Zillow surprises investors. But it should be GREAT news.

Zillow is taking a beating on news that it has decided to move from a pure marketplace to buying up real estate inventory. Here’s the scoop from Chloe Aiello on CNBC:

“Zillow sank $5, or 9.3 percent, to $48.77 as of mid-day on Friday, knocking more than $900 million off its stock market value. “This is a business model that to date has been all advertising revenue driven, which is high gross margin,” said Mark Mahaney, an analyst at RBC Capital Markets who has a “buy” rating on Zillow. “And now there’s this pivot into this other category which has balance sheet risk and it has much lower margins and is in an uncertain housing environment,” Mahaney said on CNBC.

Techmeme has a ton of commentary on this.

hosuerrI appreciate the angle Wall Street must take but it’s a bit too soon to huff and puff about this. What’s not being given enough credence to that Zillow’s crown jewel is not access to sellers that results in a higher margin but rather, it’s absolute command over a very very lucrative buyer market that will demand all strands of inventory. And back to Wall Street – most importantly, the power Zillow potentially has to re-arrange the whole supply chain for buying and selling real estate if they play this right.

I wrote about this notion of owning the last mile in 2015. Here are some examples I’ll pilfer (albeit, dated examples) from that post to make the point:

Search: When my 14-year-old nephew wants to search the web, he says, “Let me Google it”. When my 8-year-old son who was born in the iPad era wants to search he says, “Let me check Safari”. My son could care less about what search engine is behind Safari. The last mile gets all the glory.

Commerce: Amazon started offering Elements, its own branded Diapers to ring fence new parents – a lucrative segment of buyers. Because, as the gatekeeper of the last mile, it can offer an alternative to every other player in that supply chain, instantly.

Media: Netflix built its business on the backs of the movie studios by renting their products in a way that was more convenient to the consumer. With a huge customer base in its back pocket and 7 Emmys to boast about just in 2014, Netflix threatens to dis-intermediate the movie studio altogether. The last mile is at it again.

Automotive: Tesla in many ways, is ultimately the last mile in the assembly line of hundreds of hardware components and hundreds of thousands of software apps. Once you’re in the driver’s seat of this software-first car, Tesla controls the immediate digital delivery of gadgets, of OEM’ed software and prioritization of future enhancements to your driving and travel experience. In that sense, Tesla’s position in its’ industry is no less lucrative than my 8 year olds iPad – his portal into the world-wide web that can prioritize what results he sees. The last mile calls all the shots.

Mobile Payments: And finally, the most revolutionary and most ruthless win by the last mile, described in this post by Rick Oglesby of Mobile Payments Today: After valiant attempts to control digital payments by Telcos / MNOs (by storing payment information in its SIM card), or by payment processors such as Paypal or Starbucks (by storing information in the cloud), and even the Banks who have carried the float, Apple jumped the gun and is embedding the digital wallet into the bowels of the operating system thereby threatening to remove any intimate connection you might have with any single 2nd, 3rd, 4th mile vendor in the current payment supply chain. Ironically, the term the “last mile” was coined by the Telco industry. It’s just that Apple altered the definition of what the last mile is in the world of mobile. And showed us who’s boss.

The last mile always wins. And if that means cannibalizing your original business as Om Malik astutely points out, so be it.

In our line of work as SaaS providers to some of the most iconic marketplaces in the world from classifieds to ride sharing to real estate, education and on and on, we see this repeatedly happening especially in heterogeneous marketplaces where it is incredibly hard to build a sustainable buyer base and even harder to drive liquidity (connecting buyers and sellers right at the time of availability and need). But once you do manage to keep the attention of a critical mass of buyers, you must be willing to throw out old playbooks if you are to keep serving that buyer in the most lucrative way.

Is it the right move for Zillow to be buying real estate? I have no idea. But I applaud them for knowing that in their marketplace model, the core asset for them to monetize will always, always be the attention of millions of buyers.

 

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