Finding the Way Home
Published on Nov 20, 2015
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PRESENTATION OUTLINE
FINDING MY WAY HOME
LESSONS FROM 15 YEARS IN TECH
SPENCER RASCOFF
CEO, ZILLOW @spencerrascoff
[SAFE HARBOR]
DISCLOSURES
First, I’d like to direct your attention to our standard disclosure statement that is also included in the reference materials. During the course of discussions today we will be presenting forward looking information. Please note that any forward looking statements we make may differ materially from actual results, and we maintain no obligation to update any such statements in the future. Also, we will be referring to our non-GAAP measure Adjusted EBITDA simply as EBITDA throughout our presentation today. We provide a reconciliation of EBITDA to Net Income in our reference exhibit, which can also be found in our filings with the SEC.
EARLY ASPIRATIONS
Ever since I was little, I was always obsessed with work. I used to do drawings and sell them to my parents for 5 cents each. I used to sell homemade cookies every weekend, and of course there were the ubiquitous lemonade stands.
But despite my overly ambitious professionalism at an early age, I didn’t really know what I wanted to be when I grew up until a much later date.
But despite my overly ambitious professionalism at an early age, I didn’t really know what I wanted to be when I grew up until a much later date.
BASEBALL PLAYER?
Like most kids, there were the early ambitions of being a basketball player or maybe a baseball player, but as this picture makes clear, that didn't seem a likely outcome.
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And as much as I might have secretly wanted to be a cowboy, I knew that it wouldn’t be able to pay the bills.
MALE MODEL?
Then there were the more artistic professional possibilities...maybe a male model....
But none of these seemed like the right route.
But none of these seemed like the right route.
SUMMER JOBS
I did know though at an early age that I really loved the media industry. I was lucky enough to have three summer jobs in high school and my first years of college which allowed me to explore my interest in media.
FOX BROADCASTING
THE SUMMER OF COUNTER-PROGRAMMING THE OLYMPICS
I worked first in the research department at Fox Broadcasting in 1992 when it was still a relatively new TV network, trying to compete with the big 3 networks. I spent that summer researching what counter-programming decisions Fox should make against NBC’s summer olympics, based on analyzing ratings data. For example, I spent many hours poring over data about which episodes of The Simpsons drew which types of viewers, to air against which summer olympic events NBC was airing at different times.
BLOOMBERG
THE SUMMER OF THE TRANSIT STRIKE
The next summer I worked at Bloomberg News in New York, back when Mike was the CEO and sat in a cubicle a few feet away from me. I covered the New York City beat for Bloomberg that summer, writing articles about the transit department strike, water main breaks, and other local issues.
NBC NEWS
THE SUMMER OF THE WHITE BRONCO
Then the next summer I was back in LA working at NBC News – that was the summer that OJ Simpson was arrested for the killings of Nicole Brown Simpson and Ron Goldman, and I spent most of the summer trying to convince the victim’s friends and family to speak on the record about their loss.
QUESTION
DO I WANT TO BE THIS IN 10-20 YEARS?
All three experiences were invaluable and made a signficant impression on me, but they also convinced me that a career as a journalist wasn’t for me. For one thing, I found journalists – especially business journalists – to be a pretty unhappy group of people. And that’s how I’ve always guided my career – I look at people 10-20 years ahead of me in that industry or company, and think to myself: Do I want to be like them in 10-20 years?
CONCLUSION
NOT FOR ME
In the case of journalism, the answer was clearly no. And mind you, this was back in the early 90s, before the internet decimated the remuneration of the journalism industry.
POST COLLEGE
INVESTMENT BANKING
BEAR STEARNS; ALLEN & COMPANY
So naturally, I followed the hordes from the steps of Harvard to Wall Street, unable to resist the siren song.
I did summers at Bear Stearns (may she rest in peace) in their media invesmtent banking group, and at Allen & Company (a leading media bank).
I did summers at Bear Stearns (may she rest in peace) in their media invesmtent banking group, and at Allen & Company (a leading media bank).
MERGERS & ACQUISITIONS
After college I landed a full time job at Goldman Sachs as a mergers & acquisitions investment banker.
MERGERS & ACQUISITIONS
After college I landed a full time job at Goldman Sachs as a mergers & acquisitions investment banker.
MERGERS & ACQUISITIONS
After college I landed a full time job at Goldman Sachs as a mergers & acquisitions investment banker.
