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Real Estate Corporate

Move, NAR sue Zillow and Errol Samuelson

Move, Inc. and the National Association of Realtors have sued Errol Samuelson not for his leaving without notice, but questionable circumstances like wiped hard drives.

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According to court documents filed in the State of Washington, a lawsuit has been filed by the National Association of Realtors (NAR) and Move, Inc. (operator of realtor.com, Top Producer, SocialBios, ListHub, and several other companies) against Zillow, Inc. and Errol Samuelson.

The suit alleges breach of contract, breach of fiduciary duty, and misappropriation of trade secrets. In a statement, Steve Berkowitz, CEO of Move said, “we take our trade secrets and intellectual property extremely seriously as a valuable asset in our competitive position in the marketplace. We take action in cases in which we believe our trade secrets have been compromised. We have raised this matter for the courts and believe that the matter will be resolved judiciously.”

When Errol Samuelson, former president of realtor.com and Chief Strategy Officer at Move, Inc. left to become Zillow’s Chief Industry Development Officer, reactions ranged from criticism of Move, calling it a poaching of talent, to a criticism of Samuelson, calling it a betrayal to the industry as NAR members own and have an operating agreement with Move (which competes with Zillow).

Lawsuit alleges that Samuelson destroyed evidence

Court documents state that “Each quarter that he was employed by, and an officer of, Move, Mr. Samuelson certified in writing that he had read, understood, and would abide by Move’s Code of Conduct and Business Ethics,” which includes a “Conflict of Interest” clause and forbids employees from releasing proprietary and confidential information during and after his employment.

Further, the suit states that Samuelson arranged to defect to Zillow, destroyed evidence by erasing all memory from the iPhone, iPad, and laptop issued to him for business purposes by Move, and then resigning from Move without notice.

Last week, we also questioned the timing, wondering if it was designed to hurt Move, Inc. company stocks, or benefit Zillow in some capacity, which Move and NAR clearly agree with via their lawsuit.

The truth is that during his tenure at Move, Samuelson was promoted to a position that was so encompassing, that his job entailed knowing the inner workings of Move companies as well as the National Association of Realtors. The role will not be filled as it once was, rather remain broken into parts and functions will be filled by various people.

Samuelson isn’t the only one

Don’t consider this the last lawsuit to be filed, as Zillow announced today that Samuelson’s replacement, Curt Beardsley jumped ship today as well to become Zillow’s Vice President of Industry Development.

Also, this probably shouldn’t be considered the last high ranking official that will leave for Zillow in this apparent coup – their pockets are deep and they’re clearly willing to use their assets. Next quarter’s SEC filings will shed more light on just that.

This story was originally published on AGBeat on March 17, 2014.

Lani is the Chief Operating Officer at The Real Daily and sister news outlet, The American Genius, and has been named in the Inman 100 Most Influential Real Estate Leaders several times, co-authored a book, co-founded BASHH and Austin Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

Real Estate Corporate

WeWork’s melodramatic IPO withdrawal could hurt Compass & Opendoor

(REAL ESTATE) You may ask what some tool who claims he invented coworking has to do with the real estate tech world, but it turns out the ties that bind them are closer than many thought. Buckle up, this is a wild ride.

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If you haven’t been paying attention to the WeWork melodrama, we’ll give you the TL;DR version, but you should first know that I am absolutely certain that this will all be a Netflix documentary a la the Fyre Festival scam or the Theranos debacle.

Like many of you, I have been obsessed with this wacky story, and I’m convinced that it is a fleecing of historic proportions that is complex and is (finally) unraveling before our eyes.

WeWork’s parent, The We Company announced today that they will be withdrawing their filing for their initial public offering (IPO) which initially was based on a $47 billion valuation that by this month had slid to around $10 billion. The Board successfully voted to oust CEO, Adam Neumann last week, with Neumann himself allegedly casting a vote in agreement.

The IPO failed for a number of reasons, but the meat is that the company had to disclose information in their filing that showed more of their shady underbelly than they would have preferred.

The S1 revealed made up accounting methods, wild spending, questionable dealings between WeWork and companies that Neumann owned (that benefited Neumann’s personal finances), and when investors began digging into the filings, they uncovered billions of dollars of annual losses that weren’t exactly documented or explained in a way that Wall Street was ready to invest in.

An editorial was posted on Medium.com that went viral, simply entitled “Is WeWork a Fraud?” to which the entire internet read and responded with “yep.” It was republished by countless blogs as a dramatic summation of the facts.

It empowered the average American to read and balk at Neumann’s bizarre God complex. He believes he is literally destined to be The One save the planet. He constantly played a shell game with his companies and brushed off legitimate questions about finances with answers that sound like some spiritual guru on stage.

