Friday Flash: Alpha Zeta

On Tuesday, Costar CEO Andy Florance took the stage at the t3 Summit to say mean things about Zillow.

This was the latest stop in the Andy Florance says mean things about Zillow conference tour.

At this week’s show, he called Zillow a funny name. He claimed, according to a Real Estate News article, that consumers “hate the Zestimate,” when, in fact, the Zestimate built the most powerful brand in the history of housing. He claimed that “We’ve been much more profitable doing ‘your listing, your lead’ in other spaces … so it’s just a better business model.”

That’s right, “other spaces.” Exactly.

This is self-own theater. If I were Andy’s comms leader, I’d gently suggest to this brilliant businessman that he head back to the studio and work on some new tracks until there’s something fresh to take back on the road.

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Meanwhile, Zillow CEO Rich Barton moved through Zillow’s Q1 earnings call with high-road elan, making only the slyest of jabs at competitors.

Here are some of the tracks Rich laid down:

$3.4 billion in the bank.

200 million people using Z websites and apps.

Increasing referrals from partner agents to Zillow Home Loans 13% in one quarter.

Using the $500 million acquisition of ShowingTime to send higher converting leads to a “tighter set” of partners with whom we’re being “even more prescriptive.”

Recognizing that ChatGPT and the like probably signal a sea of change in consumer behavior, but having a world-class team of experts and devs cranking on it.

And the closer: Hiring people this quarter to accelerate our clear vision, while most companies in the category are laying people off.

Opendoor is scrambling to right the ship. Offerpad is circling the drain. Redfin’s earnings release was dark. The “traditional” brokerage and franchise players are hunkering down.

To say Zillow is looking relatively good is an understatement. Love them or hate them, their power is undeniable.

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Okay, okay, before you hit “unsubscribe” because I said that I think Zillow is in a strong position, let me offer a couple points of concern.

First, it is very clear that Zillow is continuing to winnow down its partner agent base to a smaller group of high production agents and teams over which it can exercise increasing control. This point was made very clear in the earnings call.

The “even more prescriptive” comment above was made by COO Jeremy Wacksman in response to an analyst question. Here’s the full quote:

“… it’s important to remember that our strategy for a while has been to try and enhance who we work with, right? The Best of Zillow program, all of our work on kind of higher-quality agent partners and agent teams and all of our training that we do with our agents nationally, we have been preaching quality and working with them on quality experiences and how to work with our customers generally. And so the enhanced markets, where we’re being even more directed and even more prescriptive, and really, we’ve consolidated around a fewer set of partners so we can more cleanly test more of these integrated experiences…”

In other words, Zillow is dictating how partner agents and teams run their business, particularly in markets where it is delivering better converting leads through real time booking of showings. This is fantastic for Zillow. They get to design and mandate a consistent consumer experience, and make and enforce quality standards, without having to hire agents like Redfin does.

Is this fantastic for the partner agents and teams? That’s not so clear. I’ve talked with plenty of agents and team leads who have built their businesses on and around Zillow. They’re fans of the company for the most part, but there’s a lot of ambivalence, for obvious reasons.

But I’ll let Rich Barton, again from the Q1 earnings call, explain this:

“I am confident that Zillow is well-positioned for whatever disruption may come, not only because we are leaning in hard, but because we own our own customer demand.”

And, further on…

“While we recognize and respect that SEO and SEM have a real and important place in the marketing mix, we have always been keenly aware that any vertical site’s over-dependence on SEO and SEM makes it strategically fragile. Today, over 80% of our traffic comes to us directly. This is rare and very good. The direct branded relationship we have with our customers will help us well into the future.”

Dependency is dangerous. Zillow has taken pains to own its destiny, and that’s maybe a good lesson for its partners too.

Second — and here I venture into the realm of pure speculation — I suspect the application of LLM AI (like ChatGPT) will be deployed most meaningfully by Zillow not in consumer home search, but in the mechanics of how leads are engaged, interacted with, qualified, routed to, and then managed by partner agents. In other words, to create something of an AI nervous system around the critical flow from site or app to agent.

Something like an AI meta agent conditioning the behavior of a partner army of Steve Austins.

Okay, that’s maybe a little much. Maybe. But you get the idea.

Enjoy the weekend.