CONCLUSION
NOT FOR ME
I found banking to be a great way to start a career and learn a lot at a very young age, but as I looked at the people in their 40s and 50s in my group, I knew I didn’t want to be them. They were fabulously wealthy, but miserable. Because they were in a client service industry, they were always at someone else’s beck-and-call. And I also found banking to be overly transactional – a sprint to close a specific deal, and then there was no follow-through to see if the deal ended up being successful for the company. You collected your fee, and you were on your way. It was like a surgeon who never had the follow-up appointment with the patient.
PRIVATE EQUITY
TPG CAPITAL
So I left Wall Street and moved from NY to San Francisco to work at a Private Equity firm, Texas Pacific Group or TPG. TPG is a fantastic firm, and their business is dramatically more interesting than investment banking.
CONCLUSION
NOT FOR ME
But it became quickly quite clear to me that Private Equity also wasn’t right for me. I had only been there a few months, and I was on one of my first business trips, on the private plane from SF to Colorado, on our way to meet with The North Face about buying them. I had spent all this time prepping for the meeting, analyzing the data, thinking through their branding and their corporate strategy, and I was talking to my colleague on the flight about it when he told me that none of it really mattered. All that mattered was whether we could put enough debt on the business when we bought it, take some costs out, and sell it or take it public a few years later. Would the excel model support that or not? That’s all that mattered. Now to their credit, TPG is among the most operationally focused firms in all of the LBO business. But even their deals are primarily about financial engineering, about how many turns of leverage you can put on the balance sheet. And I just found that very boring.
So here I was, unhappy again, having worked for some of the most successful companies in American business, but still unsure of what to do with my career. I was 24.
So here I was, unhappy again, having worked for some of the most successful companies in American business, but still unsure of what to do with my career. I was 24.
BUT THEN
ALONG CAME THE INTERNET
TWO STUPID THINGS
AND ONE SMART ONE
INCUBATORS
PRIVATE EQUITY + BANKING + CONSULTING = INTERNET GENIUS?
SIDE FUNDS
VENTURE CAPITAL: NOT A PART-TIME ENDEAVOR
THE SMART THING
HOW CAN WE LEVERAGE THE INTERNET WITH EXISTING PORTFOLIO?
THE CONSORTIUM
LET'S TAKE ON PRICELINE
ENTER PROJECT PURPLE DEMON
RECRUITING
CONCLUSION: LET'S DO IT OURSELVES
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TWO THINGS RIGHT
AND ONE THING WRONG
STRUCTURE EQUITY
TO SUPPORT STRATEGY
REMEMBER WHERE THE MONEY IS
(IN TRAVEL, IT'S HOTELS)
WHAT WE DID WRONG
KEEP MESSAGING SIMPLE
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THE DAY THE WORLD CHANGED
UP OFF THE MAT
SOLD
TO IAC FOR $665M
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THE INSIGHT
WE HAD TURNED THE SCREEN AROUND IN TRAVEL
THE OPPORTUNITY
TO DO THE SAME IN REAL ESTATE
THE SITUATION
- Frustrated consumers
- Inaccessible information
- Antiquated technology
Consumers were unable to answer the most basic and pertinent of questions: What is that home worth?
Info was inaccessible and locked inside of county courthouses.
And, we found the IT systems underpinning the industry to be antiquated and fragmented. Clearly, the ingredients were there for us to lead a second revolution. We began to have an idea.
Info was inaccessible and locked inside of county courthouses.
And, we found the IT systems underpinning the industry to be antiquated and fragmented. Clearly, the ingredients were there for us to lead a second revolution. We began to have an idea.
THE DARK ROOM
Prior to Zillow, shopping for a home was like being in a dark room, where the Realtor was the one holding a flashlight.
She’d show you a particular home which maybe she was the listing agent for,
She’d show you a particular home which maybe she was the listing agent for,
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...or maybe a home which another agent in her office had listed. But all you wanted to do was grab the flashlight or better yet, just turn on the lights.
WE TURNED THE LIGHTS ON
And that’s exactly what we’ve done at Zillow – we’ve turned on the lights. Enabling you to see not only
Homes for sale by agents, but also for sale by owner, new construction listings, foreclosures, rentals, prior sale data
We added Make Me Move listings – the pre-market price owners post on their own home.
Homes for sale by agents, but also for sale by owner, new construction listings, foreclosures, rentals, prior sale data
We added Make Me Move listings – the pre-market price owners post on their own home.
ALL THE WAY ON
And in fact information on ALL HOMES, complete with a Zestimate value on every rooftop.
We’ve turned on the lights, and the real estate industry will never be the same.
We’ve turned on the lights, and the real estate industry will never be the same.
