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Zillow Acquires Dotloop – I Chat With Errol and Austin, and Have Initial Thoughts

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Earlier today, Zillow announced it was acquiring dotLoop, the popular real estate transaction management platform company. The terms of the deal were not disclosed. The press release is here:

Zillow Group (NASDAQ:Z), which houses a portfolio of the largest and most vibrant real estate and home-related brands on mobile and Web, today announced it has entered into a definitive agreement to buy DotLoop, a Cincinnati-based company that simplifies real estate transactions by enabling brokerages, real estate agents, and their clients to share, edit, sign and store documents digitally. The transaction is subject to the satisfaction of customary closing conditions and is expected to close in the third quarter of 2015.

Over the next 48-72 hours, you may expect to see the traditional industry freakout that happens whenever Zillow does anything. Expect everything from predictions of doom for Zillow, doom for brokers, doom for dotLoop, doom for everything and everybody under the sun.

Now, I do think the acquisition is interesting on a whole lot of levels. But I haven’t thought through all of those yet, and the deal is merely announced, rather than closed. So details are thin on the ground.

I did just get off a conference call with Errol Samuelson, Chief Industry Development Officer of Zillow Group, and Austin Allison, CEO of dotLoop where we chatted about the deal at a high level. I figured I should relate that conversation, and then maybe do my think-out-loud deal at the end as a bonus.

Zillow <3 dotLoop, dotLoop <3 Zillow

Like any marriage, there’s nothing but gushing love at the start. Especially at the engagement. Remember: engagement ring, wedding ring… the suffering comes later. In any event, both Errol and Austin tracked the press release more or less tightly in discussing why this deal got done.

Press Release:

This acquisition is an extension of Zillow Group’s commitment to empowering buyers, sellers and real estate professionals with tools and information to make their lives easier. Everyone involved in a real estate transaction – brokers, agents, homebuyers, sellers, and other participants including lenders and inspectors – wants to streamline what is a lengthy and complex process. DotLoop brings the transaction online, from the creation of a listing agreement to the submission of offers to the actual closing, enabling the process to move much more quickly and easily. Today, real estate agents create more than 300,000 loops (an agent’s online workspace) and nearly half a million people sign real estate documents in DotLoop each month.

“Real estate transactions are already moving online – it’s what home buyers, sellers and real estate professionals want. We’re incredibly excited by DotLoop’s innovation and leadership in making digital transactions a reality,” said Spencer Rascoff, CEO of Zillow Group. “Now we will be able to make their technology more readily available to Zillow Group’s 10,000 broker partners and the agents they represent, as well as our approximately 100,000 real estate agent advertisers, resulting in a smoother and more efficient transaction process for everyone.”

“As we’ve long said, the future of real estate is people-work, not paperwork. That’s why we are committed to removing the friction involved in paper-based real estate transactions,” said Austin Allison, Founder and CEO of DotLoop. “Becoming part of Zillow Group will provide us with new resources to help us grow and expand our business, while we add value to our current customers by offering increased support and faster product development.”

Austin said during our call time and again that he felt the alignment between dotLoop’s vision of empowering brokers and agents and Zillow’s vision of empowering consumers through brokers and agents was a perfect fit. He expects that the acquisition means more resources for dotLoop to provide better support to its customers, to speed up and improve product development, and the broaden the reach of dotLoop with new integrations and new partnerships.

Errol, for his part, echoed largely what Austin said, even mentioning that the cultural fit between dotLoop and Zillow is great. He talked about visiting dotLoop’s offices in Cincinnati and feeling that same “Zillow vibe” from the space and the staff there.

Then he said something that’s actually sort of important.

Zillow Would Do Anything For Love, But It Won’t Do That

Errol said that this transaction should quash all of the talk over the years about Zillow wanting to disintermediate the broker or the agent. There’s always been this lurking fear in the minds of brokers and franchise companies that Zillow would start a brokerage and just kick their collective asses. The more extreme version of this paranoia goes that Zillow will eventually replace the real estate agent, and start going directly to buyers and sellers, like Travelocity did to travel agents.

