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Anonymous

{audio:0:00:00} Could you share some background as to when you joined Zillow and how your role progressed through the business?

{audio:0:00:06} I joined Zillow in late 2009, when the company was just about a hundred people and I think it was maybe third or fourth in terms of traffic, among North American US real estate sites. I started out as the Director of Sales Strategy & Operations and, over the course of the next seven to eight years, the business grew significantly and went public. We became the number one real estate website. Our monthly revenue went from in the order of hundreds of thousands of dollars to tens of millions of dollars and I was, effectively, the General Manager of that business.

{audio:0:00:51} What was the core value proposition of Premier Agent in 2011?

{audio:0:00:57} The core value was really providing leads to real estate agents. Basically, what we would call transaction ready customers; so not just customers who are vaguely interested in buying or selling homes but customers who are actually interested in visiting homes and are ready to purchase or sell a home.

{audio:0:01:16} Walking through the process, if I’m an agent working for a broker, I would pay up front for a certain share of traffic on Zillow for my listings?

{audio:0:01:31} That’s approximately right. Our business model, in terms of how we charged and the mechanism by which we charged, changed a lot over the course of the time while I was there and it’s still changing now. Essentially, that’s right; agents would pay a certain monthly fee up front and, based on that fee, they would get a certain portion of leads.

{audio:0:01:54} How did Zillow interact with the agent in the early days? What was that relationship like?

{audio:0:02:03} In the early days, we talked to a lot of agents just to get their feedback on what they wanted and what they were interested in and when I joined, we actually had a different product which was display ads for real estate agents. On the Zillow website, you would see an ad that says, Joe Schmoe Real Estate Agent and it would have their picture and their number etc. What we found pretty quickly is that agents weren’t getting a lot of value from that; customers weren’t really interacting with the ad. By interacting with agents and talking to them, we learned that the value wasn’t there and that’s when we started to switch gears and focus on this new product. We were really focused on leads and transaction ready customers.

{audio:0:02:56} A lot of the communication with agents happens through our sales force who try to sell the product and renew the product. So if we’re getting feedback that no one wants to renew then, obviously, we’re going to react to that. That was in the early days. Later on, we built and developed other mechanisms for making sure we had a clear line of communication with agents and we got very constructive, continual feedback.

{audio:0:03:23} What were the typical reasons why an agent would churn from Premier Agent?

{audio:0:03:29} Typically, their perception is they would not be receiving high return on investment for their leads. Part of the challenge is that many real estate agents aren’t focused on finance or quantitative analysis; they don’t do that. They may make more of a judgement based on the leads they received over the last month versus the value of the leads they would have received over the last six months.

{audio:0:04:00} Sometimes agents would have a few bad leads and then just cancel. Some agents just weren’t really effective at converting the leads we were giving them and so, for them, the conversion rate was low, the ROI was low and they would churn as well.

{audio:0:04:17} What is the alternative for the agent? Let’s say I’m paying up front for a share of that traffic, what are my options elsewhere?

{audio:0:04:32} There’s a lot of places agents can purchase leads and get traffic; I’ll give you a few examples. At some of our competitors, they can buy advertising on Realtor.com, Homes.com, Homelike.com. There’s a lot of other websites that they can buy on to; none currently as big as Zillow but the aggregate, when you combine a bunch of them, you could get that presence.

{audio:0:04:56} The other thing they can do is advertise directly with Google, they can advertise directly with Facebook and many agents do. They can also do direct mail, postcards, bus signs; it runs the gamut. I think Zillow has a really effective advertising program and it’s hard to compete with the effectiveness and high ROI that Zillow delivers, but if an agent really doesn’t want to work with Zillow, there are definitely other options out there.

{audio:0:05:26} How did you see the ROI compared to the likes of Facebook?

{audio:0:05:30} I think it was generally high. I think the challenge with Facebook is that you need a pretty high level of sophistication to make the best value of it. If you’re a Facebook advertising master, you could probably get a pretty decent ROI, but most real estate agents aren’t and our advertising program makes it super easy. As a real estate agent, you select what zip code you want, select how much you want to spend and that’s it. That’s all the decisions you have to make.

{audio:0:06:01} Just walk through what the experience is of setting up an ad on Facebook or Google; it’s a 30-step process with a hundred decisions along the way. It’s just a much more complicated process and it’s much more likely that an agent is going to make an incorrect decision and lower their ROI.

