I recently wrote an article about how companies need to tighten their belts as time are tough and are likely to remain that way for some time. Well it seems that well known US portal site Zillow is feeling the pressure and on Friday announced that they would be laying off 25% of their work force.
On the company’s blog, Rich Barton, the CEO, said “This was an incredibly painful decision for me and the leadership team, but, in the end, we concluded that we had no choice but to securely batten down the hatches as we sail into a major economic storm.
The unprecedented economic events that are playing out on a global stage began in our own industry and have made a prolonged recession likely, in our judgment. We are a young company that is not yet making a profit. Despite having sizeable cash reserves, we deemed the responsible course was to meaningfully reduce expenses, so that Zillow emerges from the other side of the recession in a very strong position, even if the recession lasts many years.”
This move for Zillow is not unexpected. In a recent article on CNET, Rafe Needleman identified 11 companies; that may be in trouble as the financial crisis drags on. What was interesting is that the only property portal site he identifed was Zillow. This is what he said:
“The real-estate site’s revenue model is advertising. Real estate and bank advertising. Unless the real-estate research site starts charging for foreclosure listings, I don’t see it doing too well in a hunkered-down economy, in which people are trying to hold on to their homes for dear life, not upgrade.”
If you look a little more closely at Zillow, you can understand why they would be laying off staff in an effort to reduce costs. The site is rumoured to have revenues around the US$10m per annum. To generate these revenues they have around 160 employees. Therefore, the total costs of the business are likely to be around $20m per annum leading to a cash burn of around $10m pr annum.
Although they have raised signifincant cash based on aggressive valuations (a reported US$87m had been raised by September 2007), they must now be starting to churn through that cash and given the current market conditions, they would find it challenging to raise any more money.
Is there any future for Zillow?
Now they claim to have 5.4m UV’s in September 2008, up 42% on September 2007. In addition, with traffic like this, they probably deliver signifiant page impressions and therefore ad impressions. Now with numbers like this, they should be delivering significantly more revenue. The majority of revenues in this market are likely to come from finance companies and from real estate agents. Now finance companies have significant challenges and are unlileky to be investing significantly in generating consumer sales of their products.
The other challenge is serving the real estate market. This is a very hands on sales and therefore having a significant sales force is important for driving revneue growth. Therefore if you lay off 25% of your staff, you maybe laying off some sales people or at least some people in revenue generating roles. This will affect your ability to maintain revenue growth. If you are laying off technology and back office people, then you are probably affecting the future development of your products.
Either way, it will be challenging for Zillow to generate enough revenue any time soom to reach profitability let alone enough profitability to justify the valuations at which it has raised revenues.
Advertising Partner
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Great Blog post. I am going to bookmark and read more often. I love the Blog template ? if you need any assistance customizing it let me know!
As I’ve seen noted elsewhere the fundamental problem is that the primary driver of their audience (valuation estimates) is so hugely irritating to their primary advertiser base (real estate agents, brokers, franchisors). Any business who’s constituents are so much in conflict has no hope of being a big success. While zillow says they are all about giving free tools and marketing to help real estate agents and brokers drive efficiency in online marketing and lower their costs. Every agent I know tells me that zillow’s existence has created far more cost and frustration than any other single company they can think of.
While most management teams would have realized this from the start and tried an alternative approach, the arrogance and egos of the founders and executive team is of truly epic proportions.
Zillow is probably not going anywhere soon, but I suspect they will end up as a footnote in the real estate industry just like Microsoft’s homeadvisor.
Well I think you have to give them credit for building a new site and in a little over two years getting 5m ubs.
Consumers always want to know what their house is worth and hate handing their details over to lead gen sites or too agents until they have a guide.
Simply the site would not get 5m ubs if consumers didnt think their was a value prop.
So can they monetise this trafiic is the big answer?
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