Real Estate Web 2.0 First Mover Advantage? So far, none
Posted by Pat Kitano at 11/12/2006 7:29 PM 
Categories: Technology, Realty Realities, Real Estate Economics, The Future
Categories: Technology, Realty Realities, Real Estate Economics, The Future
Zillow has been dissected so much recently that blog posts are popping up, notably from the BawldGuy and Carter's Adventures (two fine blogs!), that just say No! Zillow is not worth discussing any more. I agree ... we know that Zillow and their brethren AVMs - Cyberhomes, Reply!, eppraisal - are insufficient property valuation vehicles... we don't need to see any more examples or demonstrations.
So let's move past their inaccuracy, there's a much bigger topic behind the proliferation of the new AVMs... BawldGuy calls Zillow the Pong of Real Estate Valuation... a perfect anology because the bigger topic is how easy and fast it is to build new products (like Space Invaders and Pacman) on top of the first generation AVMs... the Pandora concept is out of the box and Zillow et al are essentially open source product design templates for any entrepreneur taking advantage of the plug and play Ajax-facilitated Web 2.0 tools and google APIs to build their own.
AVMs notwithstanding, everything RE Web 2.0 has become fair game... the venture-backed mashup listings search sites like Trulia and Redfin are spawning competing local versions all over the US... Last Friday, Marlow at 360Digest point outs all the redesigned mashup search sites in Seattle alone -
"Real Property Associates just redesigned their website
to add MS Virtual Earth and Zillow map searches... John L. Scott added
MS Virtual Earth to their site and Coldwell Banker Bain followed a day
or two later. A few weeks after that, Windermere went live with it’s
Property Point mapping function. Then, last week, John L. Scott added
home sales values, with CBBain right behind them. Now, we read that John L. Scott is advertising on Microsoft’s Virtual Earth 3D maps.
John L. Scott and discount broker ZipRealty are part of a beta group of
advertisers who have launched virtual billboards inside Virtual Earth 3D maps. The 3D billboards are clickable hyperlinks, and John L. Scott appears to have bought the base of the Space Needle."
Last week, Joel at Future RE mentions:
"(Movoto)
is among a small crop of local real estate companies that are radically
reshaping their business models around the Internet and more
specifically, map based searches. Some of my favorites currently are Blueroof.com (Salt Lake City, UT) and GeniusRealty (Boise, ID)". (pk: my favorites, too).
From Red Herring:"These
[real estate] Web 2.0 sites [are] popping up like mushrooms after a
monsoon," says Peter Conti, an analyst with research firm Borrell
Associates. "Six months ago there weren't any."
Here's the point: The first movers in Web 2.0 real estate applications have proven no advantages - they lay out the capital to launch a "cool" product (not a new market), they can't jumpstart a revenue model because real estate transactions are not daily occurrences and subject to the inertia of the "tried and proven", and finally many of them get "urinated" on as outsiders trying to buck the industry. Millions of Americans may flock to Zillow but they don't all buy houses on the spot with their credit card. With no urgent consumer or Realtor need to solve, real estate demonstrates it's a "don't reinvent the wheel" industry where the best adapters win, and that favors the smart established broker set... in Marlow's example above, she cites the three dominant Seattle brokers have all just redesigned their sites with mapping search.
And here's the rub... Kevin at Three Oceans now has an interactive mapping MLS search on his blog for $19.95 per month care of Realbird.
Wouldn't that make a VC cringe? Kevin's blog and soon, hundreds/thousands of other local real estate websites, are starting to look like Trulia. It's been proven over and over that real estate works best locally, that's why it's difficult for local upstarts even in their local markets to gain market share. How well will Trulia or Redfin scale as they go forward nationally? Scale implies expense... are VCs now willing to take the risk of subsequent round investments into properties that have proven to have little defensibility and can't scale quickly even in their local markets?
Defensibility - why it doesn't exist in Real Estate startups
Guy Kawasaki made solid points from the VCs point of view on his recent blog post about how difficult it is to claim defensibility. For fun, we can imagine how the Zillow founders fared on Guy's three no-no defensibility arguments to investors - 1) "Patents support defensibility" - Zillow has no discernible patents; 2) “We’re the only guys who can do this” - with no real estate experience? naah, Rich and Lloyd wouldn't say that... and 3) “[Big-name potential competitor] won’t compete with us; they’ll simply have to buy us out - well, maybe Rich and Lloyd inferred it! WebHomeUSABlog and Joel at FutureRE can imagine it...