{audio:0:06:22} The one thing we have seen is that agents that are really successful combine them. They’ll advertise on Zillow and they’ll also advertise on Facebook and use Facebook and Google retargeting to target customers who have also visited them on their website or through their email campaigns. Agents have expressed that combination as super powerful, but most don’t do that because they don’t want to deal with a complicated ad platform.

{audio:0:06:51} Do you see Facebook as a risk to Zillow’s listing business in the long run?

{audio:0:06:56} Not really. Facebook would do some nominal reach-out and advertising to real estate agents, as they probably did to a bunch of other verticals. We were first concerned because they reached out with a 70-page book about using Facebook for real estate agents. We got this book and we thought wow, Facebook built this whole volume of material specifically for real estate agents and we were concerned.

{audio:0:07:27} But when you actually open the book, after the first one or two pages of nominal real estate-oriented material, 68 of the 70 pages are just their standard Facebook ad platform. They took their standard complicated ad platform and put a few different skins on it, one targeting real estate, one targeting other verticals. I just don’t see them investing the amount of time that would be needed to make the platform a generally appealing option for real estate agents.

{audio:0:08:05} How did the way agents approached budgeting and spending on Zillow evolve from 2011 to the latter years of your time in Zillow?

{audio:0:08:19} There’s probably two evolutions. First of all, agent spend just grew as Zillow grew and we provided more tools to increase their ROI. The other phenomena that we saw is that we encouraged teams of agents to form. A lot of agents just want to deal with customers, helping buy and sell homes. They don’t want to have to think, for one second, about where I’m going to advertise or where I’m going to promote my brand.

{audio:0:08:49} So you ended up with a lot of agents, who really wanted to focus more on the business-oriented side of it, being team leads and managing their advertising spend for a larger and larger team of agents underneath them. We saw that phenomena. We helped drive and push it among real estate agents.

{audio:0:09:09} Because that enabled you to manage the relationship on a more one-to-one basis for a group of agents?

{audio:0:09:16} Yes. It was really a win-win situation because agents got to do what they wanted to do. Agents that wanted to work with customers didn’t have to think about ad spend. Agents that were more business oriented and growth minded, that wanted to think about how to grow their business, got to do mostly that and got out of the customer-oriented business which they were generally less interested in.

{audio:0:09:36} Then we, at Zillow, benefited because we were able to receive a similar amount of money, a growing amount of revenue, with less customer touchpoints. It’s easier for us to work with one agent managing a team of ten, versus ten agents individually.

{audio:0:09:57} You mentioned the budgets and the amount that agents spent on Zillow increased as Zillow added more value. What was the average revenue per agent in the very early days and how did that evolve?

{audio:0:10:16} I think a lot of this is in the public statements, but my recollection of what was publicly available is that it probably grew from the order of a few hundred dollars per paying subscriber, to well over $500 per paying subscriber per month.

{audio:0:10:32} I think it was around $400 in 2015. How do you look at the ceiling in the core share of voice business, the average revenue per agent for the traditional impression-based listing business?

{audio:0:11:07} To clarify, on an individual agent basis, probably the revenue per agent isn’t changing that much; it’s just because agents are forming and congregating into larger teams, so I could see it continuing to drift up. I don’t know how high it would go up. It may eventually reach $700 or $1,000 a month, but I think it might take a while to get there.

{audio:0:11:37} Is the key driver the grouping of agents under a more business-focused agent?

{audio:0:11:44} Yes. Part of the early growth came from the traffic that we got and the numbers of leads and you could see this in the public statements. The traffic growth for the website isn’t growing that much material anymore, so it’s really just about giving more value, increasing ROI for agents via the tools and systems that we have, and then getting those agents to group together in ways that are beneficial for both them and Zillow.

{audio:0:12:13} Can we discuss how Zillow focused more on conversion from around 2016? What were the real strategic steps made by the company?

{audio:0:12:25} There were two big things that the company really invested in around 2015 to 2017. Firstly, they invested in the Premier Agent app which is, basically, a free app available to all agents on Zillow that really does a good job of helping them to convert leads. They can manage the leads and they don’t have to pay for some other CRM system. They don’t have to pay for Salesforce or BoomTown or all the other systems. It integrates with the team information they supply on the site. It’s very integrated with the Zillow lead system, so that was one big area of investment that just increased the agents’ ROI, especially agents using the tools.

