In February 2006, a new site called Zillow.com launched to the world, co-founded by former Expedia CEO Rich Barton and Lloyd Frink, a longtime executive from Expedia and Microsoft. Ten years later, the Seattle-based company now known as Zillow Group is a giant in the world of real estate media, with more than 2,100 employees and a market value approaching $4 billion.
This week on the GeekWire radio show and podcast, we’re joined by Zillow co-founders Rich Barton and Lloyd Frink, along with Zillow Group CEO Spencer Rascoff, for a discussion about everything from the founding and evolution of Zillow to home buying, the global economy, the Seattle tech landscape, and more. Along the way, they share inside details about good times, rough patches, and plans for the future.
Listen below, download the MP3 here, and continue reading for an edited transcript. Also check out the video below.
John Cook: We’re going to dive into a little bit of the history of Zillow and talk about how you got this company going.
Rich Barton: I thought you were going to sing happy birthday, John.
John Cook: Oh, we can do that too. So, 10th anniversary. Let’s go back into the history books a little bit and talk about the creation story, if you will, and how you came to start Zillow.
Rich Barton: I can’t believe it’s been 10 years. I’m sure we look exactly the same. Luckily this radio, not video, or maybe it is. Zillow, we got going, it was pretty much a logical extension to what we did when we built Expedia. With Expedia, we were giving power to the people, giving travelers the power to plan their own trips, to make decisions for themselves, to see all the prices and all the choices and be able to take the time they wanted in planning something that was so important to them, a trip. After Expedia was acquired by Barry Diller’s IAC around 2003, we took some time and we were trying to figure out what the next thing was. It turns out Lloyd and I were shopping for homes while we were trying to hatch a new business idea. We were having babies and we were really frustrated that we could not find the information that we needed, the basic marketplace information, so the idea came up and punched us right in the forehead while we were thinking about these other things. It was just like, “Wow, it’s 2005, I can’t believe that we can’t access all this marketplace information. We should give power to the people in real estate, too.” That’s kind of the way we got going.
John Cook: Yeah, and there was another idea that you were kicking around at the time, I think. Wasn’t it a financial services idea of some sort? Why didn’t you go in that direction.
Lloyd Frink: Yeah, there were a few different ideas. The one of them that I was excited about was being able to share high res photos and back up all of your high res photos and hard drive to the cloud and I spent about a week …
Rich Barton: It wasn’t called the cloud at the time, it was just the web.
Lloyd Frink: It was very much like what Dropbox and these other, it wasn’t so much Facebook, but it was more like Dropbox. I spent about a week looking into that and trying to price out how many petabytes and how much would it cost and everything. Then we pretty quickly determined that Microsoft and Google were probably going to give this away for free and we said, “Maybe we should try to figure something else out to do.”
Rich Barton: I remember going into your office and Lloyd was on the phone with some senior sales person at Dell computers. Seriously, pricing out what a giant Dell computer order would cost for a server farm.
Lloyd Frink: For tens of millions of dollars and he was like, “Who are you?” Really, we’d have to buy a lot of these. It was an odd conversation.
Rich Barton: Dropbox is a great and interesting company and so is Box, but I think we’re pretty glad we didn’t go into that space. There’s a lot of blood running in the streets in that space now.
John Cook: Absolutely. Why did you guys initially decide you wanted to do another startup together?
Lloyd Frink: It’s fun. It’s challenging. It’s great. There’s a lot of satisfaction. I’m more of a technology guy, to be able to create products that lots and lots of people use and that really change the way that people do things. It’s basically, it’s a lot of fun that’s why we did it.
Rich Barton: It’s our wives didn’t want us at home. That’s the real answer.
Where ‘Zillow’ came from
John Cook: Also, as part of that creation story, talk about the naming. Zillow, it’s an unusual name. You’ve done a great job of branding it, but I take it it comes from zillions of pillows. Was that the initial idea? It’s kind of a weird idea, we want to know what you were smoking at the time you came up with Zillow.
Lloyd Frink: We were just thinking about real estate and thinking about putting up different words on the white board. There was the emotional side and then there was the data side of it. We had words for the data side of it and words for the emotional side of it and eventually put zillion and pillow together and came up with Zillow.
John Cook: Who’s idea was it?
Rich Barton: We really, we came up with it together. We may have been drinking at the time. I don’t know, possibly. Another one is, we were kind of cheap and we didn’t want to spend more than $9.99 for a URL and if you picked a real word like homes.com or something silly like that, it actually costs money. You guys might remember a time when those URLs would go for millions or tens of millions of dollars, these literal URLs. We didn’t want to have to pay the money, so we knew we’d have to make up a word.
Lloyd Frink: I bought it for $9.99 on GoDaddy.com.
