Zillow's CEO on growth during a housing crisis

12:39Jeremy Wacksman:I think many see it as complementary. I think the challenge with 500 plus is there's 500 plus groups. So there's not, we can't have one conversation. There are many MLSs that are very consumer focused and most of their rules, as you put it, are pretty consumer friendly because they want to support broad membership. Their interests are, how can we have more members? How can we have more folks come and use our service? So there are some that are more industry focused and we would actually take issue with some of their rules. And we do. and we're allowed when we think they have anti-consumer rules.

13:12Jeremy Wacksman:But I guess to answer your question, on balance, the idea of not having a shared cooperative database and we go sign up and get all the listings, which by the way, we did before all this. Like we did not get our listings from the MLS until six or seven years ago. We still had most all the listings on Zillow because people want to put their listings on Zillow. It was just way less efficient to get it that way. You're talking about tens and thousands of feeds and relationships and changes and all the things. So on balance, the idea that the database is coordinated and broadly available is 80%, 90 % good, and there's 10%, 20 % friction and rules that we don't love that we work hard to lobby and advocate and change for.

13:51Nilay Patel:One of the themes on Decoder that comes up over and over again is obviously aggregation theory, where on the internet, particularly people that have the consumer demand get to set a lot of the terms. Google, I think, is maybe the ultimate aggregator, right? There's just incredible demand for whatever is on Google, and then Google gets to set a lot of terms for suppliers. There's many, many other examples of this. Credits of Ben Thompson, who came up with aggregation theory. Zillow is one of those aggregators. And so even in the case where there was another database of information, you're saying the real estate agents knew that the audience was on Zillow, so they should put their listings on Zillow as well.

14:26Nilay Patel:At what point did you realize that you had the ability to go say to the MLS providers, hey, this is way more efficient? Because at some point, they didn't think that was efficient. When did you realize it would be more efficient, or when did they realize it would be more efficient to connect directly?

14:40Jeremy Wacksman:Yeah, I mean, I don't have the history perfect, but the internet broadly, I think, helped them evolve that way. There's a standard that they created that I'm sure if we go back to when Zillow was founded, it wasn't available where brokerages, the real estate industry, the MLSs could make available a feed for any internet site or any internet brokerage-based site to display. that came about as the internet was coming as sites like zillow were coming so they reacted to that i think in a again in a pro-competitive and pro-consumer way it probably happened over the last 10-15 years i mean the other part of the zillow history is we didn't start that way right because back then there wasn't this sort of internet powered set of mls rules they were they were before the internet they hadn't thought about this so we had to go sign up and get all these things on our own and we did that and we built these great brands and consumer experiences and And then I think the industry kind of caught up.

15:32Nilay Patel:The reason I'm asking all these questions is, one, I think the politics of databases are fascinating. And in particular, who gets to connect what, who creates the data and populates the database, and who gets to display the data in the database. In the age of AI, it's actually more up for grabs maybe than ever before.

15:50Jeremy Wacksman:Yeah.

15:50Nilay Patel:Right? Like the idea that you have an interface as opposed to there's a chatbot that's directly reading your database. We're going to come to that. Sure. But I see all these politics as up for grabs. The other reason is I wanted to set up the decoder questions here. You had a business that was, hey, there are a bunch of public or semi-public databases that we can access to. And our job, as you've described it, is to build the best product on top of those databases and to say, here's the listings, here's the best tour, here's the best photo viewer. And that is, you know, I don't mean this to sound reductive, but that is like, we're going to make a great mobile app.

16:23Nilay Patel:We're going to have the fastest photo viewer and worry about caching images where they are and all that stuff you're going to do. We're going to have the best 3D tours. The things you're describing now are we're going to do real estate transactions. Yep. Right? It's not just pure software design on top of databases. It's we're going to actually go and address the business logic that someone is having when they're looking at a listing. That seems like you would have to change the company pretty dramatically. So tell me how the company was structured before you became CEO. And then this is the Dakota question.

16:51Nilay Patel:How is Zola structured now? All right.

16:53Jeremy Wacksman:I'll answer both those questions. The company structure pre and post my taking over CEO didn't change too dramatically, mostly because the CEO transition was pretty planned. So I was COO before, and we really planned for succession. And so we started organizing the company back then. So the question probably is better answered is how did we set up the company at that stage? And that's largely how it's structured now. We are, I'm sure you get this a lot, we're kind of a classic matrix. We have functional teams and functional expertise that then sits alongside business groups for our most mature businesses.

17:28Jeremy Wacksman:So great product marketing, engineering, and design teams that are fully integrated with dedicated leaders that matrix into the business team. And most of our mature businesses are run in one group. So that's most of Zillow.

17:40Nilay Patel:What are your mature businesses?

17:41Jeremy Wacksman:So most of our for sale business is how we think about it. We think about for sale and rentals. So most of the buyers and sellers that are using the Zillow brand that you see, and most of the agents that are talking to them, and most of the loans and home loans that you're getting in our residential real estate is kind of the most mature part of, and I don't say mature in terms of market share and growth, but in terms of how long we've been at this. We also have startups, acquired businesses, smaller businesses that we intentionally run more independently for some period of time until we need to think about how to better integrate them.

18:12Jeremy Wacksman:Rentals is a great example. We have a rentals marketplace that's now north of 20 % of our company, but that was largely a startup inside of Zillow for a long time. And it operated and still operates relatively independently with a GM of rentals and had a lot of its functional teams fully owned. And as it's matured, and now it's going to be our next billion-dollar business, that's one of our goals, is we are starting to intentionally think about, okay, well, how do we fold some of that back into the functional expertise capabilities? Street Easy here in New York, which I know you all know well, that was something we acquired and maintained its independence and have continued to maintain its independence because there's not a lot of value.

18:52Jeremy Wacksman:And there's actually a lot of more value in keeping it independent and thinking about New York because it's such a unique market. So we don't have a one-size-fits-all, but broadly speaking, we have kind of a functional business matrix that we look at, does it make sense for the next thing we're doing?