The VC mistakes - 1) they assumed defensibility based on the old 1999-vintage "wow" factor because they saw how YouTube and Digg skyrocketed and expected a "brand name" like Zillow or Trulia to carry the ball in similar first mover fashion; 2) I haven't yet seen a VC resume that has "Realtor" on it (I assume there must be one or two)... therefore to a VC firm, "real estate" appears as an abstract, non-transparent mega-market that will eventually and inevitably succumb to internet disintermediation like travel and retail. Note - but not quickly...;and 3) VCs misjudged how easily established players can copycat their progeny... the copycatters are now doing this less than one year after the VC-funded launches (Zillow launched in February)... and will likely protect their market share based on their existing brand name.
Technorati tags AVM zillow real estate real estate search mashups home valuation real estate technology real estate marketing venture capitaltrulia redfin web 2.0 Guy Kawasaki
Some very good and interesting points.
When you say, "The first movers in Web 2.0 real estate applications have proven no advantages - they lay out the capital to launch a "cool" product (not a new market), they can't jumpstart a revenue model because real estate transactions are not daily occurrences and subject to the inertia of the "tried and proven", and finally many of them get "urinated" on as outsiders trying to buck the industry."; I wonder about the first part -- Your backing comments are very strong, but there is still an advantage (proven or not). Zillow was the 'first' model that became known to the public. Hence, their brand recognition became their advantage. The offline population on the 'street' knows more about Zillow than many of its upstarts that have followed suite. Why? They were 'popularized' by other media: tv and newspapers at the national and local levels. Now, what Zillow does with that 'advantage'... who knows. The tail waggers following them may somehow, someday, make that their advantage perhaps by making something more out of the 'original' zestimate. Hopefully something more interesting will come. I am guessing someone out there is already creating a side-by-side comparison tool for these estimates similiar to a PriceGrabber or SideStep. If it was possible for all of the Realtors to get together and add the millions of CMAs they have done and are doing for sellers to a Realtor specific site, that would be a useful basis for consumers and investors to view and analyze price trends across the country...Now that would be a very interesting and captivating site...
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I do like your CMA aggregation idea... after all Zillow and their brethren are basically in the business of CMA. I do stand corrected on the success of Zillow and Trulia's branding... while writing I was too focused on the fact that real estate Web 2.0 innovations can be reproduced quite handily by the status quo without the risk of losing much business to first movers.
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Thought I'd throw out a side by side comparison tool for looking at real estate decisions - http://www.geoiq.com/google_nysf.html. We did it for just NY and SF, or you can pan over ad do NY vs NY or SF vs. SF. Also we've incorporated heat maps and analytics that allow you to compare multiple datasets (in this case census data at the block level and YAhoo! Local listings). The Census housing vlaues are crap but would be easy to put a better data stream into the equation. The idea being more goes into a local decision than just one set of data, like buying a house -you might start with the appraised value - but folks also want to see crime rates, schools, traffic congestion etc. To do that you need data and tools to analyze them. We are working on supplying both, and hope this will be differntiator for the real estate market. My background is economic geography and not real estate but sounds like from what is being said here there could be some applicability.
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I do admit that there is a publicity advantage and Zillow did reap benefits from that (in fact, on this weekend's Elvis post, I admit that Zillow initiated a sea change in the real estate industry as the first real estate 2.0 application to strike fear into Realtors' hearts).
I'm also assuming that AVM aggregation engines will appear. However, the most effective internet valuation methodology may well be the acceptance of individual Realtor commenting on individual properties, listed or not, as Reply and Zip Realty are testing. So far, Realtors and even the interested consumer have been shying away from making these comments. It only takes a small percentage of "blog-oriented" Realtors to start developing a "property valuation portfolio" by commenting on many houses within their focus locale. By doing so, these Realtors would create credibility for themselves as experts within that neighborhood and can use these data as a marketing tool.
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Pat, interesting point although I would wholeheartedly agree with the first comment - there certainly is PR awareness tied to originality. Compare the launch of Zillow to that of other AVM. Likewise, Trulia to that of other listing search sites (even though in the example you pointed to, you can get it for $20/mo, how much awareness do they have?).
Your point I think is that it doesn't guarantee an advantage and that is fine. But I would argue that being the first certainly gives you a greater chance of momentum, and in the end momentum will drive defensibility.