Rich Barton: Yep. I have some rules about making up brands. I like high point Scrabble letters. Any of you people out there play Scrabble? The high point Scrabble letters Z, Q, J, K — these are the best letters for brand names because they’re rare, and they’re memberable.
John Cook: We’re doing pretty well with GeekWire, we’ve got a W and a K in there, G’s not too bad.
Spencer Rascoff: It’s a good example. What we were trying to do with Zillow also, was choose a name that could allow the brand to flex or the business to move in different directions, because we didn’t know where it was going to go entirely. Just GeekWire, for example, the fact that you didn’t include Pacific Northwest or Seattle, gives you the flexibility to expand beyond, and you have.
Todd Bishop: Spencer, it’s been 10 years now since Rich and Lloyd essentially flipped the switch on the company. You’re now the CEO. Give us a snap shot of what is now Zillow Group, if you can. What would be your elevator pitch to somebody on the company these days?
Spencer Rascoff: Zillow Group is the largest real estate media company in the world. We have over 2,000 employees and around 140 million monthly unique users that visit our sites or mobile apps. Our brands include Zillow, Trulia, Street Easy in New York and Hot Pads, which is a large rentals website. We attract a huge audience of consumers by giving them access to real estate information and we connect that audience with local professionals that can help them buy a home, finance a mortgage, or find a rental.
Todd Bishop: You acquired what was your biggest rival, Trulia. Who are your competitors now?
Spencer Rascoff: We did acquire our biggest rival, Trulia. We still have a lot of competitors though. Our biggest competitor is ourselves, just trying to make sure that we stay innovative and that we stay focused and mission-oriented is competition enough on its own. Other real estate sites that have real estate information are whom we compete with for consumers. For professionals, we sell advertising to real estate professionals and they choose to advertise in all sorts of ways on the internet and offline. That’s a huge market, there’s around $35 billion in total real-estate related advertising in all of our sectors.
John Cook: Stepping back, you say you’re competing a lot against yourselves really, is there a point in your history or a story you can tell about maybe an effort that didn’t go as planned — a product that didn’t take root the way you would have liked, and what did you learn from that experience?
Lloyd Frink: I can say when we started out and we were trying to figure out how are we going to enter real estate, we thought, “One of the hardest things about when you’re selling a home is trying to figure out the price of a home.” We said, “Huh, what if we took a home and we put it up on the web and we went to auction that? Wouldn’t that be a lot more efficient if people could just go buy a home and they could bid for it on the web?” We thought about being the real estate agent, being the brokerage ourselves. We spent weeks, months doing this project and getting it up and going, and we figured out pretty quickly that there’s a lot of value that real estate agents add and brokers add that was not our area of expertise. We basically went down the path of let’s just build the website and then learn how to do a better job of connecting consumers with existing real estate professionals.
John Cook: Yeah, I think that’s a pretty critical part of understanding Zillow is that you’re not a brokerage and have never made any intentions to be one and that was a pretty critical decision. A lot of the money in the real estate business is in that transaction, so what are the plans going forward to maybe get a bigger piece of that?
Spencer Rascoff: You’re right, that that’s where a lot of the money is and also that’s where a lot of the pain points are, but we believe that we can innovate on the transaction without being a brokerage. For example, we acquired a company called dotloop last year, which is the leader in transaction management. We want to be able to help people be able to buy and sell homes in a more paperless fashion, but still do so with a real estate agent. The promise and potential of dotloop is that it will allow top agents to be even more successful. It will allow them to do more deals, because they’re using technology to close those deals. Zillow Group doesn’t have to be in the transaction to still provide innovation for the transaction and help consumers and real estate professionals.
John Cook: That auction site that you initially were talking about, Lloyd, that never took root. There have been some new entrants that are trying to do exactly this, so are you thinking that now we are in the age of maybe a more seamless transaction, an internet-based transaction? Do you think that will ever happen in real estate, that you can click a button and buy a home?
Lloyd Frink: It will be seamless in that it’ll be much more electronic, which is what we’re trying to do with dotloop. Our strategy is much more of what technology can we build that’s going to make it easier for the industry to work, for the buyers, for the sellers, and for the brokers and the agents. There’s a lot of technology that we can continue to build to make that easier.
From Expedia to Zillow
John Cook: One of the interesting things here with Zillow is the history and the lineage between Expedia and Zillow. There’s a lot of common connection points there and you touched on that earlier. I have an entrepreneurial question. Which one was more fun to build in the earlier days, Expedia or Zillow?