THE INSIGHT
PEOPLE WANT TO KNOW ABOUT ALL HOMES
We created a LDBOAH anchored by the Zestimate, or an estimated market value on every rooftop in the country updated every night. Highly complex to do.
Our fundamental insight was that people want to know about all homes, not just what happens to be for sale by agents, or on the MLS, right now.
Our fundamental insight was that people want to know about all homes, not just what happens to be for sale by agents, or on the MLS, right now.
THE LIVING DATABASE
OF ALL HOMES
80% of all homes have been Zillowed.
This continuously updating db is the basis for our moats, it is what makes Zillow different and better.
This continuously updating db is the basis for our moats, it is what makes Zillow different and better.
110 MILLION HOMES
The scope is huge. There are now over 110m homes, 150m photos, 40m+ home profiles updated by community.
THE $34B OPPORTUNITY
We are very early on in an almost $35 billion business opportunity.
Along with our increased commitment to advertising, we are making investments in each of our four marketplaces which delay short-term margin in favor of long-term value creation.
In each of our four distinct yet interconnected marketplaces – Real Estate, Mortgages, Rentals and Home Improvement – Zillow is making significant investments now which plant seeds for the future. We are digging our own wells here rather than outsourcing these adjacent verticals to third parties and going for short-term profit. We are playing the long game.
Along with our increased commitment to advertising, we are making investments in each of our four marketplaces which delay short-term margin in favor of long-term value creation.
In each of our four distinct yet interconnected marketplaces – Real Estate, Mortgages, Rentals and Home Improvement – Zillow is making significant investments now which plant seeds for the future. We are digging our own wells here rather than outsourcing these adjacent verticals to third parties and going for short-term profit. We are playing the long game.
OUR STRATEGY
Our strategy seems complex at first, but it’s surprisingly simple once you understand it. And this is a strategy we’re taking to each of our four marketplaces – the marketplace to buy a home, to get a mortgage, to find a rental, and to plan a remodel.
At the core, is our living database of all homes.
At the core, is our living database of all homes.
1. BUILD GREAT PRODUCTS
THAT WILL ATTRACT A HUGE AUDIENCE
We build great products on desktop and mobile which attract a huge audience.
2. INVITE PROS
TO CONNECT WITH AUDIENCE FOR FREE
We then invite professionals – real estate practitioners – to interact with our consumer audience for free.
For example, for the first few years in our real estate marketplace we solely gave free exposure to real estate agents. We allowed them to post their listings on Zillow for free, to use Zillow functionality on their own blogs and websites; to participate in discussions with consumers in our Zillow Advice section where they can showcase their expertise; and to have past clients post consumer reviews of their services for free, in order to demonstrate their credentials.
In our mortgages marketplace, we allowed lenders to quote loans to borrowers for free for two years in order to build marketplace liquidity before starting to charge.
For example, for the first few years in our real estate marketplace we solely gave free exposure to real estate agents. We allowed them to post their listings on Zillow for free, to use Zillow functionality on their own blogs and websites; to participate in discussions with consumers in our Zillow Advice section where they can showcase their expertise; and to have past clients post consumer reviews of their services for free, in order to demonstrate their credentials.
In our mortgages marketplace, we allowed lenders to quote loans to borrowers for free for two years in order to build marketplace liquidity before starting to charge.
3. OFFER PROS PREMIUM SERVICES
TO INCREASE ENGAGEMENT
We then start charging professionals for marketplace access.
4. ITERATE ON MONETIZATION
TO FIND THE MODEL THAT WORKS
And iterate on the monetization model, tweaking it, sometimes completely changing it, in order to find the right model which works for advertiser, consumer, and for Zillow as the web publisher. For example, in the case of Mortgages, we changed from cost-per-lead to cost-per-click. In the case of real estate agent advertising, we changed from share-of-voice to a fixed number of impressions.
5. PROVIDE AWESOME TOOLS
TO IMPROVE PRO SUCCESS
We then provide software tools to real estate professionals which improve their success with the program.
In our real estate marketplace, we provide agents with their own websites, with a CRM to keep track of their clients, and with other tools.
On the pro side of the mortgage marketplace, our Mortech acquisition expanded our offering into the software tools space in mortgages.
In Zillow Rentals, the SAAS tools we provide in the rentals industry helps us grow that marketplace.
In our real estate marketplace, we provide agents with their own websites, with a CRM to keep track of their clients, and with other tools.
On the pro side of the mortgage marketplace, our Mortech acquisition expanded our offering into the software tools space in mortgages.
In Zillow Rentals, the SAAS tools we provide in the rentals industry helps us grow that marketplace.
