There’s always something to howl about

Are Zillow and Trulia thrashing savagely in a blood-red ocean? Here’s a clue: Both of them are jumping the shark.

Do you feel like dinner?Is the business model of all the Realty.bots daft?

It is Citron’s primary thesis that Zillow is a Web 1.0 business presenting itself as a Web 2.0 investment. The entire premise of Web 2.0 is that smart managing and publication of information interactively to users can scale tremendously, while costs remain fixed. But unlike Netflix, LinkedIn, and even Facebook, Zillow isn’t voyaging forth into an ever-expanding horizon of unlimited sized markets opening up on the internet. It generates virtually all of its revenue from U.S. real estate agents. And it does so the old- fashioned way—by cold-calling them on the telephone. It’s been operating since 2006 more or less as it does today, and was consistently unprofitable, until the last two quarters.

[….] It is a “heavyweight” sales company masquerading as a “web 2.0” leveraged technology play. The only way it has to grow revenues right now is with the increasing intensity of the sales effort. It’s not light and leverageable like LinkedIn, or OpenTable (Sales and mktg 21.4% of revenues) Zillow is more similar to Groupon than a Web 2.0 company such as LinkedIn or Open Table.


Expressed another way, it is apparent to Citron that Zillow is buying revenues with an intense telesales effort. Put in its simplest terms, they spent an additional $3.8 million on sales expense last quarter, and only generated $4.8 million in new revenues!

By comparison, Open Table spends 21% of revenues on sales, and even LinkedIn spends 33%. This comparison shows how much Zillow is dependent on old school phone room sales—not Web 2.0 online leverage.

While management might spin a fun story about their company growing revenues at a rapid pace, the proof is in the numbers. The cost of sales demonstrates that customers do not buy Zillow ads; they are sold Zillow ads, which should be disturbing because they address a target niche market unlike OPEN or LNKD—and cost of sales should be lower.


Citron notes that, formerly, referenced above, could not make money during the real estate boom of the mid 2000’s. At the time, they were the only online destination for brokers to buy leads. (Citron wrote about MOVE when its market cap was over two billion “with a B”; today it is 350 million “with an M”).

How does anyone expect Zillow to thrive in that identical business, with competition from, Trulia, and a host of smaller competitors, all fighting for wedges of the same finite customer base? The inescapable market reality is that the business model of selling leads to real estate brokers just does not scale…read on.

Do read on. The Citron report is devastating to all of the Realty.bots.

Is it true? The suits deny it, of course, but for the minions of publicly-traded companies, it is a felony to tell the truth about business prospects. That Zillow and Trulia have hired a herd of Judas Goats — six-figure flunkies paid to write rah-rah-rah weblog posts — seems telling to me.

Meanwhile, note these bold new initiatives: will give you a chance to win a Mercedes E550 just for building out your agent profile. That’s a car worth something like $75,000 in exchange for contributing free content to Trulia’s site. Why isn’t it worth your while to populate your profile without the incentive? Uh…

But wait. There’s more. will give you a chance to win a $10,000 gift card just for completing a Zillow Premier Agent web site. And this is not worth doing without the incentive because…? Yeah.

These are both instances of jumping the shark, and they’re both very loud statements that the big bosses at both Zillow and Trulia think their product — advertising paid for by schmucks like you — isn’t worth the money they charge for it. How can we know that for sure? Because free advertising is not the prize offered in their contests. Not even second-prize. Not even tenth-prize. Instead, your opportunity is to be their bitch and then not win a car or a gift card. The lottery is a sucker bet, too, but at least the lottery doesn’t hold you hostage forevermore.

Are the Realty.bots really in trouble? I have nothing invested in them in any way you can measure investment. But people who will say things like this

Think about the possibilities … $10,000 worth of free stuff.

will say just about anything…


23 Comments so far

  1. Jeff Brown December 7th, 2012 8:27 pm

    What I was taught is what I’ve mentored others to remember. If your service and/or product needs intense, hard selling, it ain’t the right service/product.

  2. Erion Shehaj December 8th, 2012 4:04 pm

    If Zillow’s final business model is to acquire a larger slice of the marketing dollars spent by real estate agents they’re in deep deep trouble. Think about who they have to compete against in the online space for some of those dollars: Google, Microsoft, Facebook etc.

    But something tells me that’s not their end game. Selling leads to real estate agents is just a transition phase – something to hold them over until they can knock their paying customers right out of business.

  3. Greg Swann December 9th, 2012 11:47 am

    > Selling leads to real estate agents is just a transition phase – something to hold them over until they can knock their paying customers right out of business.

    Elucidate, if you would. I’m curious to hear what you’re thinking.

