How Does Zillow Make Money?-Zillow Business Model

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Zillow is an online real estate database company founded in 2006. The company operates in the United States and Canada. Zillow allows users to search for homes for sale and rent, as well as estimate the value of homes.

How Does Zillow Make Money?,the company makes money by selling advertising to third parties (home builders, mortgage lenders, etc.) and selling buyer and seller leads to Premier Agents. 

What Is Zillow?| Who Owns Zillow?

Zillow is a real estate information and home-related services marketplace based in Seattle, Washington. The company was founded in 2006 by Rich Barton and Lloyd Frink, former Microsoft executives and founders of the travel website Expedia, and Spencer Rascoff, a co-founder of the real estate listings site Hotwire. Zillow operates the largest real estate and rental marketplace in the United States. The company has over 100 million monthly unique users of its website and mobile app.

Zillow Business Model

Zillow Group’s (NASDAQ: Z) (NASDAQ: ZG) business model consists of three segments: Homes, Internet, Media and Technology (IMT), and Mortgages.

Zillow operates the largest online real estate database in the U.S., providing homeowners, renters and homebuyers with vital information about properties and neighbourhoods. The company offers a suite of tools and services to help people buy, sell, rent or finance homes.

Zillow Offers makes it easy for customers to buy or sell their homes without having to go through a traditional real estate agent. The company also provides rental listings and helps landlords find tenants.

The IMT segment helps connect homebuyers with lenders and real estate agents.

 When the company launched in 2005, its business model was based solely on generating advertising revenue.

The belief was that because the company was focused on one user segment, it could serve advertisers better by providing them with better engaged and targeted customers (compared, for instance, to Google).

This wager certainly paid off, allowing the Zillow Group to become the biggest online real estate company in the United States.

Zillow Group Financial Quarterly Results Q1 and Q2. Click hereOpens in a new tab. for more updated results.

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How Does Zillow Make Money?

How does Zillow make money? Well, the company has several revenue streams, but the primary one is advertising. Zillow sells advertising space on its website and mobile app to real estate professionals such as agents and brokers. These professionals pay to have their listings prominently displayed on the site.

In addition to advertising, Zillow also generates revenue through its Premier Agent program. This is a subscription service that gives agents more leads and exposure on the site. Agents pay a monthly fee for this service, which varies based on location.

Let’s delve further into each of the three parts listed below to comprehend how Zillow creates shareholder returns.

Homes Segment

Zillow’s homes segment includes houses, apartments, and other rental properties. The company earns revenue from this segment through advertising and subscription fees.

How Does Zillow Make Money?

Advertising makes up the majority of Zillow’s revenue from its homes segment. Property owners and real estate agents can pay to have their listings featured prominently on the site. These ads generate income for Zillow when users click on them.

Zillow also charges subscription fees for some of its features, such as contact information for real estate agents and access to certain types of data. This revenue stream gives the company a more stable source of income than advertising alone.

More than 110 million American households are included in the company’s database. With 128 million registered households in 2019, Zillow offers information on nearly every single property in the United States.

In 2018, with the release of Zillow Offers, it began making extensive use of this information. Redfin and Opendoor, among others, have made the iBuyer model widely used, upon which this service is built.

These “iBuyers,” sometimes known as “instant buyers” or “cash buyers,” use computer-generated analysis that factors in large amounts of market data, seller information, and even inputs from real estate agents to make bids on properties almost immediately.

Because of the ease and quickness of the transaction, they are sometimes able to purchase homes below market value, especially from sellers who are in a hurry to unload. In addition, the algorithms improve with each purchase, enabling the iBuyer to make wiser purchases over time.

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That’s essentially what Zillow Offers does, and it just started in Phoenix and Las Vegas. When the corporation sells a house for more than it cost to buy it and covers other selling expenses, it realizes a profit.

Additionally, Zillow has a variety of fees it charges when purchasing a house from a seller. The selling charge is 6%, which includes the buyer’s share of closing costs. This is in line with the standard commission rate for a sale, which is between 6 and 7 per cent.

Title, escrow, and transfer tax are all included in the 1-2% closing expenses. Finally, the business requires a service fee of about 2.5% to cover things like taxes, upkeep, and utilities.

Offers on homes may be made nearly immediately, allowing for a quick sale. A Zestimate is provided to the seller when the survey is filled up and submitted. Zillow stated in February 2021 that Zestimate would be utilized as a real cash offer in addition to an estimate.

Once an offer is submitted, a free on-site evaluation is scheduled to assess the condition of the property, identify any necessary repairs, and verify the information supplied. A monetary offer is then extended not long after.

Since transitioning into a full-fledged real estate firm, Zillow has opened up access to a vastly expanded market. According to research firm Borrell Associates, the real estate advertising business is worth $19 billion, whereas total real estate transactions in the United States in 2019 were $1.9 trillion.

