Expedia & Zillow: Rich Barton

So the Internet bubble had burst and so the stock market wasn't as interesting to people, but the housing market was on a tear and somebody basically drew A stock chart on the board. And said what if we could create this stock chart but have it be your house value? That's when everybody kinda

Inhaled simultaneously. We're like, oh That. Is interesting. From N PR?

How I built this. show about innovators, entrepreneurs, idealists, and the stories behind the movements. They go. Guy Raz, and on today's show, how Rich Barton's many frustrations with booking, travel, and buying real estate. led to two startups that transform those industries forever.

Speed ya. And Zillow. Back in 1970, the economist George Akerloff wrote what would become a groundbreaking paper on a concept called information asymmetry. It's work that won him a Nobel Prize in 2001. That paper argued that used car sellers have an information advantage over buyers. They know more about the quality of the car, so they have the upper hand because they can set the price. His basic idea was that sellers almost always have the upper hand in any transaction because they have more information about the product they're selling.

Agerloff's work spawned a whole series of business ideas that set out to put an end to information asymmetry. Things like Carfax, a service that made a car's entire maintenance and accident history available to a buyer. Or financial services companies like Vanguard that introduce transparency into consumer investing. But the idea of disrupting industries with an asymmetric advantage really took off with the rise of the internet. And in the early 1990s, a young Microsoft employee named Rich Barton was obsessed with this kind of disruption. It's an obsession that led him to co-found three major tech companies, companies that offer services that you have most likely used. There was a time when if you wanted to book travel

Things like flight schedules, hotel availability, car rentals All that information was only available to travel agents who had access to a proprietary booking system. And Rich wanted everyone to have access. So he came up with what would become expedia. After it was sold?

He turned his focus towards asymmetry in the real estate market. Because up until that point Only real estate agents had easy access to home values, or what price your neighbor sold their house for. So Rich? co-founded Zillow.

And then in two thousand seven Along the same lines. Rich helped a friend co-found another site. to share data about work, culture, and average salaries at major companies. This time, they called it Glassdoor.

Yes, this One person has been a driving force behind Expedia, Zillow, and Glassdoor. Rich Barton grew up mainly in the northeastern part of the US. His dad was an engineer, and his mom was in charge of the family. In the mid-1980s, he moved out west to attend Stanford. and it was his first taste of life.

on the West Coast. I did love This lack of focus on What's your name and who's your daddy and where'd you go to school in California. It just felt More egalitarian and more future leaning and you know more free.

Um I moved out there and even as kind of a dumb eighteen year old I completely remember the feeling. I So I had a Honda Civic. And I drove it back and forth across country every year for school. And I distinctly remember

Going through You know that tunnel just north of San Francisco on you know, right after you go over the Golden Gate Bridge? Sure. Uh I remember coming through that tunnel, I literally had the Grateful Dead on. I think I had Estimated profit, which the refrain is something like California, basically. Knocking at your golden door, right? And so I was listening to that, going through that tunnel with the rainbow painted.

And then crossing the Golden Gate Bridge and having this feeling that Yeah, it's hard to describe. I was so excited and wide eyed and you know, ready for the future, you know, ready for possibility. I I I guess that after you graduated from Stanford, you got a job in consulting. And and from what I understand, you uh not too long after that you decided that it wasn't for you and you were I guess kinda just looking for an exit.

I was in fact I was my Really? One of my great friends from Stanford. She took a product manager job. there at Microsoft and moved to Seattle right out of school.

Which was an interesting little company that recruited on Stanford's campus The week after she got there she started calling me up. And saying Richie. This is the place for you. This is where you should be. So it took a while. But eventually she uh and a few other key people there helped.

Get me an interview and then as soon as I could, I moved out. Wow. And what were you hired to do there? I was hired to be product manager of MS DOS.

MS DOS version five. I know you're not a tech geek at least, guys, so that's not gonna mean much to you, but some some of your listeners out there. This is pre Windows. It's on the cusp of Windows. Yeah. It was exciting actually. We sold DOS five, MS DOS five was the first time that Egghead Software, which was the big retailer software retailer at the time, had ever seen they did they they ran a midnight madness sale on the first day. that the DOS five upgrade was released and they had people camping out and lining up outside of Egghead so that they could get an operating system. I know that seems crazy, but that's what happened. D when you got to Microsoft, did it already seem like a giant place? No, not at all. It was a pretty small company when I got there, probably just a few thousand people.

Um but I mean compared to today's certainly But like the kinda like the kind of place where It wasn't odd or unusual to like see Bill Gates walking around. Oh yeah, for sure. It was a small company. I knew most of the other product managers. I was one of the younger ones, most of the people had come out of business school, but I was quite a and people fr international people from all over the world because we were localizing all our products all over the world. But it was Wait.

It felt like we knew magic before everybody else did. You know, it's just like the technology that we were working on we knew had immense future ramifications for the way People lived and worked. And we knew how to build stuff. We did have a sense of being exceptional and kind of a sense of destiny. It was quite exciting. So you work on on the DOS system uh you worked as a product manager.

on the DA system for I guess um two or three years. And uh I guess around ninety nineteen ninety four you actually request a transfer. to Microsoft's consumer division, which uh but can you tell me about that decision? Well, I was basically getting ready to leave Microsoft and start my own business. I always wanted to

Be an entrepreneur. And I figured If I was gonna start something, it was gonna look more like a consumer product than an OS. And so I actually jumped over to the consumer division at Microsoft at the time, which made all of these Consumer products, most of them on multimedia CD ROMs. One was called Rock Mania, one was called Cinemania. Believe it or not, one was called multimedia Beethoven.

