WEBVTT 00:00:00.000 --> 00:00:03.319 I want to start today by calibrating our watches. 00:00:03.500 --> 00:00:06.120 Let's take a trip back in time, 20 years, almost 00:00:06.120 --> 00:00:08.500 exactly. 20 years. I want you to close your eyes, 00:00:08.619 --> 00:00:10.380 unless you're driving, please don't close your 00:00:10.380 --> 00:00:12.800 eyes if you're driving, and just picture the 00:00:12.800 --> 00:00:15.699 world as it was on the morning of February 8th, 00:00:15.699 --> 00:00:19.500 2006. 2006, okay. Yeah. Yeah, let's really set 00:00:19.500 --> 00:00:23.219 the scene here, because 20 years, it feels like 00:00:23.219 --> 00:00:26.190 a geological epoch in tech time. It really does. 00:00:26.410 --> 00:00:27.829 I mean, you have to understand, this is a pre 00:00:27.829 --> 00:00:30.710 -iPhone world. We're still a year away from Steve 00:00:30.710 --> 00:00:32.969 Jobs pulling that device out of his pocket on 00:00:32.969 --> 00:00:35.189 stage. Right. So if you wanted to check your 00:00:35.189 --> 00:00:37.570 email, you were sitting down at a desktop computer, 00:00:37.869 --> 00:00:40.490 probably a big beige box. Almost certainly a 00:00:40.490 --> 00:00:42.689 beige box. And Facebook. It was still mostly 00:00:42.689 --> 00:00:44.490 just for college students. It hadn't opened up 00:00:44.490 --> 00:00:46.570 to the general public yet. Twitter didn't even 00:00:46.570 --> 00:00:48.450 exist. If you wanted to watch a video online, 00:00:48.689 --> 00:00:50.549 you definitely weren't on YouTube. I mean, it 00:00:50.549 --> 00:00:52.390 was barely a year old, and it was mostly, you 00:00:52.390 --> 00:00:54.390 know, that one video of the guy at the zoo. Yeah, 00:00:54.429 --> 00:00:57.549 me at the zoo. You were probably downloading 00:00:57.549 --> 00:01:01.570 some super grainy clip off of LimeWire or Kazaa. 00:01:01.729 --> 00:01:04.370 And just praying it didn't brick your entire 00:01:04.370 --> 00:01:07.549 computer with a virus. Exactly. It was a completely 00:01:07.549 --> 00:01:10.329 different digital landscape. And on that specific 00:01:10.329 --> 00:01:15.489 morning, February 8th, in a pretty nondescript 00:01:15.489 --> 00:01:17.989 office building in Seattle, a small group of 00:01:17.989 --> 00:01:20.510 people were huddled around a monitor. And these 00:01:20.510 --> 00:01:23.359 weren't kids in a garage? No. Not at all. These 00:01:23.359 --> 00:01:25.959 were former Microsoft executives, you know, seasoned 00:01:25.959 --> 00:01:28.659 pros who had seen big launches before. But the 00:01:28.659 --> 00:01:32.379 energy in that room, by all accounts, was different. 00:01:32.620 --> 00:01:34.900 They were nervous. They were hovering over the 00:01:34.900 --> 00:01:37.379 enter key, waiting to go live. That's it. They 00:01:37.379 --> 00:01:39.840 had been working in stealth mode for over a year 00:01:39.840 --> 00:01:41.920 on this new website. They'd run all the projections. 00:01:42.180 --> 00:01:44.140 They'd done the math on server capacity. They 00:01:44.140 --> 00:01:45.480 thought they knew what to expect. But they were 00:01:45.480 --> 00:01:48.079 ready. So around 8 .00 a .m. Pacific time, they 00:01:48.079 --> 00:01:51.620 flip the switch. They launch. Zillow .com. And 00:01:51.620 --> 00:01:55.780 then? Chaos. Absolute digital meltdown. The servers 00:01:55.780 --> 00:01:58.180 crashed. Oh, they didn't just crash. They effectively 00:01:58.180 --> 00:02:00.260 incinerated. I mean, the site was completely 00:02:00.260 --> 00:02:03.280 unusable within hours. They had anticipated a 00:02:03.280 --> 00:02:05.140 certain level of curiosity, you know, for sure. 00:02:05.200 --> 00:02:07.099 Sure, you expect some traffic. They figured, 00:02:07.200 --> 00:02:09.840 okay, the early adopters, the tech blogs, maybe 00:02:09.840 --> 00:02:12.300 they'll check it out. But the traffic they got 00:02:12.300 --> 00:02:16.520 on that very first morning was, it was exponential. 00:02:16.639 --> 00:02:20.219 It just blew. every single projection out of 00:02:20.219 --> 00:02:22.379 the water see this is what fascinates me about 00:02:22.379 --> 00:02:24.860 this moment usually when a site crashes it's 00:02:24.860 --> 00:02:27.020 because people are trying to buy something you 00:02:27.020 --> 00:02:29.759 know concert tickets the new playstation before 00:02:29.759 --> 00:02:32.400 the bots get them all right exactly but here 00:02:32.400 --> 00:02:35.039 nobody was buying anything you couldn't buy a 00:02:35.039 --> 00:02:36.900 house on the site you couldn't even really talk 00:02:36.900 --> 00:02:39.580 to an agent that's the key they weren't shopping 00:02:40.060 --> 00:02:42.379 They were snooping. This was the birth of what 00:02:42.379 --> 00:02:45.219 we now call real estate porn. It really, really 00:02:45.219 --> 00:02:47.379 was. You have to put yourself back in that pre 00:02:47.379 --> 00:02:50.900 -2006 mindset. Before that morning, real estate 00:02:50.900 --> 00:02:53.580 was a black box. It was a secret society. Fully 00:02:53.580 --> 00:02:56.080 opaque. If you wanted to know what your neighbor's 00:02:56.080 --> 00:02:58.280 house was worth or what your boss paid for his 00:02:58.280 --> 00:03:01.080 mansion or the value of your ex -girlfriend's 00:03:01.080 --> 00:03:03.500 parents' place, you just couldn't know. It was 00:03:03.500 --> 00:03:05.939 impossible. You had to be a real creep about 00:03:05.939 --> 00:03:07.479 it. You'd have to go down to the county clerk's 00:03:07.479 --> 00:03:10.060 office and, what, dig through physical microfiche 00:03:10.060 --> 00:03:12.900 or these dusty paper logs? Getting dust all over 00:03:12.900 --> 00:03:15.300 your hands, yeah. Or you had to call a real estate 00:03:15.300 --> 00:03:17.939 agent. And the moment you asked an agent, hey, 00:03:18.000 --> 00:03:21.020 what is that house worth? You weren't just a 00:03:21.020 --> 00:03:23.639 curious person anymore. You were a lead. You 00:03:23.639 --> 00:03:25.680 were a lead. You were in the sales funnel. There 00:03:25.680 --> 00:03:28.460 was no such thing as casual browsing. The agent 00:03:28.460 --> 00:03:31.150 held all the keys to the data kingdom. They were 00:03:31.150 --> 00:03:33.870 the gatekeepers. But Zillow in an instant just 00:03:33.870 --> 00:03:36.530 changed the rules of engagement. They put a price 00:03:36.530 --> 00:03:38.990 tag on every single rooftop in America, whether 00:03:38.990 --> 00:03:41.069 it was for sale or not. And that server crash 00:03:41.069 --> 00:03:43.990 was the signal. It was the market screaming at 00:03:43.990 --> 00:03:46.650 the top of its lungs. We have been starved for 00:03:46.650 --> 00:03:49.979 this information. It was definitive proof that 00:03:49.979 --> 00:03:52.419 there's this massive, unfulfilled hunger for 00:03:52.419 --> 00:03:55.080 transparency in what had historically been the 00:03:55.080 --> 00:03:57.939 most opaque major industry in the economy. So 00:03:57.939 --> 00:04:01.139 here we are. It's February 6th, 2026. We are 00:04:01.139 --> 00:04:03.659 almost exactly 20 years on from that server crash. 00:04:03.860 --> 00:04:05.599 And the company that started that revolution, 00:04:05.879 --> 00:04:10.000 it has had a wild, wild two decades. To put it 00:04:10.000 --> 00:04:12.039 mildly, I mean, it has been a true roller coaster. 