Lloyd Frink: My opinion is they were both equally fun. They were both industries that we didn’t know very much about when we started and we learned a lot. It was very fun to approach it from the perspective of the consumer either if somebody was buying a house, selling a house, or buying an airline ticket, or buying a hotel. It’s like, “How would we want this to be?” and to be able build that over a decade, for both of them we spent doing it. It’s been a lot of fun doing them both.
John Cook: How about you, Rich? Expedia versus Zillow, is that like comparing children or something?
Rich Barton: Kind of. Expedia was a startup inside of Microsoft and it was our first one, so it had all of its own set of challenges, both external and internal. It was harder because we weren’t as experienced, so we had to put a lot more shoulder into it, I would guess, as I recall. We made a lot more mistakes. With Zillow, it certainly wasn’t easy. It was hard and I think it might have even been more fun because we were probably more relaxed about it. What was great is that we were able to put the team back together. Spencer, I can’t remember what phone call you were, but it was probably the first or second phone call that we made as soon as we figured out what we wanted to do. We knew Spencer from Expedia, he was one of the founders of Hotwire, which Expedia now owns. We knew that Spencer and David Beitel, who was the CTO of Expedia and is now the CTO of Zillow Group and many others, if we could get them that we would have the makings of really a dream team.
John Cook: You have some of that common DNA from Expedia. What other cultural attributes of that company did you bring into Zillow when you were starting fresh here?
Rich Barton: There was the first era and then there was the Spencer era, so I would say, early on Zillow probably felt a lot like Expedia, which felt a little bit like Microsoft before. We all had our own offices. We were of the belief that you do your best work behind a closed door. It seems like an antiquated notion these days, but that’s the way we did it. When we built Expedia, we wanted to build a kinder, gentler Microsoft and I think we succeeded, but we did inherit some of the cultural values. When Spencer took over, what was the first thing you did?
Spencer Rascoff: I got rid of the offices.
Rich Barton: You tore down the walls. Power to the people.
Spencer Rascoff: I believe that transparency and better communication, easier communication from working in open space is very important and it’s been an important part of our culture. We definitely inherited some of the risk taking and the naivety, the positive naïveté of Expedia. The benefits from Expedia … we didn’t know any better. You didn’t know that, “Oh, you couldn’t do this because it’s never been done that way,” and we brought some of that same naïveté into the real estate space with Zillow, but we also have a much greater emphasis on culture here, now, at Zillow. Creating work life balance and making sure this is a great place to work is something that’s very important. It’s served us well.
Todd Bishop: Lloyd and Rich, you mentioned in the previous segment that you started the company in part because you were looking for homes at the time. There are lots of people out there, especially in this real estate market that are struggling because homes in the Seattle area can be very competitive if you’re buying. What did you learn about home buying? What tips would you give folks out there right now and maybe Spencer, you can jump in this right now, like your number one piece of practical advice for a home buyer out there apart from use Zillow.
Rich Barton: Buy Spencer’s book.
Lloyd Frink: We’re kind of analytical geeks, if you will, and getting more information about what is going on in the marketplace and what’s going on with the particular home or homes that you might be interested in is really, really important. Also, looking at the option of renting too, that’s another analytical choice that you can make, which is you can rent homes or you can rent apartments as well as buying them.
John Cook: I thought you were going to say buy near a Trader Joe’s or Whole Foods.
Spencer Rascoff: Our book, Zillow Talk does analyze the importance of living near good points of interest. Over the last 17 years, the average home in America has appreciated 70%, but those within 1/4 mile of a Starbucks have appreciated by 100% and those within 1/4 mile of a Trader Joe’s or a Whole Foods have appreciated 140%.
John Cook: This is why the Seattle market’s doing so well, because there’s a lot of those around, right.
Spencer Rascoff: If you hit the jackpot with Starbucks and Whole Foods, you’re going to appreciate twice as fast as the average home in America. To Lloyd’s point, one of the key things that we’ve tried to provide information transparency around is that it’s not always appropriate to buy a home, that sometimes you ought to rent a home. The most important question you should ask yourself is, “How long am I going to be in that home?” Typically the break even nationwide is around 2 years, so if you’re going to be in a home for more than 2 years you should probably buy it, less than 2 years you should probably rent. There are significant regional differences and we have all this on Zillow.com/research up on the web. In some parts of the country you have to live in a home much longer to make it worthwhile to buy.
The story of the Zestimate
Todd Bishop: The Zestimate, it’s probably the most engaging and controversial feature of Zillow. Do you ever regret launching it? Is there something you would have done differently with it? We should say the reason people think it’s controversial is because everybody wants to debate the value of their home and you jumped right in there. Talk about the launch of this Zestimate, what you did it, and the kind of value it brings to homeowners and the company, today, in terms of exposure.
