Deal Radar 2008: Zillow

Rich Barton and Lloyd Frink, founders of Expedia, launched Zillow, a real estimate site in Feb 2005. Zillow is known for providing free home valuations called Zestimates, which are somewhat accurate. Zillow also provides house specs, graphing, mapping, and analysis tools. Zillow launched Smart Search along with enhanced Neighborhood Pages that makes it easier for consumers to zero-in on homes. The Company has 155 employees and is based in Seattle, WA.

In September 2007, Zillow raised $30 million financing led by Legg Mason Capital Management, along with prior investors Benchmark Capital, Technology Crossover Ventures and PAR Capital. It has earlier raised $25 million in July 2006 and $32 million October 2005.

So why are investors funneling these large sums of money into Zillow?

Borell Associates predicts that by 2012, newspaper real estate ad revenue will hit $3.2 billion while online real estate ad revenue will surpass that at $3.4 billion. In 2007, total ad spending on real estate dropped 3%, but online advertising soared 25.8% to $2.6 billion due to a shift from print to online. The rate of online growth is expected at around 12% this year and beyond.

Zillow had 4.4 million unique visitors in August 2007. Zillow has over 1 million registered users. The site has more than 70 million U.S. homes in its database and has 50,000 registered real estate agents.

Zillow earns revenues from advertising. The site charges one penny per ad view, i.e., a CPM of $10. Zillow’s partner uLocate, which operates on mobile networks, charges $2.99 / month for its subscription.

Zillow was valued at $350 Million when it raised $30 million in new financing in September 2007. But then we had the housing crash and currently the Company is struggling with monthly visitors falling below 3.5 million and the average stay on Zillow is down 18.6%.

Zillow could be a good acquisition target for real estate sites like Zip Realty or Move, who are struggling to hold on to their lead. Valuation expectations, however, would be problematic, given the amount of investor money in the company. Zillow could also be a good acquisition target for newspaper companies like McClatchy, NYT, etc. who have seen real estate ad revenues dwindle. Other players who could be interested in acquiring Zillow would be new media companies like News Corp. and AOL.

Recently, Zillow signed a real estate advertising deal with 11 newspaper publishers (282 U.S. newspapers). The deal allows local advertisers who advertise on any one of these newspapers to place ad on Zillow as well. Nice move. The roll out will be in the first half of 2008.

In my Web 3.0 thesis, a combination of Zillow (Content, Community) and Trulia (Vertical Search), along with ZipRealty (Commerce) in the Real Estate Vertical (Context) could be very interesting.

This segment is a part in the series : Deal Radar 2008