And one of them was an idea for a Encyclopedia of Travel Guides, Multimedia Encyclopedia of Travel Guides on CD Rome, and that's how I ended up working on Travel. Which it t to me seems a little weird because you're not gonna bring your computer with you when you travel around the world, but presumably Somebody thought

Let's make this people will print them out? Like what what was the thinking behind that? That's exactly what I thought. I'm like, Okay. Sure, it's a bunch of Pictures and text that would be great to have a whole library of on your on a CD ROM, but I you know

The sh smallest portable computer at the time was the size of a suitcase from Compact. But it weighed like twenty pounds. So of course, yeah, that wasn't gonna work as a travel guide in the field. Which led me to look at different ways we might be able to have a travel guide be portable and actually led me

to thinking about how we actually plan and purchase travel itself, which I found way more interesting. What did you start to do or what did you start to think about? Well, uh I was quite a business traveller. And

Planning was pretty difficult the way we had to Pick up the phone and call a corporate travel agent. And say I've got this three stop trip. And I could he I remember hearing the click Click click of the keyboard. I knew that the travel agent I was talking to was looking at a screen. Right.

I wanted to jump through the phone turn the screen towards me and do it myself. I figured I would care more about my routing and my timing and my hotel than anybody else would. And so I was using Prodigy. There was a service on Prodigy that enabled me to access directly the airline and hotel reservation systems. I could spoof being a travel agent. And I was heavy user of that. And so I looked at that. And

You know, I had a a team around me as well and we we looked at that and and we were like, Well that would be interesting to bring to normal consumers. Like people would go crazy, give power to the people to book this themselves, to turn on the lights in the room to see it all. Anyway, so that ended up being my pitch to Bill Gates. Sorry, s so you had this idea, there was this idea that maybe we can look on Prodigy you can start to Pretend like you're a travel agent and directly book your own stuff. Maybe we can actually build this out. You got a chance to Go to Bill Gates and pitch that to him.

I did. Um Bill Gates at the time Microsoft was still relatively small and ran these uh what were called product reviews every year and the product teams Would come through his boardroom. And Say what they're working on, what they wanted to work on in the future, what was cool, what was not, and get feedback. And so At that time, you know, every six months or a year, I would

be part of a team that would go in front of Bill another you know, Steve Ballmer and Nathan Mirbo and and talk about what we were doing. Wow. Okay. So you go in to pitch Bill Gates on this idea to create

Some kind of online. Travel. Booking site. Travel guides. Yes. I showed him Prodigy.

And it was all a command line really ugly thing. But I talked about how I could see doing a kind of a Windows version of this and giving it to consumers. could be a complete game changer for consumer empowerment. And he agreed, yeah. And and this is still pre Netscape.

Like Netscape I think just'cause I remember using it, I think I I used it for the first time in nineteen ninety five. So this is still pre Like what we now think of as the web. But your y what you were pitching was hey, let's build this out. And make it real user friendly, like Windows.

He looked at this and said, Yeah, there Maybe we can do this? He did. Um Yeah. You're right, Netscape had not shipped yet. The graphical web really hadn't

Launched. It was about to. But there were these online systems that did have these kind of hacked together graphical interfaces. Microsoft was working on one itself called MSN. Right. And so the context of the pitch was we'll build it as an MSN app.

So MSN was supposed was looking at Prodigy CopyServe and Whatever, A O L and and saying we're gonna make our own kind of version like this. That's right. We were we were building a competitor to those services and this would be an app. Yeah, we saw it as a potential killer up. And do you remember I mean was was

I mean, you're making it sound really simple. Like he was like, Yep, I'm sold. Was it that simple? Um Yeah, it's hard to remember. But yeah, it seems that way. It was a pretty obvious idea.

We've been tasked by it Bill Gates and a team there to think about how the coming internet might change industries. And so this was one of the ideas that we had. people were talking about how, you know, in the future you're gonna just sit in front of your T V And just order things.

And um and it still seemed kinda far fetched. But I mean, w were you hearing murmurings in the industry that other people were working on things like this or or not? Well there was a small You know, tech is a big industry.

Right now. It was a rather small World back then. And there was this sense of destiny. Every people who understood technology did feel the revolution coming. Hm.

And so there was an excitement and a pressure and a competitive zeal. And um for me the excitement was all around how We could give it a little bit. Power in the face. Of the travel industry.

In this case. In the travel industry, but also the same I was actually thinking, you know, my team, Lloyd and I were thinking about that relative to several industries. Stock investing was the same way. It was just there were all these industries that seemed rigged against The consumer. That we felt

The connected P C was going to Reorder. Mm. You don't have to see too far into the future.

If you can see a little bit further into the future than the rest, you know, you can you can really get way ahead. And we we were just lucky that we were at the epicenter of all of this c technology ideation and we were in a incredible environment where We were given free reign to dream big. Take big swings. That was encouraged. So Bill Gates gives you the green light. Yes. And um you what what do you do? You like gather a team and

You have to come up with a name for this thing. And they called it Expedia. Which by the way, how did that happen? Yeah, we did a um We hired one of those naming Consulting firms.

And we tried I I've participated in the creation of lots of made up brands. And that was my first experience with it, and I learned a tremendous amount. I believe when

who are dreaming of starting a company or naming something. Creating a new word is very ambitious and very long term and very difficult. But if you are successful, you completely own that word in the dictionary, so to speak, and you get to fill it with whatever meaning you you can infuse into it. So it takes it's a lot longer and a lot harder, but it ends up being much more valuable to have a brand name that you've you've made up. And so I came into th with that belief. Expedia was one of many names that we had to pick from. We liked it'cause it w had an X in it, which is a high point scrabble letter. So that means it's unique.