6. REINVEST PROFITS
IN PRODUCT AND MARKETING TO GROW AUDIENCE
We then take some of our profits and we reinvest in the business, hiring more software developers to improve the product further, and
Investing in advertising to grow audience further.
Investing in advertising to grow audience further.
THE VIRTUOUS CYCLE
When this strategy comes together, it’s a beautiful thing. It’s a virtuous cycle that allows us to create a big business.
We’re following this strategy in each of our four marketplaces, and each is at a different stage of its development.
We’re following this strategy in each of our four marketplaces, and each is at a different stage of its development.
EMPOWERING CONSUMERS
THROUGH TRANSPARENCY
THE MODEL
DUAL B2B/B2C MARKETPLACE
THE IPO ROAD SHOW
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SOME PERSPECTIVE
U.K. - RIGHTMOVE
$3.7B ENTERPRISE VALUE/$6.38B AGENT COMMISSIONS
Here's the size of the agent commission market in the UK, with the leading online RE player Rightmove.co.uk.
AUSTRALIA - REA GROUP
$5B ENTERPRISE VALUE/$3.3B AGENT COMMISSIONS
Here's the size of the agent commission market in Australia, with the leading online RE player in OZ, REA group.
You know where this is going.
Now, this is simply illustrative. Opportunity.
You know where this is going.
Now, this is simply illustrative. Opportunity.
U.S. - ZILLOW
$4B ENTERPRISE VALUE/$75B AGENT COMMISSIONS
Agent commissions annually, are one of the larger sources of revenues for Zillow, but, as I demonstrated last slide, there are other very large pools of TAM that we are going after. Nonetheless, here is what the opportunity looks like for the Zillow and the U.S.
This is why we started Zillow. The revolution has huge emotional appeal and there is clearly a huge business.
This is why we started Zillow. The revolution has huge emotional appeal and there is clearly a huge business.
3 YEARS POST IPO
It’s been just 2 years since we IPO'd, but we really are a different company today than at the IPO.
Back then, we had our core real estate marketplace, and a growing but small mortgage business and had just acquired Postlets which was the first time we dipped our toe in the water of tools for professionals.
Today we are four marketplaces – real estate, mortgages, rentals and home improvement. And through 6 acquisitions post-IPO we have added significantly to the suite of software tools we provide to real estate professionals.
In the 2 years since the IPO, we have tracked very successfully against each of the goals we set out for ourselves at our roadshow.
Back then, we had our core real estate marketplace, and a growing but small mortgage business and had just acquired Postlets which was the first time we dipped our toe in the water of tools for professionals.
Today we are four marketplaces – real estate, mortgages, rentals and home improvement. And through 6 acquisitions post-IPO we have added significantly to the suite of software tools we provide to real estate professionals.
In the 2 years since the IPO, we have tracked very successfully against each of the goals we set out for ourselves at our roadshow.
OUR DESIGN + DATA CULTURE
When we build products, we have a strong design and data mentality.
TEST, DON'T DEBATE
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For example, we designed a simple “Google-like” home page that directed users into our site. And we measure results around usage and satisfaction with great detail.
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That led to the design of our current home page
-5.7%
BOUNCE RATE
...where we have seen a drop in “bounce rate” (where a user comes and then leaves our site) fall by over 5%. And we think it looks more engaging and supportive of our brand.
We do this type of multivariate testing all day long at Zillow as we look to improve our customer experience.
This drive for excellence and scientific rigor has led to a number of user experience improvements. Sometimes these are big feature changes and others small tweaks to text or layout. For example, we experimented with the layout of photos and key information on our home details page, and we found that having the photos on the right side, vs. the left, showed noticeable improvement in usage and more contacts to agents.
We do this type of multivariate testing all day long at Zillow as we look to improve our customer experience.
This drive for excellence and scientific rigor has led to a number of user experience improvements. Sometimes these are big feature changes and others small tweaks to text or layout. For example, we experimented with the layout of photos and key information on our home details page, and we found that having the photos on the right side, vs. the left, showed noticeable improvement in usage and more contacts to agents.
THE MOVE TO MOBILE
"THIS IS GOING TO CHANGE
THE WAY REAL ESTATE INFORMATION IS CONSUMED."
When the Apple iOS SDK came out a few years ago, we pivoted our company. We recognized where the game was moving and wanted to get ahead of it. So, we reorg’d and made sure our engineering resources were aligned to tackle the opportunity. We were excited about a rich map-based shopping experience that accompanied you wherever you went.
We also realized it was not going to be an easy technical task to build out these apps and mobile APIs. But we like hard problems, and challenges that are difficult for other organizations to solve. We’ve been able to staff this opportunity in a way that many others can’t.
