One of the cool things about covering the tech industry in Seattle is being on the front lines of the changes occurring in the real estate business. I’ve written hundreds, possibly thousands of stories on online real estate since companies like Redfin and Zillow were founded here. (In fact, I was the first person to discover a little company created by Rich Barton and Lloyd Frink nine years ago before it was called Zillow).
The changes in real estate are fascinating, and Seattle companies are well positioned to upend this slow-to-change industry.
And that’s why I loved the recent piece by Bloomberg Businessweek Senior Writer Brad Stone who digs into the history of the three big players in online real estate: Redfin, Zillow and Trulia.
The great thing about Stone’s piece — titled Why Redfin, Zillow, and Trulia Haven’t Killed Off Real Estate Brokers— is filled with little nuggets that I didn’t know and includes choice comments from folks such as Barton and the ever-quotable Glenn Kelman.
One of my favorite anecdotes: In 2004, Redfin founder David Eraker actually lived next door to Sami Inkinen in Seattle’s Capitol Hill neighborhood, and shared aspects of the Redfin business model. Inkinen, an intern at Microsoft at the time, later returned to San Francisco and started Trulia.
Wow! Small world, and fascinating how real estate (two neighbors) actually had an impact on forming two of the biggest online real estate companies.
Even more interesting, Eraker and Redfin co-founder Michael Dougherty (later hired by Zillow) met with Rich Barton in 2004 who discussed purchasing Redfin before it raised cash from Madrona. That could have altered the online real estate landscape as we know it today.
At the time he was talking to Inkinen, Eraker was contacted by Rich Barton, the founder of Expedia, which had played a lead role in vaporizing travel agents. Barton and his partners were contemplating their next startup and, like everyone else in Seattle, had seen the Redfin prototype. Barton met Eraker and Dougherty at his offices near Union Station in downtown Seattle, invited them to lunch, and even discussed purchasing the startup. Barton instead created his own site, Zillow, at the end of 2004. In his first round of funding from two Silicon Valley venture capital firms, Barton raised $32 million. “My personal belief is that both Zillow and Trulia got their ideas for map search from us,” says Eraker. He also recognizes that while both companies may have been inspired by Redfin, they opted for very different and, in retrospect, more accessible business models.
This sort of history is fascinating for nerds like me, but Stone also wraps the story together nicely with what’s occurring today. Most interestingly, he notes that real estate commissions — the initial target of Redfin’s business — have actually gone up in the past five years.
“Not only have brokers resisted the attack by the Internet’s real estate sites but their fees remain stable,” writes Stone.
In fact, Stone concludes the piece with remarks that Zillow CEO Spencer Rascoff made at the TechNW conference in Seattle last October in which he noted that the real estate agent is not going away anytime soon.
“There are other startups that are trying to break down those agent commissions, and I think most of them will fail,” he said. “And I think those that haven’t failed yet, probably will for the reasons I just explained, but we are not one of them.”
It’s fun to be on the front lines of this industry. And this in-depth report is a must read.