Article Excerpt:
TWST: We'd like to begin with a brief historical sketch of ZipRealty and a picture of things as they are now?Mr. Danziger: The company was founded in 1999 by two MBA students at the University of California, Berkeley. It occurred to them that one of the largest industries in the United States was one that neither endorsed nor embraced the idea of technology. Real estate was a business that used a lot of paper and kept tight control of the process and MLS info. So the germ of the idea was to bring the Internet to the residential real estate industry. And it has evolved quite a bit from that. Originally we started as an online company, where literally all of the real estate agents were here in California. They worked with customers via the Internet who were as far away as Boston, Philadelphia and Washington, DC. So it was literally an online real estate company. The evolution of the company has been to be more of a mainstream real estate company as it relates to the process. We have full service REALTORS' instead of online heads that connect REALTORS and clients. The REALTORS are local, in the marketplace. But our model is as different to real estate as Amazon is to Borders in the way it sells books. I don't believe you build a great company by doing basically what someone else does and just doing it a little differently, like having a coffee bar that serves Danishes instead of cupcakes. What Amazon did in 1994 was say, 'Customers have a choice on how they buy a book, but the choice is which store they walk into.' Amazon said, 'We are going to dramatically change that model,' and that's what we decided to do. We said, 'What we are going to do is not do real estate the way everyone does with just a little difference. We are going to do it dramatically different.' So we grew into some very significant differences, starting with the premise that we will be a customer-centric real estate company instead of a REALTOR-centric real estate company. And I will explain that in a moment because it's very important to understand. As you know, I have a former operating mentality in the hotel business, with Starwood, Wyndham and so on. I do not quite understand how a brand in any business can make a promise to consumers in its advertising when it has zero control over what really happens. That is the real estate business. The largest real estate brands sell franchises. That's how they monetize their brand. The brokers who franchise the brand get independent contractors to work with them, so the poor customer is working with someone who they'd better hope is a good agent because the brand has little control over that agent, and that just doesn't feel right to us. So what we said is, 'We are going to build this entire business around the customer, and it is going to start with our ability to deliver the promise.' We adopted an employee model instead of an independent contractor model so we could influence the way that the customer was delivered our promise, and that's a huge difference from the rest of real estate. Number two, we said that the commission structure of real estate has not changed since Dwight Eisenhower was President. That didn't seem right. So we changed the structure, and for a while, we got a bad rap as being a discount real estate company and discount implies reduced services. We are not a discount broker because we not only don't have reduced service, we have super service. We have the equivalent of premium gas instead of regular unleaded gas. It is just a different pricing model. Three, we decided that we were going to be the real estate company that people trusted, a place where people could come and get all kinds of information, not just selected information. In traditional real estate, you call the REALTOR and you are working with just that REALTOR, who is an independent contractor ' no employee of a company or a broker. You tell the REALTOR what you want. He schedules an appointment to come see you, and you get in the back seat of the car and look at the cut sheets of what homes he's going to take you to. He selects them for you. Regarding those cut sheets, the agents are taking them off their multiple listing service and picking homes for you to see. It is our premise that you should decide which homes you want to see. You should have the ability to have all the data, all the information related to buying or selling a home. How in the world is it possible that customers can get more information when they are trying to buy a tie than they can when they buy a home? We wanted to make the entire MLS available to the customer online using technology, and then add evolutions to have them search by school district, by map, by work location, by price, search by whatever ' all the different ways you can do that. We then said that giving them all of the data is not enough. Let's give them what technology is really meant to do, which is to make searches more efficient. An example would be, if you are out looking at a home with a traditional agent on a Sunday afternoon, he has selected homes for you to look at, and most of them are probably going to be homes listed with his brokerage, although I am sure he will show others as well. You didn't see anything you really liked, you go home, you watch TV on a Sunday night and a competing agent at Prudential lists a new home. What happens in the traditional world is that the Prudential agent starts marketing it, your agent learns about it, views it, then lets you know. Because we embrace technology and want to put it in the customer's hands, this is what would happen in the Zip world. You looked all day with our agent, you went home, you are watching TV, a new home is listed by that Prudential agent and a nanosecond later you and your Zip agent both have that listing e-mailed to you. So you are not waiting for data and information that's important to the process. Because of all of this, our model is much more efficient. Actually, when the customers get in the car, they usually look at half the number of homes they do in the traditional model. That's because they've looked for themselves, they've filtered, they've used technology and our agents in a way that helped them refine what it is they were really looking for instead of what someone wanted to show them. Because of that, we are able to share our commissions with our customers because it is a much more efficient model. So it's an employee model, it's data, it's use of technology and it's the rebate. Those kinds of things matter a lot when you are building a brand. Just to wrap that up, the key difference is we are an operating company in the real estate industry, which is very different from a franchise company in the real estate industry, and it makes all the difference.
Tickers included in this excerpt: ZIPR
TWST Newsletter
For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.