Why Antifragile is the Only Way Forward: Zillow Turns the Page

Since it’s been a few days since my VIP subscribers got to check out my analysis of Zillow’s Q4 earnings, I wanted to have more of a public open discussion on two incredibly important things from the Q4 earnings.

Rich Barton, Zillow’s CEO, mentioned the Bob Seger song, “Turn the Page.” He was talking about the transaction, and how Zillow’s new mission is to help people turn the page on new chapters in their lives. But I think the song applies to the real estate industry as a whole.

The only way forward for brokers and agents is to become antifragile, and get better. Being resilient to stay the same, is not enough. Defending the old ways is not going to cut it. And since the industry goes how the brokers and agents go, the rest of us are going to have to do the same.

The New Mission Statement

We might as well begin with the new mission statement.

Most people in real estate pay no attention to things like Mission Statements, since their company/organization has so many of them that nobody knows — not even the authors.

However, what is made manifestly clear is something I’ve been saying for a while: Zillow 1.0 was a portal that aggregated consumer demand to serve real estate agent customers, while Zillow 2.0 is a market maker that serves consumers through real estate agents. You can watch the video Zillow released that goes with the new mission statement.

It goes way deeper than that, however. Here’s Rich Barton at the latest earnings call:

And finally, we are in the process of galvanizing our employees around a new mission statement that animates our transition to Zillow 2.0. At Zillow, our mission is to give the people the power to unlock life’s next chapter. I’m going to do it again. At Zillow, our mission is to give people the power to unlock life’s next chapter.

It was meant to be more dramatic. Our homes represent distinct chapters of our lives, and we are building our technology, services and operations to make it easier to, as Bob Seger says, turn the page. In our quarterly shareholder letter, you will find a link to a short video you might enjoy watching you may enjoy watching about our new mission. It never fails to bring a tear to my eye.

I went and watched that video that brings a tear to Barton’s eye. Here it is:

It’s a great video, of course, since that has been a strength of Zillow’s from day one. The guys and gals over there know exactly how to tug at our heartstrings. The family is likable, the story is compelling, and well, it’s just a great testimonial video.

But notice anything?

Change #1: The Home Depot Effect is in Full Effect

What blew my mind about this video is Daizha Richardson, Zillow Advisor.

This is the first time I have ever seen a Zillow Advisor featured in any Zillow marketing or Zillow material. It’s the first time I’ve heard a Zillow employee say:

I think I was like his safe space. He was calling me with everything, even things I didn’t control. He was like, hey, I’m stressed out. He had his hands full.

The only mention of a real estate agent is when Daizah says, “I set him up with an agent.”

That psychological role, that “make the stressful situation smooth” role, is something that has been the province of the real estate agent since… well… the beginning of professional real estate in the United States sometime in the 1900s. It now belongs to Zillow.

Back in 2008, in one of the first posts I’ve ever published on Notorious ROB, I talked about the Home Depot effect:

A while back, the wife and I noticed a pretty significant draft coming through our windows.  Considering the house had been built in 1940’s, and hadn’t really had a renovation since then, we thought it wise to invest in some new windows.  So we went to HomeDepot like millions of Americans, and looked into getting windows installed.

Everything pretty much went according to plan.  We bought the windows, talked to the nice people at HomeDepot, and on the appointed day, a contractor showed up at our house and started work.

I noticed, however, that the contractor’s van didn’t look like a HomeDepot van; it didn’t have any colors.  It had some guy’s name on the side (like Joe Romano & Sons or something like that) with no hint of the ubiquitous HomeDepot orange.  Turns out the HomeDepot installation technician who was in my house wasn’t, strictly speaking, a HomeDepot employee.  He actually had his own company that installed windows, and did assorted contractor work specializing in decks and patios.  He was just one of the numerous independent contractors who had agreed to have HomeDepot send them work, presumably in exchange for some fixed rate, and for agreeing to certain HomeDepot rules and standards.

We had a nice chat, this contractor and I.  He installed our windows, and left.  I can’t remember his name, and I couldn’t pick him out of a lineup.  I don’t remember the name of his company.

What I do remember is that HomeDepot installed my windows.