{audio:0:13:06} The second area of investment was this new program that we delivered called Premier Agent Concierge. When we started talking to agents and understanding why ROI was lower than what we thought it should be, we found that the biggest drop-off from us sending a lead to an agent to a closed transaction was in that first contact. It would be 1pm on a Friday and we’d say, here agent, here’s John Smith, a customer that wants to talk to you and 90% of the time, the agent wouldn’t be able to talk to the customer at all. They would disconnect, they wouldn’t reach out and get connected with them. When we dove into it further, what we realized is that the agent wasn’t responding to the customer quickly. Their average response rate might be within 24 hours, but we don’t really live in a world, now or then, where a 24-hour response time, or even a multi-hour response time, was really acceptable.

{audio:0:14:07} So we developed a system whereby we had our own Zillow staff basically call the customer, on behalf of the agent, within five minutes of a customer placing a call. We talked to them, we understood their needs, we helped filter out spam or bad leads for the agent and then we connected the agent when it was convenient for the customer and that made a big difference.

{audio:0:14:32} Zillow were effectively moving down the funnel into the transaction a bit more?

{audio:0:14:37} Yes. It was a pretty long distance between the initial call and a transaction, but we were heading in that direction.

{audio:0:14:48} That brings up an interesting discussion around digital fulfilment of real estate. We can discuss iBuying a bit later on, but what was the impact on the quality of the leads and the willingness for agents to pay more or just engage with Zillow?

{audio:0:15:18} I think it increased because we were solving one of the pain points they had. What we found was that the effective agents usually hired their own call center and it was usually one person, maybe using an assistant, but even if you had one person, that person’s out on vacation, they’re busy, in meetings, so it wasn’t really practical for them to do it.

{audio:0:15:42} Then you had a whole another set of agents that just couldn’t afford that and didn’t hire someone. There was a very compelling need across all agents and, by providing it, we saved agents costs, for those that were paying for it themselves. For agents that weren’t paying for it themselves, we dramatically increased their ROI by connecting them with more customers who were ready to talk with them.

{audio:0:16:06} The other thing that we found is that when a customer goes and contacts an agent on Zillow, they’re usually not just contacting an agent on Zillow; they’re contacting that agent on Zillow and two to three other real estate websites, or maybe even several other agents on Zillow. Agents had this view that when that lead came in, it was their lead, when really, the customer is just shopping at that point and so the first one that bites at the apple usually has the best shot and we gave them that best shot.

{audio:0:16:40} Do you think this is a core inefficiency with the traditional agency model, the fact that 90% of the time the agent wouldn’t return the call to the customer within a certain time period?

{audio:0:17:02} I think it’s a good example how the real estate world wasn’t really built for or conditioned to deal with internet leads. Internet leads just have to be handled in a different way, to maximize the ROI, and most agents didn’t have the right mindset to tackle them to get the highest ROI possible.

{audio:0:17:35} What impact did that have on the agency side? Was there a decrease in the number of agents or the willingness for some agents to pay and others not to?

{audio:0:17:45} I think, if anything, it levelled the playing field among the people who had their own staff and those that didn’t. It enabled agents to be more competitive. Because it increased their ROI, they would, in turn, have more money to invest in the program, invest in building out their team, expanding their organization, adding more zip codes etc.

{audio:0:18:19} It’s an interesting comparison with Zillow and Rightmove in the UK because Rightmove don’t feel the need to move down the funnel as Zillow have done. Obviously, there’s different structures in the industries but I think it’s interesting how Zillow have taken that move to really add incremental value to agents, whereas Rightmove hasn’t.

{audio:0:18:40} Yes. The other thing that we did that had a pretty big impact on agent’s ROI – I don’t know how it works in the UK – is that we introduced this concept of co-marketing for agents and lenders, to share their marketing together and market together, on Zillow, to customers. That was really effective. It allowed agents to share their marketing costs with loan officers and to dramatically lower their costs and increase their ROI. That was a really effective program, as well.

{audio:0:19:14} It reduced the agent outlay spend, whilst also owning that customer?