00:04:12.509 --> 00:04:14.669 We're calling this deep dive the glass house 00:04:14.669 --> 00:04:17.189 because Zillow promised to build this beautiful 00:04:17.189 --> 00:04:19.269 glass house where we could all see inside the 00:04:19.269 --> 00:04:21.470 market. But as we're going to find out, living 00:04:21.470 --> 00:04:25.470 in a glass house is incredibly dangerous. Especially 00:04:25.470 --> 00:04:27.529 when you start throwing stones yourself. And 00:04:27.529 --> 00:04:30.389 they have thrown plenty. We're going to track 00:04:30.389 --> 00:04:32.930 how they went from that simple look up your neighbor's 00:04:32.930 --> 00:04:36.350 value website to this massive all encompassing 00:04:36.350 --> 00:04:39.189 housing super app. We're going to look at the 00:04:39.189 --> 00:04:41.649 billion dollar failure of their house flipping 00:04:41.649 --> 00:04:44.490 business. These scandalous culture accusations 00:04:44.490 --> 00:04:48.209 that rocked them in the mid 2010s and the absolute 00:04:48.209 --> 00:04:50.730 legal war zone they find themselves in right 00:04:50.730 --> 00:04:54.250 now in 2025. It's a story of. I think, hubris 00:04:54.250 --> 00:04:56.670 of technology and ultimately the realization 00:04:56.670 --> 00:04:58.550 that you can have all the data in the world, 00:04:58.629 --> 00:05:00.810 but you can't algorithm away the messiness of 00:05:00.810 --> 00:05:02.250 the real world. So let's start at the beginning. 00:05:02.389 --> 00:05:05.569 Segment one, the origin story. Because this wasn't 00:05:05.569 --> 00:05:07.490 some scrappy startup in a garage, right? This 00:05:07.490 --> 00:05:09.490 was a different kind of launch. No, and that's 00:05:09.490 --> 00:05:11.949 a really common misconception. Zillow wasn't 00:05:11.949 --> 00:05:14.209 two college dropouts eating ramen and coding 00:05:14.209 --> 00:05:16.730 in a basement. It was founded by Rich Barton 00:05:16.730 --> 00:05:19.439 and Lloyd Frank. And these were heavy hitters. 00:05:19.500 --> 00:05:22.180 Oh, yeah. These were top executives at Microsoft 00:05:22.180 --> 00:05:25.180 during its golden era, the 90s. They were part 00:05:25.180 --> 00:05:27.199 of the machine that built the modern digital 00:05:27.199 --> 00:05:30.319 world. But more importantly, before Zillow, they 00:05:30.319 --> 00:05:32.680 built something else that basically changed how 00:05:32.680 --> 00:05:35.720 we all live our lives. Expedia. Okay, so connect 00:05:35.720 --> 00:05:38.519 the dots for me. How do you go from booking flights 00:05:38.519 --> 00:05:41.339 to pricing houses? Is there a through line there? 00:05:41.480 --> 00:05:43.920 It's the exact same philosophy. It's the same 00:05:43.920 --> 00:05:47.139 core idea about information asymmetry. Okay. 00:05:47.629 --> 00:05:49.790 Think about what it was like to book a trip in, 00:05:49.870 --> 00:05:54.689 say, 1995. If you wanted to fly to London, what 00:05:54.689 --> 00:05:56.949 did you do? You called a travel agent. Right. 00:05:57.029 --> 00:05:59.069 You picked up the phone. And they had a computer 00:05:59.069 --> 00:06:01.990 terminal, usually the old Sabre system. And that 00:06:01.990 --> 00:06:04.209 screen faced them. You couldn't see it. They 00:06:04.209 --> 00:06:06.529 would type for a minute, frown a little bit, 00:06:06.610 --> 00:06:09.290 type some more, and then say. Okay, I can get 00:06:09.290 --> 00:06:11.589 you to London for $800. And you just had to say 00:06:11.589 --> 00:06:13.970 yes. You had no idea if there was a flight for 00:06:13.970 --> 00:06:16.350 $400 on a different airline. You didn't know 00:06:16.350 --> 00:06:18.629 if flying on a Tuesday instead of a Friday was 00:06:18.629 --> 00:06:20.490 half the price. You were completely helpless. 00:06:20.870 --> 00:06:23.350 You were helpless. The agent was the gatekeeper. 00:06:23.550 --> 00:06:26.930 They held the book of secrets. Rich Barton looked 00:06:26.930 --> 00:06:29.470 at that dynamic and said, This is fundamentally 00:06:29.470 --> 00:06:32.529 inefficient. The power should belong to the consumer, 00:06:32.649 --> 00:06:35.290 not the intermediary. So Expedia was just... 00:06:35.629 --> 00:06:37.689 turning the screen around. That's the perfect 00:06:37.689 --> 00:06:40.110 analogy for it. It was democratizing the data. 00:06:40.230 --> 00:06:42.949 It was giving you the same information the agent 00:06:42.949 --> 00:06:45.250 had so you could make your own decision. So after 00:06:45.250 --> 00:06:47.649 they spin Expedia out of Microsoft and eventually 00:06:47.649 --> 00:06:50.410 sell it for a huge profit, Barton is looking 00:06:50.410 --> 00:06:53.389 for his next project, his next gatekeeper to 00:06:53.389 --> 00:06:57.930 slay. Right. It's 2005. He's wealthy. He's successful. 00:06:58.189 --> 00:07:00.250 And he's trying to buy a new house for his family 00:07:00.250 --> 00:07:03.310 in Seattle. And he runs headfirst into that same 00:07:03.310 --> 00:07:05.750 book of secrets wall. The real estate version. 00:07:05.870 --> 00:07:07.910 The real estate version. He later told this story 00:07:07.910 --> 00:07:10.189 about how he just couldn't find basic information. 00:07:10.290 --> 00:07:12.990 He couldn't find past sale prices for a home 00:07:12.990 --> 00:07:15.089 he was interested in. He couldn't even find the 00:07:15.089 --> 00:07:16.990 correct addresses half the time online. It was 00:07:16.990 --> 00:07:19.269 all locked up. It was all locked up in the MLS, 00:07:19.410 --> 00:07:21.670 the multiple listing service, which only agents 00:07:21.670 --> 00:07:24.110 could access. He asked his agent for the raw 00:07:24.110 --> 00:07:27.129 data, and the agent basically patted him on the 00:07:27.129 --> 00:07:29.089 head and said, don't you worry about the numbers. 00:07:29.129 --> 00:07:31.500 Just trust me. I'll find you a great place. Which 00:07:31.500 --> 00:07:34.060 is pretty much the worst possible thing you can 00:07:34.060 --> 00:07:37.220 say to a data -obsessed tech guy who just disrupted 00:07:37.220 --> 00:07:39.300 the entire travel industry. It's like waving 00:07:39.300 --> 00:07:43.100 a red flag at a bull. He got frustrated. He started 00:07:43.100 --> 00:07:45.759 asking that fundamental question, what is this 00:07:45.759 --> 00:07:49.199 house actually worth? And he realized that unless 00:07:49.199 --> 00:07:51.439 the consumer could answer that question for themselves 00:07:51.439 --> 00:07:54.480 independently, they were always going to be at 00:07:54.480 --> 00:07:56.600 a disadvantage in the biggest financial transaction 00:07:56.600 --> 00:07:59.459 of their lives. So that's the Spark. They incorporate 00:07:59.459 --> 00:08:02.350 in December 2004. They set up shop in downtown 00:08:02.350 --> 00:08:05.230 Seattle with about 20 people. Barton and Frank 00:08:05.230 --> 00:08:07.689 self -funded initially because, well, they can. 00:08:07.850 --> 00:08:10.230 They had the capital from Expedia. And they spent 00:08:10.230 --> 00:08:13.509 a full year, more than a year, just scraping 00:08:13.509 --> 00:08:16.029 data, just building the foundation. They had 00:08:16.029 --> 00:08:19.259 to digitize the paper world. Completely. They 00:08:19.259 --> 00:08:21.660 were pulling tax assessments from thousands of 00:08:21.660 --> 00:08:23.860 different county websites, many of which were 00:08:23.860 --> 00:08:26.180 barely functional. They were licensing public 00:08:26.180 --> 00:08:28.920 records, satellite imagery. They were building 00:08:28.920 --> 00:08:31.399 a database of the entire country's housing stock 00:08:31.399 --> 00:08:33.720 before they even had a product to show for it. 00:08:33.759 --> 00:08:36.139 And then came the launch we talked about, but 00:08:36.139 --> 00:08:39.169 the killer app. The thing that really made the 00:08:39.169 --> 00:08:42.070 servers melt was the Zestimate. The Zestimate. 