The Home Depot effect is all about who holds the consumer relationship. When Zillow launched Premier Agent 4.0 in 2018, I wrote this:

Presumably, all of you reading are in the real estate industry (or at least follow it somewhat) so you know that PA4 is the new “We’ll screen everything, nurture the lead, and hand over transaction-ready connections to you” program from Zillow. It mimics what companies like OpCity (now a part of Move, Inc.) have been doing for a while.

There are two big takeaways from what Ryan [Lazine, the video blogger who was talking about PA4] relates, at least for me:

  1. 50% of consumers think that they are contacting Zillow; and
  2. Zillow conducted some 750,000 consumer surveys and gathered that data before launching PA4.

And as Ryan mentions, even after the 750,000 consumer surveys, Zillow rolled out PA4 slowly, testing them in different markets with different Premier Agents and teams.

PA4 changes the economics of Zillow’s massive agent advertising program in as-yet-unknown ways. But judging by how quickly Zillow announced the changes to its entire Premier Agent base, one assumes that the beta market data is very encouraging. We’ll end up talking about PA4 on these pages so let’s not focus on that for now. The point is that PA4 gives Zillow the process for identifying which agents are and are not living up to customer expectations, since Zillow will now respond to every consumer inquiry, screen them, qualify them, nurture them, and then only hand them over to the agent further down the funnel. Zillow will, of course, reinforce that with the whole Customer Experience deal throughout the process, rather than after the close. [Emphasis added]

And now, in 2020, Zillow is still “testing” Flex in two big markets: Atlanta and Phoenix. But wait… here’s Rich Barton during the Q4 earnings call:

Our whole history with Premier Agent has been about continual business model innovation and testing in service of long-term growth maximization and customer satisfaction. Since introducing the Best of Zillow program and focusing Premier Agent on connection rates, service quality and most importantly, transaction conversion, we’ve seen significant improvements in our business fundamentals. Specifically, we’ve had to dig in on the capabilities and the productivity of our Premier Agent partners who are best at converting leads into transactions.

And this is why we are expanding our Flex tests with high-performing partners in select markets. We’re learning that conversion is a key driver of performance, regardless of whether the monetization model is Flex or our larger market-based pricing model. So as we continue to test and grow Premier Agent, I ultimately think of Zillow Premier Agent business models we will deploy as an optimization problem and opportunity. We continue to be methodical in our tests, and we are making progress. [Emphasis added]

Zillow is not now, nor has it ever been, testing Flex to see if it will work. They have been testing Flex to see how to make it work — the recipe for success, rather than a “try it and bail if we fail,” if you will.

Are agents upset about these changes?

Sure — the ones that don’t matter. The ones that Zillow doesn’t really want. How do we know that? Because Zillow is experiencing the best retention rates they have seen in recent memory.

The agents who are making money with Zillow are making money with Zillow. In a very real way, Zillow is more important to them than any other institution in real estate. Or ought to be.

Why do I say that?

Meet one such agent.

Who Are the Future Zillow Agents Dominators?

I talk about the George Laughton Team in Phoenix in some of my presentations, because I’ve been tracking Zillow Offers in Phoenix for a while now. Here’s a slide with some data for you:

I’m estimating over $8 million in GCI directly attributable to Zillow, plus another $25 million in GCI indirectly attributable to Zillow (from the buy-side transactions flowing from 1,349 listings, at full cooperating compensation).

Do you think the Laughton Team has any institution, company, or organization in all of the real estate they can point to and say, “We made $33 million last year because of them?”

Not their brokerage. Not their franchise (although they’re not part of any major franchise brand). Not some CRM company. Not NAR. Not their local or State REALTOR Association. Maybe, maybe, their MLS (since mandatory cooperation and compensation is the reason for the $25 million in buy-side GCI) but that’s a really indirect connection.

Then there’s the halo effect of having 1,349 yard signs to boot….

These are the future super agent teams. They will benefit so much from the relationship that they will become almost dependent on it. They are like the window installation contractors who make 50% of their income from Home Depot. Why in the world would they bite the hand that feeds them?

They’re not “Zillow Agents” in the sense that they’re employed by Zillow. Nor are they “Zillow Agents” in the sense that they’re hanging their licenses with Zillow. They’re “Zillow Agents” in the sense of the Home Depot windows installer whose name I could not remember.