19:06Nilay Patel:As you've evolved, right, there's been periods of growth in Zillow. There's been periods of layoffs. One of the, I think, the most boldest attempts that will make home buying easier was Zillow would just own all the homes. That did not go well. How big is Zillow now?

19:20Jeremy Wacksman:We are approximately, don't get my count exactly, approximately 7 ,000 people. How is that distributed? We think about it as like, I guess maybe chop it into like fixed and variable headcount would be one way to think about it. And, you know, fixed is largely product engineering, marketing, design, and shared services. And then variable is sales, operations, support, and things that grow with revenue. So loan officers, rental sales, you know, loosely speaking, it's about half and half.

19:48Nilay Patel:And are you mostly invested in product stuff or are you, is it all account executives? How does that work?

19:54Jeremy Wacksman:I mean, product engineering is probably the largest group. You know, we are first and foremost technology innovators. And that's kind of where we got our start. And that's still, as we talked about earlier, yes, the business model has evolved, but building the best products and services, even if that's becoming software for the real estate agent, or if that's becoming software for loan officers, that's still how we get to our end goal of more transactions. So that's still the largest investment we have. But as the businesses are growing, staffing more loan officers, staffing more account managers to work with agents, that is variable growth that comes as we see more share come.

20:30Jeremy Wacksman:So those are growing as well. And those are probably on a percentage basis growing more, even if on a dollar basis, that's still a smaller part of the company.

20:38Nilay Patel:Yeah. The other question I ask everybody who comes on Decoder is about decisions. How do you make decisions as CEO? What's your framework?

20:43Jeremy Wacksman:I guess I'm a big believer in find the truth, don't find the right answer. There was a famous quote that I'll get wrong that was like, you know, humans are naturally biased to want to be right. And sometimes they want to make the argument versus actually like seek the truth in the data. So our version of kind of customer obsessed is we're looking for the answer from the buyer or the seller or from the agent using the software. And ideally the data helps us make sure we don't have biases or we re-challenge assumptions. So like we push for data where we can get it and data to make decisions. That doesn't mean we wait for data.

21:16Jeremy Wacksman:Like sometimes you have to make a gut decision, but often we want to be as data informed as we can.

21:23Nilay Patel:We have to pause here for a quick break. We'll be right back.

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26:16Nilay Patel:Welcome back. I'm talking with Zillow CEO Jeremy Waxman about making big decisions, including some controversial decisions that have landed the company in court. So let me ask you about a big recent decision. It's somewhat controversial. We're talking about databases. And one of the rules that Zillow has is if a property goes for sale, it has to be on Zillow within 24 hours, or it's not going to be on Zillow at all. Explain that decision. There's a lot of controversy. There's a lawsuit next to this decision. Explain that decision. You're like, this is the policy and it's going to lead to some controversy.

26:48Nilay Patel:How did you decide, okay, we're going to hold to it?

26:52Jeremy Wacksman:That policy is really about protecting transparency. So back to your earlier question, we all benefit, Zillow and our competitors, from these MLSs have most all available listings for free. For free for us, but for free for the agents who work and for free for the buyers and sellers use any site. There are companies in the space that want to take those listings off the internet and hide them for themselves and not put them as part of the database. And we don't think that's a good thing. And if you look at the other real estate markets in the world, that's how they work. Private databases where you have to pay for access leads to consumers having to pay more.

27:28Jeremy Wacksman:So we think that's a bad idea. And so for us, it was easy to say, okay, well, what we can do as a audience in the industry is we can say, well, we don't think you should be able to free freeride and only give the internet the listings that you want and still get access to everyone else's listings. So we just, we won't let you do that on Zillow, right? If you want to do that, then that's fine. You can go operate that way, but we don't want to have that listing. And it was more of a educational tool so that people understood there was a trade-off if they did that. And ideally in sense, what we already see, which is the majority of sellers and sellers agents, if given a choice, want their listing on the internet and want their listing on as many internet size as possible, and that's what they'd choose.

28:09Nilay Patel:So the company you're talking about is Compass, which is a reasonably high-end real estate firm. They have a bunch of software of their own. They will happily tell you they're a tech company. You're obviously in a lawsuit with them. In every other business I can think of, there is some windowing, right, where you have your first customer. Netflix and TV is a great example of this, right? The movie comes out in theaters. Ted Sarandos has to promise Congress he's going to maintain a 45-day theatrical window. if he's going to buy Warner Brothers. Then it goes to, I don't know, it goes to HBO and then to Netflix and then to the Delta seat back.

28:45Nilay Patel:And every one of those is a different payment. And you can see windowing happens across different businesses. Why do you think windowing is inappropriate in the real estate market?

28:53Jeremy Wacksman:Well, I think you should think about real estate more as e-commerce than as premium content, right? And when you're selling a good, you want to advertise to as much demand as possible, kind of as quickly as possible. I mean, the number one thing, The reason people cry is because it's so hard to buy and sell. And it takes weeks and sometimes months to do it. And you have people traipsing through your house. And you basically have to hire someone to be kind of a part-time job on your behalf to help coordinate all this stuff. So the idea that you wouldn't try and maximize price, when we ask sellers, most people say, no, no, no, I want to sell my house for the most I can in as short a time as possible.

29:30Jeremy Wacksman:So that doesn't really fit with trying to window or hold things out or take longer. And so for us, we're like, well, the goal would be to help sellers do that, to help sellers understand that if you want to maximize price, the way to do that is to broadly market your home as quickly as possible. If you don't, and there are rare cases where people don't, you can do that, right? You can sell your home privately. You can opt your home out of the internet because you have privacy concerns. All those mechanisms exist today. And we support all those things. We're not saying you can't do that. You can window.

30:00Jeremy Wacksman:You just can't window by only showing your home to some people. and then forcing those people to go work with certain companies over other companies because the toll on all those customers is going to go up.

30:11Nilay Patel:Wait, I mean, how can you window if you can't ever get on Zillow unless you list within 24 hours? I think this is a thing that I don't quite understand.

