Real Estate Marketing and The Long Tail Economy

From the Zillow Blog, we learn of their plans to launch an "open API" program later this year. For those of us less technically inclined, Application Programming Interface or API is the interface that a computer system, provides in order to allow requests by other computer programs, and/or to allow data to be exchanged between them (from Wikipedia).
From this definition, we can assume that an open API means that the program is open to any webmaster to include third party functionality on their domain, provided they know what they're doing. Google does it with Google maps, spawning the "mash-up revolution" blogged about last week. Will the Zillow API spawn a similar revolution?
I guess a significant problem for Zillow at the moment is credibility. Some suggest that Zillow's "Zestimates" are way off base, but since they're still in beta, it's probably slightly premature to be overly critical at this point, notwithstanding the near $60 million they've got in seed money. Nevertheless, they should be given the opportunity to work through the bugs, but with 60 mill in the bank, let's hope - for their sake - they work quickly before the money runs out. .
Why is Zillow doing this?
Their blog indicates they believe that real estate marketing is effectively niche and local and identify long tail as the new market distribution model. Zillow estimates that there are currently more than a million real estate websites in the U.S., with only a handful getting any significant attention:

it’s clear that buyers and sellers engage with real estate professionals on a local level. And it’s also clear that many individual agents may be looking to enhance their own sites with relevant and sticky content.

Zillow seems to feel that their content is sticky, (although Dustin appears to have a different view), but what exactly is the long tail? And what is its relevance to real estate sales and marketing?

The Long Tail concept


The term - coined by Wired's editor-in-chief Chris Anderson in an article he wrote in 2004 - essentially claims that:

products that are in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, if the store or distribution channel is large enough. Examples of such mega-stores include the online retailer Amazon.com, and the online video rental service Netflix. The Long Tail is a potential market and, as the examples illustrate, successfully tapping in to that long tail market is often enabled by the distribution and sales channel opportunities the Internet creates.

odotzero believes that:

... with the cost of technology and tools decreasing constantly, and the older generation of brokers retiring and moving on, I’m thinking the Long Tail will transform [commercial real estate] almost completely in several years. If you combine the Long Tail that exists among the brokers, and then combine that with the possibility that it is more valuable to do a lot of small deals than one huge one… hmm…. Plus… the Long Tail implies that there are smaller market niches that can be exploited somehow more effectively

he then provides a scenario of a broker who...

hooks up with the guy who specializes in parking lots, and then another guy who specializes in mixed-use development marketing, adds a guy who knows everything there is to know about data centers, a guy who specializes in luxury multifamily marketing, then adds a residential agent who specializes in marketing to the rich, another residential agent who specializes in marketing to the gay community, and so on and so forth. This ad-hoc team would essentially have every single specialty covered to service a very large mixed-use office-retail-multifamily development.
By leveraging information technology — VOIP, for example, to create a single phone number to their ad-hoc firm with voicemail, directories, extensions, etc. — this group can become a major presence practically overnight, with extremely low overhead. By tapping into publicly available databases, or pooling their data, they erase the proprietary data advantage that a Big Company might have. Because each person is super-specialized, the group can bring so much expertise and knowledge to the table that a Big Company would have trouble matching.

Long Tail vs Hit Driven

In his 2004 article, Anderson provides an example of a long tail economic model for the media and entertainment industries, by highlighting companies like Netflix, Yahoo! Launch, the iTunes Music Store and Rhapsody. Anderson claims that consumers are "going deep into the catalog, down the long, long list of available titles, far past what's available at Blockbuster Video, Tower Records, and Barnes & Noble. And the more they find, the more they like. As they wander further from the beaten path, they discover their taste is not as mainstream as they thought (or as they had been led to believe by marketing, a lack of alternatives, and a hit-driven culture).
Mainstrean marketing he claims is "hit-driven economics" , meaning the model is based on the fact that there is not "enough room to carry everything for everybody. Not enough shelf space for all the CDs, DVDs, and games produced. Not enough screens to show all the available movies. Not enough channels to broadcast all the TV programs, not enough radio waves to play all the music created, and not enough hours in the day to squeeze everything out through either of those sets of slots. ... this is the world of scarcity. Now, with online distribution and retail, we are entering a world of abundance. And the differences are profound."
In essence, iTunes, Amazon, and Netflix, have discovered that the "misses" also make money, and because there are so many more misses than hits, that money can add up quickly to a huge new market. I guess essentially what Long Tail economics is all about essentially is niche marketing, and what Anderson and others have recognized is the new power that RSS and other new search technologies are beginning to implement, creating a whole new paradigm for businesses.

When you think about it, most successful businesses on the Internet are about aggregating the Long Tail in one way or another. Google, for instance, makes most of its money off small advertisers (the long tail of advertising), and eBay is mostly tail as well - niche and one-off products. By overcoming the limitations of geography and scale, just as Rhapsody and Amazon have, Google and eBay have discovered new markets and expanded existing ones.

In a nutshell, almost anything is worth offering for sale on the off chance it will find a buyer. The new technologies dramatically reduce marketing and distribution cost, increasing profit margins accross the board, whether the product is a "hit" or a "miss". Mitch Ratcliffe over at ZDNet feels that Zillow has got the right idea. Radcliffe feels that Zillow is correct in betting on "the power of lowered barriers to transactions in the real estate markets." Ratcliffe feels that more transactions will happen as more information information becomes available making consumers feel more confident that they are getting more value and for that matter far more relevant purchases to suit their needs:

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 rise in real-estate Long Tail marketing is evident; with new players taking advantage of new marketing techniques to reach out to alternative markets (geographical and otherwise) that were traditionally neglected.