There’s always something to howl about.

Zillow.com versus Realtor.com: Nothing grows in the shade of great tree . . .

I think part of the problem, in understanding the radical nature of what Zillow.com did this week, is that we are conflating unlike things. As an example, when I speak of a National MLS, I am not talking about local MLS systems.

For one thing, the sine qua non purpose of a local MLS system is to advertise the co-broke commission to other agents, keeping it secret from consumers. This objective is not even on the radar of home searchers, whether they are looking at local IDX listings or a national site like Realtor.com.

Kevin Boer posted an excellent analysis of why Zillow will not replace local MLS systems. I agree, for now, but that’s not really the issue. In the second place, if we were to split the buyer’s agent’s commission from the listing agent’s commission, the entire rationale for exclusive local MLS systems goes away.

But in the first place, home searchers are not going to any listings systems to find out about commissions. To the extent that a local MLS system corresponds to a market as Kevin sees it, to that extent a national home listings service is an entirely different type of market. If the one facilitates the essential activities of real estate brokerage, the other exists to introduce home searchers to the real estate market, to particular real estate products and to real estate vendors.

They are not the same market, so conflating the two is an error. If you want, we can call the idea of a National MLS system something else: National Property Listings Service — NeoPoLiS, “new town” in Greek.

The point is that harping that Zillow can’t do this and Zillow can’t do that is completely true and completely pointless: Zillow isn’t doing those things, nor could it, nor should it. What Zillow might be doing, and only time will tell if it can pull it off, is creating a national clearinghouse for listed homes — which will be brokered by off-site — and normally local — means.

In comments to one of my posts, Dustin Luther raises some plausible objections to my arguments. His counter is that Realtor.com and Zillow.com have very different audiences. This is true — for now. Visitors to Realtor.com are clearly home buyers, where visitors to Zillow.com are obviously home sellers. How that will shake out as Zillow adds listings is a matter of conjecture.

My response:

My take, Dustin, is that Realtor.com is on the ropes. Realtor.com has every MLS-listed home. Zillow.com has almost every listable home. They have an infinitely improvable franchise, and everyone else has popsicles melting in the sun.[….]

The mammals have arrived. The dinosaurs may still be with us for a while — but not for a long while. Zillow’s way of doing a national consumer-oriented home search makes too much sense for any other model to survive for long.

Dustin’s rejoinder:

I don’t disagree a bit that Zillow is a force in the industry, but I’m still not convinced that makes all other online players dinosaurs. Please correct me if I’m wrong with these numbers, but the percent of advertising spend in real estate is still over 90% offline. So Zillow is much more likely to be pulling money from offline sources (newspapers, weekly magazines, bus benches, etc.) than online sources. In other words, Zillow is much more likely to make dinosaurs out of bus stop and grocery cart ads. I can’t blame you a bit for putting your laser-like focus on the technology, but in reality, things are more complicated than just having good technology. Not only does the actual listing count still matter, but as Spencer Rascoff says, “It’s a lot harder to hire a direct sales team than we’ve thought.”

And, again, I don’t disagree with this, but I think it also conflates unlike things. Realtor.com is certainly a superior advertising medium right now, but home searchers don’t go to Realtor.com to read advertising, nor will they go to Zillow.com for that reason. If Zillow.com can pull home buyer’s eyes away from Realtor.com — whether or not Zillow hangs on to its dominant position with sellers — then Realtor.com will be mortally wounded no matter what natural superiorities it might have — e.g., more local-MLS-listed homes and better ad-delivery and revenue collection methods.

More simply: Whichever party wins the battle for the eyeballs will have won the battle for advertising dollars.

Dustin is right to cite my focus on technology, but, even now, I’m not sure I have successfully conveyed what technology I’m talking about. At the broadest level, the upgraded Zillow.com is a Web 2.0 platform — read/write — where Realtor.com is Web 1.0 — read-only — from the top down. I can make a stout argument that Web 2.0 in its purest form is write-only — Athens 2.0 — an agora full of thrilling orators without a single auditor. In any case, the Web 1.0, mass media idea of we-talk/you-listen is less and less likely to appeal to people who have discovered the joys of being active content producers instead of just a passive mass audience.

There’s more: Wednesday night, I stressed the importance of the permanent database, but I’m not sure people are getting it even yet. This is what I said:

Right under our noses, Zillow.com has effected a similarly radical shift in the way we think about real estate databases. All of the dead-bots-walking I named above — Trulia, PropSmart, Google Base, Realtor.com, and every local MLS system — every one of them treats data in the same way: There is an on-going application that will be effected using temporarily-stored data.

The Zillow.com paradigm is exactly the opposite: We are accumulating a database of permanently-stored data that can be deployed for any number of temporary, interchangeable applications.

The Zillow model is exactly the same paradigm you use with your own Contact Management system: The database is forever. The Christmas Card list is old news as soon as the cards are mailed.

This is a simple enough idea that all of us should be saying, “Duh!” But it remains that, of every kind of real estate database we can name, only Zillow’s — and those of its close competitors — is based on the premise that any particular house will still be the same house the next time it is sold. Want a Zestimate of that house? Done. Want to see how the owner disagrees with the Zestimate? Done. Want to put it up for sale? Done. Want to put a dream price on your home to see if someone wants it even more than you do? Done. A potentially infinite number of applications all from the same one, permanent database.