  4. Peter December 9th, 2012 3:23 am

    Agree with poster Jeff but also to add was taught the best lead is one you generate yourself. At least it’s not worst than any you can buy.

  5. Erion Shehaj December 9th, 2012 7:07 pm

    In my opinion, Zillow’s ultimate goal is to BECOME the real estate marketplace much like online travel sites have become the marketplace for plane tickets and hotel accommodations. When you look at their history, they started out as a crusader company – one that was set to make the market more efficient by removing the middle men (real estate agents) and lowering costs. They wanted to fundamentally change the way real estate transactions were conducted – not merely be the friendly partner to “preferred agents” that they are today. There was a slight problem with that plan – real estate services, unlike travel agent services weren’t commodities and couldn’t be automated and replicated by software. Take that a step further – the sale or purchase of someone’s home or property was too important for the client to take a chance by entrusting it to merely a website. The first time I booked a ticket online I was scared that I would get to the airport only to be told my ticket was not valid. But in the end, it was $300 I was “risking”. As Zillow found out, people weren’t ready to take the kind of risk that selling or buying your home on the Internet involved… Yet. They realized that when someone hired an agent, the main ingredient that made the whole thing work was trust. The Seller or Buyer trusted that the agent they hired was going to deliver the results they were hired to deliver. If Zillow was going to become the marketplace they needed to become a brand that people trusted – a household name like Apple. You can’t become a household name if you don’t matter and in the long term, a business can’t matter unless they are profitable. They couldn’t become profitable by being a crusader from the get go so they had to leverage the traffic and sell leads and websites to agents.

    But when you look at all the “products” that Zillow has developed as well as their strategies in the past few years they all point to Zillow’s true aim of becoming the marketplace.

    Products like Zestimates, Make me Move or Mortgage Marketplace. Or their recent addition of “preforeclosure listings not yet for sale” and their continuous effort to obtain listing feeds from realtor associations. Or their latest Apple like TV ads. I think it all points to the same pitch to the consumer: We’re Zillow – that brand your trust from those lovely commercials – we have the most listings, the highest traffic of any other real estate website and you buy or sell your home on our site yourself for a lot less. Need help pricing it? We got Zestimates. Need a mortgage? We got that. Need buyers? They’re all here.

    So now those paying customers need to get with the times…

  6. Don Reedy December 10th, 2012 9:57 am

    Erion, so if your premise borders on being correct, and it may well be, then is the next obvious step for Zillow to become a brokerage for agents to complete the deal?

    Unless they do that, like Orbitz is able to completely ticket you to the destination, they will still remain an intermediary service destined to constantly be at odds with us. (real estate agents/travel agents, to continue your analogy).

  7. Erion Shehaj December 10th, 2012 1:52 pm

    Good question, Don.

    They don’t need to become a brokerage – they can become an online marketplace and make money on each transaction much like EBay but obviously much more involved. They could become a virtual environment where a complete real estate transaction is conducted: from the marketing of the property – which they already do- to the contract negotiations by supplying a virtual environment to facilitate offers and counteroffers (DotLoop already offers something of the sort) to sourcing financing – which they also already offer. And the mainstream acceptance of electronic signatures that’s sure to come in the near future will make it easier to do this.

    The only thing missing is trust. It won’t be easy for them to build it up to the level that it needs to be to wipe out the entire role Realtors play. There may still be a need for the services of an Agent – but with Zillow removing pricing, marketing, contract negotiations and financing from the picture our role would be reduced to a couple of notches above that of a notary public.

  8. Don Reedy December 10th, 2012 5:50 pm

    “The only thing missing is trust……”

    Erion, this short line, sort of a toss away, is the nix in the mix you contemplate for Zillow. As you so aptly said early on, buying on EBay, Amazon or other stores works because we’re not spending our life savings.

    So I’m sticking with my idea that to totally own the real estate industry’s real estate, well, Zillow has to become a brokerage, put real soldiers on the ground, or the missing ingredient won’t ever let them soar even close to any of the other online businesses that come to mind.

  9. Erion Shehaj December 10th, 2012 7:20 pm

    We agree on the idea that although trust is the only thing missing – it’s the most crucial element.

    But let me ask you a couple of different questions:

    If you didn’t have to entrust Zillow with “the whole thing” – if they assisted you with marketing and facilitated your offer/counteroffer process and helped the Buyer find a lender – and you could still hire an agent to draft contracts and make sure all was well, what would be the amount the consumer would be willing to pay for that service?

    Last, if the younger generations that grew up with the Internet being a crucial part of their life, start by using online websites like Zillow to rent their dwellings, would they be more or less open to the majority of a purchase/sale transaction to happen online?

