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I think the tone is appropriate, because the issue is a bit more subtle than that. Zillow was afraid to plan for the large losses necessary to gather the only

I think the tone is appropriate, because the issue is a bit more subtle than that. Zillow was afraid to plan for the large losses necessary to gather the only data that counts, i.e. the data that is the outcome of their own processes. Planning to lose money takes nerve. Zillow tried to avoid avoid the pain, and ended up abandoning what might be a profitable enterprise (for someone else) in the future.

seoaeu 5y ago
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!
- indymike 5y ago
  > 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.
  - djbusby 5y 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.
    - indymike 5y 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.
      - seoaeu 5y ago
        You could use that argument to justify spending more money on any unprofitable venture. If you discover that some market segment is higher risk or lower profit than you expected, that is a good reason to consider course correcting. Around 2008, some investment banks famously had a single division manage to lose significantly more money than the entire rest of the company made over the same time period. Zillow not wanting to replicate their mistake isn't necessarily a bad decision.
- vmception 5y 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.
- throwhauser 5y ago
  > [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.
  - seoaeu 5y 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.

seoaeu 5y ago

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!

indymike 5y ago
> 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.
- djbusby 5y 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.
  - indymike 5y 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.
    - seoaeu 5y ago
      You could use that argument to justify spending more money on any unprofitable venture. If you discover that some market segment is higher risk or lower profit than you expected, that is a good reason to consider course correcting. Around 2008, some investment banks famously had a single division manage to lose significantly more money than the entire rest of the company made over the same time period. Zillow not wanting to replicate their mistake isn't necessarily a bad decision.
vmception 5y 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.
throwhauser 5y ago
> [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.
- seoaeu 5y 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.