Zillow CEO: Why Zillow Is Spending So Much Money on Advertising

Zillow (ZG -0.61%) is by far the leading online real estate platform. Zillow is now approximately double the size of the company's two closest competitors on combined Web and mobile traffic in comScore's Real Estate category. One of the ways Zillow continues to gain market share is through its advertising efforts.

 In the following video, Motley Fool analyst Brendan Byrnes sits down with Spencer Rascoff, CEO of Zillow, to discuss how the company views its advertising campaigns and why they are so important for Zillow's long-term growth.

BRENDAN BYRNES:

Let's talk about mobile. Sixty-five percent of your traffic is coming from mobile. For a lot of media companies, that would scare them because advertising is so difficult on mobile. But I don't think that's the case for you guys. Could you talk about the different dynamics there and how you guys really monetize mobile?

SPENCER RASCOFF:

Well, real estate is the perfect use case for mobile. It's when you are driving around looking at a home or walking around looking at a neighborhood that you want access to real estate information — when you're untethered — and so real estate is just perfectly suited for mobile information consumption.

We have been the beneficiary, though, not just of usage migration to mobile, but also monetization. When you're looking at a real estate listing on a smartphone on Zillow, you're three times more likely to contact an agent as when you're looking at the same listing on the desktop. We benefit from the usage migration but also the monetization migration — because ultimately, that's how we get paid — is when we connect a consumer with a real estate agent.

BRENDAN BYRNES:

Let's talk about some advertising you guys are doing. $65 million this year versus about $40 million last year — a lot of that going to TV. Could you talk about the overall strategy there and TV, in particular? I'm sure a lot of people have seen those ads.

SPENCER RASCOFF:

Yes. TV, but just generally advertising for us, has been very effective. In 2013, we spent around $35-40 million and we tripled the size of our lead over the competition ... so we really ran away with the category in terms of audience growth last year. Based on the results we saw last year, we're nearly doubling our investment in 2014.

And, as I mentioned, it's because advertisers follow audience. We see this in every category, whether it's in search marketing ... Google has query dominance. They have 65% query share in the U.S., but they have almost all of the search advertising budget in the U.S. YouTube has the bulk of video consumption and therefore they get the bulk of video advertising. Advertisers follow audience. We need the audience leadership, and advertising for us helps amplify our audience leadership.

BRENDAN BYRNES:

What's the rough breakdown in advertising? I don't know if you're willing to share that or not?

SPENCER RASCOFF:

Between online and offline?

BRENDAN BYRNES:

Right.

SPENCER RASCOFF:

It really changes. We go into the year with a budget, but then during the course of the year, based on what we're seeing, we adjust. So, we may dial up online search engine marketing and dial down mobile acquisition or dial up TV and dial down other forms of marketing through the course of the year as we see the market dynamics changing.

BRENDAN BYRNES:

When it comes to marketing for a company like Zillow, it's very data-based. Is it more difficult, as far as television goes, where you're not necessarily looking exactly and you can't pinpoint the leads and you can't pinpoint exactly the kind of revenue that you're bringing in?

SPENCER RASCOFF:

It's a great question. Television is harder to quantify than online media, for sure. For us, though, our brand is still so new and we're still in the brand-building stage that we're comfortable with the inherent ambiguity in television advertising. You can measure it, but it is harder to measure than direct response advertising online, for example, where you buy a click from Google and you know exactly what happens to that user downstream. TV's a little bit more amorphous, but I'm comfortable operating in that environment.