Lloyd Frink: When we were first starting out, looking at buying homes, Rich and myself, we went to the King County website and we pulled the public data down on what the recent sales were and then we’d go up to the MLS websites and we’d pull that data down and what homes are on the market. We’d try to put it into a spreadsheet to try to figure out, “Okay, what is the home that we’re looking at? How much should that be worth on dollars per square foot? That one sold a year ago and it must have appreciated this much by now.” We’d basically be doing all this simple math to get a general idea for what a home would be worth. It was just mind-boggling that there was no website that did this. It’s just math to do this. We’ve always said, and we knew when we did it that that’s just a starting point to figure out what a valuation is. In order to figure out what the valuation is, you really have to talk to experts in the market, you have to talk to the real estate agents. Not for a second have we regretted taking a dollar value and putting it on a map on every single home because it gives people such a great sense for the value of the homes that are out there.
John Cook: There’s an element to it that, I think, sparks people or maybe pokes people a little bit in the nose with the idea — was that intentional or were you surprised by the reaction when people came out and were battling over their estimate?
Rich Barton: Totally intentional, of course. The Zestimate is very provocative and personal and a little voyeuristic. We knew when we thought up the zestimate, we knew we were on to something pretty big. We didn’t talk to anybody about what we were doing. We didn’t talk to you about what we were doing when you asked.
John Cook: I was sleuthing.
Rich Barton: You were sleuthing and we didn’t let on. The first 30 people we hired, we did interview loops for. We didn’t even tell them what we were working on until a job had been accepted and somebody came to work for us. We knew we were on to something interesting and intriguing. It does have the provocative, voyeuristic appeal the zestimate, but it turns out it’s a critical piece of marketplace information. It really is a critical piece of practical information as well as emotional and it was at the intersection of those two things that’s the reason I think it was successful. As Lloyd said, I’ll just loop back, we knew it was a starting point. We argued a lot about whether we should do a range or a point, whether the zestimate should be a range or a point and we decided it should be a point because points are more provocative than ranges.
Lloyd Frink: We decided we were going to do it on every home. A lot of these existing AVMs, Automated Valuation Models, would only do the homes that they were certain of, the ones in the middle of the market, not the high end or the low end. We said, “Nope, we’re going to take our best estimate on every one of them.”
Todd Bishop: To your point, Lloyd, it’s a starting point and a real estate agent would come in and see that difference and come up with a different actual valuation.
John Cook: When you were launching the Zestimate, what was the process like? From a PR standpoint, did you go out aggressively to really pump this out there? I’m remembering back some of our own coverage that it seemed like it was very intentional, as you said Rich, to go out there with a PR message.
Spencer Rascoff: It was. It was between 4 and 6 months from when we came up with the initial idea and when we actually launched the site. There was a long period of time there where we were bringing on new employees and raising capital and working on the product, but nobody knew what we were doing. There was a lot of intrigue of what were the Expedia people up to. People knew it was real estate, but nobody knew what. For about two weeks prior to launch we went on a media tour, and as I recall I think that was Rich and myself and probably Amy Bohutinsky, our head of marketing.
We met with probably 100 different journalists around the country, we showed them test versions of the site under embargo, which meant that they promised not to write about it until it was time. Then, the day that we launched there was a huge hub-bub. There was a big article in the Wall Street Journal, you John helped break the story at the time in the P-I. It was in the New York Times, really, mass media picked it up very quickly. We had over a million people visit the site by the second day and I think by the fifth day we had over two million people and the site crashed. We were down for, gosh, probably about 6 hours or so and we were scrambling to add capacity and to get the site back up. It turned out to be a blessing in disguise of course, because going down …
John Cook: Another news cycle.
Spencer Rascoff: Yeah, exactly, it extended the story and it created even more intrigue. “I want to go to that website.”
Rich Barton: Then he was happy. He was like, “Don’t worry, we’ll make a story out of it.”
Spencer Rascoff: No, that was not intentional, that was inadvertent but beneficial. I knew before we launched that we were going to have a great reaction because I remember when the test site was up, I was Zillowing all of my friends and family, for a couple of weeks, just pulling up any address that I could remember or had some association with or had lived in or had a friend that lived in. I saw how fun and interesting and exciting it was to do this. Like the feeling that you had when you first Googled yourself or Googled a friend, and now, of course, it’s second nature.
Surviving the Great Recession
John Cook: You’ve encountered a lot of roadblocks over the years, there’ve been lawsuits, a lot of criticism from Wall Street that this idea was never going to fly and never get to that $4 billion market cap or bigger, criticism of the Zestimate, which we talked about, a lot of interesting feuds with rivals and competitors, which we’ve covered in detail. Looking back, what has been the biggest or toughest moment in Zillow’s history, when you really questioned whether it was going to keep flying?