It sounded like speed, expedite, expedition, all good associations. For travel. One thing I did learn. is that I didn't like ultimately that it had so many syllables, but that was hindsight. Since then I've liked two syllables. I think that's the most memorable. I think having it sound like a dog's name a good dog's name. can be turned into a verb. There's a bunch of rules I have now.

Explain something to me. I mean, you start to work on this product, right? And In the meantime. Netscape hits, right? And the world wide web becomes a thing. How? Challenging was it.

To build a A site. That would allow people to directly book their travel with the airlines. I mean, was there any resistance from the airlines or were the airlines like, We love this? Oh no, they didn't love this. Um and Microsoft was scary.

Microsoft was a very scary company to all industry at the time'cause it was executing so well. It was making so much money and it kinda knew magic that everybody else hadn't figured out yet. However, we knew that if we started a travel agency that from an equal access perspective we ought to be able to plug into these electron these big mainframe based reservation systems that ran the industry and act like a travel agent. And if we got discriminated against, we could blow a whistle and say that's not fair. And that's I remember being a very young

You know, techie, kid And going into very senior airline executives' offices. I remember one in particular an American who Just belittled and was very arrogant with me, saying you know, it would never work and

And I you know, I worked hard to be As gracious as I could. Um and explain what I thought The future Looked like and how

If you bet on empowering consumers and you bet on what people want and you build products for what consumers want, how could you possibly go wrong? That was my, you know, position and But it was difficult. I got a lot of resistance. So you guys formed a travel agency at Microsoft in order to I guess could have qualified to be able to do this? Yes.

Even though you were Passing on that power to Consumers to users. That's correct. Yeah, we were an electronic travel agent and that's what consumers wanted. When you launched Expedia in nineteen ninety six, what was the public response to it?

Well, the web wasn't very so so we were building four MSN, which we recognized wasn't going to probably succeed as a platform. And so we quietly pivoted to building a web app and we kinda didn't tell anybody. And so we launched we never launched on MSN, we launched on the broad internet. And it was a hit instantly. Now the web wasn't very big, so a hit at the time in nineteen ninety six is very different from now. I don't remember the exact numbers, but everybody sat up bolt upright in their seats who saw it and was like, Oh yeah, this is it. That's the future. And and so this launches and uh It transformed travel.

In an instant. It did. And in hindsight, It was obvious and

The stuff that really got us excited was the consumer Aspect. A lot of people like to talk about disruption, and I know you do too. But these are about empowering consumers and then let the chips fall where they may from an industry perspective, right? Building for the future of what consumers want was what we were trying to do, and we were really secondarily thinking about

the organization of the industry and how those dynamics might change. And that that just wasn't our primary concern because we knew if we had the consumer on our side, And we had millions, then tens of millions, then hundreds of millions of them coming every month to our service that we would ultimately get the business model figured out and get those partners to come. Mm. Microsoft spun out

Expedia as a as a public company in in nineteen ninety nine and uh and you became the CEO still uh pretty young um of a public company at the time. Uh but I guess pretty soon after that, just just a few years later, the company was purchased by Barry Diller's IAC. I mean clearly the company was was doing Reality.

financially successful, but um But I guess in in two thousand three You you left, right? Yes. And so what'd you do? Well, um

I'd worked pretty hard. And I wasn't the greatest Work life balance guy. I was having kids. My twins, which were my second and third kids, it was pretty tough.

Pretty tough pregnancy. They came a little bit early and it was scary. So we decided My wife Sarah and I decided we wanted to pursue a dream that we had of Moving abroad. And living abroad.

So She was in her O B practice and took another six months for her to kinda work through her backlog of patients before we left. But we moved to Florence, Italy with the whole family. For a year. It was lovely. Wow. Um but but but I guess I mean it w wasn't like you were retiring forever, right? I mean you were

Presumably you've just Like taking a break. And so during that year were you starting to think about the next thing? I mean d were you Was that when you started to think about Real estate? Something with real estate? Um

We moved back. Because Sarah's dad Began to get sick. And when we came back

We knew we needed to find a new house because our family had just grown by two people. And so in order to stay out of My wife's hair I took an office With an X Expedia early Microsoft Sanford friend of mine, Lloyd Frank.

And We just were staying out of our wives' hair and brainstorming. Business ideas. And we happened to be shopping for houses, both of us at the time. And it's just like so many

Business ideas they are born of frustration. And that frustration was You've gotta get an of an agent. You've got uh right, and the agent's gonna get The commission and that's gonna inflate the price. W w are those the frustrations you were thinking of? Um

It was more that we just couldn't get the information. That We wanted to get in order to have a s successful, complete, transparent shopping experience. It's two thousand five and the web has been around for now nine years or ten years. But still, I couldn't get

Pictures of homes and complete listings and prices and addresses even? Like I couldn't get the address of a home I was shopping for online. It was just obvious to us, we were trying to answer a simple question, what is that house worth? What should we offer if we wanted to buy it. And so anyway, that was the frustration. In two thousand five, t if you were looking for a new home, Was there a single place online you could go to see all the homes available?

No, there wasn't a single place. There wasn't a single place. It was I I liken it to Shopping in a Dark. Grocery store.

With a flashlight. You know. Worse than that, the flashlight is being held by an agent who You have to ask to point it at something. It was not a great user experience and it was so obvious to Lloyd and me that Well, here we are again. The lights need to be turned on in this particular store too, just like just like the last one that we did. And was your were you starting to think uh'cause I'm thinking if I'm you and Lloyd, you'd worked on Xpedia, I'm thinking, hey, maybe we can do this with

Real estate. Like we can just put all these things up and people can just make the transaction through a site. Was that Was it literally like That was the conversation you were having? Pretty much.

