Zillow, Trulia, StreetEasy, and Hotpads is utilized to maximize the visibility of advertisers’ property to those who want to own or rent. It also does the painful job of generating qualified leads and sending them across to the advertisers for following up on the same.
Rental managers spend $3.5 billion per year on advertising, and a platform with a huge database and viewers forms an ideal place for advertising. Therefore, ad sales make up for a good chunk of the revenue stream. It also provides ad space to mortgage lenders and related businesses like interior designers, architects, home organizers, etc.
It charges them based on cost per click (CPC) or cost per thousand impressions (CPM). Here click means that once a user has seen the mortgage rate, they request more details from the lender. At the same time, an impression is simply that an ad will appear on their platform.
The mortgage segment has allowed them to become a licensed lender via the acquisition of Mortgage Lenders of America in 2018. It later got rebranded as Zillow Home Loans, where borrowers can take loans or refinance their homes. They also have a subscription-based mortgage software called Mortech, which offers these lending services and includes a product and pricing engine with a lead management platform.
|User Visits (in bn)||9.6||8.1||19%|
|Avg. Monthly unique users (in Mn)||200.7||172.6||16%|
|Number of homes sold||5337||4313||24%|
|Total Revenue (in $ bn)||3.3||2.7||22%|
|Loss before Income-tax (in $ Mn)||-169.7||-309.6||45%|
The revenue streams sit on the top of a gold mine called ‘database.’ Zillow’s database at the core gives it an upper hand over its competitors. It has accumulated its data by scraping it through Multiple Listings Service (MLS).
MLS is a local association of realtors which keeps their real estate data in one place. Other than that, the National Association of Realtors (NAR) is America’s largest trade association representing 1.3 billion members. It has the details of real estate brokers, property managers, salespeople, and others engaged in this industry.
It also focuses on its research aspect a little too much to analyze the latest trends. It produces monthly reports on housing trends, whose data is accessible at a zip code level. They also research peripheral topics like mortgage affordability, forecasting, negative equity, and others pinpointing the real estate sector.
It’s not what you sell that matters as much as how you sell it– Brian Halligan
Why would I randomly throw in a marketing quote while talking about business, right?
Because the thing with good marketing is that it doesn’t feel like marketing at all. And Zillow is bringing emotion into the real estate market. Like damn. People have been stuck in the same place for more than a year. They daydream about moving into their next home, but is it easy to let go?
They had a moment when they released this beautiful ad campaign called ‘To move is to grow.’ It highlights the roller coaster of emotions one feels while moving out. In the first ad, they used humor to showcase how Zillow’s goal is to make the process of moving simpler and more joyful. They used many ‘Susan’ selves showing the different reactions. Look at this super cute ad here:
‘Moving houses is an emotional experience. There’s attachment, and then there’s a lot of money on the line. There’s vulnerability, and I feel the real estate had not really tackled that’, said the creative partner at FIG (the agency that designed the campaign).
It was researched that more than 75% of people are afraid to move on to a new place simply because they feel it would be too hard because of emotional factors. But once they take a leap of faith, the new chapter is rewarding. They showed this with the help of a little girl whose stuffed toy says, ‘I don’t want to move either, kid.’ Take a look here:
Zillow is also challenging the conventional notions of ‘millennials don’t want to buy and is targeting them by being genuine, empathetic, and building a solid relationship. Half of the home buyers in the US are under 36 who want information at their fingertips. Adding to this is their brilliant way of engaging the audience through their social media posts.
Therefore, they are leveraging emotions, technology, and high consumer focus to build a one-stop solution for all home shopping needs. Their future plans include immersive features such as taking the customer through a 2-minute video listing tour. They feel it will bring the content to life and help ease the apprehensiveness which is usually there. It’s only accurate when they say, ‘Home is where the heart is’, and Zillow is trying to have a piece of it!
*PS- Zillow is not in India and has not indicated any plans soon. However, apps like 99acres, NoBroker, CommonFloor, Housing.com, and Makaan.com have been said to do an excellent job at what they do. At least now you know how does Zillow make money and what is its business model! Enjoy!
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