30:19Jeremy Wacksman:Got it. The only thing we take issue with is selective marketing. So, you know, there are plenty of ways for you to be private or sell your home in a private fashion today. You can never put your home in the MLS and you can sell it off market. And that happens in privacy situations or luxury situations. You can put your home in the MLS and sort of opt out of the internet because you actually don't want people traipsing around, driving around your street. You can hide the address if you have privacy concerns. Like you can take all these steps today. And then, of course, you can put your home on the MLS and it comes to all the sites.

30:50Jeremy Wacksman:You can also list your home as coming soon in the MLS and say, well, I'm actually not ready to sell. I have to do a whole bunch of work, but I'm going to be selling my home when the spring selling season comes. So I should start to tell people about it. So that's a version of windowing. The common theme across all those is a company is not choosing which customers can get access to the stuff and making it broadly available for some, but not for others, which can lead to all kinds of bad behavior. And you're not telling the seller that by doing so, you're going to get even more money, right? If you're going to forego some demand, that you'll somehow increase price.

31:27Jeremy Wacksman:That's the only thing we say. Well, hey, if you want to do that, we don't want those listings.

31:31Nilay Patel:The reason I'm pushing here is I think I understand a broad dynamic in this industry, which was there was a pretty big settlement in a lawsuit about realtor fees and broker fees. And now those fees are up for negotiation. And so you can see the big agencies are actually trying to close their little markets. They have a lot of listings that they can just sell in between themselves. They can sort of pre-negotiate those fees. You can disagree with that reaction, but it's sort of a rational economic reaction to, okay, we're not going to negotiate broker fees the way we were. We're just going to create a little closed ecosystem.

32:06Nilay Patel:That's right up against you saying actually the ecosystem has to be maximally transparent because you're not actually doing the listings, right? Like you're not the seller's agent in many cases. You're not the buyer's agent in many cases. I know that there's some amount of referral there. So they're trying to protect their cost of actually sort of managing the inventory. how do you reconcile that, right? If that industry was destabilized by a legal settlement and they're trying to find a new equilibrium and you're saying, actually, we're not going to let you make changes. How do you reconcile that?

32:37Jeremy Wacksman:I mean, we reconcile it by like, what's best for the seller. I mean, that's, again, that is honestly, if we ask 90 % of sellers, do you want to do something different? And they said that, we'd go work on that. But you ask sellers, do you want to broadly market your home? do you want to sell faster and for more money by public marketing? And they say yes. And by the way, agents do too. And I think that's part of the other nuance in this industry that folks don't quite get is a lot of these industry imaginations are between the brokers and the MLSs and the associations and NAR and all the legal work.

33:09Jeremy Wacksman:The industry is actually run by over a million independently licensed real estate professionals who are independent contractors. And so they inherit a lot of benefits from the companies they affiliate with, but they make their own decisions. And they are fiduciaries in many cases, and they are supposed to disclose the benefits and risks of how you go sell your good to your buyer and seller. So that's what we're trying to help support. It is not surprising that companies want to find a way to find more margin, maybe at the expense of their end buyer and seller, if they're finding their margin challenged.

33:40Nilay Patel:Yeah, I'm reminded of a quote we get often from the various Amazon adjacent executives who come on the show that other people's margin is their opportunity. Is that how you see it as you think about expanding the business? I mean, no, only in as much as agent's margin is not really high, the end agent's margin.

33:55Jeremy Wacksman:We think about it as there's a lot of people in the middle of this real estate. And you go back to the real estate database, there's a lot of folks in organized real estate. Zillow is very, very focused on the buyer and seller. But we're also very, very focused on the individual agent at the end of the chain because those are the folks actually producing. And that is what's led us into building a bunch of software for them and building a bunch of data and workflows for them. even though they work at tens and thousands of these brokerages and across tens of thousands of these markets, we don't really think about the companies they affiliate with as much as we think about their end agents.

34:29Jeremy Wacksman:And those folks are all basically small business entrepreneurs. They are running their own business. They aren't getting a lot of business support from the inherited entities. And so we're trying to help them run their business better. That's how we help them help buyers and sellers sell more homes. And then more transactions is better for us.

34:47Nilay Patel:Yeah. One thing that's interesting to me, and I'm sure you've thought about this, you've mentioned the seller a lot, like maximizing the value to the seller, which I think very, again, reductively means the prices are high. But the prices in the home market are staggeringly high right now, just across the board. That's right. And I'm guessing that a bunch of people listening to this episode are going to say, well, I'm a buyer. I would love to buy a home. The prices are high. Who's pushing the prices down? Who's maximizing my value as a buyer. Do you think about that side of the equation?

35:15Jeremy Wacksman:Absolutely. Yeah, we got into seller because we talked about listings and databases, but most all marketplaces start from demand, and Zillow is mostly focused on the demand side and helping buyers. And we are absolutely in an affordability crisis in this real estate market. That's why, as you mentioned earlier, we are seeing such depressed volume of transactions is because it is so hard to buy. That's a combination of, yes, mortgage rates. Everyone loves to talk about mortgage rates, and pre-tambient, they were really low and now they've run up. Although ironically, historically, they're still not nearly as high as they have been in historical times.

35:49Jeremy Wacksman:The challenge though is home prices. As you said, home prices are up nearly 100 % in many markets from pre-pandemic levels and that's not sustainable and incomes aren't rising that fast. So trying to ease that supply demand imbalance in the real estate market is really the only way to get back to more normalized housing market. The way I always like to describe that is in any given year over the last three, four decades, about 6 million homes would trade on average, 5.5 to 6 million homes. So that's, you know, 10, 12 million people are going through this part-time job process of moving. The last couple of years, it's been 4 million homes.

36:23Jeremy Wacksman:So we're off 2 million off kind of a normalized market and it's not really budging. And affordability is the reason.

36:30Nilay Patel:When you say affordability, I know you started by saying mortgage rates, everyone's talking about them. You know, I have any number of friends who have pandemic level 2 % mortgages. They have no incentive. Nope. to sell their house. They're just not going to do it until, maybe never. I don't think they're ever going to get another 2 % mortgage.