{audio:0:19:22} Yes. The really nice thing about it is that it wasn’t as if an agent is sharing marketing space with the lender. They’re not really competing with the lender because the customer needs both of them. The agent didn’t experience any negative impact from it. Basically, they were just able to lower their costs which dramatically increased their ROI for those that used the program.

{audio:0:19:48} Has that changed in any way now that Zillow own the mortgage business that they have?

{audio:0:19:56} They purchased that mortgage company after I left, but I don’t believe that mortgage company is serving all of their agents. My belief is that it’s more associated with their iBuying platform.

{audio:0:20:13} Going back to this point about how agents work; you said some agents are lone wolves and they don’t have a back-office team to deal with enquiries, while some do. How did you see that evolve over your time, in the last decade, with more professional agents or bigger teams?

{audio:0:20:37} I think, generally, with the rise of Zillow, it became more important for the agents with more sophisticated processes and larger teams, who ended up doing better and had been more successful. One of the reasons why is, as Zillow grows, more of the opportunity comes through Zillow and platforms like it, so there’s less an ability for a one-off loan wolf agent to get deals through referrals or friends of friends and family.

{audio:0:21:13} If I’m looking to buy or sell a home, I would then be more able, through Zillow’s website and app, to find an agent based on their number of reviews, number of transactions, all the information about that agent online and that wasn’t available before 2010. More and more people are finding agents through websites like Zillow.

{audio:0:21:41} With the team aspect on Zillow, we aggregated the transaction and reviews of the whole team in one profile. I, as a team, can show that, in your zip code, I had 500 transactions and I had 300 reviews. I’m being compared to someone who’s a lone wolf and who might just have one tenth of those numbers, so a customer might be more willing to go with the larger team because of that combining of the metrics that we did.

{audio:0:22:15} Do you think we’re going to continue to see a consolidation in the agency market?

{audio:0:22:22} I think it will increase, but not too much. It won’t be a few big companies, like you see in other industries, or one big company. That is due partly to the fact that many of the reasons why people get into real estate is because they have a little more entrepreneurial mindset. They want to own and manage their own time and their own business, so I don’t see it happening much more than it does now.

{audio:0:22:46} But, at the same time, I think one example of a large company that’s doing it is Redfin. Redfin is a large public company in the US, based in Seattle. I don’t know how many employees they have, probably in the order of thousands. I don’t see there being two to three Redfins and that’s it. There may be one or two Redfin-like companies and the rest will be individual agents or teams of agents, competing with each other.

{audio:0:23:16} We can discuss Redfin a bit later, but how did the pricing model evolve for Premier Agent?

{audio:0:23:26} When we launched Premier Agent, it was sold on a share a voice basis. So for a zip code, I could get 25%, 50%, 75% or 100% share, so I would see myself as one of those percentages at times and set a specific price for them. That was how we first launched and it evolved five or six times from there, to where it is now. The general reason why we had to evolve that system is two things. First of all, our traffic was increasing dramatically, significantly over the eight, nine years I was there and the value of a 25% share of voice would go up as well, so we had to change the model that way.

{audio:0:24:13} A second reason why we had to change the model is because we had to find the right mechanism to allow more agents into the system, without overcrowding it. If you’ve got too many agents into the system, no one would receive good ROI and everyone would be unhappy. But if you’ve got too few agents, everyone would be receiving too high ROI and Zillow would be leaving a lot of money on the table. A lot of our evolutions were just about optimizing that balance.

{audio:0:24:44} How did you balance that?

{audio:0:24:47} I could tell you how it works now, which I think is a pretty good balance. Now it’s based on what we, internally, call it ‘market-based pricing’, whereby in one zip code, an agent can basically just choose how much they want to spend and we take all of that aggregate spend and distribute the leads, proportionally, to how much they chose to spend. If there are two agents from the zip code and they each spend $500, we would give them each about half of the leads throughout the month.

{audio:0:25:22} Then if one agent comes in and says, I’m going to spend another $500, then we split so it’s roughly a third. To prevent an imbalance, they won’t let more agents in until someone cancels out because, based on our calculations, the ROI might just be too low, so we can’t allow more agents into the zip code until some agents leave. I think that’s how it currently works and I think it’s a pretty effective system.

