If Craigslist Were Raising Money, What Would It Be Worth?

Zillow announced today that the real estate media company raised $30 million in a round led by private-equity firm Legg Mason. What’s interesting to us is how the world is reacting to one of the biggest venture investments since the 1990′s. Becky Buckman at the Wall Street Journal speculates that the valuation was $350 million, but without mentioning whether this includes the $30 million in cash.

Michael Arrington at TechCrunch is the only one to notice that Legg Mason was the same investor that led the other mammoth Web 2.0 investment this year, the $44 million round in Marc Andressen’s Ning from July 2007. VentureBeat reports the news on the heels of a depressing announcement that a 6th-grader raised $6.5 million.

Seattle’s John Cook goes deep with a Rich Barton interview in which the Zillow CEO describes a money-raising effort that wasn’t an effort at all. What struck me most about this interview though was Rich’s reaction to Web 2.0 startups, which John described as trying to “build something very cheap with two or three engineers, you test it, you try to build it through a grass roots marketing campaign and then if it is successful, then you sell out, like Flickr.” Rich responds, “That is completely anathema to me.”

And we agree with Rich’s objections to startups that stay small so they can sell out early, having argued before how important it is for entrepreneurs to shoot the moon. But what if John had asked the question slightly differently, about startups that want to do something big, but don’t raise a lot of capital? This is Web 2.0′s $24,000 question. Can community — people selling dressers, taking pictures, arguing over Scientology — take the place that capital — sock puppets, fancy offices, huge financing rounds — once had in the ’90′s?

For all the baloney oozing out of warmed-over Web 2.0 startups, this was the one premise that seems really worthwhile and even precious: that we could combine existing web software to build sites where the people who use them create a lot of the value, all without spending too much money.

This has been on my mind ever since I heard Rich’s comments to a group of entrepreneurs in which he predicted that Wikipedia and Craigslist (first audio clip) would have to make a lot of money or lose to better-funded competitors. It was a fiendishly provocative statement, because those sites have special meaning to any Internet aficionado, which in turn probably explains why they have thus far flourished.

It still seems possible that a small number of committed engineers, supported by an enthused community of people, can change the world (you see this stuff on the back of cars – albeit never very nice cars – all the time). In so doing, the engineers can usually make money.

Zillow may of course have both a community that extends beyond the real estate industry as well as an unusually large amount of capital, but it’s the community — people talking about real estate on Zillow — that will drive their success, not the capital.


  • http://www.zillow.com rich barton

    Insightful, per usual, Glenn, and it does have me thinking. Perhaps I’ve just been in the “software” business far too long, and I’m assuming that the creation of a better “user experience” and a more intuitive application will end up winning over something that is less usable. My assumption is that it is generally resources that can be marshalled against building great software that will end up winning, thus the company with a business model will win. Your post adds to a bunch of signal I’ve been getting about how community, or rather, mature network effects, trumps software. Look no further than ebay to see this. From a software and UI perspective Ebay is really a mess, yet their strong network effect has enabled them an extended period of lack of innovation and still there are no challengers to one of the great web ideas of all time. Anyway, good mental bubble gum, and, clearly the building of community is central to our mission at Zillow. I’d not put together that community and resource$ are to manfestations of the same stuff, though. There’s some Einsteinian equation in there, maybe. It’s not E=Mc^2 (Energy = Mass) it’s C=Mx^2 (Community = Money).

  • http://blog.redfin.com/blog/author/glenn%20kelman Glenn Kelman

    eBay drives me nuts too because its IBM-powered site is such crap. First-mover advantage really matters when you’re trying to create your own private marketplace. In almost any other case, yes, the community will migrate to the best site, which may or may not be built by the company with the most resources. I really do believe in small engineering teams (to a point, and in part because I have no choice given the size of our own team).

  • http://www.curiousoffice.com Kelly Smith

    Can another eBay be built today on the same premises that got eBay to where it is? Honestly, I’m not so sure. The webRnet isn’t the same animal. The number of people fighting for the same eyeballs with the same basic value propositions is exponentially higher than it was back in the mid 90′s when both Craigslist and eBay were started. I’m sure everyone values the concept of “community”. The hard question for me is, “yea but how do you get a big one?”. And here, I think everyone is right:

    1) Build the best experience
    2) Have the best people (marketing,dev,etc)
    3) Have a rich value proposition for users
    4) Work harder at “web marketing” than everyone else
    5) Suck the air out of the room in your vertical such that everyone else is seen to be “following” vs. “leading”
    6) Have an ability to buy other people’s eyeballs (e.g. take a page out of the Marchex book)
    6.a.) That means have cash to take others out when you see a good opportunity
    7) Understand search engines better than your competitors
    8) Understand link building better than your competitors
    9) Understand “conversion” better than your competitors
    10) Do the best PR in your space
    11) Look outside your space constantly for inspiration that can be applied (e.g. look at Yelp! Where did they come from!? And why?)
    12) Spend “smarter” than everyone else – no matter how much money is in the bank
    13) Develop and engineer with a “360 degree” view: best UI, best usability, high performance, ability to scale, best prioritization of value features, best optimization for search and community functions
    14) Develop a genuine emotional connection with users so they eventually feel a responsibility for the success of the company…and the community. At some point, it has to become less about the management and more about the users.
    15) Move faster than everyone else

    Back to the cash thing:

    For some businesses today, the ability to buy others eyeballs might be A LOT easier than organically attracting them. That takes cash. But I suspect that buying ability still doesn’t let anyone off the hook when it comes to having to build the best product. But having the best product isn’t always a cash equation. It’s a people question.

  • http://www.wannanetwork.com Tony Sena

    Like you said at the end of your blog, you can raise a ton of capital, but if people don’t like your platform, it doesn’t matter how much you raise.