00:08:42.149 --> 00:08:44.990 Even the branding was genius, wasn't it? It sounds 00:08:44.990 --> 00:08:48.110 so scientific and official. It sounds authoritative. 00:08:48.169 --> 00:08:50.830 The Zestimate. It sounds like something NASA 00:08:50.830 --> 00:08:53.309 came up with to value moon rocks. Yeah, it was 00:08:53.309 --> 00:08:55.389 such a radical concept. I really can't overstate 00:08:55.389 --> 00:08:58.549 this. Before Zillow, if you wanted a home valuation, 00:08:58.889 --> 00:09:01.129 you had two options. You could pay an appraiser 00:09:01.129 --> 00:09:04.230 $400 or $500. Or you could call a realtor who 00:09:04.230 --> 00:09:06.370 would run comps for you. But again, then you're 00:09:06.370 --> 00:09:08.149 a lead. You're a lead. There's an obligation 00:09:08.149 --> 00:09:12.029 attached. Zillow came along and said, nah, we'll 00:09:12.029 --> 00:09:14.309 just run a complex math equation and we will 00:09:14.309 --> 00:09:16.610 slap a price tag on every single home in America 00:09:16.610 --> 00:09:19.549 for free. And again, the absolute genius of it 00:09:19.549 --> 00:09:21.710 was pricing the homes that weren't for sale. 00:09:21.809 --> 00:09:24.029 That was the viral loop. That was the secret 00:09:24.029 --> 00:09:26.710 sauce. Yeah. If they had only listed homes that 00:09:26.710 --> 00:09:28.950 were for sale, they would have just been a digital 00:09:28.950 --> 00:09:31.350 version of the newspaper classified section. 00:09:32.039 --> 00:09:34.539 Which is, you know, boring. Utilitarian, but 00:09:34.539 --> 00:09:38.059 boring. But by putting a value on your home and 00:09:38.059 --> 00:09:40.399 your parents' home and your high school rival's 00:09:40.399 --> 00:09:43.220 home, they made everyone an active participant 00:09:43.220 --> 00:09:45.360 in the real estate market, whether they intended 00:09:45.360 --> 00:09:48.639 to be or not. It tapped into vanity. Yeah. It 00:09:48.639 --> 00:09:51.940 tapped into jealousy. It tapped into pure, unadulterated 00:09:51.940 --> 00:09:55.899 curiosity. And man, did it work. By July 2006, 00:09:56.240 --> 00:09:58.360 just a few months after that chaotic launch, 00:09:58.539 --> 00:10:01.639 they secured $25 million in venture capital. 00:10:01.820 --> 00:10:04.019 They were just growing like a weed. And get this, 00:10:04.179 --> 00:10:06.820 they were profitable by 2010. That's astounding. 00:10:06.820 --> 00:10:09.120 In the modern tech era, that's... practically 00:10:09.120 --> 00:10:11.320 unheard of. I mean, you're expected to burn cash 00:10:11.320 --> 00:10:13.240 for a decade before you even think about making 00:10:13.240 --> 00:10:15.519 a dime. It just shows how incredibly efficient 00:10:15.519 --> 00:10:18.620 and powerful their advertising model was. Real 00:10:18.620 --> 00:10:20.440 estate agents were desperate to be on the platform 00:10:20.440 --> 00:10:22.139 because that's where all the eyeballs were. They 00:10:22.139 --> 00:10:24.700 had no choice. So they go public in July 2011, 00:10:24.980 --> 00:10:28.179 trading under the ticker symbol Z. Just Z. Talk 00:10:28.179 --> 00:10:30.750 about a flex. One letter. That's some old school 00:10:30.750 --> 00:10:34.549 18 key level confidence. But the engine of all 00:10:34.549 --> 00:10:36.549 this success, the thing that kept people coming 00:10:36.549 --> 00:10:39.090 back day after day, year after year, was the 00:10:39.090 --> 00:10:42.129 Zestimate. And that brings us to the second part 00:10:42.129 --> 00:10:46.309 of our story because this algorithm, it's a very 00:10:46.309 --> 00:10:49.570 powerful but very dangerous double -edged sword. 00:10:49.710 --> 00:10:52.529 Very sharp one. Let's dive into that engine of 00:10:52.529 --> 00:10:55.070 engagement. How does the sausage actually get 00:10:55.070 --> 00:10:57.730 made? Because for a lot of people, the Zestimate 00:10:57.730 --> 00:11:00.669 feels like magic or, you know, black magic, depending 00:11:00.669 --> 00:11:02.570 on whether the number is lower than you want 00:11:02.570 --> 00:11:04.590 it to be. Right. It's either gospel or it's garbage, 00:11:04.730 --> 00:11:06.610 depending on what it says about your house. It's 00:11:06.610 --> 00:11:09.110 an automated valuation model or AVM for short. 00:11:09.169 --> 00:11:11.129 AVM. OK. Essentially, it's a giant regression 00:11:11.129 --> 00:11:14.110 analysis. It takes all the hard public facts 00:11:14.110 --> 00:11:16.929 it can find, square footage, lot size, the number 00:11:16.929 --> 00:11:19.149 of bedrooms and bathrooms, the most recent tax 00:11:19.149 --> 00:11:22.240 assessment. mashes that up with user -submitted 00:11:22.240 --> 00:11:25.080 data. So if I go on and claim my home and I say 00:11:25.080 --> 00:11:27.980 I put in a new roof or finish the basement, the 00:11:27.980 --> 00:11:30.460 algorithm digests that. It digests that, yes. 00:11:30.840 --> 00:11:33.159 And then it layers on the most important ingredient, 00:11:33.500 --> 00:11:36.720 comparable sales or comps. What the neighbor 00:11:36.720 --> 00:11:39.399 sold for. Exactly. If the house next door, which 00:11:39.399 --> 00:11:41.240 is very similar to yours, just sold for $500 00:11:41.240 --> 00:11:43.639 ,000, then yours is probably worth something 00:11:43.639 --> 00:11:46.639 close to that. It's constantly adjusting based 00:11:46.639 --> 00:11:49.460 on real -time market activity. But here is the 00:11:49.460 --> 00:11:52.000 rub. And it's a big one. The fine print. The 00:11:52.000 --> 00:11:55.399 fine print. Zillow has always, from day one, 00:11:55.559 --> 00:11:58.879 legally covered themselves. They say very clearly, 00:11:58.899 --> 00:12:00.799 if you bother to look, this is a starting point 00:12:00.799 --> 00:12:03.080 for a conversation. This is not an appraisal. 00:12:03.159 --> 00:12:05.620 But human psychology doesn't read fine print. 00:12:05.779 --> 00:12:08.740 We see a number, a specific number down to the 00:12:08.740 --> 00:12:11.159 dollar, and we treat it like gospel. We anchor 00:12:11.159 --> 00:12:13.679 to it. We anchor to it immediately. And that 00:12:13.679 --> 00:12:15.700 creates what I call the Goldilocks problem. Break 00:12:15.700 --> 00:12:17.879 that down for me. The Goldilocks problem. Okay. 00:12:18.299 --> 00:12:20.279 Imagine you're selling your house. You've lived 00:12:20.279 --> 00:12:22.440 there for 10 years. You love it. You put in new 00:12:22.440 --> 00:12:24.379 floors. You paint it. You think it's worth $600 00:12:24.379 --> 00:12:27.820 ,000. But you pull up Zillow and the Zestimate 00:12:27.820 --> 00:12:32.200 says $550 ,000. Oh, I'm furious. I'm absolutely 00:12:32.200 --> 00:12:34.700 livid. I think Zillow is actively sabotaging 00:12:34.700 --> 00:12:37.639 my sale because every potential buyer is going 00:12:37.639 --> 00:12:39.779 to look at that Zestimate and think I'm overpriced. 00:12:39.799 --> 00:12:42.740 Exactly. You hate Zillow. It's a terrible, inaccurate 00:12:42.740 --> 00:12:46.289 tool. But now flip it. Imagine you're the buyer 00:12:46.289 --> 00:12:49.269 for that same house. It's listed for $600 ,000, 00:12:49.450 --> 00:12:52.769 but the Zestimate says it's only worth $550 ,000. 