A Fireside Chat with Bill Gurley & Qualia

Ladies and gentlemen, please welcome to the stage General Partner at Benchmark, Bill Gurley, and Nate Baker.

Hi. Cheers.

Okay. Hello, everyone. I wanted to first off introduce Bill, who I think many of you know, but who's a legendary venture investor, invests in a lot of companies that you use day-to-day. But I think two most relevant here would be maybe Zillow and OpenTable, or Uber as well. You've got a lot of them. Bill recently rejoined the board of Zillow. He first invested, I believe, in 2005, about 20 years ago. I wanted to start by just asking you a bit about that. Why did you first invest in Zillow? What's different? What's interesting to you about it?

Just presuming what the follow-up question would be, they might actually be the same. Sometimes the venture capital business, you know, you'll hear VCs talk about, 'Is it market? Is it founder? Is it, you know, this or that kind of go-to-market?' And the one thing that is quite common is just the individual and the human. And so I was fortunate enough to kind of cold-call and track down Rich Barton after they sold Expedia, and just got to know him and just hung out with him quite a bit. And we've become good friends. We've become kind of strategic thought partners for anything happening in the business broadly, not just Zillow, but tech markets and recently AI and LLMs and these kind of things.

And, like, if I had one—what is that game show where you get to call somebody? If I had one of those, you know, it would probably be Rich, you know, from a strategy standpoint.

So you would say, more so than the market, it was just you like backing him?

I think that's probably fair. Like, it may take away from this—it's not that I'm opposed to the real estate market, but the draw was certainly on that side.

That's interesting. Would you say much has changed about Zillow or about the market since you first invested?

Well, look, I invested when it was a PowerPoint, and the business wasn't even exactly what it is today. So things shifted, and always do with startups. Because it was a PowerPoint at the time, obviously, a lot's changed. We had the huge launch with the Zestimate, which should go down in folklore or case studies in business schools on go-to-market, because that's such a rare event. We had 4 million dailies that first day, which almost no one does, because of the Zestimate. And then, and then, you know, they've obviously been through a lot. They, you know, Rich stepped away for a while, and, and he's come back. They had the kind of detour into home buying or iBuying, which is refreshing. They had exited by the time I came back.

So yeah, so there's a lot going on. But the thing that attracted me the first time, which is still true today, is Rich and Lloyd are both very, very active in the business. Right.

I know in many of the other businesses you've invested in, they're marketplace businesses, and they report on percentage take in a marketplace. And I've noticed in Zillow's reporting, they've shifted some of their framing to more of a take rate on a marketplace type of conversation, just in their filings. I'm curious, how do you think about Zillow as a marketplace versus—I think a lot of people think of it as a marketing tool or a lead tool for real estate agents—how is it going to make that transition? What's interesting there?

Yeah, and look, every single marketplace is different. I wrote this blog post once about the 10 ways to judge a marketplace. And so I would always score something against that as to whether those kind of profiles exist and what the opportunities are. But they are all a little bit different, I think. Who's on the supply side, who's on the demand side, how you think about that, those could be a little bit backwards. One of the reasons that I think Zillow has started talking this way that you mentioned is just to frame the company both for the market, but also for investors and for investors that have a global eye on the world. If you look at the Zillow equivalents in other markets, they trade at a much higher,

valuation as a percent of whatever you might use to reference the size of the real estate industry. And so I think part of the effort to do that is just to highlight the upside and the TAM that's possible, assuming you're able to mimic what's been done in these other geographies.

We were hearing from Pat in the session before this about how it's been a lot slower than he expected to change real estate, for things to change. Is it surprising to you that Zillow has a similar pitch now as I assume they showed you on that original PowerPoint? There's a lot of work that's been done, but it seems like real estate's been more impervious to change than you might expect.