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I realize that from your and VideoMagazine's comments the flaw in my thesis is the visibility factor can eventually lead to defensibility. Zillow and Trulia are well recognized... I stand corrected and should modify the title of my article to First Mover Advantage? the publicity helps...
I should mention that you and many other entrepreneurs are developing fine products that in another age (7 years ago) may have been venture-backed.... the tools for creating your products have become so well developed, startups become an easier endeavor... that's another point I should get across.
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You are a good thinker Pat. Good writer too. Lar
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High praise from a prolific thinker yourself blogfather...
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Great article! I agree with the defensibility from publicity argument, but how sustainable is it in the long run as the startup tries to profit from it and scales to VC standards? No doubt, some will win, but if Bubble 1.0 taught us that many overblown efforts will not.
I just read that HomeAway (founded in 2005) just landed $160 mil debt/equity financing after already $49 mil in equity financing from previous rounds. Though their model is more traditional and proven, unlike Zillow, I wonder if $210 mil for a listing service smells like Bubble 2.0?
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Pat, your post was thought provoking. I think national sites really will have an advantage: while real estate may be local, many home buyers are transient, meaning that when they move to a new city, they'll stick with what they know for real estate search and AVM.
Furthermore, those first movers and all the dedicated real estate search sites have searches that are considerably more sophisticated and easy to use than Kevin at 3 Oceans (no offense, Kevin!) and consumers understand that those sites specialize in that sort of search. Kevin's search is fine as a marketing tool, but it's not going to do the trick.
Finally, there are lots of "local" things that have national sites. Food (City Search) and everything else you could want (Craigslist) come to mind. In fact, I can't think of any industry where consumers go to 10,000 small, local sites for comprehensive information about the wider area.
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Thanks Galen... I agree national sites will have the advantage as their brand names become credible to the consumer... it's behind the franchising strategies of the Century21s and Realty Worlds etc. But in the shorter term, the local real estate outfits hold brand recognition sway over the consumer... in San Francisco, that includes locals Pacific Union,Zephyr and Paragon along with the majors like Coldwell Banker and ReMax.
First movers like Trulia who are going national have to initially overcome the brand loyalty between the local agencies and the consumer. That's where my thesis lies... it may take years for Trulia to gain that credibility on a local basis, during which time the loyal agencies can catch up, at least on the technology level. I use Kevin's site as an example to show how easy it is to play this catch up game, even as a one-man show (btw, Kevin is affiliated with a major Bay Area brokerage, so he's not really a one-man show).
That said, the venture-backed first mover does have one more business strategy advantage up their sleeve in their ability to raise more capital easily over any existing local operations. If a first mover proves cases for business traction, they can raise money again because they're connected to investor sources and know how to do it. Now a first mover can leverage their capitalization advantages to acquire the local shops and attain instant credibility... Blockbuster and Starbucks are good examples of this strategy.
Yes, the first mover does have advantages, they are just not guaranteed in a slower moving industry that is built on consumer loyalty and credibility. Airline tickets, coffee, Netflix, business cards? Yes, I'll buy immediately with the first mover if the value prop is better pricing, better taste or ease of use. A house? Well, I have to check around...
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A great piece of writing pk.
Yes, First Movers set the bar and others soon rush the space to copy, hopefully enhance & improve. There is nothing that cannot be enhanced or improved. But there is more to making a better mousetrap---it's consumer/user loyalty. You dont get that easily but once you do, you dont even have to look pretty or be that easy to use--Craigslist is the perfect example of the power of loyality. It has a lot to do with his honesty & lack of greed IMO.
The debate over local vs national sites for real estate continues. We obvioulsy support the national model--a one place fits all real estate site--- but one that addresses the local issues. That's the trick---some aspects of real estate need to be national, while others MUST be local.
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Great, trash the Blog Carnival sponsor and get #1 post from a site that ends the Carnival with his own ad. Zillow never did this. I hope your post about the Carnival addresses this. How open, or transparent are the NAR, Move Inc or Realtor.com? Who will lead us into Real Estate 2.0?
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Cliff, read the comments here. I'm on record admitting I overlooked Zillow's first mover advantage in terms of the publicity they've generated from the originality of their AVM. I'm an admirer of Zillow - I'm pleased they made the AdAge Marketing 50 and I admired their heat map analyses.
I'm not a detractor of Zillow... the article may have come across that way because I see how easily it is for the competition to play catch up with the new Web 2.0 apps. In aggregate, the pioneers plus their followers are now leading Web 2.0.