36:47Jeremy Wacksman:No, but they may get more comfortable with a 5 % mortgage. You ask them three years ago, what rate would you have to see? And they say three. Now three or four years go by, and there's reasons people want to move that they've been putting off. And now they might say four, or at some point they'll say five. So the pent-up demand and rates easing will eventually converge, and you'll start to see folks get unstuck from their mortgage more often.

37:09Nilay Patel:Do you see the amount of building that you would need to see to address this directly from the supply side? No.

37:16Jeremy Wacksman:I'm glad you asked that question because that is, we get asked about rates so often on the demand side, but the affordability crisis is an availability problem. And that's the problem. The U.S., Zillow estimates, is nearly 5 million homes underbuilt. We just, coming out of the global financial crisis back in 2008-2009, which many folks listening I would think would remember, we stopped building enough houses to keep up with new household formation, and we definitely stopped building affordable homes. And so we have this accumulated deficit of supply. That was a problem. That has been a problem.

37:51Jeremy Wacksman:That is now exacerbated by the mortgage rate lock you talked about. So you need more new construction to help balance the market, but you also need existing home sales to come on and folks to say, well, I will trade out of my 2%, 3 % mortgage because I need to, or because rates have come down, or because enough time has gone by. So you need both those things, but it is a supply problem. And there are places in the country that are starting to make progress, but it's very marginal progress, and we have a long way to go.

38:18Nilay Patel:Yeah. You were mentioning that the key metric for the company is transactions, the number of transactions that you facilitated. How do you measure that accurately or well in a market that's as frozen as the one you're describing? Because it seems like it's just a percentage of a number that is flat.

38:33Jeremy Wacksman:having a small percentage of a number that is flat allows Zillow to grow and gain share even when the market is depressed. That's kind of a short version of how we think about it internally. Despite being a brand that is so well-known and 60, 70 % of all homebuyers are on Zillow in any given month or quarter, our transaction share, as best we can measure it, and there's ways we have more so than others, is single digits. The number of times a buyer and seller moves from using us as a shopping and dreaming site to hiring one of our agents, using one of our loan officers, using the software to help sell and list their home, and then we participate with the agent.

39:13Jeremy Wacksman:That's single digit. And so you're right. While the housing market has contracted from the pandemic, Zillow's share has grown. And that's why our revenue and our business is able to grow in a flat housing market.

39:26Nilay Patel:So you're just taking more dollars out of a sort of fixed pie.

39:29Jeremy Wacksman:And more transaction volume. We're taking more share of transactions because we're able to grow. You can grow from five, six, seven on a percentage. 7 % of four is still going to be a lot more than 3 % of six.

39:42Nilay Patel:You mentioned all the other software building, right? The software for the agents, the software to get the loans. Those are places where there is other companies with existing big margins, particularly loans, right? I always think about how can I tell when there's like excess margin in a market and it's when I experienced Glenn Gary, Glenn Ross on the other side of the phone. like I whisper to the internet that I might want a mortgage and like 500 companies show up at my doorstep. That means there's enough money to do all that marketing, to support all that sort of lead generation, lead conversion.

40:14Nilay Patel:That does seem like the opportunity for you, right? You have the interface, you have the demand. We're just going to show you the rates, you're going to pick a mortgage. Have all of those companies been willing to participate in that system? Because that would reduce their margin.

40:25Jeremy Wacksman:Well, that's a place where we actually probably are more competing directly because now we actually originate mortgages. So that's also part of that transaction journey we talked about. In the first chapter of Zillow, we were just an ads marketplace for mortgage too. And a lot of people came to Zillow and said, I need financing. And we said, great, there's a bunch of mortgage providers that will advertise to you and go work with one of them. And then all the advertising inefficiencies that you talked about happen. We now are actually in the loan origination business and we more and more are originating mortgages ourselves.

40:56Jeremy Wacksman:And you are right. We have a customer acquisition cost advantage there because we already have the shoppers on Zillow. There's also a customer benefit there. Again, back to like ask the buyers what they want. What they don't want is not just to be marketed aggressively to, they also don't want to have to hire a bunch of different companies to do pieces of the transaction and have no idea where they all are and have 37 Gmail threads and text messages about all the pieces. They want to be able to open an app and go, okay, here's my conversations with my agent. Here's my offer. Here's my financing.

41:27Jeremy Wacksman:Here's my closing. I just kind of want to see it all there. That's what we're trying to build. You have to originate the mortgage yourself really to do that. But yeah, in that case, we are more competing directly. We are an incredibly small mortgage originator. I mean, mortgage is a massive category. We are basis points of share, but the growth for Zillow is going to come from offering that more often because when a buyer comes to Zillow, they're asking two questions. They're saying, well, can I afford it? And is there anything I want to buy? In asking those two questions, they kind of realize, oh, I need a professional.

41:55Jeremy Wacksman:And so one of those two things leads them to hire an agent. And we're trying to offer answers to those questions kind of all in one place. That gives us this tremendous customer acquisition cost advantage to offer mortgages as one of the things they could choose?

42:09Nilay Patel:I'm just thinking about when we bought our house, right? Our agent, our buyer's agent, this is before the settlement. So the seller was going to pay my buyer's agent's fee. So I just, this very nice woman showed up and she just helped us buy a house. And I paid her no money because the seller paid the fee for her to do everything. And she was very local to where we live. And she knew all the local mortgage brokers. She knew all the local attorneys. And I was like, this is great. I'm just going to call Pam. She's going to do it. And she just did it. Can Zillow offer that kind of experience when there's no guarantee that it will get a fee the way that the buyer's agents used to get a fee?

42:40Nilay Patel:Or are you just going to collect fees at every step?

42:42Jeremy Wacksman:Well, there's kind of two questions there. Yes, the more important, I think, part of that is, can we offer a mortgage service that your buyer's agent would want? We think the answer to that question is yes, because one, it'll be more economical. It'll be integrated into the software. If you hired Pam through Zillow, ideally she's using Follow-Up Boss. That's our customer relationship management software that many of the top agents use. So if you were to message her inside of Zillow, she's messaging back from our software. Your loan officer shows up in there. Your pre-approval letter shows up in there.

