Free Economy
Earlier this month, our writing travels brought us to Denver, home to Liberty Media, a holding company that not many in the direct response space will know by name, but whose principal businesses and assets it will, namely QVC, Inc. and Starz, LLC along with interests in IAC/InterActiveCorp, Expedia, Inc. and The DIRECTV Group. The company’s interactive division has controlling interest in, among other things, Bodybuilding.com, Backcountry.com, Celebrate Express, Proflowers.com, Red Envelope, and Blue Nile. They are a powerhouse, and the forum they held, matched if not exceeded the quality of companies in their portfolio. Like the blogger accidentally sent the Google Chrome comic, we didn’t look a gift horse in the moth when the invitation to attend their one-day gathering showed up in our inbox. Hosted by its creator, Michael Zeisser, the man behind Liberty’s interactive acquisitions and among the most impressive individuals in all of interactive, the meeting is really a hundred of his hand selected contacts. They included top-tier venture capitalists, existing chief executives of companies that we use frequently, along with quite a few multiple exit founders of companies that we use frequently. One of those in the latter category was Richard Barton, founder of Expedia and Zillow, and an active investor in a number of other startups such as Avvo.com and the salary spy site, Glassdoor.com. Not only Richard’s presentation (adapted from one he gave elsewhere) but all were engaging, resulting in copious note taking, and occasionally some were controversial, at least from the performance marketers mindset.
It’s not often that we get to listen to the founder of such game changing companies. I’ve never listened to Steve Jobs, but I would suspect some parity in their thought process and their approach to technology and the Internet. For example, most in our space, look at the Internet as an ad medium and try to aggregate as much undervalued inventory to drive as many conversions as possible. We don’t generally speak in terms of it as a "consumer empowerment tool." But, if your goals include fundamentally altering the way people obtain information and to forever change an industry, then it seems you do. A key to which is the fact that users will spend as much time as they can to get the information they need. People might not walk an extra block to save 10% on coffee, but they will spend hours to feel good about their decisions. It ties into his basic thesis, that transparency of information is power. And, if you look at the sites he has built, they all focus on creating transparency that didn’t exist before. In his view, there are three main truths in the Internet economy. First, "If it can be known, it will be known." Second, "If it can be rated, it will be rated." And, third, "If it can be free, it will be free." Along with the notion of transparency is his view that any company whose business exists by trying to go counter to these truths, will ultimately fail.
Zillow.com is a classic example, and on stage, Richard seemed to take pride in how his mortgage site, destroyed the front-runner of the time’s business, HouseValues. HouseValues is a classic 1.0 lead generation play operating in much the same way that a LowerMyBills did. With LowewrMyBills, the ads said, "Calculate New Payment." A user would click on the ad, go to the landing page, and fill out their information in the expectation of getting a new rate; although the messaging on the landing page would reinforce the refinance angle. Users did get a rate but not generally in the manner they expected. A rate didn’t show up on the page after they filled out their information. Mortgage brokers and lenders would contact them in order to discuss a refinance, which presumably is where the rate discussion took place. With HouseValues, they pitched users on obtaining the current value of their house. Upon signup, users didn’t get to know what their house was worth. They had to wait until a real estate agent contacted them. The presumption is that if you were curious to know what your house was worth, you might be in the process of looking to buy and/or sell. Both LowerMyBills and HouseValues relied almost exclusively on spending money to make money, and for a while they both worked well. Neither site was particularly well positioned for the housing burst, but judging by the traffic stats comparing HouseValues and Zillow, it’s hard not think that perhaps Richard Burton has a point.
For those that haven’t used Zillow, you will, if you own a home and/or ever look to buy one. The amount of data available for free will astound and the technology that makes this data accessible, incredible. It fulfills on the implicit promise made to the user and removes their reliance on an inefficient system – using Realtors to find out pricing. It’s also transforming the mortgage business. Users can request a quote and they receive something we have not seen before, absolute transparency in pricing, from rates to costs. And, in going with the "it can be rated angle," users can read what others have said about that particular lender. User data, once entered, doesn’t go to of those listed. The user must initiate contact. It’s pretty radical, but will it make money? The question that we asked after the talk, and one in which we didn’t get a real answer, is what is the cost of free. In this case, it’s at least $87 million in funding (even though that doesn’t protect all jobs). HouseValues and LowerMyBills didn’t have the luxury of such extensive backing or solving a problem because it was the right thing to solve. We as users benefit, but it shouldn’t be used as a reason to bash them. More than anything, it is worth studying to understand what challenges profitable companies can face and what they could have done to protect them. Death to all paid sites and lead generation? Not hardly.