{audio:0:25:57} They would still, potentially, limit agents entering the market if the ROI is going to dip massively, in terms of the spend and ROI on Zillow for certain zip codes?

{audio:0:26:10} Yes, that’s how I believe it happens right now. I haven’t been close to the process for several years, but when I left. that’s generally the methodology and thinking that we went through.

{audio:0:26:21} Isn’t that an auction model, where, if it’s limited somewhat, then the agents will be willing to spend more because it’s a fixed amount and then leads will be distributed evenly between those agents.

{audio:0:26:37} Yes. There would be some competitive factors. For example, there would be scenarios where there are five agents, spending $10,000 total in a zip code, and we determine that $10,000 is really the max we think the whole group of agents should spend in that zip code. There’d be a scenario where one agent cancels out and, suddenly, we have $2,000 worth of space. We wouldn’t auction it off, but there might be a waiting list of agents who are willing to spend that $2,000. But we might be selective about which agents we choose to add to that spec because we don’t want agents to come in, not know what they’re doing and churn, so we might veer towards more experienced agents in the zip code who are more likely to be successful.

{audio:0:27:28} How would you determine that max spend in a zip?

{audio:0:27:35} I’m a little rough on my memory there. It may be just based on a calculated ROI, based on the number of leads that they would get, the dollar per lead and the average transaction value, in terms of the gross commission income that an agent could get.

{audio:0:27:50} You work out roughly the total value of houses sold in a zip, the commission based on that, value per lead and then a rough market-based price for a zip?

{audio:0:28:03} That’s right and then we may determine if ROI goes down below 2X for example, then we basically turn off the zip code to more agents until someone else cancels.

{audio:0:28:17} What really drives the pricing, then? In that method, I guess it’s the size of the transactions and market by zip code, plus the demand and supply of agents?

{audio:0:29:15} The key drivers of price would be the demand to participate in those zip codes. That demand would be driven by both marketing and sales efforts to engage agents, educate them and push them to use the system more.

{audio:0:29:32} Which is based on the demand and traffic on Zillow and the attractiveness of agents, again like any other network?

{audio:0:29:45} How do you look at the new flex pricing model Zillow are testing today?

{audio:0:29:52} The flex pricing launched after I left but I was aware of the idea behind it. It’s basically a referral model. I don’t know if the UK has a referral system but if I, as a real estate agent, refer a deal to another real estate agent and that real estate agent closes it, I get 33% of the commission income. It’s Zillow’s form of a referral model. I think it’s probably the right thing to do. It feels like the right mechanism to move forward with.

{audio:0:30:31} Again that’s Zillow moving down the transaction and adding even more value, almost doing the job of an agent, to a certain extent.

{audio:0:30:42} Yes. I don’t know what the conversion rate is from lead to transaction but, right now, say it’s 2% to 3%, the question is, could Zillow do things along the way throughout that process to help increase the conversion rate for real estate agents from 2% to 3%, to 4% to 5%? Probably. If they could do that and they’re getting effective referral fees, they could double the size of the business relatively quickly. I think that’s probably the best mechanism for long term growth for the Premier Agent business.

{audio:0:31:24} Why wasn’t the Flex Plan started earlier?

{audio:0:31:29} Some of it was industry dynamics. I think agents were always a little bit wary of what Zillow was doing and they were probably concerned that Zillow could appear as competition to real estate agents. My speculation is that, by taking on an effective referral fee – and this might be why they still don’t call it a referral fee – agents might view Zillow as another agent, because other agents collect referral fees, so it’s another way in which Zillow is becoming a real estate agent. I think that might just cause more heartburn and concern among the industry and then there may be more pushback among agents and brokers to work with Zillow.

{audio:0:32:30} Even on the iBuying side, it does seem as if they’re sucking in all the fees from agents, both on the seller and buyer side.

{audio:0:32:41} Yes. iBuying is actually more extreme than just the success fees. The move to iBuying may have just given cover to doing the success fees, because iBuying was so far on an extreme that if they’re doing that and Zillow could get away with doing that, and it wasn’t causing a lot of industry churn, they could probably do the success fees as well.

{audio:0:33:08} What can agents do? Could there be a backlash against Zillow?