You know, different industries are way different in terms of how reluctant they might be to change or whether you can get in and change them. And some of the elements that I list on that marketplace checklist have to do with whether or not you're going to have the opportunity to seize and change things. I'll give you a really bad example—would be the healthcare market. And so the burden of regulation, the way that payment goes through a party that's not really in the transaction being the employer, the amount of complexity that's there, the lack of transparency, it makes it really hard to come in and do a disruptive marketplace, although a lot of people have tried. And one element that's kind of interesting in healthcare that may relate to where we're going is I've watched a lot of startups enter the healthcare space with this

like, audacious and ambitious mindset that they're going to make the world a better place. And, 'We're going to create change because everyone knows healthcare is all effed up and, like, you know, we have to, we have to do this.' And what they realize—and I've watched so many startups go through this—is they realize, in order to monetize, they have to kind of bend to the system rather than bend the system. And then, and then some of them end up in a place where they're actually reinforcing the, the bad stuff, right, you know, and making it worse. And I've seen that play out. And so, yeah, different industries have less—I just can't pronounce this word—dynamism, oh yeah, that allows, I think, for disruption and optionality. It's interesting, you know, as, as you look out to in next 10 years in real estate, like, what, what is possible, like, what

It feels like we're at a moment of significant change, maybe with some regulatory changes. Do you think this is going to be very stuck in the same way that it's been, or do you think we're going to be going through a period of change?

Let's put a pin on the NAR thing, because I suspect you'll come back to that. But just thinking about it holistically, I have kind of two approaches. One is to just think about the experience and whether it's optimal or not. And the Airbnb founding team, there's these famous stories you can dig up where they created these placards and, like, rooms for each step in the purchasing process. And there's, like, 10 of them. And then, you know, different times during the year, they'll debate how to improve that one process. And if I look at the real estate transaction, you know, separate from being a Zillow or anything like that, and ask the question, is this optimal? I don't think anyone can argue yes, like the steps you have to go through

to get from one end to the other. And so if you know that's not optimal, then I would argue there's room for improvement and room for someone to come in and innovate and make things better. Some of those things are impacted by types of either regulation or organization. And the one book I always think entrepreneurs should read that is so easy to read that none of them read, which is Competitive Strategy by Michael Porter. That simple notion of the Five Forces is super important. And if there is a player that has 80% or 90% market share, they can cause a lot of problems and be preventative to innovation. And so one that I like to always pick on is the real estate contract. So almost all the ones that are used were created by NAR.

So it's a document created by NAR. Was that document created to aid the consumer in any way whatsoever? Was that the objective function of the way that document was created? Do you have an opinion?

I'll let you take that one.

Yeah, I say hell no. No, no. That document was created to protect the Realtor. And that NAR created it. And no consumer wants to initial seven times on every page and sign 10 or 15 pages or whatever. That's obnoxious, right? And so yeah, there's room for improvement. I think there's a lot of room for improvement. But not just there. And then the other lens I would say that I, I think the first kind of 15, 20 years of the internet, a lot of people use this notion of "search and browse," not just Google, but that's how people design websites. And so, you know, Amazon, Earth's biggest bookstore. You know, selection is always a big thing. Zillow or any of their competitors, they want to have every listing, right?

But everyone's familiar with this book, The Paradox of Choice. Consumers get overwhelmed by that. And I think we're moving, and AI can play a role here, towards what I would call "curate and automate." Like, how do you help reduce the choice? So like, help someone find their perfect one. And then all the workflow stuff's on this automate stuff. My partner, Matt Kohler, used to call this "the remote control for your life." And we would talk about Uber as a one-click ride. And so, you know, I don't know if we'll ever get to a one-click purchase, but it gives you the right mindset to think about how people could innovate and how the experience could improve for the consumer. And what do you think has been...

It seems like the ingredients to improve that have been there for a long time. Why hasn't it?

Well, I mean, I do think that the... It's hard, first of all. There's a lot of embedded processes. Ironically, it made me think of the IPO market, but you have a similar thing to the IPO market where most of the participants don't do it very often. So whereas booking a ride, like you're doing it all the time, even booking travel or whatever, you do it a lot. Like here, you just don't do it that much. So your opportunity to kind of make choices, it's a really slow feedback loop on that side. And then on the other side, yeah, I mean, there's just a ton of people with entrenched interests, and NAR being one of them, that want to look after what's best for them. I understand that. It just makes it tougher to move things.

