by Jeff Yoshimura, VP of Marketing
If you ever bought or searched for a house, chances are you went to Zillow.com to find homes for sale, comps of homes or condos matching your buying criteria, or just plain real estate advice. The same goes for sellers, you probably used Zillow.com to get an Zestimate on what your property is worth, and the relative value vis-a-vis recently sold homes.
Seems like a simple business model. Zillow puts content on a site, attracts millions of users to the site, and makes money from selling ads. Well, little did most people realize (embarrassed, I sure didn’t) that there was much more to Zillow’s business model.
It was to sell subscriptions. To get loyal, repeat customers with real estate brokers, mortgage bankers, and other real estate professionals. Genius idea, why not? With subscriptions, Zillow got revenue predictability, a loyal customer base, and an opportunity to upsell and cross-sell new innovative service offerings for these customers. If they just stuck with an ad revenue model, who knows where Zillow would have been, but I’d bet not a public company as Wall Street wants predictability which is why they love the subscription model.
To back this up, revealed in Zillow’s S-1 and summarized by Erin Griffith at AdWeek:
“In three years, online real estate marketplace Zillow has transformed its revenue model from a heavy reliance on display advertising to a stronger position as a broker of mortgage deals and a seller of subscriptions. The success of that pivot, apparently, is what positioned the company to go public.”
“Zillow’s prospectus shows a clear shift in its revenue mix from one primarily based on advertising to a more mixed model where fees and subscriptions are taking over as the major revenue streams. In 2008 the company began offering Zillow Mortgage Marketplace, a subscription-based product connecting borrowers with lenders. In 2009, Zillow earned 22 percent of its revenues from the marketplace and 78 percent on display advertising. Last year the chunk earned on display dropped to 57 percent; marketplace revenues more than doubled. That ratio is likely to continue to shift away from display.”
Zillow’s pivot is indicative of a larger trend that publishers and e-commerce providers are recognizing. First, the debate over display ads vs. subscriptions is dead. No one can survive on display ads alone today, if they ever could, and these are not mutually exclusive choices. For many companies like Zillow, the smart play is a hybrid approach that benefits service providers and advertisers while better engaging customers, or do what Ning did, completely move from an ad-based model to subscriptions.
And second, be a platform for providing add-on subscription services that align with your customers and builds loyalty. Think about it this way. The genius of the iPad is that it’s not a tablet. It’s a vehicle for productivity, apps and entertainment that is a pleasure to use. Can your service be more like that?
Congrats to Zillow for making the shift to the Subscription Economy.
And congrats on a great IPO yesterday!