Zillow and the Long Tail

Zillow will open an API for real estate information, calling it a "long tail" play. Is it a good idea? Or is the "long tail" a mirage, as The Wall Street Journal's Lee Gomes suggests?

Over at the Zillow blog today, Mark Eamer announced that the company will offer an open API for developers to use to access the company's real estate values estimates and related information. Why, because Zillow "believe(s) that real estate is all about the long tail."

This is a great idea, though it isn't clear what the business termsThe long tail doesn’t mean profits are assured, just more chances for profit. for using Zillow data might be. The company has mined city, county and state databases to assemble an impressive array of data that can help buyers and sellers reach a fair price for a home or land quickly. So, too, has competitor realestateabc.com. Both of these companies are young and seek to contextualize real estate listings, which is, I think, essential to adding value to an already well-served business. If the market is destined to be a race to the bottom of the pricing barrel, it looks great for developers but could strangle Zillow and Realestateabc's promising ideas along the way.

Lee Gomes of The Wall Street Journal today wrote a fairly scathing review of the long tail ideas espoused by Wired Editor Chris Anderson's book, The Long Tail: Why the Future of Business Is Selling Less of More, the latest of the big idea business books to shoot for Gladwellian success. Says Gomes:

The book argues that while traditional companies are limited by shelf space to offering only a relatively small number of "hits," on the Web, they can carry a vastly bigger number of slower-selling items. These "misses," which make up the "tail" of the title, can, he says, add up to a big number -- maybe even bigger than sales of the hits.

That's a seriously flawed mistatement of the notion of the long tail, as Anderson points out on his blog today. The book makes the case that previously difficult to sell titles and products in physical markets are much easier to sell in networked ones—hence, you can make a business of selling less popular stuff instead of competing solely in the "fat head" of the distribution curve known these days as "a long tail graph."

But Mr. Gomes does find a number of valid points of criticism because Mr. Anderson's tendency, like many writers, to declare rules based on selected statistics. Nevertheless, the basic idea, which, based on my reading of of the book and his blog, Anderson has developed more thoroughly on his blog than the book that summarizes his research, has some legs, at least for those of us who will live and do business in the long tail. Kevin Kelly's 1997 article and book, New Rules for the New Economy, were overblown, too. So it goes with marketing of books.

My long tail experience with older titles, such as the 40 or so Audible titles I've produced is that there is a remarkably long life for programs created seven and eight years ago. In the most recent quarter, 31 different episodes sold, in keeping with the general predictions of Anderson's book. More than 75 percent of the catalog sold at least once. Only nine programs sold more than one copy. It's not the 98 percent rule of Anderson's that Gomes tears apart, but it's surprisingly high sales for such old and largely outdated programming (a lot of it was topical, so I am at a loss why people are still listening). What's really interesting to me is that only 13 programs show up when you search the Audible catalog, yet many more sold last quarter.

What Zillow is gambling on, and I think correctly, is the power of lowered barriers to transactions in the real estate markets. More transactions will happen with more information that makes buyers confident they are getting a better deal than the seller—the speculative and necessary ("we need a bigger place") aspects of real estate can be accelerated by a few percentage points to create fairly huge increases. The long tail has always existed, especially in commodity markets. Network technology made it accessible for many more buyers and sellers. There is substantial value in connecting people to markets that were obscured by geography and distribution limitations or scarcity of information before.

In this case, most real estate sales are local, but a networked market with comparables easily accessible, like Zillow offers, the number of properties considered will almost always be greater. More choices and more buyers translates into increased average sales, not necessarily higher prices for property but somewhat more frequent sales. Ask a realtor if by increasing the number of transactions they handle in a year by two or five percent isn't a windfall. In that extra activity, there's enough profit to make Zillow or its competition a very nice profit if they do not first race to eliminate their margins.

The long tail doesn't mean profits are assured, just more chances for profit because efficiency doesn't depend on sales being concentrated in the top percentiles of the market.