In approximately 2020, the Homes division brought in $1.7 billion. Nonetheless, Zillow declared that it will be discontinuing its home-purchasing service in November 2021 due to the fact that it was a significant drain on the company’s resources. In 2021 and 2022, the firm will liquidate its current stock.

Mortgages Segment

Zillow effectively became a licensed lender after purchasing Mortgage Opens in a new tab.Lenders of America in October 2018. A rebranding to Zillow Home Loans occurred in subsequent years.

Zillow’s Home Loans division generates revenue through the interest it collects on mortgages. The terms of the loan (amount, term, and down payment) determine the interest rate.

Zillow also collaborates with other lending institutions on its website. Over the course of its platform’s development, the company has collaborated with more than 50 lenders across the country to create a de facto marketplace.

In 2020, its mortgage origination sector earned $174 million, up 73% from the previous year. However, in 2020, that income only accounted for 5% of their entire income.

These loan companies pay Zillow based on how many leads they receive. This implies a flat cost is due for each borrower prospect introduced. The Zillow charge is based on the terms of the loan arrangement.

Last but not least, Zillow’s Connect services have a monthly subscription price. These let mortgage brokers and real estate agents to promote their wares using Zillow’s exclusive technologies.

IMT Segment

Zillow makes money by selling advertising and enhanced profiles to real estate agents. While agents can create a free profile, many agents pay more for enhanced profiles and a suite of tools and data they can use to track and better convert leads into clients.

In 2020, Zillow made $1.04 billion from fees charged to agents for their Premier agents’ services, a 14% increase year over year and an additional $403 million from agent advertising sales. Combined, this made up 43% of Zillow’s 2020 revenue.

The History of Zillow

Zillow was established in 2005 by CEO Rich Barton and Lloyd Frink in Seattle, Washington.

One of the most successful software entrepreneurs of our time, Barton has done a great deal. He spent two years in consulting after graduating from Stanford in the late ’80s, then relocated to Seattle in 1991 to join Microsoft.

The IT giant intended to get into the tourism market in 1994 by publishing a CD-ROM trip guide. Until, that is, Barton added his two cents.

Back then, interest in travel agent-targeted HTML-based businesses was only getting started. They made it possible for them to increase their sales force while functioning mostly as a remote workforce. Barton believed this presented an even greater possibility for Microsoft.

He spoke with Bill Gates and Steve Ballmer about his plan. Both partners decided to invest in his idea, and in 1996, was born on the World Wide Web.

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The success of Expedia was immediate. Following the success of the internet in the late ’90s, Microsoft spun off the firm in 1998. They were therefore able to spin out as a distinct company and eventually go public in 1999.

Barton, who was only 27 at the time, guided the firm through its first public offering. He continued working there for another four years. IAC/InterActiveCorp spent $3.6 billion in 2003 to buy out Barton’s entire ownership in the firm, thereby making him a billionaire overnight.

Later the same year, Dara Khosrowshahi would succeed him as CEO of Expedia, where he would serve for the next 14 years before moving on to become CEO of Uber in 2017.

After a year off, Barton was raring to go for whatever came his way. These two characteristics have been often mentioned as important to him over the past several years as he considers new ventures and investments:

Market information inequalities such as a lack of openness or difficult access to trustworthy data

That content may be generated by the users themselves, which acts like a flywheel for the firm.

He adopted this philosophy when he launched Expedia (at the time, travel costs were notoriously opaque, with travel brokers pocketing hefty markup fees) and went on to become a major investor in peer-to-peer startups like Glassdoor and Nextdoor.

This philosophy served him well when he and Frink founded Zillow in 2005. Barton and Frink were both looking for a new home in the Seattle area a year ago.

When they got there, they found a lot of people who were angry and scared. Finding the information you need on public housing was challenging since it was scattered throughout online archives, bureau databases, and paper files. Because agents were out for maximum commission, sellers often received competing offers on the same home.

The group began working on the problem with that in mind. They brought in Stan Humphries, who was running Expedia’s analytics department, to head up the group responsible for developing the company’s algorithms. For months, he and his team scoured the Internet for housing data from a wide variety of sources, entered the information digitally, and made it available to the public on Zillow’s website.

Spencer Rascoff, a graduate of Harvard University who co-founded Hotwire and sold it to IAC in 1999 (the same year Expedia was bought by IAC), was another significant hire. Rascoff spent over two years with the Expedia Group after Hotwire was acquired by the company, where he met Barton.

Two venture capital firms, Benchmark Capital and Technology Crossover Ventures, provided Barton and his team with $32 million to get a jump start. They used the funds to hire 75 people and hone the product before its beta release in February 2006.

In a flash, a swarm of users descended onto the startup’s web page. In fact, in only the first two days, had over two million unique visitors, which was enough to crash the server. Justify your answer. Zestimate was a revolutionary tool that provided a quick estimate of a home’s market value.

It’s helpful to keep in mind that the mid-2000s was the absolute zenith of the American home market. There was a frenzy of property buying that contributed to the 2008 financial crisis because homeowners saw their homes doubling in value every couple of years.