These agents — and really, we’re talking about large agent teams here who can handle the volume — were all top producing agent teams that are extremely well-organized and run like a business, with staff, processes, systems, and technology. I wrote about such a team recently.

These Teams Will Take Direction from Zillow

What’s more, these teams will increasingly take direction from Zillow. Now, Zillow would never say that. Zillow would say they make suggestions, give advice, provide data and best practices and input on what the teams ought to do to maximize conversion rates and so on.

If your most important partner, the one who directly and indirectly hands you $33 million in GCI, makes a suggestion… what are the chances that you will not do precisely and exactly as said partner suggests?

And these are the kinds of agent teams that Zillow is looking for. These are the ones Zillow is interested in taking money from, whether via Flex or via market based pricing. Because Zillow’s customer is the buyer and seller and renter, not the real estate agent.

As Rich Barton said during the call:

On the high-performing partners question and providing more clarity. It’s really what it is. It’s unsurprisingly when we find partners who use our software, understand our system, we explain our system well, and they give the customer service and convert those customers into buyers, transactors of homes, those are the partners we’re looking for.

And a bit later, he says:

We’re finding the right partners who are better at converting these things. I mean, even basic things like drip marketing and email communication and when is the right time to call and when is the right time to send an email and don’t overwhelm consumers and bombard them with emails because they’ll get turned off, and they’ll go away. These kinds of some basic stuff that we have been in the tech business for a long time kind of take for granted, but we’re bringing those fresh skills to this industry, and we see a lot of opportunity.

All of this is now perfectly clear. Agents are partners, not customers. Zillow’s plan is to find the right recipe where Zillow will make enormous amounts of money when their selected partners also make enormous amounts of money and vice versa. Those partners will be among the best agents and agent teams in the country, who are also happy to utilize Zillow’s software, systems, processes and take advice and suggestions and implement them in a timely and effective fashion. They will be the kinds of agents who can learn the “fresh skills” that Zillow will bring to the industry.

Turn the page, indeed.

Change #2: All of Your Technology Plans Are Null and Void

The second major item that everyone appears to have missed came during the call. It effectively sounds a death knell for all of the real estate companies out there basing their old-order strategies on technology and platforms and such.

First, we have Rich Barton saying this:

We think we have a ton of upside in mechanizing and professionalizing and applying software and modern technology to this nurture funnel to the sales funnel. And there has been a woeful, an embarrassing lack of tech investment in the real estate industry for pretty much its history. And so we’re wading into a gnarly problem, yes. But it’s a really fertile field.

There’s a long pent-up desire to kind of mechanize and professionalize through software this industry. So we have a lot, we see opportunity everywhere we look.

A bit later, we get this:

Rich Barton — Co-Founder and Chief Executive Officer

we are discovering, as I said before, kind of a woeful lack of kind of application of software to better nurture and transaction experience in this industry. Traditional brokerages do not have and have not had big tech and dev budgets.

They have really, they just haven’t invested in technology. And that hasn’t really necessarily been their primary concern anyway because their business models have been a little different. So we’re seeing a tremendous amount of opportunity all along the nurture funnel of a customer. And as we find things, we’re automating it.

In recent years, at least two major companies have publicly announced that their entire strategy is based on building a technology platform to enhance agent productivity.

First, there is Keller Williams, which declared that it is no longer a real estate company but a tech company. It announced committing $1 billion towards the transformation. It has spent enormous time and money on things like Keller Command, Kelle, and whatever else.

Second, there is RE/MAX whose entire strategy for over a year now is based on building a technology platform based on booj, and recently went out and acquired First.io.

And then there are hundreds of brokerages, large and small, who are looking at investing into technology platforms for their agents. It’s the new hotness, if you’re a brokerage of any size.

All of these strategies are based on a simple premise: most of an agent’s production comes from repeat business and referrals. Produce and deploy technology that helps an agent stay in touch, generate repeat and referral business, and then convert them into transactions, and you win!

Those technology-based strategies make sense when you’re competing against one another. KW has no trouble talking tech competition against RE/MAX or Realogy, or even Compass. Howard Hanna can really invest into a CRM system or a tech platform for their agents if it wanted to. Realogy with its “open platform” strategy could compete effectively against HomeServices of America.