Pretty much. And we also were we also loved the category of real estate from a consumer perspective. Just like travel. It's this really interesting blend of the yin and the yang of emotion and finance. It's like Homes are so entertaining to shop for. mean I was one of those kids who rode around in the back seat of my mom's car

on Sunday afternoons and we just go look at open houses. You know? Like shopping for homes is entertainment because it's it's you're dreaming. And by the way, shopping for travel, a lot of that was dreaming too. And when you describe this to people, I mean obviously you had a successful exit, but w was anybody saying, you know, travel's complicated, it's kinda regulated? Real estate's really complicated. It's super regulated. There's like really powerful industry lobbying groups, like It's really hard to break into that. Did anybody say that to you? Everybody.

Everybody. When we come back in just a moment. How Rich and his co-founders figured out the one thing that would make users flock to their new real estate site. And how when that finally happened They were totally unprepared.

Stay with us. I'm Guy Raz and you're listening to how I built this. M PR. Hey, welcome back to How I Built This. I'm Guy Roz. So it's around 2004, 2005, and Rich, his friend Lloyd Frank, and their fellow founders are trying to figure out the best way to build a real estate marketplace. on the internet.

and they decide to experiment with selling houses. In an online auction. Yes, we didn't. We we thought auctioning was quite interesting. As a price discovery mechanism?

Basically pretty hard to figure out what a house was worth. Right. And We had an extended kind of testing period where we kept adding really smart people that we mostly we'd worked with before and was just uh it was an idea lab. It was an idea incubator around real estate. Everybody in the on the team loved real estate. As we were recruiting people, we didn't tell'em what we were doing, you know, it was kind of there was some mystery. Uh we didn't really know what we were doing. We were just playing around and We did a deal with a guy we went to

Stanford with Gordon Stevenson, who is a regional Broker here in Seattle. And it we said Gordo, let us try to sell one of your houses. We wanna just try it. Uh so we didn't have to take any risk, really.

Um we just tried to run a test auction on it and it didn't it failed miserably. How did you do that? You put his house on this website and then How did you even get people to know It was silly. Like, you know, I remember our CTO who's CTO to this day, David Bytel I remember David and Lloyd and I running around with literally flyers in the rain of the North Gate Mall. And putting flyers under people's windshield wipers. I mean w it was very scrappy.

But fully tests. I mean we knew we weren't doing things that we thought would be scalable, we were doing things to learn. Anyway, one of the things we learned in that, that the whole team learned, was just how difficult it is to sell homes. And we gained a real appreciation actually for what Real estate agents too. Honestly.

I mean, did anybody get the property? No, we didn't sell it. But Gordon was selling it himself, you know, so he he he ultimately sold it. We just didn't sell it. Right. And by the way, did you have the name? Of the business Zillow? Yeah, we'd had it for a while. Because we like to make up words, as I said before. We really like the word Zillow. Um

We knew it was gonna be real estate, so We brainstormed over Coffee and beers and whiteboards and we came up with Zillow, um, which I really love. Just a totally made up word. I tell you what we did. We knew we wanted a high point scrabble letter, so Z was is just the very the very best. Very best.

And we knew that there was this yin and yang of real estate, this kind of highly emotional portion of real estate and then the highly financial. You know, it's the biggest transaction most people do in their lives, right? And so we literally on our whiteboard had a column of words that were meant to imply money, lots of data, you know, analysis, kind of geeky column of words.

And then we had this emotional column of words. Picket fence, window, door mat Hello. Pillow is one of them. And in the first column, zillions. Zillions of data points. Zillions was one of them. And so we literally just started making words by drawing lines between the two columns and Zillow. We hit Zillow and everybody's like

That's it. That's it. Well. And it cost nine ninety nine to buy the URL. Which I was kind of cheap, and people wanted to sell us homes dot com for five million dollars, and I was like

But I can make up a word and spend nine ninety nine. And you and and Lloyd initially f were financing this. You didn't go out. You didn't have to go out and and get any financing initially, right? That's that's correct. We both had resources from Expedia and Microsoft. And in this really brainstormy phase of the business We didn't need to, nor could we conceive of even raising money against

No plan. Alright, so from what I understand. You recruited a pretty high level team that you'd worked with at Microsoft and then at Expedia. But a year like almost a year into this Zilla Venture, like, you really

You weren't really kinda going anywhere. Um no, we were always going somewhere. Um We always were making progress. We never had a period where You know, we felt stuck. We had crazy ahead. But I mean, were any of those people like who had joined you thinking, hey, you know, we got we need to We gotta go get jobs. No, no, we were having a blast and we were paying people, so it was super fun and everybody felt like we were close. We were on the cusp of

Of the Uh-huh. And we had it pretty shortly after the failed auction. We had the The kinda light bulb. moment. Um what what was it? Well back to the idea of price discovery, we kept experimenting around that and at one point I don't even remember who it was

We were talking about how The home is so emotionally important, but it is the most Valuable asset for most Americans. And this was at a time when house prices were really appreciating very rapidly. I remember back in this in the states, right? And so four, oh five, it was insane. Right.

Internet bubble had burst and the stock market wasn't as interesting to people, but the housing market was on a tear and we literally somebody basically drew A stock chart on the board. And said, What if we could create this stock chart but have it be your house value? That's when everybody kinda Inhaled simultaneously. We're like, oh

That is interesting. Like people would really be excited about that. If people could follow the ups and downs of their home price. Yes. And everybody else's. And by the way. even to this day, like when you apply for a loan or something or you buy a house, like you it gets assessed by a professional assessor. And that was

And I guess that was the only way you would know what your house was assessed at or valued at. But otherwise if you just lived in a house You you would have no idea what it was worth, or not r a strong ide not a very strong idea. The way people did it was to just basically watch the market. In their local neighborhood.

