Halftime In Chicago
Day One reflections on the Zillow v. MRED hearing.
What a day.
Unlike my usual, highly considered and carefully edited posts, this one is going to be a flurry of thoughts.
Also, I’m going to resist the temptation to speculate on the judge’s position or opine too heavily on either side’s performance today. We’re only halfway through the hearing with a great deal to look forward to in Day Two.
That said, there is plenty to talk about from today. So, here’s what I’m thinking about as I download in real time.
First, on arbitration, since I flagged it heavily in my last post. There was only one passing mention of the motion for arbitration as nearly the final words of the day. Judge Tharp granted Zillow’s sur-reply, granting them until July 6 to file an extra brief on the arbitration issue. Nothing further was said, but at least we know that a decision on MRED’s motion to move the case to arbitration will not be made until after then.
As for the room, I wasn’t entirely sure what to expect walking in this morning, but I thought there would be more people and, in some ways, more formality. That’s not to say it felt casual, in any sense. There was an appropriate seriousness. But there was also a friendliness, at least in what I experienced as I met and interacted with people on both sides of the hearing. In total, there were only about 35 people in the room. Only two media outlets sent reporters: The Real Deal and RISMedia.
The attorneys for Zillow, MRED, and Compass all made their opening statements. There weren’t really any surprises off the bat. At the risk of being overly reductionistic, here’s how I’d summarize each.
Zillow: MRED and Compass conspired and organized a boycott to kill a transparency standard (ZLAS) that threatens the proliferation of private listing networks (PLNs). Zillow maintains the harm to Zillow and to consumers is immediate and irreparable.
MRED: This issue is nothing but a neutral rule enforced evenly. MRED doesn’t discriminate by business model. Zillow broke the rule and losing access to the listing feed is the consequence. Zillow is, ironically, the anticompetitive one by attempting to weaponize listing data and dictate marketing strategies through ZLAS.
Compass: Zillow free-rides on listings it didn’t create and, now, wants to police everyone’s marketing strategy. MRED’s rule is reasonable; Compass merely asked that it be enforced fairly. To that end, Zillow’s alleged harm is entirely self-inflicted. Their own ZLAS make fewer homes available to homebuyers, not more.
Errol Samuelson (Chief Industry Development Officer, Zillow), Chris Haran (Chief Technology Officer, MRED), Jeremy Hofmann (Chief Financial Officer, Zillow), and Fran Broude (Regional Vice President, Compass) were all called on to testify today.
Six and a half hours of testimony is a lot to take in. So, in no specific order, here are the things that stood out most to me.
There was a lot of focus from both the Zillow and MRED/Compass sides about Zillow Preview. MRED and Compass framed Zillow Preview as the ultimate hypocrisy. They pressed hard on Zillow adjusting their ZLAS around the same time they announced the Zillow Preview product. Under the original ZLAS, Zillow Preview listings would have violated their own standards because Previews are an off-MLS, pre-market option for home sellers.
For Zillow’s part, they countered the apparent hypocrisy and defended Zillow Preview as a necessary product to introduce in a market where Clear Cooperation Policy has been severely weakened and MLS rules have evolved significantly over the past year to make allowances for more pre-market strategies. Zillow Preview also played an important role in their argument for irreparable harm as Zillow Preview’s chances for adoption and success are seriously jeopardized if Zillow loses access to the Chicagoland feed.
Zillow’s partnership with Opendoor was also brought up on multiple occasions. MRED and Compass sought to undermine Zillow’s claims of fighting for transparency and market visibility on the basis of their support of Opendoor buying off-market properties. In another apparent hypocrisy, Zillow supported sellers who chose to sell their home off-market to Opendoor. The attorneys argued that if Zillow cares so much about sellers getting maximum market exposure and buyers having the opportunity to see every available home, how can they simultaneously endorse a platform in which sellers obtain less than market value and no other buyer has any opportunity to see the home before Opendoor closes on it?
Both Mr. Samuelson and Mr. Hoffman categorically denied any hypocrisy, stating that comparing a seller who chooses to sell to Opendoor and a seller who chooses to list their home privately in Compass’s Phase 1 of the 3PM are apples and oranges. In no small part because the goal of every Opendoor acquisition is to bring the property back onto the full market as quickly as possible.
We spent a lot of time camped out on Compass’s ‘Black Box.’ The heart of the question was, what’s the difference between a Private Exclusive (PEs) and an office exclusive? In most cases, traditional office exclusives are allowed under ZLAS because they are truly ‘private.’ Zillow argued that Compass’s ‘Black Box’ creates a “false privacy,” since anyone who is willing to enter some basic identifying information can get past the initial gate and access the full private listing network. From my interpretation, Zillow’s position is that PEs are fundamentally different in their intent from a traditional office exclusive, which is why PEs that later go public are suppressed according to ZLAS whereas genuine office exclusives may not be.
For Zillow’s part, they went after MRED and Compass’s alleged coordination of action and the subsequent incursion of irreparable harm relentlessly.
On irreparable harm, Zillow’s brand promise is to have the most up-to-date and comprehensive set of listings on the internet. It was repeated several times that “listings are the lifeblood of Zillow’s business.” Losing listings means Zillow cannot make good on their brand promise, which leads to consumers leaving. If consumers leave, agents leave. And loss of partner agents directly impacts revenue on nearly every front of Zillow’s business. So much so that Zillow insists they cannot put a dollar amount on the blow to their brand identity.
Zillow alleges that MRED and Compass, in recognition of how important listings are to Zillow’s viability, have conspired to target Zillow in a coordinated effort. Their attorney displayed several examples of communications between MRED and Compass’s leadership and agents.
Perhaps the hardest for MRED & Compass to square are those communications that framed MRED to Compass agents as the MLS that will “protect you from Zillow,” and others that showed Compass was coordinating a full marketing blitz weeks in advance of MRED cutting Zillow’s feed. The main message of that campaign? “Search Compass.com for thousands of homes not on Zillow.”
In Broude’s defense, her final words from the stand were that she “greatly hoped that Zillow and MRED would come to terms and that the feed suspension would not happen” and that she had no beforehand knowledge that MRED would cut the feed.
Up Tomorrow: Robert Reffkin and Rebecca Jensen are expected to take the stand, along with Zillow’s and Compass’s experts. It’s going to be another full day.
Unsurprisingly, I’ve got interpretations starting to take shape. But it’s only halftime. So, I’ll let the lawyers and those testifying finish saying their piece before I contribute any of mine.
More soon.
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Another banger. Cant wait to see what happens on Day 2!