People shared the editorial endlessly, and it was the catalyst for people becoming interested in the eccentric CEO who smokes weed in his private jet and cusses on stage like a hecka cool guy.

To really understand how all of this ties into Compass and Opendoor, we urge you to go read the original editorial before continuing- it’s worth the time, we promise.

So you’re probably asking yourself right now what WeWork has to do with anything in residential real estate.

The first common thread is Japan-based Softbank, the big bucks behind WeWork, Compass, and Opendoor.

Many fingers are pointed at Softbank CEO and Chairman, Masayoshi Son for being overly optimistic and underly diligent about companies that he personally sees as innovative.

Softbank had reportedly pressured WeWork to hold off on their IPO (and keep the noise down), as they are in the middle of raising their second $100 billion Vision Fund, hoping to attract investors who won’t notice Son’s reputation for investing in companies that don’t yield any returns.

But WeWork filed, the noise has become overwhelming, and the Vision Fund is in trouble.

Softbank has been the only real investment in WeWork, and the only one who says the company was ever worth a $47 billion valuation, investing $12 billion in 9 rounds since 2012.

The second common thread between WeWork, Compass, and Opendoor is that they are all growing incredibly quickly and are unprofitable.

That sounds like good news, but it’s not. Everyone in the startup and/or investing knows that burn rate is a critical component of a company’s sustainability.

Having a high burn rate is like a 7 year old that got their allowance, immediately rushed to spend every dime on candy, and are now in debt to their siblings because they used their allowances on candy as well. It’s corporate gluttony.

The third common thread is that they all claim to be technology companies.
They aren’t.

This is a deep point of contention for some, but let’s digest this together.

Ben Thompson offers analysis of industry topics at Stratechery, and recently dissected whether or not WeWork (and others) are tech companies or not (and included an in-depth historical perspective leading up to his criteria). Per his definition, to be a tech company, one must check all five boxes:

  • Creates ecosystems.
  • Has zero marginal costs.
  • Improves over time.
  • Offers infinite leverage.
  • Enables zero transaction costs.

Thompson asserts that WeWork checkmarks exactly none of the boxes, and under this same criteria, it is hard to see how Compass or Opendoor can either.

We offered a simpler criteria earlier this year when insisting that the media stop calling it the FAANG (Facebook Apple Amazon Netflix Google), noting that most of the companies aren’t technologies.

We noted that any company whose primary function is serving up content is a media company, and any company whose primary function is hardware or software is a tech company.

Under this simplified criteria, it is clear that WeWork, Compass, and Opendoor are not technology companies, they’re real estate companies that are either knowingly masquerading as tech companies to attract investors, or unintentionally giving themselves a label because they use technology better than their competitors and/or consider their use of technology as their core identity.

The final common thread is that all three companies have major competitors that are similar (and they don’t call themselves tech companies, they operate at a profit, and all have much lower valuations), but you would think from their marketing that they’re the only one in their field.

WeWork’s Neumann claims he invented coworking after growing up in Israel in a kibbutz. The only problem is that ServCorp has been around since the 70s, IWG (fka Regus) has been around since the 80s, LEO since the 90s, The Office Group since the early 2000s, and so on.

Compass is doing really cool things with technology (again, they’re not a tech company), but they are a glossy competitor to any other major brokerage, namely Realogy which is publicly traded and according to Forbes, “had 42 times the number of transactions, 11 times the sales volume, seven times the revenue — and actually made a profit.”

Opendoor became a unicorn (valuation of over $1B) right out of the gates, and they’re definitely thinking creatively to speed up the residential real estate process, but they directly compete with Homie, Offerpad, and Movoto, none of whom have the same wild burn rate.

All that said, there’s nothing wrong with Opendoor or Compass, but WeWork has made their existence more difficult.

Because all three are in a similar camp as described above, not only will investment from anyone other than Softbank be difficult to obtain, but WeWork’s insane bookkeeping practices have had a chilling effect in that people are looking more closely at profitability and operating procedures.

That chilling effect means external pressure to improve revenues, which real estate tech journalist, Mike DelPrete asserts, “could lead Opendoor to raise its fees, or Compass to reduce its generous commission splits with agents; either move would severely limit growth. Reducing expenses would come in the form of office consolidation (Compass has over 250 offices across the U.S.), ratcheting down employee perks, or even staff layoffs.”

And it wouldn’t be unprecedented. Uber has had layoffs and struggled with an image problem as they are hand-fed money by Softbank’s CEO who is ultra aggressive with investing in potential rather than profitability.

DelPrete adds that for all three businesses to succeed, they “require an unprecedented amount of capital and a willingness to buy into a vision that is driven more by words than numbers and where the long-term validity of the business model is easier to assert than to prove. The current WeWork fiasco… shows that valuations can’t keep rising unchecked by the realities of basic economic principles—and that investor patience does have a limit.”