Rich Barton: That’s an easy one for me. This is Rich. The global financial crisis, we were a young startup in the real estate business.
Lloyd Frink: Not a good place to be.
Rich Barton: When the global financial crisis hit, which was catalyzed by the real estate business and bad mortgages, we had no revenues, the product was launched and we was doing well from a user perspective. We were getting, who knows, 3-4 million users a month at the time. We had a pretty big team, 150 people. Payroll was pretty big because we had a lot of engineers and a lot of expensive people and then the global financial crisis hit.
John Cook: About 2 years after I would say, roughly, after the launch of the site.
Rich Barton: Yeah, probably 2-3. We were living on venture capital and we didn’t know what was going to happen. We all thought the world economy was going to crater, the real estate market was cratering. Would we ever be able to have a revenue model, we just didn’t know. I was CEO at the time and with the help of Spencer and Lloyd and the rest of the senior leadership team, we all held hands and made the really hard decision to do a layoff and we laid off about …
Lloyd Frink: 1/3 of the company.
Rich Barton: 1/3 of the company, yeah. There’s just nothing even close in my business career that came close to how tough that was.
Spencer Rascoff: The reason it was so tough was because it was purely our fault. We just hired people …
Rich Barton: Yeah, we got out over our skis.
Lloyd Frink: … too fast, too quickly. That was a mistake that we made that other people had to pay for.
Rich Barton: It was a tough day when we announced the layoff. We tried to do it in a dignified and human way, which was really not hard for us, but I remember walking in on the day of the layoff to one of the person’s office who was gotten laid off, really good guy. He was working late and I was still there and I said, “What are you still doing here?” He said he didn’t really want to go home. He didn’t want to have to explain it. That was hard.
John Cook: Were you able to hire some of those folks back?
Rich Barton: We did actually.
Spencer Rascoff: It was also made harder by the fact that it was hard for anyone to get a job back then. Companies today that have layoffs, it’s a joke. I remember somebody who was laid off from Twitter, tweeted just a couple of months ago, “The worst 23 minutes of my life. It was the worst 23 minutes before I got my job offer.” That’s how quickly new offers are coming, but in 2008 it wasn’t like that and their 401(k) had just declined by 40% and the value of their home was declining by 40%. It was hard.
John Cook: How did you come out of that, because that crisis continued for a number of years. You stayed in the real estate arena, there were real estate agents who probably weren’t spending a lot on marketing or advertising, which is where your business was based. How did you climb out of that hole?
Spencer Rascoff: We buckled down. It forced a lot of hard choices. We prioritized revenue. It was the worst time in our company’s history, but it also turned out to be very valuable to help us focus and force hard choices. We built a lot of muscle memory through that downturn. My last startup also had layoffs during the 2001 financial crisis and economic crisis. It was a very similar situation where it turns out a couple of years later, that actually it’s a blessing in disguise.
John Cook: Just because you get lean and you can figure out the true culture of the company and those points.
Spencer Rascoff: Exactly, and there’s some self-selection too, the people then that choose to stay with the company during the next 12 months, they’re the true believers and they form strong bonds with the other ones that are still there.
Rich Barton: The 72nd meeting of the IPO road show was a pretty tough time in my business career, too.
John Cook: Why, just because you were on the road so much?
Rich Barton: Yeah, that tests one’s patients for repetition and travel.
John Cook: You were just pitching the story over and over?
Rich Barton: Yeah, we were doing it together and luckily Spencer was doing most of the talking, but yeah, saying the same thing over and over again.
Spencer Rascoff: Answering the same questions over and over again.
John Cook: One interesting part of the history of Zillow is the idea when Lloyd and Rich, you both stepped away and decided to … didn’t step away from the company completely, but decided to hand the reigns over to Spencer. Talk about that decision, why it was made and how it put Zillow on a different trajectory, instead of you guys running it.
Lloyd Frink: In all honesty, when Spencer came, it became pretty clear to us that he was going to be the leader of the company. We’d been planning for that transition.
John Cook: Did you tell him that when you hired him?
Lloyd Frink: Not when we hired him, but pretty soon thereafter. We wanted to keep him from going someplace else and being a CEO. We knew that that was going to happen, so we planned this transition over, maybe, a 3 or 4 year period. It wasn’t a surprise. It wasn’t a surprise to anybody inside the company either, we made it well known that that was what was going to happen, so it was a very natural progression.
Spencer Rascoff: That management stability has been a hallmark of this company and I think one of the reasons we’ve been successful has been the partnership that Rich, Lloyd, and I have, but also just the stability that we’ve had at all levels of the company.
John Cook: What would the company have been like if Rich, you and Lloyd stayed in the position of the CEO. What has Spencer brought to the table that’s unique and different? You already mentioned earlier in the interview the no walls and focus on culture.