00:12:53.049 --> 00:12:54.809 You know, I love Zillow. It's my negotiating 00:12:54.809 --> 00:12:57.250 partner. It's giving me leverage to make a lowball 00:12:57.250 --> 00:12:59.830 offer. Right. So in every single transaction, 00:13:00.250 --> 00:13:03.149 Zillow is almost guaranteed to be the villain. 00:13:03.629 --> 00:13:05.929 to at least one party. This estimate is either 00:13:05.929 --> 00:13:08.970 too hot or too cold. It's almost never just right 00:13:08.970 --> 00:13:11.389 for everyone involved. And sometimes the machine 00:13:11.389 --> 00:13:13.870 just breaks. It goes haywire. We have to talk 00:13:13.870 --> 00:13:16.950 about June 14th, 2011, the day of the algorithm 00:13:16.950 --> 00:13:19.789 shift. Oh, June 14th, 2011, a date that will 00:13:19.789 --> 00:13:22.710 live in infamy for longtime Zillow users. It 00:13:22.710 --> 00:13:24.669 was a crisis of faith. What happened? What did 00:13:24.669 --> 00:13:26.830 they do? They tweaked the algorithm. They updated 00:13:26.830 --> 00:13:29.149 the formula. They added new data sources. They 00:13:29.149 --> 00:13:31.230 changed the weighting of certain factors, all 00:13:31.230 --> 00:13:33.639 in an effort to be more accurate. A noble goal. 00:13:33.740 --> 00:13:36.360 Sounds reasonable. But the result was that millions 00:13:36.360 --> 00:13:39.399 of home values changed, sometimes dramatically, 00:13:39.620 --> 00:13:42.179 overnight. And it wasn't just the value for today. 00:13:42.460 --> 00:13:45.340 They retroactively changed the historical data 00:13:45.340 --> 00:13:47.860 graph. That was the part that felt like gaslighting. 00:13:47.879 --> 00:13:50.059 That was the crazy -making part. You might have 00:13:50.059 --> 00:13:53.000 checked your home's value history on June 13th, 00:13:53.000 --> 00:13:55.500 and the little graph said your house was worth, 00:13:55.519 --> 00:13:59.440 say, $300 ,000 back in 2008. Okay. You log in 00:13:59.440 --> 00:14:02.500 on June 15th after the shift and suddenly that 00:14:02.500 --> 00:14:04.940 same graph says your house was only worth $280 00:14:04.940 --> 00:14:08.539 ,000 in 2008. They re -row history. They re -row 00:14:08.539 --> 00:14:11.000 history. People were howling. It felt like their 00:14:11.000 --> 00:14:12.899 personal wealth, their financial history was 00:14:12.899 --> 00:14:15.779 being deleted or altered by some computer glitch 00:14:15.779 --> 00:14:18.860 in Seattle. It really, really highlighted how 00:14:18.860 --> 00:14:22.340 fragile and arbitrary this truth was. We attach 00:14:22.340 --> 00:14:25.620 so much of our net worth and our identity. But 00:14:25.620 --> 00:14:27.799 the number is just a best guess by a machine 00:14:27.799 --> 00:14:29.279 that has never actually been inside your house. 00:14:29.440 --> 00:14:31.399 So that's the big question. How accurate is it, 00:14:31.419 --> 00:14:33.240 really? Because like we said, sometimes it feels 00:14:33.240 --> 00:14:34.860 spot on and other times it seems like it's in 00:14:34.860 --> 00:14:36.899 a different galaxy. The Wall Street Journal did 00:14:36.899 --> 00:14:39.820 a great analysis way back in 2007, not long after 00:14:39.820 --> 00:14:42.480 the launch. And their conclusion still largely 00:14:42.480 --> 00:14:44.940 holds up today. They said that when the Zestimate 00:14:44.940 --> 00:14:47.740 is good, it's frequently within a few percentage 00:14:47.740 --> 00:14:50.440 points of the actual sale price. Which is pretty 00:14:50.440 --> 00:14:52.759 impressive for a machine. Very impressive on 00:14:52.759 --> 00:14:56.059 a macro scale. Yeah. But, the report continued, 00:14:56.399 --> 00:15:00.480 when it's bad, it is terrible. Terrible! I love 00:15:00.480 --> 00:15:03.159 that very technical journalistic term. It's the 00:15:03.159 --> 00:15:05.059 perfect word for it. And it's because of the 00:15:05.059 --> 00:15:07.919 blind spot issue. The algorithm loves data. It 00:15:07.919 --> 00:15:10.039 can count. It loves square footage. It loves 00:15:10.039 --> 00:15:12.879 the number of bathrooms. It's great with quantifiable 00:15:12.879 --> 00:15:16.299 data. But it has no nose. It has no nose. It 00:15:16.299 --> 00:15:18.539 can't smell the cat pee that is soaked into the 00:15:18.539 --> 00:15:21.700 subfloor. It has no ears. It can't hear the constant 00:15:21.700 --> 00:15:23.919 highway noise. It's much louder in the backyard 00:15:23.919 --> 00:15:26.100 than from the street. It can't see that the kitchen 00:15:26.100 --> 00:15:28.399 renovation the owner claimed was done with cheap 00:15:28.399 --> 00:15:30.600 particle board cabinets from a big box store 00:15:30.600 --> 00:15:33.179 instead of high -end custom marble. Precisely. 00:15:33.629 --> 00:15:35.830 I can't judge quality, condition, or nuance. 00:15:36.529 --> 00:15:39.950 In 2016, Zillow themselves claimed their median 00:15:39.950 --> 00:15:43.970 error rate was about $14 ,000. Now, across the 00:15:43.970 --> 00:15:46.870 entire U .S. economy, that's an incredibly impressive 00:15:46.870 --> 00:15:49.370 level of accuracy. But for an individual family. 00:15:49.690 --> 00:15:51.129 For an individual family trying to sell their 00:15:51.129 --> 00:15:55.549 home, being off by $14 ,000 is... It's a new 00:15:55.549 --> 00:15:58.049 car. It's a year of college tuition. It's real, 00:15:58.190 --> 00:16:00.590 tangible money. There was actually a legal challenge 00:16:00.590 --> 00:16:02.750 about this pretty early on, wasn't there? Yes. 00:16:02.750 --> 00:16:04.649 The National Community Reinvestment Coalition 00:16:04.649 --> 00:16:06.850 filed a complaint with the Federal Trade Commission, 00:16:07.049 --> 00:16:10.090 the FTC, back in 2006, right after the launch. 00:16:10.450 --> 00:16:13.389 They called the tool misleading and argued it 00:16:13.389 --> 00:16:15.210 could be particularly damaging to low -income 00:16:15.210 --> 00:16:17.629 and minority neighborhoods where the public data 00:16:17.629 --> 00:16:19.870 was often sparse or inaccurate. What happened 00:16:19.870 --> 00:16:22.970 with that? The FTC declined to investigate. But 00:16:22.970 --> 00:16:25.100 the criticism has always lingered. Zillow presents 00:16:25.100 --> 00:16:27.200 these numbers with an air of scientific certainty 00:16:27.200 --> 00:16:29.679 when they are really just sophisticated and sometimes 00:16:29.679 --> 00:16:32.779 very flawed guesses. But despite the flawed guesses, 00:16:33.059 --> 00:16:35.919 they absolutely won the traffic war. They became 00:16:35.919 --> 00:16:38.399 the destination. And once they had the audience 00:16:38.399 --> 00:16:40.620 locked down, they started the next phase of the 00:16:40.620 --> 00:16:44.700 plan. Segment three. Consolidation and monopoly 00:16:44.700 --> 00:16:47.440 building. This is the if you can't beat them, 00:16:47.480 --> 00:16:50.840 buy them phase of the company's life. Maybe more 00:16:50.840 --> 00:16:53.220 accurately, if you are already beating them, 00:16:53.299 --> 00:16:55.620 buy them anyway, just so they can never, ever 00:16:55.620 --> 00:16:58.639 come back. A Pac -Man strategy. Just gobble up 00:16:58.639 --> 00:17:00.740 everything in sight. It started relatively small. 