When Zillow launched in 2006, its Zestimate was its claim to fame.
The Zestimate was a lead generation tool that attracted consumers by giving them a starting point for determining what their home -- or any home -- is worth. It was online, it was fast, and it was easy.
Flash forward more than a decade later, and online valuation tools are a commodity. There are dozens of web sites that will determine a home's estimated value. Zillow’s unique advantage has diminished.
Zillow's strategic necessity
I believe Zillow's guiding strategic principle is that it must be consumers' first destination in the home buying and selling process. Zillow's sustainable competitive advantage lies in its massive audience and strong position at the start of the consumer journey.
In the past, other listing portal competitors were relatively undifferentiated. Zillow has been the clear market leader, and there was no credible threat that could unseat it from its powerful position.
However, the entry of iBuyers with a service that made instant offers on a home – online – was novel and compelling, just like the Zestimate in 2006. Suddenly, more and more consumers were beginning their home selling process not on Zillow, but on other web sites like Opendoor and Offerpad. This was a key existential threat for Zillow.
The iBuyer business model is Zestimate 2.0 – the natural starting point for determining your home’s value. What’s more accurate than an actual offer on your home?
Opendoor's long-term vision is that every home owner will request an instant offer before selling their home. It's a natural starting point: It's easy, it provides value, and there's no commitment. What better way to value your home than an actual offer?
While Zillow only purchases around three percent of the offer requests it receives (that number is higher for the other iBuyers), a very large number of consumers are requesting offers each month. In established markets like Phoenix, anywhere from 25–35 percent of active home sellers request an instant offer before selling their home. The numbers are BIG.
Given the growing mass market appeal of an instant offer (tens of thousands of requests each month) and the simplicity of the process, it's no surprise that Zillow launched its own iBuyer service.
If you're in the business of providing consumers an estimate of the value of their home, the bar has just been set higher. The inherit power and appeal of the iBuyer model is quite clear:
Instant offers are simple, easy, and quick. All online.
Instant offers are at the start of the funnel -- they attract consumers at the start of the home buying or selling journey.
It's a novel concept that satisfies a consumer need, hence the high proportion of consumers requesting offers.
In other words, iBuying is the new Zestimate.