How Zillow Makes Money

The Motley Fool recently paid a visit to online home and real estate marketplace Zillow  (NASDAQ: Z  )  . We chatted with Chief Revenue Officer Greg Schwartz about Zillow's revenue streams, monetization strategies, and what lies ahead.

Greg discusses Zillow's revenue streams and why the online marketplace recently updated its pricing model for display ads.

To view the full interview, click here.

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Brendan Byrnes: Hey Fools, I'm Brendan Byrnes and I'm joined today by Greg Schwartz. Greg is the chief revenue officer at Zillow, so first of all thanks for your time.

Greg Schwartz: Yeah, great to meet you. Thanks for coming.

Brendan: I was wondering if you could just start off with giving an overview of Zillow's different revenue streams and how they contribute to the top line?

Greg: Sure. We've got a few different revenue streams. The first and largest revenue stream is our Marketplace revenue stream -- which includes local advertising from real estate agents, from mortgage brokers, banks, and brokerage firms -- which is our largest and dominant revenue stream.

Then we have what I'd call a more well-known display advertising revenue stream, primarily from advertisers who are adjacent to the transaction of moving, so wireless companies, telecommunications companies, and the like.

Brendan: I wanted you to explain something. The new transition that you went through now, with doing a fixed number of impressions; why did you decide to do that, and how is that going to impact your revenues?

Greg: Yeah, you bet. We converted our unit of sale, which is something we focus quite a bit on, to one that was directly correlated to the benefit that we provide to our real estate agent and brokerage customers.

Our traffic's been growing quite rapidly, as you know, over the last number of years. It is important that we adjust our charges commensurate with the benefit that we're providing. That was the driving purpose of it. We've converted all 30,000-plus of our customers to the new impression-based business model.

We'd been on share of voice prior to that, which was a relatively illiquid manner in which to charge for advertising services. We're pleased with the transaction.

Brendan: A big part of that was based on big cities, correct, as far as where you get revenue from?

Greg: Yeah, you know what's interesting about our business is we've always operated a national footprint and we've got a scaled sales force that allows us to sell into virtually every corner of the country.

We set our advertising rates based on every individual zip code in the country, so it's quite varied and it's commensurate to the opportunity and the profits that are available to a broker or to a real estate agent.

It's truly a national footprint.


Read/Post Comments (3) | Recommend This Article (2)

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  • Report this Comment On August 01, 2013, at 5:10 PM, bearsnsox wrote:

    just to put in perspective, to show that i think zillow is being pumped and might be dumped, here are some leading "growth company" future P/E's as of right now:

    Zillow: 157

    Tesla: 133

    LinkedIn: 101

    Trulia: 64

    Facebook: 40

    you really think zillow has a better product than tesla, facebook and linked in? keep dreaming its a horrible middle man with low margins

  • Report this Comment On August 02, 2013, at 8:57 AM, rongreenberg7 wrote:

    chris hill's "beat" presented a discussion of both zillow and trulia. i wonder if any of these investors have actually tried to use their sites. i.e. i looked at a rural state, maine, and tried to find farms for sale. it's an impossible task. unlike most brokers, there is no method for narrowing down a simple search like this.

    in addition, the site provides no method for querying and actually getting answers should you get stuck.

    also no investor relations guides on the site.

    it's like looking at the headlines of an article in which you are interested only to find there is no copy below.

    these companies need to look at the details of their operation before any long term investors jump in.

  • Report this Comment On August 02, 2013, at 11:13 AM, mikecart1 wrote:

    bearsnsox,

    Without going into too much detail, the P/E ratio is somewhat overrated usually. However, in this case the potential that Zillow because the house buying version of Priceline is possible. Priceline came out on top the past few years while other competitors like Orbitz, Expedia, and others stayed far behind. It is about branding and who executes better FIRST. Zillow in 5 years could become a $10 billion market cap company and that would put its share price over $250/share.

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