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To Galen -- no offense taken whatsoever!
What makes Realbird so compelling for me is that I now have search functionality on my web site that is better than most of the individual agents' sites out there (at least IMHO) and (this is pretty sad) better than most of the large brokerage sites, including my own broker's at www.apr.com.
But speaking of first move advantage, the search leader by far in our area is www.reil.com which is our MLS's site. Their recent upgrade makes them a palatable experience, but their previous public web search was simply awful -- and yet people kept on coming back because it has the name.
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This is your best post pat because you have taken the really cool applications and related them directly to the real estate industry which is local business. Currently in our market people are not buying houses online using credit cards or the old fashioned way either.
I am so proud - your blog mom.
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Great post- it amazes me how cool some technology is that dos not make a difference and how much difference some things can make that I think are so small- you just never know...
PS- Thanks for the shout-out- we appreciate you noticing.
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Pat,
I am excited about this whole 2.0 concept... er, reality. You offer a lot of great info,. here. I am a firm believer of one small point that you made:
"the best adapters win" - That stands true for both real estate agents as well as service providers. Thank you for this info.
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Thanks Mariana... your blog says you get it!
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Excellent piece Pat! More important is the fact that you are willing to listen and "stand corrected" when so many others mindlessly "go down with the ship."
Dean
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Very insightful, thanks, Pat. I'm old fashioned, I just don't *get* Zillow; maybe it's just my wild San Francisco market that confuses Zillow -- just as it confuses us all -- it inflates our SF prices by up to $375,000. I love to trade on E-Trade, although I probably buy and sell a little more than I should. But individually owned residential property isn't a market like a stock exchange. Or am I just looking at it like a floor trader -- and where are they today?
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It may be useful to put this all in perspective. Online real estate predates the web itself - 1995. BBS systems (remember those?) were used here in the Bay Area to educate consumers & make direct connections outside of the traditional "friends & family".
Check out sites like cyberhomes.com (the first iteration) or owners.com, homescout.com or newrealty.com in the wayback machine to see stuff cropping up in '96 & '97.
THIS was RE 2.0. And it was too early...and we sold or shut down the services & went back to selling homes & loans.
Every year, a new player came along that threatened to upset the status quo (and disintermediate too?). There was always some "lion over the hill". AOL launched a real estate section, then Microsoft, and most recently it's GOOGLE's base.
The point? It's an evolution, not a revolution. Players come in, find out what real estate is all about, get swallowed by the "real estate BLOB". They retreat to lick their wounds and wonder what their valution might be at the next VC round (and the CEO looks at his/her dilution), and they loose steam.
ONE exception - ZipRealty. They built a national base and went public (after a few VC down-rounds), and by giving away a lot less than 66%! Why is Redfin the RE 2.0 when it's been done? How creative a model is it to offer a service for less than the other guy?
Pat, your're right about lack of first mover advantage. Publicity is high among the intelligensia, but not the average man, and certainly less than what AOL had. All of the earlier players had the same or more publicity & it's totally a non-event today. It will pay to be first mover RIGHT AT THE TIME OF USER ACCEPTANCE - the inflection point. Are we there now? I don't think so. We're close, and I thank Zillow for moving us closer (on their dime)!
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Zillow does have the first mover advantage but whether it is going to truly take advantage of it remains to be seen. Dr. Pepper was the first soft drink to be introduced to the market yet it merely follows Coke and Pepsi.
Web 2.0 real estate companies have a long way to go to prove that the model works. Sure, they offer "cool" tools and resources and the public enjoys using them but generally the public is not ready to utilize the services of non-traditional brokers just yet. It is extremely difficult to make the public change its needs and wants but not impossible.
However, if and when it becomes advantageous to be a Web 2.0 real estate company, what's going to stop large traditional brokerages to jump into it and utilize their already established reputation to quickly gain market share in the new Real Estate 2.0 era? Essentially, very few easy-to- overcome barriers.
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Spot on for this assessment. In my market in Louisville Kentucky, the "big" real estate companies like zillow, trulia, etc have had little to no impact for consumers. The information provided on these sites can often be incomplete, or incorrect.
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I have to agree with the above post zillow is super lame when it comes to valuation & the only reason for their success has been the web 2.0 cool factor. However as data improves and user experience, quality will become the name of the game, and just not another cool web 2.0 site
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