Errol:

One of the things that’s most important to think about — this is about Zillow doubling down on the viability and success of brokers and the brokerage model. Hopefully this proves that we’re about really supporting the brokerage and agent community, albeit support in the digital era.

I think that’s correct. This is about Zillow doubling down (well, let’s see how much Zillow paid for dotLoop, but at least it’s a real bet on) on existing brokerage and agent models. Of course, that makes all the sense in the world, no? The only people paying Zillow, and I mean really paying Zillow, are brokers and agents. To the extent that Zillow can support their customers and help them make more money, it can only benefit Zillow. (Broke-ass people rarely buy advertising on Zillow or anywhere else.)

Now, I’ve had a couple of phone calls and emails and chats with brokers and agents about this, and the immediate reaction is, “Dotloop is screwed” because “I don’t trust Zillow at all.” The thing that makes me wonder is, what exactly would it take for brokers to believe Zillow when it says that it loves them, and just wants them to love it back?

Zillow, at this point, would do anything for love. But it won’t do some things. Like give away leads for free. Or just go out of business. Or adopt “Fair Display Guidelines” or some such.

 

The Business Benefits: The Why’s of the Deal

The other aspect of this is something that Austin and Errol both mentioned. While there is no product map in place, one of the reasons they brought up for the acquisition is that the digital world stops at leads. Once a buyer or seller goes into contract, all of a sudden, we’re in the offline world of manila envelopes and stacks of paper. Obviously, this is something that dotLoop has been trying to address for years, and Zillow would like to do that too.

The reason is obvious. Today, when Spencer Rascoff says things like, “Our Premier Agents average 10x ROI on their investment” he’s pseudo-guessing. There’s really no way to know, except through things like surveys and such. Because once the connection is made between the consumer and the agent, Zillow’s out of the picture. (This problem is ubiquitous throughout real estate, even at national franchises or at brokerages.)

Once dotLoop is tightly integrated into an end-to-end solution for Zillow’s advertisers, a broker/agent will be able to track someone from random-ass visitor to a listing all the way through the lead inquiry through the transaction to the actual closing. Now, Zillow will be able to tell its advertisers, “Your money is generating a 267% ROI.” That ability to give more precise ROI numbers to broker and agent advertisers then lets Zillow raise its prices more freely (“You’re going to go from 10X ROI to 8.72X ROI; it’s still freakin’ great return on your advertising dollar!”) and to price its ad products to new advertisers more aggressively.

Pricing power is the key for Zillow, because Wall Street knows that Zillow is starting to get to a saturation point on advertisers. There aren’t that many productive agents out there, y’know? So if the dotLoop integration lets Zillow double its prices over the next 3-5 years, that’s a huge win. Makes all kinds of sense.

A Few Random Questions…

I asked Errol and Austin a few of my random questions; I call them random because I didn’t have time to sit down and think about the deal and really formulate what I was curious about. Plus, strep throat didn’t and doesn’t help. But here goes.

1. Market Leader and the Zillow Platform

I asked if the dotLoop acquisition meant anything for Market Leader, the Trulia unit that Zillow acquired when it bought Trulia. I don’t think Zillow ever really wanted Market Leader, since its CRM strategy prior to that was to be an open platform into which any CRM vendor can just plug. Zillow acquisition of Retsly was a more important deal for that Platform Strategy.

Errol said that Market Leader and dotLoop actually fit very well together, since Market Leader is more about lead generation and lead incubation. Once the consumer is past that stage, then dotLoop steps in to take them the rest of the way through to the closing.

Importantly, he reaffirmed Zillow’s commitment to the Platform concept, both TechConnect and Retsly. There is no plan at this time to shut out other transaction management vendors from Zillow, just like it hasn’t shut out CRM vendors from Zillow.

2. Part of Empowering the Customer…

Austin said something interesting in our conversation. He said that one of the reasons why he was so excited is that dotLoop has always been about empowering brokers and agents. He thought that Zillow has always been about empowering the consumer. But a huge part of that consumer empowerment is through the right empowered broker or agent.

We’ll return to this one, but what an interesting concept, and it fits with Errol’s statements about betting on the brokerage and agent model. Consumer empowerment through broker/agent empowerment. Think on that for a minute.