Lloyd Frink: It would be a lot more disorganized and less focused. It would be a bit more random, I think.
Rich Barton: We’d be trying too much crazy stuff. Spencer keeps us sane. We should be clear though that Lloyd’s full time at Zillow. Lloyd hasn’t stepped back at all, he’s vice chairman and I don’t know what your title is actually. Lloyd is quite engaged in the company.
Spencer Rascoff: Lloyd is the product visionary, really runs business strategy and product strategy.
Rich Barton: I have stepped back a bit, I’m executive chairman.
Todd Bishop: How often, Rich, do you sit down with Spencer, Lloyd and the rest of the team? How engaged are you with Zillow?
Rich Barton: I should let these guys answer that, pretty engaged.
Lloyd Frink: Oh, he’s very engaged.
Rich Barton: I’m not running day-to-day, I’m more of a coach. My job is to support Spencer and make sure he can do his job really, really well. When he’s wrestling with big questions, I’m there to help him walk through it, but I’m not there to make decisions for him.
John Cook: What sort of things do you go to Rich for?
Spencer Rascoff: Rich is involved in, really, every major decision that we make, so certainly acquisitions, things like business strategy. How much should we invest in our mortgages initiative, the decision to operate multiple brands, so when we acquired Trulia, obviously he wasn’t intimately involved in the Trulia acquisition, but the decision to operate multiple brands and invest in product development resources and advertising and brand development around the Trulia brand. Rich has been a big part of that. Nobody describes the company and articulates the vision and strategy better than Rich. It’s his company and always will be in that sense. In terms of speaking with candidates, or employees, or the media, Rich is a great partner in that.
Todd Bishop: Spencer, when you look forward what are the biggest challenges facing Zillow and what are your biggest plans to the extent you can reveal them here in front of a global audience?
Spencer Rascoff: The biggest challenge for any technology company is maintaining innovation. We’re only into our second decade and I’m incredibly proud of what we accomplished in the first 10 years, but we all know that most tech companies lose a step in their second or third decades and that’s what I’m focused on, trying to keep a high level of engagement among employees and stay innovative. In terms of where we’re focusing our resources, our biggest resource allocation is towards product development on our Zillow and Truila brands, so hiring great engineers, designers, program managers, people to build great websites and mobile apps for Trulia and Zillow and then grow awareness of those services through advertising and through other means. We’re a real estate media company and we want these two brands, Trulia and Zillow to be truly huge. In addition to that, we partner with the real estate industry and we sell a lot of advertising to the best real estate agents in the country. We’re very focused on making sure that real estate agents who advertise with us earn a terrific return on investment. We build out tools for them. We have great ways for them to merchandise themselves. We now have over a million reviews of real estate agents that consumers have written about agents and investing in our review platform is very important along with other technologies that we provide to real estate agents and professionals.
John Cook: Part of the strategy has been acquisitions, you’ve mentioned Trulia a few times, which was a big one, but also dotloop and StreetEasy, HotPads, a number of brands, are you still actively looking for acquisitions or have you adequately digested Trulia into the company at this point that you’re actually proactively seeking new bets?
Spencer Rascoff: Yes we are. We are always looking at new acquisitions and this time is no different. At any point in time we probably have 10 possible acquisitions that we’re at one stage or another of evaluation. We look at hundreds of potential acquisitions a year, so yes.
(Editor’s Note: After the interview was recorded, Zillow announced the acquisition of Naked Apartments, the largest rentals platform in New York City.)
John Cook: Would you do one of the size of Trulia again?
Spencer Rascoff: There are not many companies in our category that are the size of Trulia, so it’s hard to imagine that an opportune candidate would present itself, but if the right opportunity presented itself, yes, absolutely.
John Cook: What about in commercial real estate? That could be a big player there that you could potentially go after?
Spencer Rascoff: There are some big players in commercial real estate. For now, our focus is on residential because the size of the opportunity is so huge. We’re still so early in residential real estate relative to the size of the advertising budgets in residential real estate’s relative to the amount of time and money spent, residential is still our focus at Zillow.
John Cook: Will we see Zillow go into the commercial business first or go more international first? What do you think will be the next step?
Spencer Rascoff: I’m not sure. We’ve looked at both, international residential real estate and commercial domestic real estate. I’m not sure what might be first or when or if we’d expand. For now we have so much work to do with the U.S. opportunity in residential that that’s our focus.
John Cook: Talk a little bit more about the Trulia acquisition, why that made sense at the time? Why did you go after them? I know it was an interesting one because the companies had a pretty interesting rivalry, so talk a little bit about that acquisition, why it made sense.