Right, which was kinda hard to do. But if you keep some basic tabs on homes around your you or like yours that are being sold, what they're listing for, what they're selling for. It was hard to find out what they sold for, but you can see what they're listed for. And people would kinda triangle it. And make guesses. So they're running their own little

version of the Zestimate algorithm now, but anyway, this they're they're doing math. They're saying, Oh, that place across the street, that's listed for six hundred thousand dollars, that's got one less bedroom And we are we're a little bit bigger and our views a little better, maybe our house is worth seven hundred thousand dollars. People were doing that. But there was no resource to go to.

So um I imagine you you were s a small team, right? There was like Fewer than ten of you in that first year, is that right? Yeah, that's right. And did you I mean, when people said to you, So Rich, how are you guys gonna make money off this, did you know, did you have an answer to that question at that point or not quite yet?

Uh no, we didn't. And I was very comfortable with that. Fundamentally, we knew We were fishing in a Big pond. Okay. Real estate.

The biggest industry, okay. And if you're fishing in a big pond and you have good fishermen, you're gonna figure it out. And so we knew that if we could build something that consumers loved and can and people talked about on the sidelines of the kids' soccer games, we knew if we could attract audience, we could turn that into a business model somehow. So the idea was if you could create something compelling enough to capture eyeballs. you could figure out the business model.

Afterwards. That's right. We were marketplace builders, we had marketplace mentality and and and so we knew The elements of building a great marketplace, and it was unique and rich content that was difficult to find elsewhere, having all kinds of pricing information. Having historical transaction pricing information. Think about the stock market and the bid and the ask and the historical transactions and the pricing and we knew that that same kind of marketplace wanted to be built in real estate. We dreamed of having a bid and an ask on every home in the country. Why not?

Why not? Every home in the country ought to be for sale. At the right price. And so if we could somehow have a rich database of information and pricing information would which would enable a new kind of digital marketplace, we knew that We were at the nexus of something important. Alright, so you're trying all these different things. How do you eventually stumble on what what would become

It was gonna work. Well, the you know, the scene I described where where we drew the stock sharp on the whiteboard. But not stock, it's your house, it's an address. That was it. That was the moment.

At that point we dropped everything else and began to figure out how to build that. Anybody. the opportunity to see what the value of their home was, just like their stock portfolio, if they had one. That's right. And so we landed on the this estimate pretty early pretty early on. And further, mapping on the web was still relatively new then, okay? We fantasized about having that godlike that bird's eye view.

looking down on the rooftops in neighborhoods and having little prices on having little numbers, you know, values on every roof. And then having that updated every day and we thought That was just a head slappingly obvious viral killer product. That everybody could look at their home and see the number attached to it. That's right. And their neighbor's home. Fly around their neighbors for going fly around neighborhoods that they were interested in shopping in. Just to see. And if we could do that, we wouldn't have to spend any marketing to get people to come to the site because of course everybody would want to come. It would everyone would just tell other people about it. Oh, did you see what my ho your house is worth? Do you see what your X

Boyfriend's house is worth the one that you didn't decide not to marry? Because adults talk about really boring things like real estate. As my children. Why do adults talk about real estate, Dad? It's so boring. Yeah.

Mm How did you get Suck in all this data and and process it and I mean because you can't do it's not one person typing each home value by hand into a database. How did you guys

Do that. Well, we're technology people, so big databases didn't scare us. Um And so it was simply a matter of doing the business deals to license the data. But a lot of it wasn't online, I guess, I imagine, in two thousand five. No, not online.

Not online. Business it was to sell this information to, say, the mortgage industry for analysis. Right. etc. And we came along and we said, Hey we wanna License your data as well.

So these were companies that would go to like I don't know, the Suffolk Counthouse and just literally take the paper documents and then just put it into a database by hand. Correct. Digitize it. And then they would sell that that information to mortgage lenders and realtors and other people.

Exactly. So that was available. Was it was all of it in the US available? Most of it through different providers, which we had to go cut deals with multiple providers and they were very wary of us. As you might imagine, if you're licensing data, you don't want somebody to license it from you and then provide it free to consumers. Yeah. Which is what our which is what our intent was. Right. And so we didn't get the market leader at the time wouldn't do business with us, but there were two other companies that would, because we just kept writing bigger checks.

Lloyd and I are digging into our checkbooks to do it, but we wrote shockingly large checks early on. That's right, you know, we had to agree to stuff like not selling it to businesses. Right. And we wrote big checks and most most managers of of businesses when you write a big enough check will take it'cause they get a bigger bonus. But say you got like the data of a house, right, that was purchased in nineteen six, and this is now two thousand five.

and it was maybe purchased for I don't know, fifteen, twenty thousand dollars. And now it's two thousand five and you had the lot size and you had some information about improvements. You had to then figure out how to Create A formula?

To value that house, right? That's where the magic was. And that's where That's where the magic of of having people who understand artificial intelligence and can write Interesting algorithms to be able to ingest data. and do smart things with data and make smart predictions.

From data, that's what we did. So this was a math challenge. Like you basically had to come up with a formula. that would uh enable you to give a plausible val home value. Correct? And to say formula Is simplifying it, but yes, initially, you know, now we run all of these

you know, galactically complex artificial intelligence models and just feed as much raw data as we can get our hands on into these. machines, these software machines. And see what comes out. And then of course we get to test the results every day because there are more transactions every day. And this is two thousand five. And when were you planning on launching?

publicly launching this website. As soon as we got it done, as soon as it hit some acceptable level of Bugginess, I suppose. We figured we'd open it up as a beta. Which was a

Cute way that technologists have of releasing buggy products. Say look. You know, use at your own risk. Might not work as well as you want it to, but hey, it's free. Hm. Tell us what's wrong with it.