43:13Jeremy Wacksman:So we win her business because we are efficient. We are priced competitively. But the most important thing, the reason that she recommended that person if she's doing her job right is she just knew that lender was going to close. Buyer's agents close a handful of transactions a year. If you ask them what they want, yes, they want to help their customer save money for sure. But they want to make sure the deal doesn't get wrecked. And so what we are doing is building a capability set that we're taking to more and more agents to show them, yes, Zillow, even though we are a national brand, we have local expertise and we have loan officers everywhere that can help.

43:50Jeremy Wacksman:And that's the number one question we have to solve is that we got the deal done for them even when the hiccup happened at the 11th hour or even when someone called on Saturday night. Like that's what their value prop test is. And then, of course, the buyer's value prop test is trust the agent, trust the loan officer, but also they want to be efficient.

44:06Nilay Patel:One thing I'm really curious about in this dynamic is sort of the value of data. And I promise this we'll get to AI in a roundabout way. I'm just previewing that we're going to arrive there.

44:13Jeremy Wacksman:We've gone a long time before we've gotten to AI.

44:15Nilay Patel:I do my best to bring up AI sort of like late middle. Because people's actual businesses are interesting to me. And the idea that we're all just going to yell about AI in some mythical ways, it comes up. I promise it comes up. But I like to understand the actual business first. And the reason I'm saying I'm going to get to AI with this next question is because real estate is such a local data poor business. You're just in whatever market you're in, and those are the houses. And every transaction is different in a way that maybe is not even remotely comparable to the next door transaction that's going to take place.

44:51Nilay Patel:Or maybe it is, but that's why everybody's mad about this estimate. it, right? Like, there's just something about this market, this business, where the presence of additional data might not actually be helpful, especially if you have to collect that data on the national scale and then tell some local broker or some local agent or some local buyer or some local seller, hey, we know everything. Like, we can definitely close because the data says this national broker that we've partnered with, this national mortgage company we've partnered with is going to close. How do you reconcile that? Because this feels like, in order to make the AI tools work, you definitely need to feed them lots of data, but the presence of the data might not actually matter at the local level.

45:30Jeremy Wacksman:I think it depends on the type of data. So let's take two examples you kind of brought up there. So in the mortgage process, the mortgage is, for lack of a better term, a government-mandated commodity. I mean, at the end of the day, a conforming loan is eventually sold to a bunch of GSEs, and so it has to fit a bunch of standards, has to be underwritten exactly the same way. So all the data collection for a mortgage is every company's collecting the same stuff. And so in that case, maybe AI or whatever for more data collection is less interesting on a national or a local scale. But I think your question is also more about, okay, well, you're buying a house in Seattle and there's only so many houses in my price range in the neighborhoods I want to look at in Seattle.

46:09Jeremy Wacksman:And so what's the value of going after more data? Well, in that case, it's actually more data to help the buyer get a better sense because what's unique about real estate is you are making a set of trade-offs. It's not like you go to Amazon or you're even shopping for a hotel and you actually have to pick from more supply than you could, you have to make a set of trade-offs when you're buying to say, well, the perfect house is probably never gonna come up. It's like, what's available in the time frame I have and the price frame I have then? And if you did it 10 times in a row in 10 alternate universes, it would play out differently.

46:39Jeremy Wacksman:And so when you're making a set of trade-offs, more data about how to make that trade-off is immensely valuable. So take a product that Zillow offers called Zillow Showcase, which allows AI tools to generate more of a virtual tour and generate more data to learn about whether that house is good for you before you'd have to go get in a car and waste your Saturday going to the wrong houses. That kind of data is immensely valuable because people are in search of basically almost like regret minimization when they're buying in the category. So I think it depends on the type of data, maybe in the transaction, whether it's sort of worth going after and investing in incremental data.

47:18Nilay Patel:Yeah, I'm just thinking about when you say we're going to build a bunch of software for the agents or we're going to originate a bunch of mortgages, the value of the agent is perfect knowledge of their locality in many ways. Or like being able to stage a house. It's in the atoms. It's not in the bits. It is in the atoms.

47:35Jeremy Wacksman:Agreed.

47:36Nilay Patel:And those atoms are pretty local. And I'm just wondering as you say, okay, well, we can definitely say the data shows we will make you more efficient on X dimension if that's actually convincing.

47:46Jeremy Wacksman:Well, for the agent, the example you just gave, letting them focus on the atoms and not the bits is incredibly valuable. I mean, that's the other thing. If you talk to Pam, she probably wanted to spend time trying to figure out what house you should buy, trying to figure out how to help you. The best agents are, yes, they're staged in the home, but more often they're negotiators, they're consultants, sometimes they're therapists. They're doing the professional service, client service work, but they're stuck doing all the busy work. Like the customer relationship management software we offer, you go watch and agents are spending so much of their time follow-ups, responding to the text that came in, checking the item off the to-do list.

48:25Jeremy Wacksman:This is stuff that software and workflow can and should do for them. So if we can generate more data to help take away the busy work, the back office work, so they can kind of do the front office client work, that's intensely valuable to them as small business owners.

48:39Nilay Patel:We have to take another short break. We'll be back in just a moment.

48:48Nilay Patel:Oh, hey. Sorry, love to chat, but I'm busy shopping all the rollbacks and more at Walmart. Grab a what? Cancel that. I gotta grab these big savings on the Walmart app online and in-store, like right now. See who? Nope, unavail.

49:06Jeremy Wacksman:The only thing I want to see are the prices just lowered on tech, home, and all my must-haves. Wait, you want to shop Walmart with me? Alrighty, I think I can fit you in.

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50:44Nilay Patel:Welcome back. I'm talking with Zillow CEO Jeremy Waxman about how very highly regulated the housing market is and how that affects his business. One of the interesting dynamics, again, of Zillow, it's been around for 20 years. There's been a lot of acquisitions. There's been a lot of growth. You're talking now about pretty much vertical integration in the stack, right? We went from we have a demand, we can showcase this public database, to now we work more directly with the hundreds of databases that have whatever dynamics they have, to, okay, now it's the banks. We're all the way up to we're going to make this transaction, and that's our key metric.

