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Why did Zillow sue Compass? It’s more complicated than you think

John Fuller for Inman

Zillow is suing Compass because it worries about anybody and everybody who is focused on using technology to reduce the time, stress and uncertainty it takes to buy and sell properties. Zillow would love to trip up Compass, which has suddenly become a formidable competitor in the race for prop tech stardom.

The lawsuit makes some powerful claims about Compass’s behavior, but it also fills in some blanks about how the future is unfolding for real estate.

At first, the legal jab seemed to be a head scratcher: Why would Zillow create so much drama over junior people jumping ship? Happens every day.

Look closer.

First, Compass was mucking around Seattle, building an engineering team around its new tech star, CTO Joseph Sirosh, when two Zillow technology employees left the company for the New York-based tech brokerage. Sirosh is based in Seattle.

But it is bigger than that. Zillow executives have come to believe that Compass CEO Robert Reffkin is a force to be reckoned with. Behind closed doors, they mutter about him often, watching his every move. And like many smart folks in the industry, Zillow’s executives no longer underestimate the 39-year old charismatic wonderkid who runs fast and acts decisively. Cunning, bold and full of surprises, Reffkin is building a company with a fiercely competitive business culture — like Zillow.  

Like Barton’s shrewd wingman Lloyd Frink, Reffkin’s partner Ori Allon is understated but equally savvy with a ruthless touch.

Reffkin compares the current real estate industry competition to that of Blockbuster and Netflix — talking more and more about a stress-free real estate transaction. And while his path getting there seems quixotic at times, his tech strategy is beginning to make some sense.

Acquiring Contactually solved his CRM problem, but most importantly does not divert Compass’s 200 engineers from working on the more important stuff — an integrated real estate transaction. Reffkin promises to have 400 engineers by the end of the year working to fulfill his burgeoning platform promise.

Reffkin put the first piece in place when he recruited Sirosh as his CTO from Microsoft where he headed up artificial intelligence. Sirosh also worked at Amazon,  where he ran the science and software behind the technology giant’s supply chain and order fulfillment system. These talents won’t be wasted on CRM bells and whistles, but instead on building a platform to compete with Zillow.

Sirosh, of course, knows where the tech talent works in the Seattle area — Microsoft, Amazon and Zillow.  

Employee poaching litigation is often about putting competitors on notice, drawing a clear line between friends and foes.

It does not help that Reffkin has been lukewarm on Zillow, warning agents not to give up their identity to the giant portals. As Compass collects more top performing agents, Zillow is missing out on opportunities for its Premier Agent program.

Plus, Compass has been willing to take moon shots that, so far, have paid off, scary to any technology competitor, especially an unabashed risk taker like new Zillow CEO Rich Barton.

And then there is Wall Street. For a decade, Zillow was the darling. Today, a new cast of prop tech companies are getting investor attention and their money.

Nothing matters to Zillow more than winning the transaction race. Call it iBuying, instant offers, automated home sale or an end-to-end consumer offer, it does not matter. The endgame is clear.

Zillow embraced iBuying a couple of years ago after watching OpenDoor get a head start in making real estate transactions faster, easier and more certain. That’s one reason Barton returned as CEO and turned everything upside down on the perfectly set “ad model” table that former CEO Spencer Rascoff had laid out.

NAR, Upstream and disgruntled broker owners are yesterday’s problems. Under Barton, Zillow is removing itself from tired industry politics. The prize just got bigger.

Zillow has now turned its sights on Opendoor, Redfin and Compass. Barton is obsessed with being the winner in a different game with a new cast of characters. The emerging real estate tech titans — ZORC — who are racing to make the home buying and selling experience better for the consumer.

We have not seen the last of the Compass and Zillow faceoff.

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