Right. So as you think now about... I would add one more. There's so much at risk that safety and conservatism can take on an important mindset, especially on the seller side, but even on the buyer side. You just don't do it that much. If you make a mistake, the consequences are huge. And so you tend to take a more conservative mindset rather than a... 'Hey, let's throw caution to the wind and try this new thing.'

Right. So maybe now we will go to the NAR lawsuit and everything that's going on there. How do you see that playing out, changing the industry? What does it mean?

So I'm going to answer this question by taking you on a little bit of a history ride alongside with me. So after we did OpenTable and it had proven to be really successful, we started—we, being Benchmark—we started talking internally about what other industries might be open to a marketplace-type entrant. And by open, I mean not only can you do it, but once you do it, does the whole industry benefit? Does the consumer end up... With OpenTable, once it was working and once we had high penetration in the city, you could go in and say, 'I want to eat Chinese with six people between 6 and 8 p.m.,' and immediately get a result. There was no alternative to that prior to OpenTable. You'd literally call each one of them.

And that's not cool. And so we were thinking about what other industries we could do it. And I immediately thought of travel. And I thought of travel because when I would travel on business, I would be—I mean, I was thinking about black cars, really. When I would be in a city, I mean, I'd often spend as much on a black car in Chicago as I would on the flight there. And when I'd come out of a meeting—I've been in a lot of businesses where you do meeting after meeting—I wouldn't know where the person was, and oftentimes I couldn't find them. It was just a horrible experience. And they're just sitting around like 90% of the time. So I started really thinking this could be an opportunity. At the time, there were three or four startups that were executing in the cab space, in the taxi space.

And I met with all of them. One of them was Taxi Magic. One of them was Cabulous. This is a long answer to your question. But as I learned about their business, I became very skeptical of a marketplace's ability to be successful. Because in most cities, you had a duopoly at best: two major cab companies. It was highly regulated, so the government played a big role. And you couldn't—price was mandated, so you couldn't play with price. Not playing with price is a real downer if you're trying to build a marketplace, because you want to create incentives for people to do different things. And so after meeting with all those companies, I literally went back and met with my partners and I said, 'Look, we just need to be on the lookout for someone doing this on top of black cars because there's going to be less friction and we're going to be able to use the tools that entrepreneurs know how to use to be successful.'

And the rest is history. That worked out. Yeah, we eventually found Travis and Uber, and that worked out. And the reason I tell that whole story is I have to believe—and going back to what I said about the real estate contract—just less authority by this entity that's already been sued multiple times by the government for monopolistic behavior is probably better for all startups in the industry that want to be successful. I'd have a hard time imagining that them having less power is a negative for real estate startups.

How do you think that flows through for individual real estate agents, like people who are actually, you know, not necessarily building a new technology business, but are a operator in that space, trying to build their own business?

Yeah, I think that there are multiple changes underway, in which that would be an incremental one, that are impacting agents. One thing I noticed—I'll use another Uberism, but I could also equally do it with Grubhub or something else—I noticed that once these marketplaces would take hold, certain of the industry participants would lean into it, embrace it, and, and their business would thrive on these new marketplaces. And people that had come, they might say, are old school, would not embrace it and would push back. These are the Uber drivers that, when you're getting out, try to give you their card and tell they want you to call them, like, when you're leaving or something, and you're like, "You know, you know," and, and so...

There are agents that will be like that. There are also agents that are embracing these technologies, that are hiring—I don't—you, you may have seen the same—they're hiring teams of young people. Their throughput may be 5 or 10x what it was before these platforms came along, and they're—I, I always call this the supplier of the future. And I think on all these marketplaces, there's a supplier of the future that's leaning in, right? Um, and so that's how I would think about it.

