RE.net Predictions for 2008

Dustin Luther is on a tear. 4Realz.net has instantly become the insider's go-to guide to the real estate technology market. Recently unbound, Dustin is busy breaking news and publishing lucid insights on the market. Today he cites The Motley Fool speculating on a Zillow IPO in 2008.

“Zillow was the brainchild of Expedia’s founder, so it’s really just a matter of time before the company follows suit and goes public. Even with dot-com realty plays like HouseValues and Realtor.com parent Move trading in the mid-single digits, Zillow has enough Teflon to make it as an IPO.

I'll go on a limb and say, Not a chance Zillow IPOs in 2008. Rather, Dustin has motivated me to organize these predictions for Zillow (and the rest of the RE.net) for 2008:

• Barton moves to chairman-only by mid-year. He's got the venture and hedge funds to keep him busy.
• In addition, I'd bet maybe 5 of the current 11(!) VPs rotate out in 2008. Is this a company that can actually keep it's General Counsel busy full time? Doesn't make any sense to me. Clean house, drop the burn rate, focus on the core business.
  

There's no question they're building that company to take it public and have the right product and team foundation, but think about it in context of the Kayak/sidestep news. That's a combined company of 60 people with $85 million in revenue. There's your IPO. Zillow has 165 employees! That's a big burn rate. Plus how many IPO investors are going to be excited about getting into a residential real estate play in 2008? 2010 is my guess for Zillow - after some wrenching changes, and some smart revenue moves. (David G, what say you? Am I full of it?)

In related re.net developments, here's another prediction to think about:

• Redfin.com will introduce premium-level, full-service, full-price product lines.

I've grown less sanguine about the Redfin business model this year. Champion of the discounters, Redfin's gotta scale its revenue. CEO Glenn Kelman posted some of his business metrics on Guy Kawasaki's blog (which took some serious cojones, so kudos to Glenn for stepping up.) In that post, one thing is clear: he needs to marshal Redfin to $100 million in revenue, fast. If you assume that Redfin clears ~$5000 on it's discount home sales transactions, that means they have to scale to 20,000 home sales in the next couple years. In this market.

Glenn also pointed out that they have more people driving around in the field than they originally planned. (i.e. the model scales less efficiently.) But if you introduce premium services and can bring your average-revenue-per-deal closer to $10,000, that's a much more achievable target. Not surprisingly, this was also the path that Zip Realty took several years ago.

One last one:

• Trulia's traffic overtakes Zillow's.

Paul Kedrosky took some flak the other day for citing a single traffic source highlighting declining web traffic for Zillow.com. Web traffic is a black art, so we can divine only a few things for certain: 1. Zillow's new feature introductions are only marginal page-view increases on top of the core value proposition. None of these create the power curve in traffic growth. 2. They started with the biggest bang you can. It's hard to go up from there. Furthermore, when you're in front of the fire hose, it's hard to discerne which site/product tweaks lead to organic growth. So Zillow's current growth was actually retarded by their early success. 3. Trulia's growth is more organic (and more visible in the monitoring services). It's based on start-small, test often, repeat-what-works. So Trulia's growth seems to be oriented on increasing market penetration, search optimization, and product improvement. As a result, in mid 2008, we'll see the first of the compete/quantcast/alexa charts that illustrate Trulia crossing over Zillow. Mind you, I'm not convinced that Trulia has their revenue proposition nailed yet. I'm sure there's a prediction in there somewhere too. Just haven't found it yet.