With iBuying, Zillow must move to a low-margin model that targets “mindbogglingly larger” market than advertising, CEO Rich Barton proclaims in new interview.
Zillow may have once channeled Google, generating the lion’s share of its revenue from advertising. But the listing portal’s new role model must be the behemoth marketplace and retailer Amazon, the company’s CEO said in a new interview.
Zillow CEO Rich Barton told The Information that the goal of Zillow’s blitz into the low-margin business of iBuying — using technology to quickly buy and resell homes — is to tackle a market that is far, far larger than real estate advertising.
That means, “We have to move from a Google mindset to an Amazon mindset,” he said in the interview.
Whereas The Information reports that Zillow ran gross margins of 93 percent through its advertising business, iBuyers charge average service fees of around seven percent. It remains unclear whether that will be enough to turn a profit.
For Zillow so far, breaking into iBuying has meant taking on more than $1 billion in additional debt, suffering much higher losses and seeing its stock price slump.
But Zillow could leverage iBuying to rake in cash from other sources. This could include referral fees from real estate agents for listing leads generated by its iBuyer, as well as title and mortgage services provided by Zillow.
Home purchases, he told The Information, are “a mindbogglingly larger” total addressable market — “$1.8 trillion of secondary market transactions happen a year in the U.S. of homes.”
The interview underlined a shift in rhetoric by Zillow from relatively guarded language (former CEO Spencer Rascoff’ once said “We sell ads, not houses”) to bolder pronouncements.
In a March interview with the website Stratchery, for example, Barton acknowledged that Zillow became an iBuyer after concluding that Opendoor posed an “existential threat” — a comment he repeated in his interview with The Information.
He also said in his earlier Stratchery interview that “it was always our strategy to bide our time.” Zillow followed the tech playbook of bringing “casserole to the dinner” (of the industry) as a “baby elephant” and then “growing bigger and bigger and before you know it you can’t be kicked out of the house,” he explained.
“… by the way, I did the same thing with Expedia,” he added in the March Stratechery interview. “It’s the exact same, this is a very interesting would-be digital aggregator entry strategy when you basically take advantage of a highly fragmented, individually rationally behaving industry, and provide incentives to some subset of them and those incentives end up securing your supply and helping you get big.”
Barton even left open the possibility in the previous Stratchery interview that Zillow could one day employ real estate agents if the company’s current partnership strategy with agents doesn’t pan out.
Zillow hopes to use software to automate transactions with the help of agents at outside brokerages, “rather than having these employee agents that Redfin has, but we’ll keep our eye on that too,” he previously said. “That’s a possibility, but they don’t have any leverage in that model.”