Zillow stock is trading at $91 a share with a staggering market cap of $3.56 billion, more than double the valuation of its closest competitor, Trulia ($1.29 billion), dwarfing Move ($460.5 million) and Re/Max ($339.5 million), and gunning for Realogy with a $6.43 billion valuation.
Every move the company makes seems to be savvy, calculated and successful, which explains its jaw-dropping valuation.
Zillow is so big that the company is no longer patronizing the real estate industry; instead, Zillow seems willing to poke it in the eye — the poaching of Move executives is an example. The swagger with which Zillow hired away these high-profile execs points to unfolding tension with the top end of the industry value chain, which includes franchises, big brokers and trade groups.
Zillow’s relationship with this segment of the industry is shaping up somewhat like Amazon’s relationship with big book publishers.
Tense cooperation is the best way to describe how Amazon works with publishers (think brokers and franchises). They have no choice but to partner, but Amazon has the power because it controls the consumer. On the other hand, Amazon seems to favor authors (think real estate agents), as their position in the value chain is closer to the reader (think home shopper).
As Zillow fortifies its position with the consumer, the company builds leverage with the industry and can extract greater value from it. The same arc applied to the Amazon narrative. Today, book publishers consider Amazon ruthless, but they are still forced to work with the juggernaut. Publishers mistakenly thought their content provided them leverage, but in the end, it did not — books without customers are useless, just like listings without buyers and sellers.
Over the years, Amazon faced industry challenges such as boycotts by publishers, but when book sales plummeted, the publishers quickly backed off. And any and all publisher efforts to create an alternative to Amazon proved to be foolhardy.
As many real estate insiders know, there is a secret real estate initiative dubbed Upstream that promises to give brokers more control over their listing data and leverage with the likes of Zillow. Is this folly? If it follows the path of becoming a feeble reaction to Zillow like publishers tried with Amazon, certainly yes.
In its latest recruitment move, Zillow was in all likelihood prepared to be sued by Move and the National Association of Realtors. While there may be grounds for such a lawsuit, the action points to the weak position both NAR and Move find themselves in.
And it begs the question as to why NAR sometimes stumbles. The powerful trade group excels at lobbying, throwing stellar events and member education, but often falls short when it comes to other types of innovation.
After the recent fiasco with Zillow, a leading real estate executive was somehow inspired to call me and unload his frustrations with NAR. (I promised to keep him on background, sorry for the mystery).
He pointed to the suing of the ex-Move exec as only one example of problems with NAR.
In the last several years, he calculates that NAR has spent $100 million on ventures outside of its core competence — including RPR, a credit union, a university and a venture capital fund — without the level of adoption or return on member money that was expected.
“What they do so well is lobby Congress,” he said. “Mobilizing Realtors politically around a mortgage deduction threat is powerful stuff that we are grateful for.”
Even here, Zillow is flexing its muscles. Rascoff got an interview with President Obama. “What if NAR says we represent 1 million Realtors and Zillow says we represent 70 million consumers, imagine how that could play out,” said my insider.
The structure of NAR is its own worst enemy, he said. Compare NAR with Zillow, which has a small, focused executive team with a lean eight-member board of directors all moving in the same direction. “Then there is NAR, a sprawling fragmented organization.”
He pointed to an estimated 85,000 brokers, nearly 800 board members, 1 million Realtors and gads of committees that are often competing with one another instead of working together. “Dale Stinton is a smart and capable guy, but no single leader can manage this behemoth.”
I asked him why he didn’t do something about it?
“We all know it is a mess, we just don’t know what to do — scary.”
What do you think? About Zillow? About NAR? About my analysis? Does any of this matter to the everyday Realtor?