Case Study: Redfin Platform Business Model Reinvents Brokerages & Earns a $1.2 Billion Valuation IPO

The Redfin Real Estate Platform Business Model Reinvents Brokerage Models & Rivals Zillow With An IPO Valuation of $1.2 Billion

According to a marketwatch.com article, Redfin’s IPO was higher than expected at $1.2 billion valuation.

Businesses traditionally see themselves in what best selling author Sangeet Choudary calls a “pipe” model.  Where the value is created upstream by the company and consumed downstream by the consumer.  The platform model is crushing that pre-internet way of thinking by building large empires with minimum investment by leveraging and orchestrating a globally connected ecosystem and playing match maker for two sides of a market place in value creation exchange.

1.  Build For Interaction-First

Social & business interactions mediated by software

In my past life I sold real estate and I saw Redfin come onto the scene in 2012 and it woke up something inside me.  It was the 5th time an innovation in my life had completely reinvented a core element of my career.

I knew the real estate brokerage model was fragmented and the environment of Realtors was sloppy.  It still is. I took advantage of it as most ambitious sales oriented people do.  Agents traditionally get a license in about 6 weeks and they’re sent out to figure the rest out on their own.  There is no real estate school of business.  Most realtors find themselves googling their way through it and hiring coaches to figure it out.

In contrast, software companies are extremely structured.  Everyone in the company has an advanced degree and they run a smooth engine that generates predictable revenue.

Redfin has brought that software level of performance to disrupt the traditional real estate brokerage model.  They put Realtors on Salary with bonus commissions for getting good reviews. Traditionally, Realtors are 100% commission and get coaching at best from a brokerage, it’s pretty much a free for all in most brokerages.

Redfin’s founder is an MIT grad and the board doesn’t include a single Realtor.  It’s a pure tech play.  A software company.  This puts a bad taste in any Realtors mouth but the model in itself is beating the crap out of traditional brokerages.

2. Focus On Efficient Value Creation & Exchange

Redfin created a Zillow type platform where buyers can easily locate homes for sale and see valuable information pertaining to the value of the home, comparable sales, historical sales transactions of the property, tax history and more.  The platform then takes a concierge approach and offers a Realtor to facilitate the transactions by delivering property showings, assisting in contracts and negotiations, inspections and financing.  Where it differs from Zillow is that the staff of Realtors actually work at Redfin and are salaried employees that get bonuses for getting good reviews so the focus is on great customer service.

In contrast, Zillow allows traditional realtors to buy advertising on the platform so if you contact that Realtor you don’t know what value of Realtor you’re really getting.  It’s anyone with a 6-week license who passed the test that can advertise there.

It’s questionable whether Redfin’s agent model will marginalize the Realtors. In other words, the extremley good agents will not take the position of a salaried employee so there won’t be amazing Realtors there, those ones will buy the ads on Zillow but so will the extremely bad realtors so you don’t know what you’re going to get.  At Redfin, you get an average realtor.  On Zillow you get random ranges of poor to great quality with average that is unpredictable.

Redfin has controlled that by controlling the value they deliver to be acceptable and predictable.

The Redfin agent does not need to know how to drum up their own business where the traditional agent does.  That allows the Redfin agent to focus on contract negotiation, showing homes, spending more time on the activities that aid in the buyer and seller having a high quality transaction where the traditional agent might be distracted by getting new clients, advertising themselves, coordinating their team, etc.  All of those roles in Redfin are different job positions so the efficiency of scale applies.

3. On-Demand Service Delivery

In the case of Redfin, it took advantage of the inefficiencies rampant in the real estate brokerage model and applied their background of the software business model to it.  They created a much more dependable and predictable outcome.

“As the world becomes more connected, the platforms that harness these connections into effective business models will win.” – Sangeet Paul Choudary

Your Homework Is To Find The Points Of Interaction & Create an Interface Where There Isn’t One Yet :

Inspect and locate inefficiencies in your industry and leverage the new common social interaction habits to create a marketplace where the two sides of your market can interact. Offer something of value.

Poshmark started with Facebook Groups.

They created one group for a category of fashion items.  Ie. High End Purses Trading Group. Brand Trading Group such as the Loui Vuitton  Traders Only Group.

This should be as simple as a facebook group to validate the ideal first then it grows to become as complex Redfin …

Airbnb started with Craigslist Siphoning.

Hundreds of thousands of rental properties are listed on Craigslist but there was no way of vetting your renter.  Airbnb offered vetting with drivers licenses and pulled landlords out of craigslist to list their property on their platform

“We are in the midst of a transformative shift as business models move from pipes to platforms”

SANGREET PAUL CHOUDARY . AUTHOR, PLATFORM SCALE

Find Us

Address
6730 W. Linebaugh Ave. Ste.201
Tampa, FL 33625

Hours
You can reach me 24/7. If  3am inspires you, reach out.

About This Site

I focus on growth and innovation to introduce new & practical efficiencies of scale as policy throughout our organization by running focused, experiments in our corporate office. I’ll post the actual results to expose proven, field tested tactics brought to light by the smartest and most innovative executors in current times. I’ll show how we implemented them and what the results were to help others skip ahead… punk rock and middle fingers defined my adolescence, I look at everything sideways on purpose and I’m looking for tribespeople like me to grow with and I’m 100% open to meeting you so do us both the favor of reaching out if you feel like we’re kindred spirits.

Facebook Comments
2017-08-15T21:36:27+00:00

About the Author:

A new business model is methodically disrupting every industry and it's not done yet. Opportunity abounds and you should be scrambling for footing. I'm determined to dissect it and expose the patterns. I am fascinated by this digital revolution and I'll unpack business models from platforms that show explosive growth and which industries are poised to crumble by disruption then explode withe this new business model as the smartest people in our era change the world. I'll inspect what works and present practical, actionable applications of what I learn to help people ride the tidal wave rather than get wiped out by it. Find out when, how and why exponential growth works. I'll show Case studies, comparisons and how I think it can be applied by a practical and average person. This helps me organize my thoughts and I hope it's helpful to others.

Leave A Comment