00:17:00.879 --> 00:17:02.799 They bought a company called Postlets in 2011, 00:17:03.000 --> 00:17:05.819 which was their first real acquisition. But then 00:17:05.819 --> 00:17:07.960 they realized they had a massive hole in their 00:17:07.960 --> 00:17:10.819 armor, a geographic blind spot. New York City. 00:17:11.150 --> 00:17:12.869 New York City. It's always different, isn't it? 00:17:12.910 --> 00:17:15.509 Always. It's a rental -heavy, broker -dominated, 00:17:15.589 --> 00:17:18.609 incredibly complex jungle. And Zillow's national 00:17:18.609 --> 00:17:20.630 model just couldn't crack it. The data was different. 00:17:20.710 --> 00:17:23.049 The rules were different. So in 2013, they did 00:17:23.049 --> 00:17:25.230 a smart thing. They bought StreetEasy for $50 00:17:25.230 --> 00:17:28.049 million. And StreetEasy was the undisputed king 00:17:28.049 --> 00:17:30.710 of New York real estate websites. It was a bible. 00:17:31.109 --> 00:17:33.049 If you were looking for an apartment in New York, 00:17:33.089 --> 00:17:36.109 you were on StreetEasy. By buying them, Zillow 00:17:36.109 --> 00:17:38.230 intently locked down the single most important 00:17:38.230 --> 00:17:40.269 and valuable real estate market in the world. 00:17:40.349 --> 00:17:42.789 But the big one, the one that caused a seismic 00:17:42.789 --> 00:17:45.809 shift in the industry, was Trulia. 2015. This 00:17:45.809 --> 00:17:49.170 was the monster deal. Trulia was their main rival, 00:17:49.289 --> 00:17:52.710 their only real rival at scale. It was Coke versus 00:17:52.710 --> 00:17:55.549 Pepsi. It was Ford versus Chevy. And Zillow just... 00:17:55.880 --> 00:18:00.000 bought Pepsi. They paid $2 .5 billion in an all 00:18:00.000 --> 00:18:02.900 -stock deal. That is a staggering amount of money. 00:18:03.039 --> 00:18:05.799 It was huge. And at the time that deal closed, 00:18:06.000 --> 00:18:08.400 the combined Zillow and Trulia entity controlled 00:18:08.400 --> 00:18:11.980 about 70 % of all online real estate search traffic 00:18:11.980 --> 00:18:15.000 in the United States. 70%. That is, for all intents 00:18:15.000 --> 00:18:17.140 and purposes, a monopoly on consumer attention. 00:18:17.559 --> 00:18:19.220 It meant that if you were a real estate agent, 00:18:19.359 --> 00:18:21.910 you had to pay Zillow. You couldn't afford to 00:18:21.910 --> 00:18:24.549 ignore 70 % of the potential buyers in your market. 00:18:24.710 --> 00:18:27.230 It gave them immense pricing power over the very 00:18:27.230 --> 00:18:29.170 agents they claimed to serve. And they didn't 00:18:29.170 --> 00:18:31.289 stop with search portals? No, the shopping spree 00:18:31.289 --> 00:18:33.930 continued. They bought Dotloop, a company that 00:18:33.930 --> 00:18:36.269 handles digital signatures and paperwork, to 00:18:36.269 --> 00:18:38.690 get into the transaction itself. They bought 00:18:38.690 --> 00:18:41.059 Showing Time. which is the software that most 00:18:41.059 --> 00:18:43.380 agents use to schedule home tours. So now they 00:18:43.380 --> 00:18:45.160 control how you find the house and how you book 00:18:45.160 --> 00:18:46.599 an appointment to see it. And then they bought 00:18:46.599 --> 00:18:48.920 companies like VRX Media for the photography 00:18:48.920 --> 00:18:51.819 and virtual tours. They were building a walled 00:18:51.819 --> 00:18:55.099 garden, an end -to -end ecosystem. They want 00:18:55.099 --> 00:18:57.200 the search, the tour, the documents, the mortgage, 00:18:57.319 --> 00:18:59.680 everything to happen inside the Zillow universe. 00:19:00.220 --> 00:19:04.000 By 2023, they had a database of over 160 million 00:19:04.000 --> 00:19:07.099 properties. They had effectively built a digital 00:19:07.099 --> 00:19:10.220 twin of the entire U .S. housing market. They 00:19:10.220 --> 00:19:12.519 looked completely unstoppable. They were on top 00:19:12.519 --> 00:19:15.059 of the world. Which brings us to the most dramatic, 00:19:15.200 --> 00:19:17.740 the most telling part of this entire 20 -year 00:19:17.740 --> 00:19:20.160 story, the moment where they got too arrogant. 00:19:20.839 --> 00:19:24.240 Segment four. The great stumble, the rise and 00:19:24.240 --> 00:19:26.880 fall of Zillow offers. This is a business school 00:19:26.880 --> 00:19:29.279 case study that will be taught for decades. It 00:19:29.279 --> 00:19:31.960 is the perfect example of big tech hubris crashing 00:19:31.960 --> 00:19:34.019 into the hard reality of the physical world. 00:19:34.160 --> 00:19:38.519 So set the stage for us. It's 2018. Zillow is 00:19:38.519 --> 00:19:40.299 printing money from its advertising business. 00:19:40.579 --> 00:19:43.339 They're dominant. Why on earth would you change 00:19:43.339 --> 00:19:46.400 a winning formula? Because Wall Street is never 00:19:46.400 --> 00:19:50.190 satisfied. Wall Street loves growth, and there 00:19:50.190 --> 00:19:52.529 is a natural ceiling to how many ads you can 00:19:52.529 --> 00:19:55.589 sell to real estate agents. The real money in 00:19:55.589 --> 00:19:58.690 real estate, the truly massive prize, isn't in 00:19:58.690 --> 00:20:01.450 the advertising. It's in the transaction itself. 00:20:01.769 --> 00:20:04.869 The commission. The asset. The asset. The total 00:20:04.869 --> 00:20:07.490 value of homes sold in the U .S. is in the trillions. 00:20:07.750 --> 00:20:10.390 The ad market is in the billions. They wanted 00:20:10.390 --> 00:20:12.269 to move from selling ads to owning the house. 00:20:12.410 --> 00:20:14.950 So they decided to become the buyer. They pivoted 00:20:14.950 --> 00:20:18.279 to what the industry calls iBuying. Instant buying. 00:20:18.680 --> 00:20:21.039 And the pitch to the consumer was incredibly 00:20:21.039 --> 00:20:23.539 seductive. Selling your house is a nightmare. 00:20:23.759 --> 00:20:26.079 You have to clean it, stage it, leave for open 00:20:26.079 --> 00:20:28.660 houses on the weekend, negotiate with picky buyers 00:20:28.660 --> 00:20:31.180 over repairs. What if Zillow just wrote you a 00:20:31.180 --> 00:20:33.079 check? We'll buy it from you directly. You walk 00:20:33.079 --> 00:20:34.980 away with cash in hand and we'll handle the hassle 00:20:34.980 --> 00:20:37.529 of fixing it up and reselling it. And Rich Barton, 00:20:37.630 --> 00:20:39.690 the founder who had stepped back from the CEO 00:20:39.690 --> 00:20:42.970 role, actually returned to CEO in February 2019 00:20:42.970 --> 00:20:46.529 specifically to lead this charge. He called it 00:20:46.529 --> 00:20:49.970 Zillow 2 .0. He called it their moonshot. In 00:20:49.970 --> 00:20:52.529 the underlying logic, the core belief was we 00:20:52.529 --> 00:20:55.190 have the data. We have the Zestimate. We know 00:20:55.190 --> 00:20:57.029 the price of every home in America better than 00:20:57.029 --> 00:20:59.630 anyone else. Therefore, we can flip houses with 00:20:59.630 --> 00:21:02.700 virtually zero risk. That was the theory. They 00:21:02.700 --> 00:21:04.579 believed their algorithm gave them a crystal 00:21:04.579 --> 00:21:06.680 ball. They thought they could predict home price 00:21:06.680 --> 00:21:09.519 appreciation with surgical accuracy. They expanded 00:21:09.519 --> 00:21:12.000 aggressively into hot markets like Phoenix, Los 00:21:12.000 --> 00:21:15.220 Angeles, Austin, Miami. They were buying thousands 00:21:15.220 --> 00:21:17.900 and thousands of homes every single month. They 00:21:17.900 --> 00:21:19.940 wanted to be the market maker for American housing. 00:21:20.119 --> 00:21:22.519 But then came 2021 and the crystal ball just 00:21:22.519 --> 00:21:25.059 shattered into a million pieces. It was a spectacular 00:21:25.059 --> 00:21:28.640 public humiliating disaster. In November 2021, 00:21:29.000 --> 00:21:31.200 the news broke. Zillow was shutting down the 00:21:31.200 --> 00:21:33.740 entire Zillow offers division, effective immediately. 