After News Corp. took control of realtor.com and ListHub, players in the real estate industry started to wonder what would happen next. When Zillow and ListHub failed to renew their listing agreement, things really started to heat up. And now that Zillow and Trulia are merging, the battle is really going to get interesting.
News Corp. has structural advantages over Zillow through receiving nearly 100 percent of multiple listing service (MLS) data directly, and with internationally known media channels that they can use to disseminate real estate information and bias people’s attitudes toward a preferred source.
What it now must offer are two website tools built around the greatest desires of home sellers and buyers:
- For sellers, an automated valuation model (AVM) that actually displays what creates differences in home value.
- For buyers, a search tool based on what they truly desire in a home.
No one has offered an innovative valuation model since Zillow hit the market a decade ago, and no one has ever offered a search innovation. Whoever gets these two tools to market first takes a commanding lead in the portal war.
Offering the marketplace three avidly desired tools launched Zillow into existence, and everyone else’s lack of innovation allowed them to dominate the real estate portal business for a decade.
Two of those three advantages have now been matched within the marketplace. Complete and lengthy details about homes are commonplace (perhaps even in the overkill stage at this point). So are map-based searches and geographic displays of information. What used to be cutting-edge technology that initially dazzled the marketplace is now fully expected and no longer gives anyone a competitive advantage.
This erosion of a competitive advantage happens in every market and is visually represented in the Kano Model of Quality below. Essentially, Kano’s model demonstrates that what was once a leading-edge technology or service or other advantage loses its impact as competitors match or exceed each innovation over time.
Zillow’s remaining technical strength is its AVM, which is one of the two places where News Corp. could leverage its structural power with new tools based on market desires to take out Zillow.
News Corp. sees the need for new tools on realtor.com, along with the Australian and Indian portals, as demonstrated in the company’s interest in artificial intelligence (AI) software to assist in seller and buyer decision-making, such as the Big-Decisions software package. But the AI that News Corp. is investing in is “rationally based” — comparing financial options and outcomes (for example, rent-vs.-buy financial comparisons). And while every one of us perceives ourselves as smart, rational decision-makers, we actually make decisions based on envisioned life events and the immediate perception of emotional rewards.
Why humans make emotionally based subconscious decisions is outlined by Daniel Kahneman’s research as explained in his book, “Thinking Fast and Slow.” A less in-depth and easier read on the subject can be found in Malcolm Gladwell’s book, “Blink.” I think the part about making decisions based on envisioned future life events while immediately receiving the emotional reward is the key. So let me touch on the concept of an AVM based on emotionally driven decisions.
No one has ever bought a three-bedroom, two-bathroom house. Those may have been physical requisites, but they do not represent how the buyer chose or valued one house over the dozens viewed. More than likely, all of the homes they looked at met the three-bed, two-bath requirements. They chose and appreciated one home over the others based on key attributes of the home’s flow, form and finish. The home they loved had aspects that triggered visions of future life events. These envisioned events created emotional responses. This flood of emotional responses caused one home to stand out from the others; these emotions caused one home to be chosen and valued more over all the others.
Where News Corp. can maim Zillow is by offering a superior AVM. On the other hand, it’s where Zillow can capitalize on its market momentum and cut News Corp.’s Achilles tendon by offering an AVM superior to the current Zestimate. Whoever wins this battle captures first-mover advantage and public adoration: the hearts and minds of the marketplace.
A superior AVM will capture and utilize the key attributes of the homes that equate to these emotional responses — how buyers choose and value a home. I call the aspects of homes that cause these reactions “emotional triggers” — attributes weighted in importance based on the emotional impact and how they correlate to a sale price: value.
Nobody is currently offering an AVM like this because it is very difficult to create. And using demographic data on age, income, crime rate or distance to parks is not the same thing. Buyers first choose and value a home based on its emotional triggers; then they will rationalize their decision using demographic data or using the purely financial data from a company like Big-Decisions.
Once you have this AVM, just reverse it to become an incredible buyer search tool. This is the second tool News Corp. could use to decimate Zillow, or where Zillow can slam realtor.com dead in its tracks.
If buyers do not choose or value a home based on square feet and bedroom or bathroom count, why does every real estate portal and website on the planet force them to search this way? Because it is easy to do from a programming standpoint: It’s precise, the data is readily available and it’s rational. But it’s not how buyers choose a home.
The ideal search tool allows buyers to spot any home they think is fantastic, then click one button and find every other home available with similar emotional triggers — and this is how they really choose and value a home.
It’s the same AVM simply working in reverse.
Is it radical innovation? Well, remember: To meet our definition of radical innovation, we need a body.
If News Corp. launches the innovation bomb, Zulia survives but within 24 months is relegated to the No. 2 portal position. Additionally, homes.com is dead along with all franchise portals.
If “Zulia” launches the bomb, realtor.com is a very distant No. 2 and waning; homes.com and all the franchise portals are dead. Additionally, Zillow gains structural strength: the new AVM-based tools attract many more buyers and sellers; the mass influx of users means all brokers and MLSs want their properties on Zillow. Zillow gets all of the direct feeds it desires.
If, miraculously, an insider, such as Realogy, launches the bomb, all other franchise sites are dead, as is homes.com. And now we have a three-way battle for top portal rankings. More importantly, this would give Realogy franchises a powerful market advantage, causing all other franchises to lose leads and sales to them.
How does this affect you? Why should you spend any valuable time fantasizing about the perfect AVM or home search tool?
Because this will probably be the first innovation bomb to hit the real estate industry, with either Zillow or News Corp. — or, at a long shot, Realogy — launching it.
Whoever does launches the bomb will set an entirely new standard for how properties are valued and searched for, and this will define where many of your Internet leads will come from in the future. Whoever creates these tools will control the real estate Internet. This is an industry-changing event that will direct how the entire real estate business functions moving forward. And it will be a life-changing event for you.
The Demon of Marketing provides painfully honest strategic planning for the real estate industry.