51:14Nilay Patel:As you integrate vertically, are you running into regulatory concerns? I know the previous – the Biden FTC would have a lot of concerns about a lot of things. The Trump FTC, the Trump DOJ, they have different concerns, and they express them differently. and look very differently in some cases, but with just as much emphasis, right? I mean, this FTC and this DOJ are, they're not shy about their opinions. So how has that changed and are you running into those concerns?

51:41Jeremy Wacksman:I think we have a benefit in that we're so small in that market, right? The market, which is, well, one, we would argue a local share of transactions, but even if you want to think about a national market, a national share of transactions, and we are so small, and then the components of the transactions, mortgage is one of the most regulated markets out there and we are, you know, basis points of share relative to the large mortgage providers. And so we can grow nicely and still be very, very small. So we need to be aware, but we try and build all of our products backwards from the customer outcome and from consumer choice.

52:16Jeremy Wacksman:It's kind of in our DNA and it's in our business. Again, as we talked about earlier, more volume is better for Zillow. Therefore, that's why we focus on transparency. So that tends to align us well with avoiding any regulatory scrutiny. I'm sure there will be a point. And we definitely have various individual legal challenges we can talk about. But from like a how do we think about regulations that we build, we think about, okay, let's build something that's pro-transparent, pro-consumer. And there's going to be places where we want to innovate. And innovation is going to be stuff that hasn't been thought about from regulatory frameworks.

52:46Jeremy Wacksman:But if we can show our work and explain why we want to do what we want to do, we think that'll end up being a good conversation regardless of administration.

52:52Nilay Patel:Have you guys been having those conversations with this administration?

52:55Jeremy Wacksman:Yeah, we have conversations with both types of administrations over the 20 years we've been here because housing, as you said, is such a kind of fascinating database. The other challenge is you asked about DOJ FTC. It is more of a local issue. A lot of times these things play out at the state regulator level or state associations and even local markets. And when we get back to macro lobbying for supply, that's a county level challenge. Yeah.

53:23Nilay Patel:It's funny. I'm talking about this, and I'm kind of ping-ponging between the experience of using Zillow, and then have you talked to Donald Trump about mortgage rates? He has very strong opinions about mortgage rates. I don't know if you've heard. He would like them to be much lower, and that's his solution. There's building supply. All of your ability to do all these things comes from being that aggregator, right? Having that demand. And that is under threat in different ways. As I look at the different aggregators, we've done a lot of episodes about companies like DoorDash. We literally call it the DoorDash problem here on the show, that actually the next great interface might just be a chatbot.

53:58Nilay Patel:In the mobile revolution where we created new interfaces for databases on our phone and built a new economy, well, there might be another one. Like, Johnny Ive is doing something at OpenAI. It is unclear what, but it is almost certainly going to be voice-activated in some way. You can see where all this is headed. That disaggregates you. Quite literally, it takes your interface out of the mix and maybe presents it in someone else's app or doesn't present it at all in some other way. Have you thought about this problem? It seems like the most unlikely one to be disaggregated first. I think food delivery is much closer.

54:32Nilay Patel:Getting Ubers is much closer. But it's coming for you as well. Have you thought about it?

54:35Jeremy Wacksman:We have. And you kind of started to answer the question. It'd be easier for me to cop out and say, well, our category is different. But we do think our category is different. And then we'll get back to the business model that we think we're building that's pretty durable for any potential aggregation change, I would say, over time. Real estate is probably the most, as you started the conversation, complex, regulated, localized, licensed category out there. So it's very hard to think about, okay, well, is there a better way to shop for shoes? Or is there a better way to find the restaurant I'm going to order delivery from in the next 20 minutes?

55:12Jeremy Wacksman:I mean, every category has its challenges and how aggregation might change, but I think real estate is different for the structural reasons, also for the consumer reasons. So you're not doing something every day. You are buying a house. The average home buyer right now is once every 14 years. Well, sure.

55:30Nilay Patel:But if you think about Zillow's entertainment, I'm walking down the beach, and now instead of opening Zillow to see how much that house costs, I just ask Gemini or Siri or whatever. and I get an answer and I get some transaction listing from the public database, that means I'm not opening your app. And then maybe I'm less likely over time to open your app when it's time to do the other thing.

55:51Jeremy Wacksman:Like, that cycle is already quite good for you. Or they become a new source of demand. And sure, you know, maybe they want to ask the horizontal LLMM a question that they're asking us right now. And then when they get into the category of actually transacting, which again is the business that we're trying to build, they're going to want to use our software workflows, data, and people to transact. And so it's just a different source of top of funnel. This is the age-old question. I mean, when Google came around and when mobile and apps came around, it's like, oh, you know, the top of funnel versus the transaction flow.

56:19Jeremy Wacksman:That is why I think we get really excited about the software, the workflows, the data, and the licensed professionals that are in the category is we think building that vertical integration, as you put it, is really the most durable components of any evolution. Even if the way people get to our front door might change over time. And then on the flip side, we also are going to look to innovate on those capabilities because there is the horizontal ask, a horizontal do it. There's also the ask a vertical to do it, which we think in this category also gets really interesting.

56:52Nilay Patel:Yeah. Well, I'm curious about vertical searching. Who really knows where that's going? I think that's wide open because the models just keep getting better. That's right. And so you see those opportunities open up and close down really fast. It sounds like you're saying, when you say it's more durable, that serving the enterprise customer, the business customer, to actually make the money is where the growth is. And maybe it's not in the consumer experience. And I wonder about that because it echoes things I've heard from so many people, right? The consumer experience of using the internet is maybe consolidating.

57:27Nilay Patel:Maybe it'll all just be chatbots. It'll be AI-powered browsers. Who knows what's going to happen? but at the end of the day, the real estate agents still need to buy and sell the properties and you can sell them software forever.

57:37Jeremy Wacksman:Well, I would have said it a little differently, which is the, maybe we care more about the transactors than the dreamers over time, but that's already where our business is. I mean, we make money with the transactors. The dreamers and the shoppers and the browsers are efficient tomorrow's transactors. And we love feeling that. And the brand stretching across both is a huge CAC advantage and a huge lifetime value customer. So that part we can talk about, but I don't think it's we would pivot to be B2B focused over B2C focused. I think it's more you would probably think about the transactors as the customer segment, as the more durable part of the customer segment.