{audio:0:33:13} I don’t think so. There were always initiatives among the industry to fight against Zillow. I think there was something called Project Upstream, from a combination of brokers, that got together and said, we’re going to create our own website and we’re going to collect all the information and we might be able to hold it from Zillow. The reason why it often never works out is because all of these people are competing with each other. It’s hard for a bunch of people competing with each other to align against a ‘common enemy’, but in Zillow’s case we weren’t really a common enemy. Agents loved us. We were providing a really valuable service and agents loved what we delivered.

{audio:0:34:04} In my view, there was a narrow film of industry stalwarts who were anti-Zillow because it was threatening their pocketbook. But in reality, the mass of the industry generally liked and got a lot of value from Zillow. It created a dynamic. This small set of individuals were always trying to rally everyone to fight against Zillow and everyone was saying, why are we fighting against Zillow? It never quite made sense.

{audio:0:34:33} In terms of the Flex program, Zillow worded it as if they’re increasing conversion but they seemed to be partnered with the best agents, they claimed. What’s your view on the way they’re approaching the referral model versus the old auction model?

{audio:0:34:57} If I understand the statement, it rings true because back to my earlier observation, if Zillow can double the conversion rate it will double its revenue and with the success-based orientation, Zillow is incented to give the leads to the agents who are most likely to convert them. That’s usually more likely teams, who are more sophisticated and have higher quality agents. Essentially, Zillow can be in a position where they’re selecting and kingmaking in individual areas and regions. They could say, these three agent teams are the ones that are converting the most and they’re going to get all the leads for the next six months or whatever it might be.

{audio:0:35:41} Why not just bring these agents in-house?

{audio:0:35:48} At some point, there will be a bridge too far and then the agents will say, if they’re doing that, then they’re hurting my livelihood. I think that might be one reason why it wouldn’t work. The other might be that Zillow is, at its heart, an internet company and I don’t think they want to be like Redfin. They don’t want to hire an army of thousands of real estate agents because there’s a lot of headache in management and oversight with all of that.

{audio:0:36:22} Then they would own the full end-to-end, potentially.

{audio:0:36:27} True; however, here’s one thing that’s missed in that analysis. Looking at the referral fee where the agent gets a simple $10,000 for a transaction and Zillow gets a fee of $3,000, if you imagine a model where Zillow took it all in-house and hired that real estate agent, maybe Zillow would take $6,000 and the agent would be paid a salary of $3,000 to $4,000. The issue with that – and this is one of the challenges that Redfin sometimes sees – is that you attract a different type and lower skill of agent.

{audio:0:37:11} Often we would hear stories from Redfin that a newbie agent would join Redfin, learn all the ropes, learn how the process works and then realize, I could make a whole lot more money somewhere else, so they would just jump ship. I think it would be challenging for Zillow to own and manage really good, high quality agents in a way where we weren’t paying them as much as they would make outside of Zillow.

{audio:0:37:40} The other thing to note about the dynamics – this is where I think it’s different from the UK – is  that even though Zillow has the largest market share, in terms of website traffic and unique users, there’s tons of websites available that show virtually the same information and the same listings. If Zillow made a move that sacrificed our listing quality, or made a move where agents did rebel against Zillow and they lost some listing qualities, there’s a lot of other alternatives for consumers to go to. I think the market power of Zillow is not as high and strong as maybe people think.

{audio:0:38:32} That’s a good comparison to Rightmove. Rightmove don’t do half the things that Zillow do, in terms of moving down the funnel, adding value and validating leads, yet they have 90% odd market share because they’re the only aggregated view in the market. Whereas Zillow, because of the MLS structure, there are many other listings businesses.

{audio:0:38:55} Yes, and it’s not just the MLS structure. There’s also this IDX system on top of the MLS structure. The IDX system aggregates all the listings from all the MLSs and any website can basically subscribe to the IDX service, for a nominal fee a month, maybe $10, and have all the listings and all the information available on their website. That’s why Zillow has to work really hard to provide this additional value to agents and consumers so they stick with Zillow.

Former Senior Vice President at Zillow Group

Zillow Group: Premier Agent Pricing Strategies

How agents engage with Premier agent versus alternative listing sites or Facebook

The original share of voice pricing model

Core drivers of pricing and how Zillow ensures a minimum agent ROI

Impact of the 2016 roll-out of Premier Agent Concierge and how Zillow moved down the transaction to add more value