Lloyd Frink: Yeah, what we’ve been trying to build at Zillow is a marketplace for real estate and having more eyeballs on one side of it helps us get more engagement from the sell side of it, be that real estate agents that are advertising or real estate agents that want to put their listings up on our site. Having critical mass of consumers and eyeballs was really, really important and for a long time we’d been looking at Trulia and the innovations that they’ve done. We just felt that together being able to share that knowledge, while the sites still compete for traffic, but being able to share some of those best practices, was going to end up benefiting both of the sites as well. Strategically it’s something that we’d been looking at for at least 5 years before it happened and had lots of different discussions about that. We were very happy when we finally could come to an agreement on price and then it came together.
Todd Bishop: In the time since the acquisition closed, are you comfortable? Are you hitting your goals in terms of the integration, the impact on the business? Give us a state of the union of Zillow plus Trulia.
Spencer Rascoff: Yeah, it was a great acquisition for Zillow and the creation of Zillow Group was completely on strategy. I would acquire Trulio 10 times out of 10 if I had to do over again. What we’ve done is we’ve kept the consumer brand separate, so some consumers might like Trulia, some consumers might like Zillow. Whatever they want to use for their home shopping, that’s up to them as long as, hopefully, it’s one of Zillow Group’s properties. It should be noted that in addition to owning Zillow, Trulia, StreetEasy, and HotPads, we also power MSN, AOL, Yahoo, and Leju in China and HGTV, so we power a lot of other real estate sites too. To the consumer we keep these brands separate, to the real estate professional we’ve integrated everything that faces them, so their listings, their agent reviews, their ad platforms. When a real estate agent, or a mortgage lender, or a property manager of an apartment building, when they buy advertising from Zillow Group, those ads serve on Zillow and Trulia simultaneously and that was the key part of the strategy was being able to be a one-stop shop for advertising for a real estate professional, but operate multiple consumer brands.
The state of the economy
Todd Bishop: I’d be curious, just switching gears here a little bit, we’re in early February 2016, how is each of you feeling about the economy right now, broadly and perhaps locally here in the Seattle area, as well?
Spencer Rascoff: All the data that we can see at Zillow still says that the American consumer and the economy is pretty good, better than Wall Street would have you believe.
Rich Barton: Or that maybe candidates, Presidential candidates (would have you believe).
Spencer Rascoff: Yeah, Wall Street is lamenting the low cost of oil, and to the typical American consumer they’re thrilled about cost savings at the pump. Home values are holding pretty well. Zillow’s forecasting a 2.6% rate of appreciation in 2016, so for now, this brewing economic malaise over the last six weeks has been a Wall Street issue, not a Main Street issue. It is possible that it bleeds over into Main Street and I am concerned about that potential as CEOs and boards start to see what’s happening in the stock market. I’m worried that they may tighten their hiring and spending, and it may actually become a real recession, but for now it seems to be constrained to Wall Street and stock values.
John Cook: Rich, what are your thoughts on that? You invest in a lot of startups and on a number of boards, what do you see in the market?
Rich Barton: There’s a little fear right now. The China thing has spooked a bunch of investors as well. I think that the horns are coming in a little bit on the venture bull. We didn’t see any IPOs in January of this month we just finished, which hasn’t happened in many years. I think things are slowing down a bit. I don’t see them as screeching to a halt and I think Seattle especially feels quite vibrant and growthy to me. I think we still keep attracting incredible talent into the area to come work at these great companies. We have the mountains and the water, people want to live here, and so this region feels really healthy.
Todd Bishop: One thing that’s dramatically different from the time that you launched is the arrival of a bunch of startups from Silicon Valley and down further south in California, plus the rise of Amazon. Amazon, back in the day, when you started Zillow, you probably would have said, “Is this a retail company or a tech company?” You probably wouldn’t have identified it for a competitor for hires, in particular with Zillow. How have those trends changed what you operate and what kinds of observations do you have along those lines?
Spencer Rascoff: You’re right, in particularly with barrier companies coming here has been a sea change over the last 10 years. For Zillow, I feel and candidates tell us that we’re really well positioned to recruit in this environment, because at the top end of the size of companies you have Microsoft and Amazon, which are these behemoths and it’s very difficult for an individual to make a difference at a company of that size. Then you have all these startups where an individual can make a big difference, but you work really hard and maybe nobody uses your service and if you’re a software engineer you want to work on something that tens of millions of people are benefiting from. Then in the mid scale you have these Bay Area companies that are building out engineering offices here in the Seattle area and typically, employees don’t want work in a remote office, they want to be in the headquarters where the action is.
