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Zillow Digs allows home remodelers to tag their favorite kitchens, bathrooms, patios and more.

Spencer Rascoff stands in front of a cluttered whiteboard with marker in hand on the 31st floor of Seattle’s Russell Investments Center. The CEO is explaining the fundamental framework of Zillow, the eight-year-old online real estate company that now boasts a market value of $1.27 billion.

At the center of the whiteboard drawing is what Rascoff dubs the “database of all homes” — the primary consumer Internet offering that’s propelled Zillow to more than 45 million monthly visitors.

Zillow’s Spencer Rascoff

But what’s most interesting about the drawing, scribbled by Rascoff in a previous meeting, is what sits on the outskirts.  Represented by dotted and half lines, the drawing very much provides a roadmap of where Zillow is headed, from mortgages to rentals to marketing tools for real estate agents.  It’s all here, in one drawing.

“We’ve got a lot going on,” says Rascoff with a laugh as he walks me through the various businesses, rattling off the total addressable market in each.

Then, he turns to the latest addition, tucked in the bottom left corner. That’s where Rascoff has placed a visual representation of home improvement, which Zillow is expanding into today with the launch of new offering called Zillow Digs.

It marks the latest bet for the company, and it’s a big one. Rascoff thinks home improvement — helping remodelers find the perfect kitchen sink or bathroom fixtures — could be as important as the other categories surrounding the database of homes. He pegs the market for home improvement at $5 billion to $15 billion, depending upon whether you count services and product sales (paint, tile, siding, etc.). “It’s big,” he said. “Far bigger than what we know what to do with if we can succeed in creating a product that consumers love, and that they use.”

I look at the drawing and ask a simple question: Why haven’t you done this sooner?

After all, home improvement has been on the radar of Zillow since the early days when Rich Barton and Lloyd Frink founded the company.

“It’s mostly just prioritization,” explains Rascoff.

But now, through the launch of Zillow Digs, the company is making home improvement a priority. A big one. Over the past six months, Rascoff said a team of developers, designers, photographers (and even some contractors who were brought on as consultants) have been working on the Zillow Digs project almost non-stop.

Launching today on the Web and as a free iPad app, the idea behind Digs is to provide home owners with an easy-to-use tool to peruse remodeling projects and get estimates on how much they’ll cost.

The launch comes at a critical time, with Silicon Valley home remodeling upstart Houzz announcing $35 million in venture capital financing just last week from New Enterprise Associates, Sequoia Capital, Comcast Ventures, Kleiner Perkins Caufield & Byers and Yammer founder David Sacks . (It’s worth noting that Sequoia was one of the primary backers of Trulia, which is Zillow’s longtime rival).

Houzz already boasts 12 million monthly visitors, about a quarter of Zillow’s traffic base.

The Zillow Digs service also has a Pinterest-like feel — allowing users to peruse thousands of kitchens, bedrooms and bathrooms. A user can tag their favorite kitchen or bathroom, for example, and in an added twist get an estimate of how much it would cost to follow that remodeling plan for their home. Users also can sort by things like great views or patios, adding the images they like best to a “board,” much as they do on Pinterest (Pinterest was in the news today for reportedly getting a valuation in the $2.5 billion range).

Rascoff, who used Pinterest for his own recent remodel, calls the social networking service a “horizontal platform for the entire Web.”

“Zillow Digs allows you to cull through tens of thousands of curated and tagged photos that are a tiny subset of the Web,” he said. “It makes for a much more focused search experience.”

Despite facing off with some new rivals, Rascoff thinks the biggest competitor remains the newsstand.

With Zillow Digs, Rascoff says remodelers no longer have to purchase a dozen home improvement magazines at the bookstore, cutting out images of the projects they like best. In that old-fashioned example, Rascoff said someone could see “pretty pictures of kitchens” in a magazine, but at the end of the day “they have absolutely no idea what that would cost.”

A person using Zillow Digs could determine that a kitchen remodel would cost $92,000 when they take into consideration the appliances, tiling, cabinets and other elements they see in the photos. In that regard, you can almost think of the service as a Zestimate for an individual room, at this point just for kitchens and bathrooms. It also factors in one’s geographic location, boosting costs if a project is based in Seattle or San Francisco.

“Unlike with  Zestimates, we’ve actually used a human element here,” said Rascoff. “We’ve sat down with contractors, and looked at tens of thousands of different photos, and gone through with them what would this backsplash cost, what would this cost, etc. Then, we built algorithms to take that sample set and extrapolate it across probably hundreds of thousands of photos in the cases of bathrooms and kitchens.”

Rascoff says the service is “totally addictive,” with people losing themselves in different remodel designs. “Who doesn’t like pretty pictures of houses?” he says.

That could be an important aspect for Zillow. After all, one of the long-time rubs is that it only was needed at the point where the consumer was looking to buy or sell a home — a transaction that occurs relatively infrequently.

With home remodels, however, Zillow could gain users throughout the life cycle of them owning a home.

“Strategically, this is important for so many different reasons — one is that is makes us relevant through all stages of the home ownership life cycle,” he said. “Right now, I’d say that we are somewhat relevant post transaction, if you want to keep an eye on your home’s value or what is going on in your neighborhood, but not everyone is in that mind set. A home improvement product makes us relevant to almost everybody. There is also the sport element of it.”

Zillow could monetize the service through traditional display advertising, but also through lead generation for local service providers (Think about the cabinet maker who may want to install those $30,000 cabinets you see in the photos).

“There are a lot of ways to monetize this, and we are not thinking much about any of them,” said Rascoff with a laugh. “You know how we create these marketplaces. We build a product that attracts a large audience, and then a year or two later we start thinking about monetization. In this category, there are a lot of tried and true forms of monetization.”

GeekWire Follow-upHouzz fires back at Zillow Digs: It’s a ‘complete knock off’


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