00:21:34.119 --> 00:21:36.420 Why? What went so catastrophically wrong? The 00:21:36.420 --> 00:21:39.500 algorithm failed. It turns out that predicting 00:21:39.500 --> 00:21:41.539 the housing market three to six months into the 00:21:41.539 --> 00:21:45.140 future is incredibly difficult. Maybe even impossible. 00:21:45.619 --> 00:21:48.140 Their model was broken. They were consistently 00:21:48.140 --> 00:21:50.880 overpaying for houses just to win the deal against 00:21:50.880 --> 00:21:53.480 competitors like Opendoor. And then underestimating 00:21:53.480 --> 00:21:55.680 the cost of repairs. And underestimating the 00:21:55.680 --> 00:21:58.200 repairs. They couldn't know from a desk in Seattle 00:21:58.200 --> 00:22:01.359 that a house in Phoenix needed a new $15 ,000 00:22:01.359 --> 00:22:03.400 air conditioning unit or that the foundation 00:22:03.400 --> 00:22:06.099 had a crack. And the market itself shifted on 00:22:06.099 --> 00:22:08.980 them. Right. The crazy red -hot market of early 00:22:08.980 --> 00:22:12.579 2021 started to cool just slightly. They had 00:22:12.579 --> 00:22:15.160 bought high. At the peak, and by the time they 00:22:15.160 --> 00:22:16.940 fixed the houses up and put them back on the 00:22:16.940 --> 00:22:19.119 market, buyer demand had softened. They were 00:22:19.119 --> 00:22:21.000 left holding the bag. What were the numbers? 00:22:21.119 --> 00:22:23.059 How bad was the damage? In the third quarter 00:22:23.059 --> 00:22:25.980 of 2021 alone, the Zillow Offers Division lost 00:22:25.980 --> 00:22:31.180 $420 million. $420 million in just three months. 00:22:31.579 --> 00:22:35.240 It's an almost incomprehensible number. That's 00:22:35.240 --> 00:22:37.980 roughly $4 .6 million a day that they were losing. 00:22:38.119 --> 00:22:40.740 They had about 7 ,000 houses on their books that 00:22:40.740 --> 00:22:43.309 were underwater. They were literally selling 00:22:43.309 --> 00:22:46.769 beautiful homes for less than they had paid for 00:22:46.769 --> 00:22:49.410 them just to stop the bleeding and get the cash 00:22:49.410 --> 00:22:51.829 back. And Barton had to get on the earnings call 00:22:51.829 --> 00:22:54.450 and announce that he was laying off 25 percent 00:22:54.450 --> 00:22:57.630 of the company's entire workforce. It was a bloodbath. 00:22:57.730 --> 00:23:00.089 It was a complete and utter humiliation. It shattered 00:23:00.089 --> 00:23:02.750 the myth of the data god. It was this humbling 00:23:02.750 --> 00:23:04.769 moment for big tech that proved that real estate 00:23:04.769 --> 00:23:08.150 is still fundamentally an analog, messy human 00:23:08.150 --> 00:23:10.990 business. You need local knowledge. You need 00:23:10.990 --> 00:23:12.970 to know if the foundation is cracked. A computer 00:23:12.970 --> 00:23:15.369 in Seattle can't know that. So Zillow offers 00:23:15.369 --> 00:23:18.630 dies in a blaze of glory. But Zillow, the company, 00:23:18.750 --> 00:23:21.009 survives. They lick their wounds and they pivot 00:23:21.009 --> 00:23:24.309 again. Segment five, the housing super app. If 00:23:24.309 --> 00:23:26.130 you can't be the house flipper, then you want 00:23:26.130 --> 00:23:27.849 to be the operating system for everyone else 00:23:27.849 --> 00:23:29.869 involved in the transaction. This is the new 00:23:29.869 --> 00:23:32.329 strategy announced in 2022. They call it the 00:23:32.329 --> 00:23:35.210 super app. It's a very trendy term in tech. It 00:23:35.210 --> 00:23:37.450 sounds fancy, but it basically means they want 00:23:37.450 --> 00:23:40.369 to find a way to take. A small tax from every 00:23:40.369 --> 00:23:42.789 single part of the real estate process. They 00:23:42.789 --> 00:23:44.849 identify what they call their five pillars of 00:23:44.849 --> 00:23:47.869 growth. Which are? Touring, financing, seller 00:23:47.869 --> 00:23:50.289 solutions, their partner network, and integrated 00:23:50.289 --> 00:23:52.829 services. In English, that means they want to 00:23:52.829 --> 00:23:54.450 be your mortgage broker. They want to be your 00:23:54.450 --> 00:23:56.589 closing agent. They want to sell you title insurance. 00:23:57.450 --> 00:24:00.809 Exactly. They are trying to deepen the revenue 00:24:00.809 --> 00:24:03.029 they get from each customer. Instead of just 00:24:03.029 --> 00:24:05.410 getting, say, $20 for sending an agent a lead, 00:24:05.630 --> 00:24:10.309 they want to get... $2 ,000 or $3 ,000 for originating 00:24:10.309 --> 00:24:12.470 the mortgage for that same customer. And how 00:24:12.470 --> 00:24:14.890 is that big pivot working out for them? Well, 00:24:14.930 --> 00:24:16.789 if we look at the most recent numbers from 2024, 00:24:17.170 --> 00:24:19.849 it's a grind. There's no other way to put it. 00:24:19.930 --> 00:24:22.730 They brought in $2 .24 billion in revenue, so 00:24:22.730 --> 00:24:24.869 it's still a massive company. But they posted 00:24:24.869 --> 00:24:28.490 a net loss for the year of $112 million. So 20 00:24:28.490 --> 00:24:30.829 years in, after all this market dominance, after 00:24:30.829 --> 00:24:32.950 becoming a household name, they are still losing 00:24:32.950 --> 00:24:35.640 money. They are investing very heavily to try 00:24:35.640 --> 00:24:38.740 and build out this super app ecosystem. But it 00:24:38.740 --> 00:24:41.940 shows you that without the high revenue but terribly 00:24:41.940 --> 00:24:45.019 low margin house flipping business, they are 00:24:45.019 --> 00:24:47.299 still struggling to find the perfect consistent 00:24:47.299 --> 00:24:50.299 profit machine. Now, while all this business 00:24:50.299 --> 00:24:52.019 drama was happening on the balance sheets, there 00:24:52.019 --> 00:24:54.599 was some pretty serious drama happening inside 00:24:54.599 --> 00:24:57.660 the building to segment six. culture, controversy 00:24:57.660 --> 00:25:01.559 and frat houses because the glass house had some 00:25:01.559 --> 00:25:04.460 serious cracks on the inside. Yeah. Every big 00:25:04.460 --> 00:25:07.240 tech company has its culture issues. But Zillow 00:25:07.240 --> 00:25:10.440 faced some particularly specific and ugly allegations 00:25:10.440 --> 00:25:14.220 around the 2014 to 2016 timeframe. And this seemed 00:25:14.220 --> 00:25:16.339 to center on their high pressure sales office 00:25:16.339 --> 00:25:18.940 in Irvine, California. Right. Sales floors in 00:25:18.940 --> 00:25:21.200 any industry can be notoriously high pressure. 00:25:21.339 --> 00:25:23.359 You know, that Wolf of Wall Street kind of vibe. 00:25:23.460 --> 00:25:25.140 Yeah. There were a couple of lawsuits alleging 00:25:25.140 --> 00:25:27.390 pretty standard labor disputes, unpaid overtime, 00:25:27.829 --> 00:25:30.089 missed meal breaks. But then came the sexual 00:25:30.089 --> 00:25:32.069 harassment suit. This was the one that really 00:25:32.069 --> 00:25:35.970 made headlines. Yes. A former employee who was 00:25:35.970 --> 00:25:38.210 represented by the very high profile lawyer, 00:25:38.349 --> 00:25:41.470 Mark Garagos, filed a suit alleging that she 00:25:41.470 --> 00:25:44.630 was subjected to sexual torture. Sexual torture. 00:25:44.769 --> 00:25:47.390 I mean, that is a horrific phrase to see in any 00:25:47.390 --> 00:25:49.829 legal filing, let alone one against a major public 00:25:49.829 --> 00:25:52.190 company. The complaint was incredibly graphic. 