WeWork’s newly ousted CEO has already cashed out and is set for life, and his God complex has made for some meaty headlines, but Compass and Opendoor may also pay a price.

This all sounds like a far away Wall Street problem, but try telling that to Compass’ 7,000+ agents (and 1,000+ staff), and Opendoor’s agent partners in 21 cities (and nearly 1,200 staff).

Nice job, Adam Neumann. Thanks a bunch.

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Real Estate Corporate

Zillow applies for patent on automating remodeling estimates?!

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Online real estate giant Zillow has raised eyebrows over the past year as it has been on a bender of applying for utility patents.

Patents can be a huge deal for individuals — and corporations. A patent gives its owner exclusive rights to an invented process or product, and is the cornerstone of pretty much all copyright law in the United States.

For the innovative, this means that if they create a new way to do or create something, they can control the use of that product, often by charging others. In many ways, patents have come to be seen as a quick way to use your wits and become successful.

(This is the reason that Romy and Michele’s triumphant high school reunion lie was about them becoming super rich as the inventors of Post Its or that Mean Girls’ Gretchen Weiner’s privilege comes from her father’s wealth as the inventor of toaster strudel).

So far, some of Zillow’s patent applications are connected pretty closely with the blending of technology with traditional real estate practices. Zillow has filed new applications, which specifically describe (1) the process of digitally creating renovation estimates from the use of uploaded photos, and (2) data acquired from mobile devices.

However, as much as Zillow seems to want to claim that they’ve created the entire field of digital real estate, they aren’t the only ones operating in the industry. Last year, Zillow was sued by another firm claiming to have invented and patented “real estate information” search systems. Zillow was also sued by yet another rival before that, just for having similar appraisal programs.

What Zillow is asserting, in their most current patent application, is a more wide-spread claim than their previous patents; now instead of claiming that they’ve created a nice aspect of digital real estate they’re claiming that they’ve that they’ve invented the method of automating remodeling estimates.

While there’s no doubt that Zillow owns the intellectual property that it uses within its own processes, it seems like (yet again) a bit of stretch (or a lot of ego) to say that they’ve created a process that’s been used as a model for all other companies that have developed automated remodeling tools.

It will be interesting to see how this plays out.

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Real Estate Corporate

Zillow Group sued for being inaccessible to the visually impaired

(REAL ESTATE) Zillow has been sued for their numerous sites being inaccessible by popular screen readers – what do the Plaintiffs want the company to do next?

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Two visually impaired Massachusetts women have banded together to sue Zillow for their sites allegedly being inaccessible to the blind and visually impaired.

Filed in the U.S. District Court in Massachusetts, the lawsuit claims that Zillow Group is in violation of Title III of the Americans with Disabilities Act (ADA), asserting that their sites are not compatible with the most common computer screen reader programs, which the visually impaired rely upon in order to access information online.

Court documents sate that this failing “deprives blind and visually-impaired individuals the benefits of its online goods, content, and services — all benefits it affords nondisabled individuals — thereby increasing the sense of isolation and stigma among these Americans that Title III was meant to redress.”

The Plaintiffs cite tools utilized to attempt to use the sites – Apple’s VoiceOver technology, JAWS and NVDA software. Accessibility experts tell us that JAWS and NVDA are the two most common tools in America used for this purpose.

The core of the problem is readability – for example, if a button is an image (of say a search icon) but has no text or alt text, the screen readers cannot read them, therefore the visually impaired cannot use that feature.

Image source: court documents.

Further, the Plaintiffs assert that Zillow Group “has long known” that these screen reader technologies are necessary and that they are legally responsible for providing them, but offers no evidence that the company “has long known,” aside from the fact that Title III isn’t a new law.

The lawsuit did not acknowledge possible attempts to use any other real estate search site, nor their existence.

What do the Plaintiffs want?

Their list is long and fascinating. Aside from the standard request for payment of “actual, statutory, and punitive damages as the court deems proper,” along with attorneys fees and court costs, they demand that Zillow Group do the following:

  • Hire a Web Accessibility Consultant (WAC) and incorporate all of the recommendations within 60 days of receiving them.
  • Train certain staff on accessibility.
  • Submit to a quarterly usability test and a period audit.
  • Create a web accessibility policy, provide that policy to certain staff.
  • Make a public statement on the policy, with an accessible contact form and feedback option.
  • Immediately escalate all usability calls to properly trained staff.
  • Submit to a two year monitoring period.
  • It remains unknown if the Plaintiffs intend on pursuing action against any other websites (real estate search portals, brokers, and the like), and as of publication, Plaintiff’s representatives have not responded to our request for comment.

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