Maybe changing directions a bit, one of the hot topics in real estate—this was in State of the Union—is just housing affordability is basically the worst it's been at any point in most of our lifetimes here. Is there anything to do about that? Why is that happening? What are the key reasons that you see driving that?

So I always like to qualify. When you're talking about startups, I feel pretty comfortable being interviewed. When you move into these kind of things, I'm not a social scientist or economist. But I'll give you my best guess. But I do want to qualify that. You know, I think it's very clear that regulation and NIMBYism impact this. And I come at it from two places. One, you know, if you look at it, the very low end and the homeless problem, if you haven't, I would encourage you to read some of the articles about the impact Houston's had, where they've eliminated two-thirds of their homeless, which, you know, it's not 100%, but if most cities could do two-thirds, they would. But they don't know how.

And so we now have a roadmap for how that can be done. And so I think that's encouraging and something people should look at. The other thing you can see is migration patterns. And so people move to places where it's more affordable to live. People choose to improve their quality of living, which might be an equation that includes their ability to purchase a home or not. And so you can see where that's happening. And for the most part, they're moving to states and cities where the regulations are lower, where the zoning is lower, and where it's cheaper to build housing. And I think that's happening all across the country.

I guess on that topic, how are you feeling about Austin at the moment?

Aren't the real estate prices falling the most here from anywhere? It's true. Yeah. Which I don't fully understand because there's people everywhere. I mean, there's plenty. I mean, you can see it on the periphery. There's tons in downtown. But there's a lot of construction on the periphery out towards Bastrop, for instance. And Samsung just put this huge fab in Taylor. I can't imagine. Like, it's going to boom. Right.

One of the things about the other marketplaces you mentioned is that they seem to control more of the end-to-end consumer experience versus a Zillow or someone like that. How important do you think it is to be able to shepherd the customer through the entire customer journey for that platform or marketplace to be successful? It feels like the pipes of the real estate transaction haven't really changed much in decades. Is it essential to fix that for Zillow to achieve this?

I don't know if it's essential. I would say that makes a lot of sense to think about it that way. Another reason why I think they've started talking about the percent of the transaction is just because any internet company that's moved from lead generation and starts trying to improve things, they want more transparency. They want more information. They want to know what those close rates are. They don't want to send leads to somebody that doesn't close them. That's not a useful activity. So as you go down that path—and Google's done that with Google Search; people are, this week, we're talking about them buying HubSpot—you can understand how that would help them have better understanding of whether that the lead turns into a close and helps people turn it into a close. I think that's a natural progression, um, and so I would, I would expect them to keep doing that. I know, you know, they're, they talk a lot about Dotloop, which is their DocuSign competitor, the ShowingTime app they're very excited about, which

helps automate your ability to book a live showing at a home, kind of a personal open house. And so, yeah, I mean, I think that's always a migration path anyone would take in this type of situation.

And get there or not, you know, who knows?

It's funny. I used to say back in the day when crypto was all the rage, like, the title area is like the one use where blockchain might actually make sense. Like, you know, that and Bitcoin are like the only two I could possibly think of. But no one's tried it. I think it'd be an interesting place to try a blockchain. You would know more than me. I should ask you that.

It's interesting. Yeah. I'm always a skeptic, but I'm probably wrong on that.

A community-owned database that's immutable, that seems like a good application for it. Right.

Maybe where we can end here is just we've been through, in our industry and basically in tech broadly, just a crazy cycle over the last four years—absolute boom that you called. And then it's looked a lot different for tech over the last few years. And I think a lot of that was particularly acute in real estate. We saw a lot of business models that maybe didn't prioritize the same sort of margins and unit economics. How do you see that developing over the next few years? A lot of capital went to work there.

Yeah.

If you add AI to your pitch, it would be better.