3. Docusign is NOT a Competitor to dotLoop… sorta maybe

At first, Austin thought Docusign was one of their more important competitors. Errol thought otherwise. As he put it, Docusign is an e-signatures company; Zillow uses Docusign internally to execute employment agreements and such. dotLoop is so much more than just e-signatures.

Okay, well, if you say so. Although everyone else seems to think Docusign is a competitor to dotLoop, including one national Association of real estate professionals based out of Chicago who happens to own Docusign. But that’s neither here nor there… is it?

The Long Game

Now, I asked both of them this question and got a very correct, very well-coached, very smooth answer. So I’ll just end up speculating a whole lot on this part.

The question was that despite dotLoop’s stated goal of empowering brokers and agents so that they can be more efficient, and make more money, fact of the matter is that the number of homes sold has nothing to do with Zillow, technology, brokers, agents, or anything else. It has to do with macroeconomic factors that none of those people control: employment, student loan levels, interest rates, etc. etc. And we can get AI and robotics and hipster Apple Watch real estate apps, and whatever else, but there are going to be about 5 million homes sold in the United States because that’s what the larger economy says.

So, in a very real way, real estate brokerage is a zero-sum game. Every transaction that Broker A does comes at the expense of Brokers B-Z, since there are only so many homes sold each year.

Doesn’t the fact that Zillow, now with dotLoop and via dotLoop, wants to empower brokers and agents who are tech-savvy, who are customers of Zillow, mean that the other non-tech, non-customer brokers and agents will have to lose in order for their customers to win? It’s not an issue of business or models or technology, but one of math: 5 million transactions. If Zillow customers are 10% more efficient, 10% more effective, 500K transactions have to swing from somewhere/someone else.

Their answer, from Austin: “As time goes on, both real estate agents and consumer and brokers will continue to look to leverage technology to make their jobs easier. It’s certainly an assumption that people will want to do business more efficiently in the future. We’re going to stay focused on helping them do just that.”

Very good answer, very smooth, and exactly what I expected from a young CEO of the caliber of Austin Allison. (And from Errol who is just as suave and not-gonna-fall-into-traps.)

I’m suave when I want to be, but not in things like this. Rhetoric and positioning cannot overcome the simple math here. Either Zillow + dotLoop delivers real efficiency gains and productivity gains to their customer brokers/agents, or it does not. If it does, those gains will come at the expense of other brokers and agents who are not as tech-savvy, not as nimble, and not paying Zillow as much. If it does not deliver those gains, then the entire exercise of technology-for-efficiency-gain is a waste of time, because it doesn’t deliver gains. (I think it delivers gains — huge, major gains.)

Over the long haul then, those who are working with Zillow, leveraging that end-to-end data, and managing the lead-to-contract-to-close lifecycle most efficiently will do more business, make more money, and drive competitors out of business. Which then allows those survivors to pay Zillow more, so they can consolidate even more power, etc. etc. A nice beneficial feedback loop for the winners.

I have long argued that the impact of technology is that it lays down the economic law of: He that hath, gets. The dotLoop acquisition is a big step towards fulfilling that vision and making it real. Those who can leverage technology for productivity gains, and then leverage that productivity gain for lower-cost, higher-services delivery model will come to dominate real estate. And at the center of that new efficiency-driven ecosystem? Zillow.

At least, that’s the long game, I think. Now, Ryan O’Hara and the team over at Realtor.com, as well as a bunch of people in brokerages and national franchises and MLS’s and such likely have a few things to say on that subject. Question is, what will be their reaction?

At a minimum, we can say this.

Once again, the industry is reacting to Zillow, as it has been for ten years. Like House of Pain, get used to one style and you know Zillow might switch. With this acquisition, Zillow’s saying once again, “Word to your moms, I came to drop bombs, I got more moves than the Bible’s got Psalms.” Every conversation in real estate starts and ends with Zillow, because those boys came to get down.

So… who else came to get down? Time will tell.

In the meantime, congrats to Austin Allison and the team at dotLoop. I don’t envy some of the phone calls y’all are gonna get in the next few weeks, and suddenly, your parties won’t be as well attended at they may have been in the past, but… I think it’ll all work itself out in the end.

-rsh