Zillow Hires Bob Bemis of ARMLS; I Become Paranoid, or Preserve the Peace

One could quibble with the title of this post. Someone could say, “Rob, you were paranoid long before any hiring of anybody happened” and I’d not have a whole lot to say in response. But first, the news.

ARMLS (Arizona Regional Multiple Listing Service), the fourth largest MLS in the country with over 32,000 members, posted earlier on its Facebook page that Bob Bemis, its CEO, had resigned to take a job with Zillow:

On February 13, 2012, at a Special Called Meeting of the ARMLS Board of Directors, Bob Bemis tendered his resignation notice as ARMLS CEO, to accept the newly created position of Vice President of Partner Relations for Zillow, Inc. in Seattle. Over his four years at ARMLS, Bob built a legacy of strong leadership, and is widely credited within the MLS industry with moving ARMLS to world class status.

Curiously, the next paragraph in the ARMLS announcement went on to talk about iMapp and Realist (two public records/tax data products that many MLS’s use), leading me to scratch my head a bit. Your CEO just resigned and you’re concerned about a tax data system?

And Zillow has now officially confirmed.

In any event, I’m fortunate to have gotten to know Bob both professionally and personally over the past couple of years, and my admiration of the man knows no bounds. He’s brilliant, funny, kind, with both an easygoing personality that endears him to so many people and a trenchant business mind that brought ARMLS to the next level. That Zillow not only landed Bob, but that it knew enough to court him in the first place makes me admire Spencer and company at Zillow. This is a win-win for both Bob Bemis and for Zillow. Congrats to them both.

Having said that, could I really be the only one who sees a brilliant master stroke here by Spencer, one with possibly very long and very profound repercussions? [Ed: Yeah, Rob, you probably are, because normal people aren’t paranoid like you.] Oh well. So be it. I engage in phantasmagorical connect-the-dots once more.

A Couple of Observations on Zillow

First, it seems to me that the timing of the announcement is either a stroke of genius by Zillow’s PR department or an extremely fortuitous coincidence. Bob Bemis, one of the elder statesmen of our industry, who isn’t merely the CEO of the fourth largest MLS, but also a man who serves on various NAR committees connected to things MLS and Presidential Advisory Groups and IDX rule-making bodies and so on and so forth, was just hired by Zillow to fill the “newly created position of Vice President of Partner Relations”.

This coming on the heels of a string of announcements by MLS to treat Zillow like Obama treated Catholics strikes me as good timing. Who better to represent Zillow to the various and sundry MLS executives, boards, and major brokers than someone with the stature of Bob Bemis? If this hire ends up bringing a bit of normalization to the current toxic relationship between the real estate industry and Zillow, it’s a fantastic move right there.

But suppose for a moment that despite Bob’s best efforts, the industry continues to push Zillow out into the cold.

Let’s look at a couple of things.

The SEC Filings

Here is Zillow’s  S-1, filed with the SEC in April of 2011 in preparation for its going public. In it, you find this passage:

The number of Premier Agent subscribers is an important driver of revenue growth because each subscribing agent pays us a monthly fee to participate in the program. We define a Premier Agent subscriber as an agent with a paid subscription at the end of a period.

That’s interesting. I touched on this growth in “Marketplace” revenues a while back, but did not focus on the fact that Premier Agent program saw 193% y-o-y growth from 2009 and 2010.

Here are the same sections on Premier Agent from Zillow’s 10-Q (Quarterly Report) from August of 2011 and November of 2011 respectively.

Premier Agent Subscribers

The number of Premier Agent subscribers is an important driver of revenue growth because each subscribing agent pays us a monthly fee to participate in the program. We define a Premier Agent subscriber as an agent with a paid subscription at the end of a period.

Premier Agent Subscribers

The number of Premier Agent subscribers is an important driver of revenue growth because each subscribing agent pays us a monthly fee to participate in the program. We define a Premier Agent subscriber as an agent with a paid subscription at the end of a period.