00:25:52.490 --> 00:25:56.009 It described the Irvine office as an adult frat 00:25:56.009 --> 00:25:59.309 house. It alleged that managers not only condoned 00:25:59.309 --> 00:26:02.289 but actively participated in rampant sexual harassment. 00:26:02.450 --> 00:26:05.630 It painted this picture of a toxic, misogynistic, 00:26:05.650 --> 00:26:07.930 male -dominated environment that was completely 00:26:07.930 --> 00:26:11.009 at odds with the friendly, helpful, family -oriented 00:26:11.009 --> 00:26:13.809 brand that Zillow projects to the public. And 00:26:13.809 --> 00:26:15.930 Zillow's response? They fought it, of course. 00:26:16.029 --> 00:26:17.569 They put out statements saying these allegations 00:26:17.569 --> 00:26:19.529 did not reflect their company culture or the 00:26:19.529 --> 00:26:21.470 experience of the vast majority of their 1 ,200 00:26:21.470 --> 00:26:24.319 employees. But... and this is almost always the 00:26:24.319 --> 00:26:26.839 tell, they eventually settled the suit in 2016 00:26:26.839 --> 00:26:29.420 for an undisclosed amount. They paid to make 00:26:29.420 --> 00:26:31.680 it go away. It's a really dark chapter in their 00:26:31.680 --> 00:26:33.319 history, but there was another culture clash 00:26:33.319 --> 00:26:35.680 around that time that was less dark and maybe 00:26:35.680 --> 00:26:38.660 more petty, but just as revealing. Do you remember 00:26:38.660 --> 00:26:41.380 the saga of McMansion Hell? A slight chuckle 00:26:41.380 --> 00:26:43.740 in the voice. Oh! Oh, Kate Wagner. Yes, this 00:26:43.740 --> 00:26:46.400 was in 2017. Can you explain what McMansion Hell 00:26:46.400 --> 00:26:48.579 is for anyone who hasn't had the pleasure? It's 00:26:48.579 --> 00:26:50.920 a blog. It's a brilliant blog. Kate Wagner, the 00:26:50.920 --> 00:26:53.599 author, takes photos of these hideous, oversized, 00:26:53.900 --> 00:26:56.480 poorly designed luxury homes, which she usually 00:26:56.480 --> 00:26:58.920 finds on Zillow. And she writes these incredibly 00:26:58.920 --> 00:27:02.259 funny, biting architectural critiques of them. 00:27:02.339 --> 00:27:05.339 She points out the mismatched windows, the useless 00:27:05.339 --> 00:27:09.039 columns, the soaring lawyer foyer. It's architectural 00:27:09.039 --> 00:27:11.960 satire at its finest. It is hilarious, but the 00:27:11.960 --> 00:27:14.420 legal team at Zillow did not find it funny. Not 00:27:14.420 --> 00:27:16.559 one bit. They sent her a cease and desist letter. 00:27:17.069 --> 00:27:19.569 They threatened to sue her into oblivion for 00:27:19.569 --> 00:27:21.769 copyright infringement for using their photos. 00:27:21.910 --> 00:27:23.430 Which is just insane because she's basically 00:27:23.430 --> 00:27:25.750 giving them free publicity. Even if it is mocking, 00:27:25.970 --> 00:27:27.910 people are going to Zillow because of her blog. 00:27:28.190 --> 00:27:31.049 It was a massive, self -inflicted PR disaster. 00:27:31.630 --> 00:27:34.430 The Electronic Frontier Foundation, the EFF, 00:27:34.650 --> 00:27:37.269 stepped in immediately to represent her pro bono. 00:27:37.309 --> 00:27:39.670 They argued it was a textbook case of fair use. 00:27:39.950 --> 00:27:42.289 You are allowed to use copyrighted images for 00:27:42.289 --> 00:27:45.009 the purpose of parody, commentary, and criticism. 00:27:45.609 --> 00:27:48.009 Zillow looked like a massive corporate bully 00:27:48.009 --> 00:27:50.490 trying to crush a small -time blogger. They did. 00:27:50.630 --> 00:27:52.950 And they backed down very quickly once the EFF 00:27:52.950 --> 00:27:54.710 got involved. Yeah. They dropped the threat. 00:27:54.849 --> 00:27:57.529 But the incident revealed how incredibly possessive 00:27:57.529 --> 00:27:59.950 and sensitive they were about their platform. 00:28:00.309 --> 00:28:03.150 They viewed the listing data and photos as theirs. 00:28:03.230 --> 00:28:05.349 They didn't want anyone messing with their product. 00:28:05.960 --> 00:28:08.839 even for a joke. And that possessiveness, that 00:28:08.839 --> 00:28:11.440 desire to control the narrative, brings us right 00:28:11.440 --> 00:28:14.079 up to the present day. Segment seven, the modern 00:28:14.079 --> 00:28:16.200 legal wars. Because if you think the lawsuits 00:28:16.200 --> 00:28:20.579 of 2016 were bad, 2025 has been an absolute nightmare 00:28:20.579 --> 00:28:23.500 for their legal team. It's been a siege, a multi 00:28:23.500 --> 00:28:25.900 -front war. Let's start with the climate risk 00:28:25.900 --> 00:28:28.319 story because this is just fascinating. It pits 00:28:28.319 --> 00:28:30.720 the transparency for the buyer directly against 00:28:30.720 --> 00:28:33.039 the interests of the seller. Okay, so in September 00:28:33.039 --> 00:28:36.079 of 2024, Zillow makes this big, splashy announcement. 00:28:36.359 --> 00:28:38.299 They're partnering with a data company called 00:28:38.299 --> 00:28:40.859 First Street Foundation to add climate risk scores 00:28:40.859 --> 00:28:44.180 to every single listing on their site. And this 00:28:44.180 --> 00:28:46.440 is really useful stuff for a buyer. It's flood 00:28:46.440 --> 00:28:49.160 risk, wildfire risk, extreme heat risk over the 00:28:49.160 --> 00:28:52.059 next 30 years. It's crucial information. If I'm 00:28:52.059 --> 00:28:54.700 buying a house in Florida or California or Arizona, 00:28:54.980 --> 00:28:57.660 I absolutely need to know if it's projected to 00:28:57.660 --> 00:29:00.839 be underwater or on fire or uninhabitably hot 00:29:00.839 --> 00:29:03.319 in 10 years. This is the original Zillow mission, 00:29:03.420 --> 00:29:06.400 right? Transparency. Power to the people. It's 00:29:06.400 --> 00:29:09.240 the mission statement in its purest form. But 00:29:09.240 --> 00:29:13.160 then, by November of 2025, just over a year later, 00:29:13.339 --> 00:29:17.049 the data was gone. Zillow quietly scrapped the 00:29:17.049 --> 00:29:19.569 entire feature. Why? Why would they remove such 00:29:19.569 --> 00:29:22.289 valuable information? Because the sellers and 00:29:22.289 --> 00:29:24.829 the real estate agents revolted. Homeowners saw 00:29:24.829 --> 00:29:27.109 their Zestimates drop overnight because their 00:29:27.109 --> 00:29:29.950 house now had a big red high flood risk badge 00:29:29.950 --> 00:29:32.329 slapped on it. Real estate agents complained 00:29:32.329 --> 00:29:34.029 that they couldn't move inventory in high risk 00:29:34.029 --> 00:29:37.130 areas. The industry pushed back hard. So Zillow 00:29:37.130 --> 00:29:39.910 had a choice. Do we tell the unvarnished scary 00:29:39.910 --> 00:29:43.130 truth to the buyer? Or do we protect the sale 00:29:43.130 --> 00:29:45.490 and, by extension, the agent's commission? And 00:29:45.490 --> 00:29:47.309 they chose the agent. They chose the industry. 