We also realized it was not going to be an easy technical task to build out these apps and mobile APIs. But we like hard problems, and challenges that are difficult for other organizations to solve. We’ve been able to staff this opportunity in a way that many others can’t.
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All of our early mobile investments are really paying off. We were fortunate to be an iPad launch partner with Apple and were highlighted on stage by Steve Jobs at the launch. We took a fresh approach to the design to embrace the form factor and usability of the tablet. People just love our mobile apps because they are so engaging.
From just 5 apps when we IPO’d , we now have 24 apps across different platforms, devices and products we offer in Real Estate, Mortgages, Rentals, Home Improvement and for our Professionals. No one else has this level of product offering in our space.
From just 5 apps when we IPO’d , we now have 24 apps across different platforms, devices and products we offer in Real Estate, Mortgages, Rentals, Home Improvement and for our Professionals. No one else has this level of product offering in our space.
MOBILE DESIGN INFORMS DESKTOP
And we are finding clever ways to integrate the mobile platform innovations we have created into our desktop experience as well. For example, home shopping. Our initial design for the desktop featured the map with the list of homes beneath. Home shopping is very engaging on the tablet with a unified map/list experience. So, we’ve extended that to the desktop and seen measurable improvements in engagement metrics.
Another mobile feature that we built on mobile first is the ability to hand draw the search regions. This was one of those Hackweek projects I was talking about earlier. We’ve more recently extended this functionality to the desktop, and our users appreciate a seamless experience across our platforms.
Another mobile feature that we built on mobile first is the ability to hand draw the search regions. This was one of those Hackweek projects I was talking about earlier. We’ve more recently extended this functionality to the desktop, and our users appreciate a seamless experience across our platforms.
MOBILE INVESTMENT PAYING OFF
These investments in mobile have been fueling our growth and success. While many companies are struggling to extend their business models onto a mobile platform, ours accelerates. We have a 3 times higher contact rate than on desktop. And engagement and usage metrics are also through the roof. We now have 24 mobile apps, and mobile accounts for 55% of our traffic (65% on weekends). 253M homes were viewed on mobile devices in April alone.
The last time we talked at IPO we were sustaining 20 homes viewed a second and now at a rate of 94 homes a second.
We are proud of our technology team and the fact that after 8 years we still have the same fire in our bellies and pace of innovation of a small startup. We look forward to sharing more advancements in the years to come.
The last time we talked at IPO we were sustaining 20 homes viewed a second and now at a rate of 94 homes a second.
We are proud of our technology team and the fact that after 8 years we still have the same fire in our bellies and pace of innovation of a small startup. We look forward to sharing more advancements in the years to come.
CUSTOMER ACQUISITION
MARKETING BEGINS WITH PRODUCT
DATA PR
THOUGHT LEADERSHIP
PRODUCE AND PACKAGE CONTENT
TO GROW YOUR BRAND
SOCIAL ENGAGEMENT
5-YEAR TRAFFIC GROWTH
And much of this significant traffic growth has been propelled by consumers shifting their computing power from PC to tablets and mobile devices. Mobile is the game-changer because consumers want information at their fingertips when standing in front of the dream home or walking through a neighborhood, that’s when all this information is the most relevant. And this explains why our business is at a tipping point.
MOBILE LEAD
20M MONTHLY UNIQUE USERS
We are the leader in mobile real estate.
Today more homes are viewed on mobile than on desktop, and mobile users are three times more likely to contact an agent than those purely using our website. We have grown from 4m unique users in 2011 to 20m in 2013.
This mobile shift is evident in the fact that in when we had just IPO’d, 21 homes were viewed per sec across our mobile application and mobile web. Today its 93 homes per second - a fourfold increase.
Our app is tailored to make the consumer the most productive he or she can be when out shopping for a home. We are not only following the mobile migration, but we are one of the reasons that computing power is shifting to mobile.
Today more homes are viewed on mobile than on desktop, and mobile users are three times more likely to contact an agent than those purely using our website. We have grown from 4m unique users in 2011 to 20m in 2013.
This mobile shift is evident in the fact that in when we had just IPO’d, 21 homes were viewed per sec across our mobile application and mobile web. Today its 93 homes per second - a fourfold increase.
Our app is tailored to make the consumer the most productive he or she can be when out shopping for a home. We are not only following the mobile migration, but we are one of the reasons that computing power is shifting to mobile.
WHITE SPACE: "NAME A REAL-ESTATE WEBSITE" (%)
ADVERTISING
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CONCLUSION
THIS IS IT