So you start to suck in this data and process it and then run it through a proprietary formula. Yeah. It starts to spit out. Estimates for homes or All across the country. That's right. We we do uh development now becomes how

Well our latest algorithm does in guessing Home values. How much better can we get? How much clicher can we get? What is the median margin of error? Um, we wanted to get it as good as we possibly could before we unveiled it.

So you launch february two thousand six. And by the way, was it totally stealth? Like did you kind of I don't know, let the real estate industry know that this was gonna come out and the all the people involved in that industry, or or did you just kinda put it out into the world? Completely stealth, engineered by Amy Batinsky, our marketing chief. We used selfiness as intrigue.

And so and there was a lot of it. We were you know, known entrepreneurs. And we did a good job of dribbling out little tidbits of crumbs to get people interested. And so people were watching and waiting and wondering. I think it was leaked, right, by the Wall Street Journal?

Well, we so we finally are ready to unveil it. And I don't know if you remember Walt Mossberg, you know. Sure. Personal technology column. And so

I flew to D C to go pitch Walt to should give Walt a preview. Secret preview. And we did that with several reporters and we asked that it be embargoed until such and such a date. And wall Just because he was well kinda broke embargo by three hours and published a little bit early.

And um It just the world showed up at our you know, at Zillow. That that article in the journal all of a sudden, bam. And what happened? No. No, I I can't remember exactly, but It was Down by eight AM. It had tipped over and was sad and sick and dead by eight AM of the launch day. Like yeah, it immediately crashed. Everybody was looking to see what their house is worth.

Right. And just it just sounded like Walt you know, Walt wrote about it. I can't remember what his headline was, but real estate porn or something. And Everybody was curious, so they showed up. I remember being kind of curled up in a ball.

On David Bytel, our CTO's couch. And just kind of rocking back and forth saying, make the pain stop, get things back up. Because it crashed. Because it crashed. Yeah, all these people we knew all these people were showing up and seeing nothing. When we come back in just a moment. How the Zest in it became a provocative new tool of real estate. And why after just a few years into the business?

Rich decided to step away as CEO, then Why he came back? Stay with us. I'm Guy Raz and you're listening. How I built this.

Hey, welcome back to How I Built This. I'm Guy Raz. So it's early 2006 and the brand new real estate platform Zillow has just launched. And just crashed. because it can't handle all the traffic. And Rich is freaking out about it. Amy?

The head of marketing? Amy made lemons out of lemonade on this one. She was ready for it'cause she figured it was gonna fall over. And a lemonade out of lemons for her was basically a round of stories saying wow, it's so popular it tipped over just made more people wanna come. I think you had about sixty million. homes at that point. So not not every home in the US was on there. But you were adding it.

Yeah. information as quickly as you you have the data. Yeah, we figured sixty million was good enough out of a hundred maybe a base of a hundred million. Those estimates were good enough. They weren't great, but they were good enough. I mean ca just imagine if you're in the market for a home, you're gonna go look, right? Yeah. You know,'cause it's key marketplace information. Like what do these Zilla folks think this house is worth that I'm looking at?

What's my house worth? Um I imagine when this Was launched. A lot of people were pissed off. Starting with real estate agents and assessors like right away.

'Cause this is like what are you doing? Who are you? They must have been really pissed off. Yeah, I mean I might use provoked, um So the industry being provoked was was for sure certain

Most of the industry People Kind of Dismissed us as a parlor trick. They were saying, Oh, this is nonsense, these estimates are not accurate.

Uh don't even pay attention to them. Right, exactly. And and by the way, Speaking from experience, still do say that. Many do. But um we have Two hundred and thirty five million users a month, many of them real estate agents.

Yeah. It provokes and kicks off a conversation about what real value is and the great professionals and the le the forward in the industry recognized that immediately and saw it as a tool. a tool to start conversations with clients and potential clients.

Um in those early days after you launched. Shortly. before you you did launch, you took some outside investment. And I have to assume that that you had to think about How's this business gonna make money. So I mean

Did you start to like Build a team to get advertisers on board, things like that. Yes. Absolutely. The

Easiest. Google Add Add Words. Mm-hmm. And start generating a little revenue, which it did immediately. And then we started hiring business people to actually go sell custom ads that were

targeted and relevant to Real estate for us to experiment with running ads alongside All this traffic. So you thought that, you know, hey, we can get real estate agents to advertise on the site. And what about other ways to,'cause advertising alone would not

I'm assuming wouldn't be enough. What other ways were you thinking of generating revenue? Well, it it turns out when you have a big enough audience Advertising can work quite well. Yeah. And when you can have super targeted relevant advertising in the product experience.

It isn't viewed as intrusive or advertising by the consumer, it's actually viewed as valuable content. And so a real estate agent advertising alongside a listing. Property giving a buzz. Here's my number.

Well that seems helpful. Then it is helpful. And it's advertising too. Yeah. And what about was there part of the b the The idea initially was let's eventually get into the business of selling homes. 'Cause that was initially the idea. Let's do auctions, but now you're listing home prices where you've started to think about, okay.

Maybe we can do this digital. Real estate thing. Well, our dream right from the start was to bring e commerce to Real estate. Right. With right through to the transaction.

And to take all this kind of Frustration and inefficiency and scariness. out of the transaction. And so our way in was through search and find and the Zestimate and kinda the the turn on the lights in the room. aspect of the kind of first era of Zillow, and that worked extremely well and c we got a great business model based on that. But

The hard work of digitizing the transaction and turning this into a proper e commerce transaction that's just begun. So it's exciting. Meantime, Rich, while you were launching Sillo. co-founded Glassdoor.