58:13Nilay Patel:Yeah, it's that customer acquisition cost I'm actually really interested in, right? If that starts to go up. Yeah, yeah. Because less people, you have less dreamers just looking at houses.

58:21Jeremy Wacksman:I mean, 80 % of Zillow's traffic comes to us free and direct now. Yeah. And so, yes, if that percentage went down, that's a different customer acquisition equation. and we need to be good at where the traffic's going to come from when they get into the category of transactions.

58:34Nilay Patel:All right, let me ask you the question I think everybody thought I was going to ask when I talked about AI. It's the first question my wife asked me. It's the first one that comes up. Every platform that has user content on it, and I would count Zillow as a platform with user content. It's a little different, but it's still user content. It's not yours. It's overrun with slop, like pure AI slop. And I see this in listings now. Actually, you initially saw it with over HDR photos. So then the photos you were looking at had no relationship to reality. Yep. And now you're seeing virtual staging. Yep.

59:06Nilay Patel:It's getting maybe one tick too aggressive. Like it's not actually so easy to just rip out the floor. But here we are where you're going to rip out the floor. And now you're fully virtual tours, like generated 3D tours. Yep. That maybe show you reality and maybe don't. How are you guarding against that? Because this is, I think, the other big threat to your demand.

59:26Jeremy Wacksman:Having a professional database that has some rules around it is good for this. I mean, one of the benefits of an MLS is we are one member, there are many members, and we all want to solve that problem. And so you can have compliance and rules and violations and fines. And you have licensed professionals who are endorsing and stamping that the content is accurate. So when it gets through, that's maybe a licensed professional who didn't do the right job. And so you have a way to police or manage that. So that's one way. As you talked about earlier. We're not going to just rely on the mechanisms of 500 plus.

59:58Jeremy Wacksman:We hope, and we're going to lobby for that, but we'll also look at the data ourselves. And our rentals marketplace is an example of that, where you don't have the MLS structure. And it is long tail user enter directly into Zillow's tools. And so we have to build good compliance tools. I think the nice thing is the benefit in doing it in the real estate market is probably lower because ultimately you're trying to sell the home or rent the place. And if you do it, it might drive top of funnel volume, but the incentive will quickly get squashed because you won't actually rent or sell the place.

1:00:31Nilay Patel:Oh, I think reality shows that that dynamic has not played out, right? I mean, you see it everywhere. Every listing I see now has at least over HDR photos.

1:00:39Jeremy Wacksman:Yes. If not the full rush station. Not every, but you definitely have the content challenges. But the reality is if you can, at the end of the day, someone's going to go tour the home before they buy it. People aren't buying, well, actually that's not true. Some people do buy houses sight unseen, but then they're usually entrusting a professional to go see the house while they're doing a site. So someone's putting eyes on the house. So you do have this, you know, you're not, again, you're not buying shoes off Amazon. And they're like, well, wait, that's not what I thought I bought.

1:01:02Nilay Patel:It feels to me like the counter incentive to don't lie about the photography has not actually resulted in the photography being more accurate.

1:01:11Jeremy Wacksman:Yeah, but the flip side of that is we're trying to use the AI tools to generate a more realistic version, which I think is part of the challenge of getting things like Showcase going

1:01:19Nilay Patel:is people who want to market the home

1:01:21Jeremy Wacksman:maybe don't want to show. So we take a good example, like we take drone photography, so photography, and they'll shoot it in the best possible light. And then we'll generate a full flyover. You can like joystick around the house and see it from all angles. And we fill that in with LLM tech. That showcases things that maybe they didn't want to show. And that gives you a more realistic sense of the home. And so trying to navigate that balance of, well, maybe I didn't want to market it that way, but oh, if I showcase it this way, I'll actually drive more demand. That's one way we're really trying to drive the right incentive is we can show that when you generate a more realistic version of things, it actually provides more demand and more pull through from buyers if you give them more realistic content, not just staged content.

1:02:05Jeremy Wacksman:And we're getting to three, four, 5 % of listings are now doing that. And we just started that a couple of years ago. So that's a good example of tools we're bringing to bear and using AI to actually create a more realistic version to maybe counter that incentive.

1:02:20Nilay Patel:Would you ever do the opposite and penalize the fake imagery? Like a lot of platforms are having to consider this, right?

1:02:27Jeremy Wacksman:Yeah, yeah. I mean, I think MLSs are going to have to rule with it. I mean, we're not in the business of trying to figure out how to create the rules and the fines for licensed agents. We're not the associations of MLSs. They are grappling with this concept right now, and we for sure will have a point of view on it.

1:02:42Nilay Patel:What's your point of view?

1:02:43Jeremy Wacksman:I mean, we want to create the most fair and transparent and accurate version of a listing as best we can. We started the conversation talking about the seller. We started with the buyer. And a lot of our innovations are around, look, more transparency is good. Yes, you want to try and hide the bad stuff. They're going to find it when they come see the house anyway. So now you're just wasting the seller's time with people walking through the house who aren't going to buy the house. So virtual touring is actually a good example of trying to giving buyers more empowerment actually helps the seller, even if it sort of is an indirect thing for the seller.

1:03:20Nilay Patel:Yeah. All those assets are really complicated. I feel like I could do another full hour on just what technology we're using to create virtual tours. Let me ask you on that, right? Like every sort of view of a database with its own custom extensions, and this is just, again, very reductive, very abstract. So there's always the opportunity to sort of extend the standard, to build the proprietary version, to capture audience by saying you can only get this here. It sounds like Showcase is one of those examples. How broadly do you think about that dynamic, right? There's the public database, and then there's – we're going to add to it.

1:03:54Nilay Patel:We're going to add our own proprietary information to this and say to every buyer, if you want the cool drone flyover, you're only going to get that in Zillow. How does that dynamic work? Because even – I don't know. You had a dispute with Matterport, right? Like there's these other providers that would love to be in your views. And then there's the opportunity for you to capture that value yourself. How do you think about the bounds?

