Connecting Dots: Zillow, CoStar, Realogy and the Battle for Brenda

I’m not at Inman New York for a variety of reasons, and apart from a hot karaoke night, I’m not feeling the FOMO yet. However, there is one interesting thing to come out of the event based on reporting on Inman. To make it interesting, I have to connect the dots from three separate articles. So let’s do that.

First, there is the interview of Susan Daimler, Zillow’s President. Second, there’s the interview of Ryan Schneider, Realogy’s CEO. And third, there’s the interview of Spencer Rascoff, former Zillow CEO and present big money investor behind Pacaso and Offerpad, among others. All of them are behind the paywall, but I suspect most of you have subscriptions.

Between the three interviews, a picture emerges that might point the way to how the upcoming fight between CoStar and Zillow will play out. Since I’ve already written pretty extensively on those two, including a 100+ page report on CoStar, I’ll try to summarize and connect a few dots.

Zillow’s Pitch

Boiled down to the essence, it appears that Zillow’s pitch to the industry is “We love you! We really, really love you!” Apparently, the conversation wasn’t as much about Zillow’s Super App as it was about how much Zillow loves brokers and agents:

But much of the session focused instead on the state of the industry. Early on, for instance, Daimler said that Zillow is “listening to brokers.” And, speaking to the audience that was mostly made up of agents and brokers, she said the company believes in “the essentialism of you.”

“Zillow at this moment in time is more bullish on its partnership with the industry,” she also said.

And when asked by Brad Inman about CoStar, here’s what we get from Inman’s reporting:

When Inman asked Daimler about CoStar’s challenges to Zillow, she replied by asking what CoStar’s Zillow rival is called.

“I don’t know the name, do you?” she asked Brad Inman.

She went on to say that “competition is great” and that it “keeps us all on our toes.” She never mentioned CoStar by name, but did say that “we feel really great about our philosophy.”

“We believe buyers should be represented by a separate agent than the sellers,” Daimler continued. “That is a very different philosophy than other platforms.”

Daimler went on to say that Zillow does not believe that the “double dipping agent” — or in other words dual agency in which the same person represents both a buyer and a seller — is the future.

“We don’t believe in that philosophy and we don’t believe that’s where the industry is going,” she added.

While it seems obvious that Zillow would say these things, read on.

Realogy Got No Love for Zillow

If Zillow’s pitch is “We love you!” then the industry’s response, at least as articulated by Ryan Schneider, is more along the lines of Love Yourself. From the reporting:

Schneider weighed in on Zillow while speaking with Brad Inman during a session of Inman Connect that was dubbed “What’s Next for the Real Estate Industry?” Right off the bat, Inman asked Schneider what he thought of Zillow, which in recent years has rapidly expanded beyond consumer search tools as part of a Zillow 2.0 push to diversify the company. Schneider didn’t pull any punches.

“Zillow is a competitor,” he said, adding a moment later that “I welcome the competition. But writing checks to them, I just don’t get it.”

Though Schneider didn’t elaborate on the point, the comment seemed to allude to Zillow’s Premier Agent program, which involves agents paying the company for leads. However, Schneider did say that Zillow has “gotten brokerage licenses” and that it is “going direct to consumers to try to get their real estate business directly without the agent involved necessarily.”

Schneider went on to argue that over the years Zillow has “evolved into something different” than it initially started out as, and that “sometimes they’ve said, ‘we will never do X, then they do X.’” He did not elaborate further on what he views as Zillow reversing course, but did lament that in decades past, established real estate players stood by while one-time upstarts like Zillow gained power.

“It is a shame that our industry let those companies get created,” Schneider said.

Then when asked about CoSTar, we get this:

Schneider replied that while he isn’t under the illusion that CoStar is rooting for Realogy, the entrance of a new competitor is likely a good thing for agents.

“I think CoStar coming into this ecosystem is probably good for the ecosystem because it creates more competition,” he noted.

Well then. Maybe it’s just me, but that seems like Realogy at least has picked sides. And since Realogy remains the flagbearer for the traditional brokerage industry, I don’t think it’s crazy to assume that many, many other brokers feel the same way that Ryan does.

In fact, if any broker is a friend of Zillow, he or she is remaining awfully quiet. Things are going to come to a head at some point.

Spencer Sees One Possible Future

Finally, there’s the interview with Spencer Rascoff, Zillow’s former CEO. I’ve heard from friends that he mentioned me from stage, which is awfully nice of him. So perhaps I am biased in thinking that Rascoff sees the big issues at hand here in the battle between CoStar and Zillow. But see them he does:

A federal government probe into the way real estate agents are paid during transactions could bring “chaos” to the industry, and Zillow’s co-founder and former CEO says CoStar is rooting for that chaos.

CEO-turned-investor Spencer Rascoff spoke during Inman Connect about how the federal government’s antitrust probe into what is known as cooperative compensation between buy-side and sell-side agents could upend the industry.

If that happens, he said, CoStar has set itself up to benefit.

He goes on to say that CoStar is a serious competitor:

Rather than slamming CoStar, Rascoff appeared to give the company credit for its attempt to bring what he called the Australian or British model of real estate listings to the U.S.

“CoStar is legit, they’re not to be trifled with,” Rascoff said. “They came into the rentals space, guns blazing, they bought a couple companies, they’ve poured hundreds of millions of dollars [in] to grow the Apartments.com brand, and it worked.”