00:29:47.369 --> 00:29:49.589 They removed the data. That is, that's really 00:29:49.589 --> 00:29:53.029 damning. It's incredibly damning. It strongly 00:29:53.029 --> 00:29:56.349 suggests that when push comes to shove, Zillow's 00:29:56.349 --> 00:29:58.549 loyalty lies with the industry that pays its 00:29:58.549 --> 00:30:01.329 bills, not with the consumer who uses the app 00:30:01.329 --> 00:30:03.670 for free. And it seems like the government has 00:30:03.670 --> 00:30:05.369 started to notice this kind of behavior, too. 00:30:05.609 --> 00:30:08.589 Which brings us to the antitrust suits. Let's 00:30:08.589 --> 00:30:12.339 start with June 2025. The brokerage giant Compass 00:30:12.339 --> 00:30:16.180 sues Zillow. Now, Compass has this strategy of 00:30:16.180 --> 00:30:18.480 using private exclusives listings that are kept 00:30:18.480 --> 00:30:20.900 off the open market for a few days to generate 00:30:20.900 --> 00:30:23.420 buzz among their own agents. Zillow implemented 00:30:23.420 --> 00:30:25.799 a policy that effectively punished agents who 00:30:25.799 --> 00:30:28.039 use these private exclusives, basically saying 00:30:28.039 --> 00:30:29.960 you couldn't list on Zillow. So if you don't 00:30:29.960 --> 00:30:32.140 give the listing to us instantly and first, you 00:30:32.140 --> 00:30:34.599 can't use our platform at all. Exactly. Compass 00:30:34.599 --> 00:30:36.839 called it what it sounds like. Illegal monopoly 00:30:36.839 --> 00:30:39.740 behavior. Using their market dominance to stifle 00:30:39.740 --> 00:30:41.880 competition and control how agents do business. 00:30:42.380 --> 00:30:44.480 Gatekeeping. And then came the commission lawsuit 00:30:44.480 --> 00:30:47.720 in Seattle in September 2025. This one attacks 00:30:47.720 --> 00:30:50.339 the very core of their revenue model. It's a 00:30:50.339 --> 00:30:53.339 class action lawsuit that alleges Zillow actively 00:30:53.339 --> 00:30:56.619 misleads buyers. When you're on a listing and 00:30:56.619 --> 00:30:59.019 you click that big contact agent button, you 00:30:59.019 --> 00:31:01.500 naturally assume you're emailing the agent who 00:31:01.500 --> 00:31:03.819 is actually selling that specific house. Right, 00:31:03.920 --> 00:31:06.579 the listing agent. The expert on that property. 00:31:06.759 --> 00:31:09.480 But you aren't. In most cases, you are being 00:31:09.480 --> 00:31:12.380 sent to a premier agent, a completely random 00:31:12.380 --> 00:31:14.940 agent, who has paid Zillow a premium for leads 00:31:14.940 --> 00:31:17.940 in that zip code. And Zillow takes a huge cut 00:31:17.940 --> 00:31:20.220 of their future commission, sometimes up to 40%. 00:31:20.220 --> 00:31:23.119 Wow. The lawsuit says this is deceptive steering. 00:31:23.660 --> 00:31:26.039 You, the consumer, are being sold to the highest 00:31:26.039 --> 00:31:28.440 bidder without your knowledge or consent. But 00:31:28.440 --> 00:31:30.380 the biggest bombshell, the one that really sounds 00:31:30.380 --> 00:31:32.700 like a movie plot, is the Redfin deal. The Redfin 00:31:32.700 --> 00:31:35.380 cartel allegation. This is serious stuff. In 00:31:35.380 --> 00:31:37.740 2025, the attorneys general from five different 00:31:37.740 --> 00:31:40.880 states, Virginia, Connecticut, Arizona, New York, 00:31:40.880 --> 00:31:43.559 and Washington, all joined together to sue Zillow. 00:31:43.599 --> 00:31:45.880 And what is the central charge? They allege that 00:31:45.880 --> 00:31:48.599 Zillow paid Redfin, their main remaining national 00:31:48.599 --> 00:31:51.440 competitor in the search space, a sum of $100 00:31:51.440 --> 00:31:55.299 million. $100 million for what? To buy them? 00:31:55.500 --> 00:31:59.220 No. to stop competing. Specifically, the lawsuit 00:31:59.220 --> 00:32:02.539 alleges the money was to get Redfin to shut down 00:32:02.539 --> 00:32:05.039 its rental advertising business and transition 00:32:05.039 --> 00:32:07.559 all of those customers and that traffic over 00:32:07.559 --> 00:32:11.980 to Zillow. That sounds like pure market allocation. 00:32:12.099 --> 00:32:13.900 That sounds like something from the robber baron 00:32:13.900 --> 00:32:16.630 era. That's what the AGs are arguing. It's what 00:32:16.630 --> 00:32:19.430 lawyers call a pay for delay scheme or a non 00:32:19.430 --> 00:32:22.190 -compete payoff. If it's proven true, it's a 00:32:22.190 --> 00:32:25.170 flagrant textbook violation of federal antitrust 00:32:25.170 --> 00:32:27.690 law. It paints a picture of a company that is 00:32:27.690 --> 00:32:30.730 no longer trying to innovate to win, but is simply 00:32:30.730 --> 00:32:33.009 paying off its rivals to protect its monopoly. 00:32:33.289 --> 00:32:35.650 It's the classic life cycle of a disruptor, isn't 00:32:35.650 --> 00:32:38.150 it? You start as the rebel crashing servers in 00:32:38.150 --> 00:32:40.930 2006 to free the data for the people. You end 00:32:40.930 --> 00:32:43.849 up as the empire in 2026, allegedly paying off 00:32:43.849 --> 00:32:46.289 other rebels to keep the data. locked down and 00:32:46.289 --> 00:32:48.150 profitable. From the perspective of the Attorney 00:32:48.150 --> 00:32:49.990 General's office, it certainly looks that way. 00:32:50.109 --> 00:32:52.710 So let's bring it all home. We have covered 20 00:32:52.710 --> 00:32:54.789 years of this company's life, from the server 00:32:54.789 --> 00:32:57.569 crash to the iBuying crash, from the power to 00:32:57.569 --> 00:33:00.309 the people mission to the hide the climate data 00:33:00.309 --> 00:33:03.210 reality. It has been a remarkable and transformative 00:33:03.210 --> 00:33:06.009 journey, and you can't take this away from them. 00:33:06.289 --> 00:33:08.349 Zillow changed the world. There's no doubt about 00:33:08.349 --> 00:33:11.190 that. We are on balance, better off as consumers 00:33:11.190 --> 00:33:13.890 having access to this data than not having it. 00:33:14.089 --> 00:33:15.930 I can't imagine trying to buy a house today without 00:33:15.930 --> 00:33:17.930 using it. It would feel like flying blind. Neither 00:33:17.930 --> 00:33:20.470 can I. But we also have to recognize what Zillow 00:33:20.470 --> 00:33:24.029 is now. It is a media giant. It is an advertising 00:33:24.029 --> 00:33:27.089 platform. It is a publicly traded business that 00:33:27.089 --> 00:33:30.349 has an obligation to feed the beast and grow 00:33:30.349 --> 00:33:33.450 revenue every single quarter. So here is the 00:33:33.450 --> 00:33:35.269 thought I want to leave all of you with today. 00:33:35.410 --> 00:33:37.650 Let's hear it. Zillow started with a simple, 00:33:37.809 --> 00:33:40.329 and I think a noble, mission to answer the question, 00:33:40.529 --> 00:33:43.329 what is that house worth? They wanted to give 00:33:43.329 --> 00:33:46.430 you, the consumer, the truth. But today, after 00:33:46.430 --> 00:33:49.049 removing climate risk data to appease the industry, 00:33:49.250 --> 00:33:52.130 and allegedly paying rivals to stop competing 00:33:52.130 --> 00:33:55.109 for your business, Have they become the very 00:33:55.109 --> 00:33:57.769 same gatekeepers they originally set out to destroy? 00:33:58.049 --> 00:34:01.029 It's the ultimate and perhaps tragic question 00:34:01.029 --> 00:34:02.869 for them. When you pull up that Zestimate on 00:34:02.869 --> 00:34:04.710 your phone tonight, and I know you will, we all 00:34:04.710 --> 00:34:08.329 will, are you really seeing the objective data 00:34:08.329 --> 00:34:11.610 -driven truth? Or are you just seeing exactly 00:34:11.610 --> 00:34:14.389 what the multi -trillion dollar real estate industry 00:34:14.389 --> 00:34:16.469 wants you to see? Just remember, looking through 00:34:16.469 --> 00:34:19.030 the glass in a glass house goes both ways. Precisely. 00:34:19.030 --> 00:34:20.510 Take that number with a grain of salt. Maybe 00:34:20.510 --> 00:34:22.889 a hole shaker. Thanks for listening to this Deep 00:34:22.889 --> 00:34:24.090 Tag. We'll catch you on the next one.