Zillow and the Innovator's Dilemma - The Flywheel

If Packy—who is undeniably smart but isn’t paid to think about Zillow all day for a living—could come up with such a high volume of creative ideas, then Zillow should also have been able to. In fact, the real estate market is so full of inefficiencies that you cannot convince me that iBuying was the only big idea Zillow could come up with to levera... See more

Another possibility is that the original Zillow flywheel as described is, well, kind of boring. It is also not very disruptive. As Ben Thompson says, “Zillow did well to capture a portion of that 6% for itself through its realtor ad model, but that only meant that Zillow was as dependent on the status quo as the realtors.”

The MLS helped agents create value by making home data scarce and difficult to access; Zillow was making it open and free. As Zillow grew in popularity, however, MLS realized they couldn’t live without Zillow.

Zillow first launched in 2006 as an auction service for homes. The idea flopped, but through the process, Barton and team stumbled upon a hit: the Zestimate. At first, it was totally inaccurate, but people loved the idea that you could see an estimated value for pretty much every home in America.

By launching iBuying, Zillow entered into direct competition with sellers’ agents. And that’s a problem because sellers’ agents are Zillow’s main customers. Before iBuying, over 80% of Zillow’s revenue came from seller agent advertising fees.

Zillow has gone from a mostly automated world where an agent can pay the company without a single human getting involved, to one in which they now must manage an army of people who inspect, buy, repair, and sell homes.