  10. Ashlee Anderson December 11th, 2012 3:40 pm

    I do not think what you suggested is completely out if the question. I do not think they could potential push agents out, but they could try to charge us for a referral. Hopefully most agents would see right though that and realize that the majority of their leads take a lot of work. What I do not understand is why Google is not some how taking steps to penalize these guys if they are doing what is best for the user.

  11. Maria December 12th, 2012 5:13 am

    I Agree with Greg Swann, I am also curious to hear what you are thinking.

  12. Ray Smiley December 12th, 2012 9:23 am

    I can see pros and cons to this. I can see that it could create some healthy competition if this makes ground. However it also sounds a little desperate to get content on their site by giving away thousands of dollars. I think you raised a good point of the kinds of things people will say to get it. Interesting read.

  13. William Miller December 13th, 2012 4:34 am

    5-10 years ago real estate business looked different. I miss that time. These days any change in the system makes me sad and exhausted.
    The world goes crazy, day by day..

  14. Jeff Manson December 14th, 2012 11:11 pm

    Z&T are totally using agents for their content (listings) and duping them into linking back to them with their link spam widgets so they can then out rank us in the SERPs then sell agents traffic back to their sites.. When are agents going to wake up?

    What agent in their right mind would link to a competitor from their site.. Potentially driving traffic to them and boosting them up in the rankings.. That is is exactly what they are doing when adding their widgets to their sites. We go into great detail on a post here:

    Feel free to share this post and spread the word. We need to educate more agents if things are going to change.. The info graphic will be posted Monday..

  15. David December 19th, 2012 12:00 pm

    What kind of impact, if any, do you see to the Z&T business model, with search capability now being added to Facebook?

  16. Gabe Sanders December 23rd, 2012 10:46 am

    I find it a shame that Zillow and Trulia can entice agents to pay for a service that ultimately takes money from their pockets.

  17. Henry December 28th, 2012 3:45 am

    I feel the same about the real estate business, luckily i live in Gibraltar and we are a bit behind so i have more time to get use to the changes.

  18. Charlotte January 3rd, 2013 3:09 am

    Fees aside, I think the main problem with these sites has more to do with the relationship between data quality and user trust. The more effort Zillow and Trulia can convince their agents into putting into updating their profiles and marking sold properties as sold the more it benefits the user community. Redfin is taking this approach, recently pointing out that an unusually high percentage of Zillow listings either had wrong information or weren’t listed anymore. I’m curious what you guys think of the Redfin model in comparison.

  19. Susan January 13th, 2013 2:44 pm

    Personally, I think it’s only a matter of time until they start hiring their own agents and turn into the largest brokerages in the US.

  20. Raquel February 2nd, 2013 7:43 am

    I believe companies like Zillow and Trulia make money by capitalizing on the unwillingness of agents (and their brokers) to learn how to generate their own leads. If agents were willing to learn and invest in their own marketing, these sites wouldn’t be such an issue. I don’t think they will ever enter the business as licensed referring agents, because it is much more profitable to charge agents for the leads upfront.

  21. Trisha Yu February 7th, 2013 9:37 pm

    Very well said! I totally agree that having that certain trust can connect you with other people. And I also think that the main problem with these sites has more to do with the relationship between data quality and user trust. They should probably take some advice with the experts. And hope your problem will be solved eventually. Thank you for the information.

  22. Surbiton February 23rd, 2013 7:54 am

    Very informative description of Zillows massive sales efforts with very poor return on investment.Reading comments on Glassdoor for Sales positions at Zillow paints it as a sweatshop. Here is one persons comment

    “The company and culture was presented as a great place to work , with the opportunity to make good money. The truth is it’s a glorified call center/telemarketing job. Days are always 10-12 hours, just to hit your minimum requirements. 150 phone calls; encoragement to come in early, stay late and eat lunch at your desk to continue working. The pay will never equal the amount of work you put in. 170% of quota will have you under 100k.
    It’s very stressful and extremely unprofessional. Very noisy while on the phone. I have been told by customers that it sounds like a circus. And the turnover is outrageous!! Every other week, more empty seats for those who have been fired or simply quit.
    I would NOT recommend this position to anyone!”

    Exactly what Citron Research stated 3 months ago when they commented on Zillows lack of web2 credentials and that they threw bodies at tasks instead of using technology. CEO Spencer Rascoff repeating ‘monetize this monetize that” Motley Fool TV is just PR spin to deflect the inherent weakness in Zillows business model.

  23. Susan Zanzonico March 2nd, 2013 9:21 am

    They seem to be doing well with their premier agent feature in Morristown. They recently expanded the number of agents allowed to the zip code and increased the price too. One agent in my office couldn’t even keep up with the leads he was getting from Zillow.