The venture business is inherently cyclical. I think it's structural. I won't go down that path, but I've thought about it a lot, and I've talked to a lot of experts. I think it oddly lives in the way the documents are constructed and the way the money flows work from limited partners to general partner. And partially due to behavioral science and greed, it's just going to be boom-bust. Money comes in very easily, and it exits very slowly. And so you end up with these waves. I've often said that it's more of a sawtooth than a sine wave. And the reason that's important is because risk goes on very slowly and it goes off very quickly. And so people adopt incremental risk with the whole boiled-frog metaphor without kind of realizing they're doing it.

And so how we get to iBuying from, you know, just a little—you don't get there. You didn't take just a little bit more risk to say, 'Hey, we should raise billions of dollars and buy homes.' You slowly get to that place. And I think that's probably true for a lot of what happened in real estate innovation, including 3D-printed homes. And these things aren't very venture-friendly from a capital intensity standpoint. And then, inevitably, when risk goes off, there's this Warren Buffett statement about when the tide goes out, we can see who's naked or whatever. It's hard, like, and it gets really hard, and, and it's not for the faint of heart. And in those moments, um, boy, startups don't feel nearly as fun as they, they do the rest of the time. And some of the great, you know, entrepreneurs are honed in those moments. Like, you don't get honed when everything's easy and Masa-san's throwing billions at you. Like, you don't learn anything, um, but you can learn a lot now. Now, this industry, um,

unfortunately, although I can argue was fortunate for consumers, also got hit by interest rate changes. And, you know, the period of zero interest rate we lived through created enormous problems in my business, and, and, but it led to, to a lot of home affordability. And then the other thing, when you study the refi thing, like, most consumers made the right decision, which they normally don't do. But like, you would know better than me, but what, like, 90% of people refied and locked in at a really low rate? Now they're stuck, but rather than say they're stuck, it's negative, they were able to afford way more home than they would have been able to when they did that transaction. Transaction, but it has created, um, pain for the industry, right? Because a lot of people can't afford to move, and so transaction counts are really low. And, and I, I mean, I think that's just going to take time. Totally. Maybe one last question just on, on AI. You know, we're, many of us, I think, are, are doing document- and data-intensive workflows of some sort in our day-to-day jobs. It seems like

this is a perfect type of application for some of the current LLMs and whatever's coming next. How should we be thinking about that? What are the opportunities?

Well, I think that's kind of the exact right mindset. AI has been around for 20 years and is on a path like this. And these LLMs came around, which is a subset of AI, but for a lot of humans that have been watching the news, they only think of LLMs as AI. Like, Tesla's Full Self-Driving is traditional AI. It's got nothing to do with LLMs, just as an example. So there's a lot of value in AI that's outside the scope of LLMs. LLMs were designed to deal with language. That's why they're called large language models. And the areas where they can have the biggest impact are where structural language matters. And so coding, ironically, is like really structured language. It has a perfect syntax. It's actually easier to do than language itself.

And so coding is an area that's been really successful. We've seen a lot of startups in the legal space. Unfortunately, some of them on the ambulance-chaser side that are like, you know, they'll suck in a medical document and print out a lawsuit. Like, that's not great. But I think you're right that documents and language create opportunity. Now, if you have lots of large documents that just cause people to be confused and they don't really understand all the elements of, maybe it raises questions like, what are you summarizing? What are you doing? And then the other thing is, a lot of people say, 'Oh, we built this startup. We're going to scan this document and tell you what the form items were.'

And I was like, "Wouldn't it be better if that was in an XML document all along and you didn't have to scan anything?" And, oh, yeah. I think it's temporal if you're just digitizing something that's undigitized. There are other ways to get that digitized. But anyway, yes, I do think anytime there's a lot of written work, especially if people are doing tedious reading or writing of that written work, there's opportunity. And then matching. I mean, broader AI, you know, I talked about that curation problem. Like, there's a lot of opportunity to bring Tinder-like tools to help people find, you know, the place, their exact right place, either on the rental or the home site. Right. That makes sense.

Okay, I think that's a good place to end.

Okay. Yeah, I appreciate you coming in today. Thank you. Thank you.