And it is this last aspect that seems to me to put Zillow so far ahead of everyone they’re competing against. The Realty.bots are toast, period, as is any vendor that treats its real estate database as a temporary nuisance. But the move they’re making into listing, and it is a very strong move, puts Zillow far out in front of the pack of recent AVM (Automated Valuation Method) entrants.

It is reasonable to say that Zillow.com is no longer an AVM. The listing model has taken over their home page, and delivery of AVM information about particular homes or comparable homes has become an ancillary activity. Even so, Zillow’s applications are on-going against a permanent database that will soon include almost every resellable residential property in the United States. The rationale for going anywhere else will get thinner and thinner with each incremental improvement in that database.

Moreover, the database has become self-correcting in a Web 2.0-like fashion. Cathy can correct the Zestimate for our home, and this is neither sour grapes nor a strict accounting of unzillowables. In the long run, if Zillow’s programmers are wise, homeowners will provide them with the data they need to build fudge-factors into their AVM algorithm. The same is true for list price to sale price data. Every additional data point provides Zillow with the means to improve its predictive accuracy.

In the same sort of way, Cathy points out that Zillow’s listing software permits her to correct the geocoded map marker for the home. This is data they should retain — and, in retaining it, they improve the quality of their permanent database.

I’ll give you another one, and this is straight out of the BloodhoundRealty.com playbook: One of the reasons we list so hard, particularly with historic and distinctive homes, is that we want to list those homes every time they go on the market. We accrue hundreds of photos with every marketing effort, which we can use again and again on our single-property web sites, which we never take down. One of the benefits we can bring to sellers and buyers of our listings is a photographic record of the home as it was in the past.

This is something Zillow could do: As the “price” for listing a home for free, Zillow could assert the right to re-use any supplied text or photos to display with that home’s record in perpetuity. Buyers could see the home as it existed in each prior marketing effort. Combined with other record sources, Zillow could, in due course, end up with a very interesting historical record for each home in its database — available on demand to anyone who cares to take a look.

Pigs is pigs and databases are databases, right? Wrong. Conflating a temporary database — as deployed by Realtor.com, local MLS systems, the listing aggregator Realty.bots, etc. — with Zillow’s permanent database is a significant mistake, in my opinion. For the moment, Zillow might look like a tiny sapling in a field of clover. In the long run, the tree Zillow becomes, as it continuously improves upon itself, will shade out all of the clover. Nothing grows in the shade of great tree. They simply have no way to compete against what Zillow has the potential to become.

I spent a long time on the phone yesterday with Rain City Guide’s Galen Ward. I was delighted to talk to him, because I think he has a very fine bead on where all this technology is heading. One of the things I talked to him about was a point I raised Thursday night — apparently not well enough:

The MLS is an inventory. It is not universal, and a huge number of homes sold are not MLS-listed. Craigslist has an inventory. Zillow will have an inventory. Having a fairly comprehensive inventory is important to Realtors, but the fact is that buyers buy from the available inventory, whatever that is. I had a great aunt who insisted on shopping every supermarket for the best-priced sale items. Most of us pick up whatever is on the shelf at Safeway.

If Realtors are relying on the fact the the preponderance of homes are MLS-listed or searchable on Realtor.com, I think they’re leaning on a very slim reed. The fact is, although there might be 45,000 homes in the Arizona Regional Multiple Listings Service right now, when I go out to show houses, I will have twelve or fewer listings with me. And my buyers might well be “home” by the third house. They didn’t need a vast inventory, they needed three houses — or six, or nine — rarely more then twenty. When buyers are ready to buy, they will buy from whatever inventory is available from the vendor they have decided to buy from. If they’re convinced FSBOs are a bargain, the 29 houses on Craigslist just trumped my 45,000. If they want a new build, my 45,000 listings might lose to one of five model homes. It seems probable that Realtor.com will have more listings than Zillow.com for quite a while — and perhaps forever. That doesn’t matter. What matters is, if buyers decide to make their initial contact on houses they might be interested in from Zillow.com, as opposed to some other listings source, then those other listings sources are done for. And if the “everything else” Zillow offers is perceived to be of greater value than the supplemental tools on other sites, so much the worse for them.

Must it be a case where one site will prove preeminent? Probably. The problem of comparing apples to oranges crops up when you search on multiple sites, as does the problem of unknowingly duplicating listings — especially at sites that (ahem!) keep mission critical information secret.

As a final note, one of the things I talked to Galen about was a principle that drives our business: “People like pie.” This is a quote, probably garbled, from Eric Cartman on South Park. What we mean by it is simply this: What I might like or want is irrelevant. If my client wants pie, it’s my job to bake a pie. People like pie. I related this to David Gibbons at Zillow about the issue of linking to virtual tours. I myself prefer photographs (and at least 640 x 480 pixels if anyone at Zillow is taking notes), but since home searchers want virtual tours, we bake at least one virtual tour pie with every listing — sometimes two.

In the same way, what Galen or Dustin or Kevin or Cathy or I might want in a Neopolitan search site doesn’t really matter. People like pie. If it turns out they like Zillow’s solution to the National Property Listings Service better than that provided by Realtor.com, then Realtor.com is history in the baking. We’ll have to wait and see how things shake out, but if the top executives of Realtor.com are not shaking in their boots right now — then the shareholders have twice as many good reasons to be shaking in theirs…

BloodhoundBlog’s team coverage of the Zillow.com upgrades:

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