Zillow's CEO on Its Biggest Misconception

The Fool is exploring Seattle. Today, CEO Spencer Rascoff introduces us to Zillow, telling us how the online home and real estate marketplace works, what he considers its greatest strengths, and what investors should know about it.

Because “ad budgets follow eyeballs,” Rascoff anticipates nearly $10 billion in real estate advertising to move online eventually -- and Zillow intends to be ready when it does.

To view the full interview, click here.

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Austin Smith: If you were to sort of fight off the bears here, what is the biggest misconception about Zillow?

Spencer Rascoff: From an investor standpoint, I think the biggest misconception is the size of the market. It’s that sometimes investors say, “Well, how many agents really are there out there that would buy advertising from you?”

The fact is that agents sell $1.2 trillion in real estate each year, they collect $50 to $60 billion in commissions, and they turn around and spend $6 to $10 billion in advertising. In our largest and most mature of our four businesses, real estate advertising, we have around 2, maybe 3% wallet share of what agents spend on advertising.

Say that another way. We’re the largest real estate website, by far, and the largest on mobile by far -- twice as big as No. 2 and four times as big as No. 3 -- and yet agents spend 97% of their ad budgets elsewhere; on print, on refrigerator magnets, on other websites. Elsewhere.

Smith: Those magnets are a huge threat to you guys, let me tell you.

Rascoff: I’m sure they drive tons of business to agents.

Smith: Almost as much as the calendars.

Rascoff: Yeah, and other tchotchkes and Post-it notes. Yeah. Eventually -- we’ve seen this in every category -- eventually ad budgets follow eyeballs.

I firmly believe that eventually all of that real estate advertising, the $6 to $10 billion, will move online and it will be disproportionately spent on whoever has the largest audience. That’s why we already have audience leadership, but we’re still focused on extending that lead.

Smith: Obviously you’re a very creative company. Culture is a very important part of what you guys do. How do you foster that? How do you keep that engine going and encourage people to make the little bets that could pay off the big bets later?

Rascoff: We reward -- culturally -- we reward risk-taking. It’s an idea meritocracy, supported by data. We come into all meetings armed with data, and best idea wins. It’s a pretty flat organization. I don’t overrule people; people overrule me, and vice versa. It’s very much a -- whoever has the data and can articulate it and present it best ends up winning that argument.

Then we A/B test everything. Somebody will say, "Oh, I think this will do better than that." OK, well let’s run them both side by side for a couple days and see what our users think. Then we let our users decide. That certainly creates the culture.

Overall, our culture is our biggest asset. It is incredibly valuable that we have a passionate, energetic employee base that cares deeply about the consumer and, especially, as compared with companies that have come before us in the space who haven’t been consumer-focused, I think are employee-based. The consumer-first mindset is a point of differentiation.


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