What I find interesting is that we have numbers now for June of 2010, September of 2010, December of 2010, June of 2011, and September of 2011. The next 10-Q is due on 2/15 so I’ll be interested to see what the numbers were for December of 2011.

The quarter-to-quarter comparisons are:

• Q2/2010 to Q3/2010: 35% growth in Premier Agent subscribers
• Q3/2010 to Q4/2010: 26% growth in Premier Agent subscribers
• Q2/2011 to Q3/2011: 11% growth in Premier Agent subscribers

Slowing down the rate of growth, but if Zillow managed even a 10% growth from Q3 to Q4 of 2011, they should have ended the year with roughly 16,000 Premier Agent subscribers.

Here’s what so many people either are missing or refusing to see: Zillow’s revenue growth is mostly from subscription fees. From the latest 10-Q:

Note the two year-over-year comparisons. Zillow’s advertising business increased by 39% YOY for first 3 quarters of 2011; its subscription business increased by 251%. Say that slowly: two-hundred-fifty-one-percent.

Here’s what an outsider says about Zillow’s results:

The Diverse Solutions acquisition is an attempt to further beef up Zillow’s “marketplace” revenues, which have driven the company’s revenue growth in recent years.

That income category includes subscription fees for real estate agents and advertising sold to mortgage lenders, along with charges for lenders to participate in the company’s Mortgage Marketplace.

Third-quarter revenue growth illustrated that trend even further: The “marketplace” segment more than tripled year-over-year to $11.8 million, while display advertising revenue grew by 57 percent to $7.2 million, the company said.

If you were Spencer, and looking at those numbers, which business would you be looking to invest in further? Which one do you want to emphasize going forward?

The Acquisitions

Speaking of Diverse Solutions… Zillow made two acquisitions in 2011. One was Diverse Solutions, which I wrote about here. The other was Postlets, which I wrote about here. Obviously, I saw both acquisitions as preparing for possibilities in case the industry melts down.

In the case of Diverse Solutions, I theorized that should things go to pieces, Zillow would have the equivalent of IDX ready to go. And in the case of Postlets, I speculated that it is an Add/Edit module for direct input of listings into the Zillow database, thereby preparing for the possibility of a Zillow MLS. Here’s what I wrote back then:

Whatever its origins, however, fact is that Postlets is not so much an alternative listings syndication platform as it is a rudimentary alternative MLS. Note, for example, that Postlets provides a “beta” feature called Postlets OUT, which provides an XML feed to display listings on any subscriber’s website (or Facebook page or blog… it’s XML – it can be worked with and transformed). Now that Zillow owns Postlets, exactly how difficult would it be for a broker or agent to opt in to a “Postlets OUT Premium” that allows for all the listings in Zillow to be put on his website? It would take maybe a week of development. Shall we call this feature the “Zillow Data Exchange”, or ZDX?

Sure, Postlets lacks the Offer of Cooperation and Compensation; yes, it lacks strong Compliance. But if Zillow + Postlets does take off, it would not be particularly difficult for Zillow to put in an Offer of Cooperation and create a Compliance team.

Since writing that about “Zillow Data Exchange”, Zillow acquired Diverse Solutions. And since writing that about it not being difficult for Zillow to put in Cooperation and Compensation and creating a Compliance team, I read this on the Zillow blog:

Listings quality is key: We process all feeds at least once per day, giving priority to MLS and broker feeds over other sources. We have a team of compliance experts and technologists working hard to provide a higher-quality listing search experience and are committed to delivering accurate, up-to-date listings drawn from definitive sources. Direct listings from brokers and MLSs ensure the highest quality consumer experience.

Wots dis then? “A team of compliance experts and technologists” you say? “Working hard to provide a higher-quality listing search experience” you say? “Committed to delivering accurate, up-to-date listings drawn from definitive sources” you say?