Which is another similar kind of site where you can go and see what Companies. pay their employees and It's a review site on businesses. Some people hate it. Some people love it. Um are you just I don't do do you have like an attention thing? Like could do you have like what's going on? I've always liked to do lots of things and we had just such a great

The kind of Microsoft slash Expedia diaspora. Such a talented group of people that I loved and One of those great people, Robert Homan, who had been a development manager at Expedia He had left and he was a gamer and he had spent like six months in his basement playing StarCraft or something and his wife Had had it.

She's like, Rich, you gotta help me. Get Bob out of the basement. And so Bob and I started brainstorming about new businesses and we landed on You know, this is Bob, you know, Bob's baby. We then in a glass door and I helped him out.

Well. You know, provocation is a fantastic marketing strategy. I've had many companies now where I've I've used this as a tool. Being able to see what Salaries are?

Different companies for different jobs. You could call that creepy or you could call that just and fair and transparent and And empowering. Um So back to to the Zillow.

situation. I mean Not that long after you launch. Stock market crashes. It turns out that the housing market in the US was Totally.

All of a sudden it's a when you started to see that in late two thousand eight and certainly began really began to hit hard in two thousand nine, two thousand ten. First of all, what happened to your business? Well, we were still pretty small.

We didn't have much business to be at risk, but we were very concerned about Yeah, the next few years ahead. And so it was an incredibly scary time and quite a shock. Truthfully our traffic held up quite

quite nicely throughout the whole thing. But because of massive uncertainty around business model And the pretty high expense burn rate we had because at the time we had about a hundred and fifty people at the company. This was the most difficult six months of my professional career because we had to downsize the company. You saw a a drop in your revenue?

Our revenue did drop, but the scarier thing was that we didn't know when and how revenue was gonna come in the future. When it was I I kept a diary at the time, uh it was pretty tough. Um I mean these are people that You know, I loved and it gone through a lot of hard

And Yeah, we had to We had to let them go. It was a learning experience and it turned out to be a A fairly short term.

Bump in the road for the company, but um it was a tough time. When the the bottom fell out of the housing market in the US Homes lost like two trillion dollars in value, right? So all of a sudden Zill's not that fun to look at. You're just watching your house like tank in value.

Just kind of explain to me how Zillows like prospects are tied to the real estate industry at that point. I mean and maybe still to this day, are they? Are are they joined the hip. No, not at all. And it's because the big trend is the move from the old way to the new way, from the offline difficult legacy to the new

digital, efficient pick your vertical industry. That is the history of the last two decades of technology taking Offline things. and moving it online that is what drove has driven zillow right from the start And that trend exists regardless of the minor ups and downs in the housing market. Alright, so you um

You're now like Five years in. Um so I guess is getting ready to go public in in two thousand eleven. You were the CEO of the company.

And Right before you do go public, you s or around then, you step down. C O Gusta Spencer Raskov, who was a a a co founder of yours. Why did you why did you step down? Were you just Were you looking to do something else?

No, Spencer was ready to to run the company and he was s excited to take a company public. I had had that experience and knew the joys and woes of being a public company CEO and taking a company public. And so and I had a lot of things going on. And so we decided to switch chairs around a little bit and I kicked myself upstairs to executive chairman. I didn't leave the company. I was still an exec at the company as chairman.

Uh but Spencer took over the Day to day leadership. I think you Come back. to run the company in

twenty eighteen. I'm Jill. grew a lot, obviously. It's publicly traded and there was lots of acquisitions including of Trulia and and other Some other brands. Why did you return to

to the CEO spot in twenty eighteen. We had accomplished The kind of first false summit. That we were after. in amassing a huge audience that we empowered with information they hadn't had before.

Before we had not yet streamlined and integrated and digitized the transaction itself. And that that we kinda all decided that that New mission. required a set of skills out of the captain that were more like a startup.

Yeah. And so Lloyd and Spencer and I all kinda decided that this was the A good opportunity for me to Come back and Put my hands on the wheel.

One of the things that I don't know if you you were sort of what we were saying or if it was started before you you returned. Was this um This new product you offer was like called Zillow offers where Basically.

people can offer to sell their homes to Zillow directly and Zillow can acquire the home fix it up and then resell the home. And this is now something you offer, right? That's right. What we're basically trying to do is solve the frustration problem that anybody out there who sold a home has gone through and knows well. Which is

How much is it gonna sell for? When is it gonna sell? How many people are gonna come through my house and not wipe their shoes and use my bathroom. And go through my closets.

And and by the way, how am I gonna line up the timing to get into the new place'cause I'm moving somewhere? It's a fraught and emotional and financially fraught process, right? And so we saw a way with Zillow Offers to offer a service, kind of a market making service to say, look. We're gonna give you a fair price for the house. So that you can pick your date. And timing, you don't have to have anybody other than us come through your house.

You can get your next house all lined up. And then on a date of your choosing magically click your heels and push a button and move. So basically Zillow buys the house from the the seller and what I mean, does that mean it eliminates A lot of the transaction costs.

We basically can eliminate a bunch of the transaction costs and streamline the whole thing because there's a bunch of waste in the process, but we do charge a fee for the service. We charge around. You know, five to seven percent. of the transaction.

To be the market maker. So the value proposition is not necessarily saving money, it's just saving the hassle of like open houses and and that stuff. Correct. Eventually as we scale maybe it's maybe it's saving money too. Right. Eventually, you know, maybe it's that. Rich, I'm curious,'cause you

also have to manage. A constituency that you also depend on. Like when you had Expedia. There were lots of um uh travel agents who were mad about it. Well, you could argue, look, that's technology guys. You know, this is the way the world is going. And there are some very successful travel agents today who provide Very high level service.