Then you have Zillow and a couple of other companies like it, Tableau would be in this category, where the company is still small enough that an individual can make a difference, headquarters are here and it’s a really attractive place to work. Zillow has benefited from that sweet spot in terms of recruiting. Those Bay Area companies, I welcome them because they make it a more vibrant tech ecosystem, but Zillow tends to be the beneficiary of that.
John Cook: Rich, what do you see in the Seattle startup market and what needs to be improved there now that you’re doing some investing in that realm?
Rich Barton: Now that I am?
John Cook: I guess you have been for a while.
Rich Barton: Yeah, I was just winding that up.
John Cook: What’s the missing piece? Where could the startup ecosystem be stronger that the next Tableaus or Zillows are growing up? I think we’re missing some of those.
Rich Barton: We could always use more talent. Since I’ve been here, I’ve been here 25 years when I went to work with Microsoft. Microsoft was this incredible talent magnet to the area and has been and Boeing maybe before that, I just missed that. Now we have Amazon, and Expedia and others is these great talent magnets and that keeps pouring in. University of Washington is top notch, especially computer science, but many different schools, but it can’t produce enough engineers. We could hire every one of the engineers. That’s a little exaggeration, but a huge percentage of the class and just come to Zillow Group, so we could use more capacity, educational capacity especially in STEM. I think that we could use more venture capital especially mid- and late-stage venture capital, even A round venture capital, we could improve. Overall, I think the community, which you guys are at the center of, is really healthy.
Todd Bishop: One of the most exciting parts about this interview, and no offense to you guys, Spencer and Rich, but John and I were talking on the drive over here, we haven’t really gotten a chance to talk to Lloyd in the past, so it was a real pleasure.
Spencer Rascoff: We keep him locked up.
Todd Bishop: Lloyd, what should we know about you or Zillow? This is your chance to tell the world about Lloyd Frink.
Lloyd Frink: I love working at Zillow and I love coming in every day and figuring out new, different challenges. One of the most fun things is working with a bunch of really, really smart people. The most important thing that makes Zillow, the Zillow Group successful is the people, so I’m constantly excited to be interviewing and I’m constantly amazed by the people that want to come work with us.
Rich Barton: I’ll share two things. Lloyd is the only one of us that is a Seattle native and he’s native, native. His grandfather was mayor or something like that. Frink Park is named after Lloyd’s granddad, is that accurate?
Lloyd Frink: Yeah, that’s not the one who was Mayor it was Dilling, George Dilling was mayor. That’s my great grandfather.
Rich Barton: All right. Anyway, he’s one of the few people that’s really from Seattle, which is always interesting to me because he’s like the hick. The second thing is Lloyd at age 13 went to work for Bill Gates.
Lloyd Frink: 14.
Rich Barton: Age 14, underage, by the way, probably not earning minimum wage.
Lloyd Frink: No, I looked that up, that’s totally legit.
Rich Barton: Okay, 14 years old he was Microsoft’s product support.
Lloyd Frink: Yeah, at 14, there were about 30 people at Microsoft when I started working there.
John Cook: I’ve heard this story. What did you gain out of that experience that you’ve brought into Zillow?
Lloyd Frink: Everything. I worked at Microsoft for 10 summers while I was going to school and I learned a ton about programming. I learned a ton about business. I’d never even thought about going to business school because I learned so much about what it was like to run a business and what it was like to run a software business at Microsoft that it was just not necessary.
Todd Bishop: That’s great. Any final words here guys?
Spencer Rascoff: I want to echo what Rich said, which is that you can’t have a vibrant tech ecosystem without somebody to record it all and GeekWire and you guys …
Todd Bishop: Oh, I wasn’t opening it up for you to kiss our butt.
Spencer Rascoff: I’m not kissing your butt … GeekWire has been a big part of it. You guys really have created a more vibrant ecosystem by being here to record it all.
Todd Bishop: Well, let me just say, it’s all John.
John Cook: I do feel a connection to Zillow, in part because of being there early. I think I was the first person to chronicle that Lloyd and Rich had come together to form a company very early on in the process when you weren’t telling me what was going on. It’s been a real pleasure for me to be able to cover companies like Zillow and follow them. I almost feel like I’m the unofficial historian of Zillow and Tableau and these other companies.
Rich Barton: How did you get that article through?
John Cook: What’s that?
Rich Barton: That was a completely content free article, that original article you wrote for the P-I on Zillow. I’m like, “Who’s the editor?” It was fantastic.
Todd Bishop: Not a lot has changed, Rich.
I will say, just drawing the connection back, a lot of times we talk about how we’re digging up information every week on new companies and new funding rounds and it’s in part because of exactly this, because you don’t know where they’re going to be in 10 years. They could be the next Zillow based on that $250,000 angel round that they just raised as revealed by the Form D that John dug up. It’s nice to come back full circle and be able to cover this.
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