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0 pointsseoaeu4y ago0 comments

Zillow is passing on an infinite number of potentially profitable enterprises. The reason they attempted this one is because they thought they already had good enough models to avoid taking large losses. If you read their statements, it is clear the reason Zillow is abandoning the this effort is because of inaccuracies in their models not just because they were spooked by losing money. They were also spooked last quarter by making too much money!

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6 comments · 3 top-level

indymike4y ago· 2 in thread

> The reason they attempted this one is because they thought they already had good enough models to avoid taking large losses.

Risk aversion and launching a new business strategy do not work well together.

djbusby4y ago

Wait. There is a lot of messaging telling entrepreneurs to try to de-risk their new ventures. The common pattern I observe is having a new ideas and de-risking it into a successful business.

indymike4y ago

> The common pattern I observe is having a new ideas and de-risking it into a successful business.

That is a common pattern, but when you see a company launch a new venture and the primary goal is to not lose money, often, the desire not to lose money leads to decisions that prevent actually making money.

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throwhauser4y ago· 1 in thread

> [T]hey thought they already had good enough models to avoid taking large losses.

That's a fair point; the essay doesn't do much to distinguish whether they didn't know they needed to take losses, or couldn't take the pain of the losses.

Nevertheless, it's a pretty good analysis of what a company needs to do, in order to build a model relevant to their own actual business. They need to both know about the pain involved, and be prepared to take it. (And even then it might not work!) Third-party data (and suffering) might not be a good substitute.

seoaeuOP4y ago

Their model was something like buy houses for 'market_price(house) * 95%' and then sell them for 'market_price(house)'. The article argues that they should have devised a core complex model for asking prices, but an equally viable strategy would be to make sure their market price estimations were sufficiently accurate. That doesn't take any company specific information so it is entirely plausible (although false) that their Zestimate values would work well enough.

vmception4y ago

I hear the division was toxic which makes more sense than all of this.

CEO said cut! Way to go!

This loss was not immaterial but it also wasnt too material as they werent even leveraged on the homes. They had orders of magnitude more capital to risk if they really chose to dive into this or take it at least to real estate 2008 levels. Far from it.

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