1:04:14Jeremy Wacksman:I think our broad philosophy is any innovation today is going to become commoditized and table stakes. So we want to lead with innovation and create the right incentives for the marketplace to use the innovation. Because back to you said, like the biggest challenge we're trying to get Showcase More used is it's really hard to do. People have to change their workflow. Not let photographers are changed on it. There is this, I don't necessarily want to show all the things that Showcase would show in the house. It's like, but you should. It'll sell the house faster, but it'll show this room I don't want to show.

1:04:42Jeremy Wacksman:So there is that incentive. So innovate and create the right incentives for people to use it, but it's going to get quickly commoditized. And that's part of why we're even open with all the rich media stuff. So, yes, we have our own tech. We support everyone else's tech. We support a bunch of 3D interactive floor plans on Zillow. Because if we can just get more folks using the tech and the tools, more transactions will move offline to online. That's still the biggest shift we're working on is our business is transaction volume-based. We benefit from getting more transactions flowing online and digitized.

1:05:14Jeremy Wacksman:So we're going to bend towards open, and we're going to bend towards platform support because we still need to get all this tech, whether it's Zillow's or not, to be across more of the content.

1:05:25Nilay Patel:Let me ask you one sort of last big picture question. Then I want to ask you what's next broadly for Zillow. Whenever I talk to people who use platforms, big platforms, there is the sense that they've lost agency. Right? And I think this is very true of the consumers on consumer platforms. It is extraordinarily true of creators on the consumer platforms. You ask a TikToker if they feel a tremendous amount of agency about TikTok, they do not feel that way. I think more and more consumers do not know what the algorithms are showing them. Real estate is a different business, a different market. You've said many times Zillow is small.

1:05:58Nilay Patel:But to many participants in this ecosystem, you're the platform. And your rules are what makes things happen. And as you build more software for the agents, the way your platform is designed will shape more of how they do things. Certainly for buyers, the idea that their housing stock options are limited to what they see in Zillow feels like a constraint. How do you give everybody in this ecosystem more of a sense of agency? because you're the big platform and they don't get to yell at you the way that I get to yell at you. I mean, I go back to the really unique thing

1:06:30Jeremy Wacksman:about this category is, and we'll talk about transactors, buyers and sellers, not people who are just kind of using it as entertainment. You are selecting from a too limited set from what you want and having to make a set of trade-offs. So in that marketplace where supply is so constrained, the buyer actually has a tremendous amount of agency. it's more about actually making sure you hire the right professional and making sure you end up making the right decision which you won't really there's no A-B test for that you won't really know until you do it and then you look back that's actually where the agency comes from maybe if we're ever in a market again where there is it is an extreme abundance market and it is you know buyer choice is not so constrained it would feel differently but right now if I'm a buyer the agency I have is I mean eventually I'm going to see all the homes that I possibly could buy before I make my decision

1:07:20Nilay Patel:Yeah. What about on the seller side, on the agent side specifically? Because I know they feel constrained.

1:07:26Jeremy Wacksman:Yes. And I think the big challenge they are trying to solve is how can I run my business more efficiently? I mean, the agents that are still growing in this market, they are the better agents because they have been able to thrive in probably one of the lowest levels of volume that we've seen in a long time. And so helping give them more agency is, yes, you could say we're the platform, but making them more efficient, whether it's our tools or other tools. And I'll give you an example of how we're trying to do that. So for a long time, we just thought about, hey, you're getting a bunch of customers from Zillow, right?

1:07:59Zillow has buyers and sellers and you collect them and then, okay,

1:08:03Jeremy Wacksman:we benefit if you convert them. And they think about Zillow's customers and they think about their other customers and they're just like two separate worlds. And they're like, well, I really like a lot of the data I get about Zillow's customers. Like, can you help me with those insights about the database of all my other customers. And so we're now launching a software tool that doesn't just give them the thing they're used to, which is if they want to use data on Zillow buyers and sellers, they can. And if they don't have Zillow buyers and sellers, we can't help them. We're actually helping them connect the intelligence and insights from Zillow to the rest of their data, even if they're not Zillow customers.

1:08:34Jeremy Wacksman:And so you could say that's Zillow providing more software and tools, but it's also us opening it up and giving them more agency to run the rest of their business the way they want.

1:08:42Nilay Patel:Yeah. Zillow's 20 years old. You're about to leave here and go ring the Bell and the stock exchange. What's next for the company?

1:08:47Jeremy Wacksman:Building out the rest of this integrated transaction. We want to get to a place where you can open the app. The experience you had that you talked about, the next time you do it, you're messaging with your agent inside the app, you're getting pre-approved in the app, you're closing the app, you're signing the app, and you feel that it's more digital. And it actually does work the way the rest of the apps on your phone work. It does feel more like a one-stop shop.

1:09:07Nilay Patel:Yeah. Jeremy, this is great. You're going to have to come back. I have many, many more questions about databases for you. We'd love to. Thanks so much.

1:09:12Jeremy Wacksman:Thanks.

1:09:17Nilay Patel:I'd like to thank Jeremy Waxman for taking the time to join Decoder today. And thank you for listening. I hope you enjoyed it. If you'd like to let us know what you thought about this episode or really anything else at all, drop us a line. You can email us at decoderatheverge.com. We really do read all the emails. Or you can hit me up directly on Threads or Blue Sky. We're also on YouTube. You can watch full episodes at DecoderPod. We also have an Instagram and a TikTok. They're both at DecoderPod as well. They're a lot of fun. If you like Decoder, please share it with your friends and subscribe wherever you get your podcasts.

1:09:41Nilay Patel:Decoder is a production of The Verge and part of the Voxianity Podcast Network. The show is produced by Kate Cox and Nick Stat. This episode was edited by Xander Adams. Our editorial director is Kevin McShane. The decoder music is by Breakmaster Cylinder. We'll see you next time.

1:10:13Jeremy Wacksman:textures. They're designed to keep you going without slowing you down. So put that fork down. Try the new wraps today in app or at order.sweetgreen.com. Available at participating locations only.

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