It’s a totally different game if your competition in technology is Zillow.

Money isn’t everything in technology… but it’s not nothing. That’s why Gary Keller pledged $1 billion for technology. Well, Zillow spent $477 million on technology and development in 2019 alone, and already spent $1.7 billion in the last five years. Suddenly that $1 billion doesn’t seem like that big of a deal, does it?

No wonder Rich Barton flat out says traditional brokerages do not and never had big dev budgets. Because it’s true.

Furthermore, it’s not just the budget; it’s also the type and quality of developers and programmers. Zillow isn’t competing against Realogy for coders and data scientists; they’re competing against Facebook and Amazon. RE/MAX simply can’t say the same, nor can any traditional real estate company.

And those are the people who are going to turn their attention to the “gnarly problem” of applying software and modern technology to take a nurture funnel to the sales funnel? This is the company that’s going to work on the eternal problem of converting a lead into a buyer or seller?

If the game isn’t over, well… it’s the fourth quarter. And the clock is ticking.

Zillow Will Not Replace You; The New Super Agent Teams Will

One final, and important point, to make here.

Go on Facebook, go in the comments section of many an Inman article, and you will find some REALTOR saying something along the lines of, “Technology and computers can never replace the seasoned agent. Focus on your relationships!”

Newsflash: Zillow will not replace you. Zillow doesn’t care about you all that much. Zillow cares about the consumer.

No, it will be the new breed of super agent teams who replace you.

They will be armed with all of the technology, systems, training, processes, control, etc. so that they can handle the volume coming from someone like Zillow. They will then plow all that money into becoming way better and more efficient than you at doing things like staying in touch with clients, staying top of mind, and taking them from a lead to a closed transaction, armed in no small part with whatever technology the genius programmers at Zillow produce after hundreds of millions are thrown at the “gnarly problem.” Those teams will replace you.

Because they are just as seasoned as you are, but they’re mechanized. And mechanized infantry destroys regular infantry 100% of the time. This is the way.

This is one reason why the Zillow hate that is endemic in certain circles of the industry is so irrational. Zillow has no interest in getting rid of real estate agents. It is absolutely clear by now that Zillow loves them some real estate agents. It’s other real estate agents who are powered by Zillow who have a lot of interest in getting rid of other real estate agents, because that’s what competitors do in every market.

Become Antifragile, Not Resilient

I’ve already written on being antifragile in this post, but now I’m more convinced than ever.

If you are a broker or an agent in real estate today, and you see the page being turned… and since you’re reading this, it means you have now been informed that the page is being turned… then you must figure out how to become antifragile.

Traditional brokerages, the REALTOR Associations, most of the MLSs, and even many tech companies in real estate are trying hard to adapt, absorb, innovate, and so on in order to stay the same. They all want to defend the status quo as much as possible, to keep the agent at the center of the transaction, maintain the system as it has been since the 1970s.

The dominant strategy and dominant conversation within the industry is how to become more resilient. How to defend what we have. How to maintain the status quo.

That narrative has been dying for a while now, but Zillow’s Q4 earnings make it clear. There is no future in trying to be resilient and maintain the status quo. The only future is in adapting and becoming better. Whether that is becoming one of the mechanized agent teams of the future, going to work for one of those teams, or finding a niche where that advantage is nullified, you have to become antifragile. You have to become better. You cannot defend and stay the same.

Turn the page. Become antifragile, not resilient. It’s the only way forward.


Note: Video may not be safe for work, but I grew up with Metallica, not Bob Seger. You can find the safer original here.


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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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1 thought on “Why Antifragile is the Only Way Forward: Zillow Turns the Page”

  1. Great article, I enjoyed it very much. The home depot example is perfect!

    Undoubtedly, the arch of this industry is exactly as you stated. My only statement is I think the transition can go one step further. I believe the very most efficient model is if the real estate agent is the employee of the aggregator. This is why I like Redfin best (+ valuation). I understand your arguments against RF & the comparison to traditional brokerage, but I think that all changes next year when they merge with OD.

    Bahama Ben

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