Hmm. Yeah sure, that’s all very nice and such, but doing real compliance isn’t easy, you know? People out there think that doing a listings database is nothing more than throwing up a MySQL database somewhere, but the real hard work is doing compliance. I mean, do you have any idea who Zillow would need to bring in to manage an operation of a team of compliance experts and technologists if they were serious about doing something like this? They’d need to hire away the CEO of a major MLS with years and years of experience doing just that sort of work.

Oh. Wait. Hmm.

Do Unto Others

Do I think that Zillow is going to be announcing the formation of a Zillow MLS tomorrow? No, I do not. Do I think that Zillow is making these acquisitions and making these key hires so they can bring wrath and destruction onto the real estate industry? I do not. I believe Spencer when he tweets, “Don’t panic, we come in peace”.

But there is something that the various brokers, MLS execs, board members, Association Executives, consultants, and gurus in the real estate industry aren’t taking into consideration as they gather to the drums of war against Zillow. Let me ask the question this way: Is it easier for the industry to duplicate what Zillow has created or offer an alternative, or easier for Zillow to duplicate what the industry has created or offer an alternative?

Zillow has one of the top destinations on both the Web and on the fast-growing mobile segments for real estate. Zillow ended Q3 of 2011 with 24 million average monthly uniques. That’s 24,000,000 unique users. Zillow spent $10 million on Technology and Development in the first nine months of 2011. That’s $10,000,000 just on paying developers, data scientists, project managers, product managers, and the like… in 3/4 of the year. On that run rate, Zillow probably spent $13-14 million on just technology and development in 2011.

What has your MLS spent on technology and development in 2011?

Now, would it be easier for various MLS’s to create a consumer destination drawing 24 million monthly uniques, or easier for Zillow to create a national MLS? With some 16,000 Premier Agents (aka, subscribers), if Zillow offered them the suite of services that a MLS offers to subscribers, it would be the 21st largest MLS in the country. Brokers and agents rail against Zillow for various abuses, including “selling our leads back to us”; but they love a service like that provided by HAR.com which sends “free leads” to its members by way of a public facing website. If Zillow decided to copy the business rules of a MLS public facing website exactly for its subscriber-members, meaning no selling ads on listings, sending inquiries directly to the listing broker, etc., but brought 24 million uniques every month to the table… does that change things?

While this post singles out Zillow, since that’s the news, the above analysis applies with exact same force to Trulia and to Realtor.com. Is it easier for the industry to duplicate what those companies have achieved, or for those companies to duplicate what the industry has built up?

And at least for Zillow, in weighing that balance, the hiring of a Bob Bemis is significant.

Blessed Be The Peacemakers

This, perhaps more than any other reason, is why I have been urging caution, peace, and harmony as much as possible in both public and private conversations. To the extent that the industry keeps the third party companies within the big tent, engaged in some business relationship that makes mutual sense, there are incentives on both sides to keep the relationship going even if contentious at times. It’s kind of like a married couple who fights a lot, but is still really good together.

Get divorced, however, and all bets are off. Push Zillow out into the cold completely, and what is to hold back some of these presently unthinkable scenarios? If Spencer and company decide that there is nothing to be gained by working with the industry, why wouldn’t they decide to work against it instead?

So my paranoia leads me to regard the hiring of one Bob Bemis by one Zillow as a wonderful thing for both of them, in the way that it would be a wonderful thing for the wife in the above marriage to lose 20 lbs and get a whole new sexy wardrobe. It’s a hint that while it ain’t over yet, she might be more ready for a life afterwards than you might think.

This would be a good time for some serious marriage counseling. And Bob would be a good guy to start some of that dialogue and communication leading to the healing process. Preserve the peace, if you can, for blessed are the peacemakers. Because we all are going to want Bob to have a long and illustrious career as the VP of Partner Relations at Zillow, instead of being named the CEO of ZLS.

Trust me and my paranoia on that.

-rsh