Um I have to imagine that real estate agents didn't like this, but they are also a constituency that you need. Because You know, you work with them.

Talk managing that relationship and and how you assure them that you're not going after Their turf. Like it's not as tricky as it might seem, um The future for those who care to look is pretty clear. The trends are pretty clear.

You know, the consumer wants access and control, the consumer wants less frustration, the consumer wants Three D shopping and Wants to be able to go visit the house as many times as they want and use their Zillow iPhone app to let themselves in. This is what the consumer wants, okay? Great real estate professionals absolutely know that as well. Like

You're mistaken if you think we're trying to Replace The agent and replace the industry. Yeah. We're literally just trying to give consumers a better experience and let them choose.

the door they want to go through. And we're we're there to help them. no matter how they want to do it. I I'm I'm wondering about this past year, the pandemic. Um Because it's actually

Your stock prices. Just like Skyrocketed along with other companies. W does that have to do with the way consumer

Behavior has changed during the pandemic? Well, I guess in part guy, but I guess the first thing I say to that is that Obviously the company isn't in reality that much more valuable in the space of one year. Which just

Highlights how The stock price is not the business. The business is the business. And in the long term, the stock price reflects the business. Warren Buffett likes to say. In the short run, the stock market is a is a voting machine, a popularity contest. Right.

Right. In the long run, it's a weighing machine. It's how much what how big is you know, how how much of a business did you create. And so we try not to focus too much on that. Now all that said, Pick your trend. Be it business. Political, social. Pick your trend that pre existed Covid.

And I'll show you something that was accelerated by at least five years during Covid. Yeah. And and this transition from offline to online, from legacy to digital It was in in real estate it was accelerated just like E commerce was accelerated for Amazon.

And just like You know, Netflix became even more essential. And has it changed the way people Are buying homes? Like I mean f presumably 'Cause it's still you go on there and and there's you know, your home value, but let's say you want to buy a house, like does it change how people are using your platform? Well, they're using it a lot more.

Yeah. Just like they're using Netflix more. It's more important. They're they're not only being entertained, but everybody wants to move. But more interestingly even than that is that all of these digital tools that we've been using for safety purposes during the Covid, so 3D touring, remote touring, digital closing. Like I don't wanna show up anywhere to sign the three hundred pages of documents that happen at a closing. Let's do that all digitally. Okay, so all of this was required for safety during COVID, has been and still continues to be.

But of course, all of these things are gonna be the convenient you know, gonna be demanded as convenience in the future, post-Covid. So yes, the move towards e-commerce in the real estate business has been accelerated dramatically. Permanently. Rich, I know that you guys have introduced a whole bunch of different um Offering. and other kinds of of listings that w that generate revenue, but Zillow has is yet to turn a profit.

Is that just par for the course from from your point of view? Like, well, you know, it's just gonna take some time. Well, of course I want to show a profit, and we've actually recently had a few quarters that we have. Um You know, I d just because I'm such a I dream so much about what can be in the future and As long as we as a team and our investors truly believe in the long-term growth opportunity, investors are more than willing.

To take not much profit in the short term for a chance at a much bigger business in the long term and look no farther than Amazon or Netflix or yeah. Um most people are uncomfortable with this topic, and as you probably know as a listener to the show, I'm uncomfortable with almost nothing. You have more money than than you will ever need and for many generations after. What do you plan to do with it? Well, it'll be fun to give it away. Um Have you started to do that yet or or not not quite yet.

Oh yes, yes. I mean I I would say we're We're fairly mature. Philanthropist Sarah and me. When we sold Expedia. We created a family foundation, so this was a long time ago.

Though the s the scale of our philanthropy is increasing dramatically and we'll continue to do so. And that's You know, that's very exciting to me and it's ex exciting to Sarah and It's hard to do well. Yeah. We're very focused on criminal justice reform. So that's been the primary focus of what we've done.

But we will do a lot a lot more into the future. When you when you think about your journey and all of the things that you were able to do you know, and and the opportunities you had. Do you attribute your Success.

To how hard you work? And how smart you are, or do you think more of it has to do with luck? What what do you think? Um Yeah, I mean I'm gr a grateful guy.

I feel like I have been consistently lucky. to team up with such an insanely smart and hard working bunch of People. Who knew who knew

Magic that that I didn't necessarily know. I've always been good at Painting a a a mission that was exciting. That I felt. I was passionate about and so

Passionate leaders have come to join the team. But there's really I'm having so much fun doing this. We really are on the cusp of of changing the biggest industry there is. And I am lucky. А на час бін

That's Rich Barton, co-founder of Zillow and Glassdoor. Founder of Expedia. By the way, traffic to Zillow skyrocketed this past year. In 2019, the site had 1.5 billion views.

But it rose to more than nine point six billion views in Yeah. Thanks so much for listening to the show this week. If you're not yet a subscriber, please do subscribe wherever you get your podcasts. If you want to write to us, our email address is hibt at npr.org. And if you want to follow us on Twitter or at GuyRoz or at How I Built This. You can also find us on Instagram, that's at HowIBiltThisNPR or my personal account.

at guy.ros. This episode was produced by Casey Herman with music composed by Raptine Arablui. It was edited by Neva Grant with research help from Dereth Gales. Our production staff includes JC Howard, Rachel Faulkner, James Delahousey, Julia Carney, Farah Safari, Liz Metzger, Janet Ujong Li.

and Annalise over. Our intern is Harrison BJ Choi. And Jeff Rogers is our executive producer. I'm Guy Raz, and you've been listening. How I built this.

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