Zillow dove headfirst into the frenzy, bolstered by an impressive $32 million war fund and a stellar management team. The firm expanded not just because of its good name and financial stability.
The team wanted the Zestimates feature to be as divisive as possible in the hopes that it would generate buzz and, in turn, boost traffic. Homeowners were agitated by the function since the estimated worth of their properties was displayed for anyone to see.

Second, the business responds rapidly to shifts in consumer demand because it is organized into “product-related silos.”
One year after the introduction of the first iPhone, Zillow released an app for it. The firm formed a separate dev team to work only on the app. In 2009, when it first appeared on the App Store, its iOS app was already responsible for 20% of the company’s user base.

Zillow understood the value of its data early on, which brings us to our third point. It collaborated with local and national media to compile statistics on home values by city and other real estate-related information. This resulted in the startup receiving steady national media coverage and useful connections.

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As a fourth point, Zillow stopped sharing its real estate data with other major websites. In 2008, for instance, the firm announced that it will be powering all listings on Yahoo Real Estate, which at the time was the most popular real estate website.

Not even the economic downturn of 2008 could derail the firm’s progress. Even though the firm had to lay off 25% of its personnel (35 out of 155), it has now made a full recovery.

In previous years, the site saw a surge in traffic from curious homeowners hoping to keep up with rising property values. Zillow consumers sought out a trustworthy valuation throughout the crisis so they could rapidly unload their houses. As time went on, the business expanded at a dizzying rate.

Zillow went public in 2011, raising $69 million at a value of $540 million thanks to the company’s sustained growth. Back then, Zillow had over 20 million monthly users, making it the third most popular real estate website in the US.

On the other hand, Barton was outside the party having a good time. In 2010, he resigned as CEO and passed up power to Rascoff. Rascoff served as the company’s chief operating officer (COO) and oversaw the departments of marketing, finance, partner relations, legal, and human resources before being promoted to CEO.

Zillow’s rapid expansion has introduced a slew of challenges, though. Employees, rival businesses, and community groups all filed lawsuits against the firm at various points in its history.

Rachel Kramer, a former employee, said that a sales manager at the Irvine branch of the corporation had sexually harassed her. In a lawsuit filed against the firm in May of this year, aggrieved homeowners claimed Zillow had unfairly depressed their home’s worth, making it more difficult to sell.

In 2016, Rupert Murdoch’s Move Inc., which runs, sued Zillow, alleging that the company employed two of Move’s employees in order to steal trade secrets and other private information. Zillow paid $130 million to end the lawsuit without admitting guilt.
Throughout its history, Zillow has fought fiercely for its part of the $16 trillion U.S. real estate market. Its main rival was Trulia, rather than the aforementioned, Redfin, or newcomers like Opendoor and Offerpad.

Founded in San Francisco a year after Zillow, Trulia was Zillow’s main competitor in the internet real estate market. Former Trulia CEO and co-founder Pete Flint frequently attacked Zillow over the years, saying his company provided a better service that attracted more users.

However, Zillow sued Trulia in 2012 for patent infringement after it alleged that Trulia had copied its Zestimates tool when it introduced its own comparable sales estimate tool, Trulia Estimates, in 2011.

Therefore, the 2014 announcement that Zillow will purchase Trulia in an all-stock transaction for $3.5 billion came as something of a surprise. The key reason for the purchase was to gain access to Trulia’s user base while reducing the amount of money being spent on advertising against the competitor. Both StreetEasy (which specialized in New York City apartments) and HotPads were comparable purchases to those made by Zillow in the past (tailored at rentals).

Rascoff turned over the reins as CEO of Zillow to Rich Barton for the second time in 2019 after over a decade in the role. The same year also marked the beginning of the company’s transition from being a purely online player to investing in real estate on its own.

Zillow first invested in the Phoenix and Las Vegas real estate markets with the intention of flipping them. Opendoor and similar companies adopted the same “iBuyer” approach that was used by the firm.
For the business, 2020 turned out to be a banner year. Employees all across the world reevaluated their living arrangements after receiving work-from-home directives. Even more, people were able to acquire low-cost money because of low-interest rates and government stimulus cheques.

Zillow has announced that it will launch a full-fledged brokerage in September 2020 in an effort to streamline its home-buying operations. Zillow has announced ambitions to expand its workforce to include licensed real estate professionals to better serve its users.
Many in the real estate industry saw this as hypocritical and so the debate erupted. Zillow has stated in the past that it has no intention of ever becoming a brokerage since doing so would place it in direct competition with the third-party agents it now works with.

They paid a heavy price for their hasty commercial dealings. There will be a total of 2,000 job cuts and a $540 million write-down as a result of Zillow’s decision to end its home-buying business in November 2021.
The firm had ceased buying houses weeks before because of a severe lack of available workers, which had led to a significant repair and inspection backlog.

Zillow Group Inc. and its subsidiary are now the two most visited real estate websites in North America. Over 5,000 employees are employed by the organization across 35 locations in the US and Canada.

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