“They are now trying to bring that same game plan into the residential single-family space,” he added. “Will it work? Nobody knows. I think they have a shot.”

What Spencer might have addressed, but the reporting doesn’t mention, is what happens to Zillow’s Premier Agent business if this disruption happens. That is, if the federales disrupt compensation, then Zillow’s revenues go poof.

Connecting the Dots

With all of that laid out, let’s connect a few dots.

Zillow is trying to make a hard pivot away from its strategy over the past couple of years which was centered around iBuying as the core business. Zillow has always been all about “We Love You, Agents!” but this is a new tone, when Susan Daimler talks about how they are “listening to brokers.” And the whole “essentialism of you” must be taken with a grain of salt — that the “you” in question pertain to the top producing, highly effective agents, rather than the run of the mill average agent. Zillow believes in the essentialism of the Brenda, not of the Marge (from my Industry Relations podcast a couple of weeks ago.)

What is a bit puzzling here is the whole “we don’t believe in double dipping” thing. The Brendas of the world are all about double dipping, at the team level. They’re opposed to single-agent-dual-agency, if you will, but the business model and the structure of the team creates huge incentives for double dipping. As it happens, these big teams tend to benefit more on a net basis from the Premier Agent model — give up some buyer leads from their own listings, but gain more from leads from other people’s listings. But that doesn’t always have to be the case, and the “Your Listing, Your Lead” will appeal to at least some of these teams.

I also think it’s a bit of a mistake to do the whole “I don’t even know the name” thing. There’s little love lost between Zillow and CoStar as it is, but why provide bulletin board material to the other guys? If Andy Florance and his whole team needed more motivation to go after Zillow, they just got it. Your own former CEO, Spencer Rascoff, is on stage saying that CoStar is “not to be trifled with.” To not even acknowledge them is… a mistake.

But it is the statements from Ryan Schneider that should concern Zillow. It’s no secret that Schneider and Realogy have been sounding more and more anti-Zillow in recent years. But this is about as clear a statement of support for CoStar and a statement of opposition against Zillow that I’ve heard in a while. “Zillow is a competitor” followed by basically a “bring it on” statement would be a declaration of war if these two companies were nations. And his statement about CoStar could and should be interpreted as an “enemy of my enemy is my friend” type of a position.

Where the Fight Will Be Won or Lost

So take a big step back and look at the situation from a 30,000-ft up, strategic level. Here’s what I see.

Brokerages appear to have thrown their support behind CoStar. I’m sure they’re not exactly fans of CoStar, but again, this appears to be an enemy-of-my-enemy situation. Politics and war breed strange bedfellows after all.

The REALTOR Associations are neutral, and historically, they have been hostile to Zillow. But today, Zillow is a member of NAR, so the Associations have to hide that hostility somewhat. But they’re kind of irrelevant except that they control the MLS.

The MLS understands (or should understand) that chaos is headed their way, as Spencer said. CoStar is rooting for the chaos, while Zillow will fight the chaos as much as possible. However, it must be understood that CoStar is neither causing the chaos nor is CoStar hostile to the MLS. If anything, CoStar will seek to be the MLS’s bestest friend; it isn’t their fault if the FTC comes in and smashes the MLS. Meanwhile, Zillow has built some strong relationships over the years with various MLSs… but the MLS is controlled by brokers (who are anti-Zillow) and agents (most of whom are anti-Zillow Marges). I think that’s kind of an even push there.

Agents are somewhat divided. I think the Brendas of the world are either pro-Zillow or neutral to Zillow, because they’re all about doing business and making money; as long as Zillow has the buyer traffic, and as long as they’re making money on Zillow, they’ll do nothing to hurt Zillow. The Marges of the world, who don’t do a lot of production, are emotionally invested in hating on Zillow because that’s kind of the culture of the industry. But they don’t do a lot of production, so Zillow doesn’t much care.

Which means that this battle will be won or lost with who wins the support of the Brendas of the world. The top agents, who do most of the production, who take most of the listings, who are growing into institutions as agent teams… they will dictate who wins the battle between CoStar and Zillow. That battle has yet to be joined. Neither CoStar nor Zillow have made any real significant moves yet that tells me that they understand the importance of winning over Brenda. They’re still setting up.

What do I mean? Let me give you just one example.

Back in the day, Zillow used to have Jay Thompson as its face to the agent community. Jay was well liked, well-respected, and had a huge social media following. He was an influencer. Who does Zillow have today? Who is the face of Zillow to the Brendas of the world today? By the same token, I don’t even know that CoStar has a position like that in the company today. They will come to realize they need an influencer on the team (or at least on retainer) but they don’t have that today.

When both Zillow and CoStar either hire a major industry influencer to be the face to the agent community, or sponsor some influencer to be their ambassador to agents, then we’ll know the battle is joined.

With brokerages in CoStar’s corner, Zillow will need to spend extra effort on this as they will need to overcome the messaging that comes from the manager right there in the office with the agents. On the other hand, CoStar will need to overcome the reputation they have built in commercial real estate… which will surely leak into residential as well. So as far as I can tell, it’s even stevens today.

However it goes, one thing we can say for certain: before the winner is declared, we’re all going to know the names of everybody involved.

-rsh

Snoop Dogg – Who Am I (What’s My Name)?

Music video by Snoop Dogg performing Who Am I (What’s My Name)?. 1993 Death Row http://vevo.ly/FFM9qX