Disruptive US-based real estate aggregator Zillow continues to confound and amaze with the news that it has raised another $30m, taking its total fundraising to a staggering $87m.

Yep, $87m. I normally turn instantly prickly when I hear the phrase ‘Bubble 2.0’, but I may have to revise my view slightly. I’d hate for Zillow to be burning cash at a rate not seen since the heady days of Boo.com.

Yet in this day and age $87m is a fortune. Internet businesses just don’t need that kind of money to put themselves on the map. Or do they?

Why does it need the money?

‘Employment growth and new product development’,
says CEO Rich Barton (who is formerly head honcho at Expedia). Hmmm, it seems to me that they’re exactly the same thing. Zillow’s product development costs are largely technology-related, so hiring new staff seems to be the same thing as investing in new products. Right?

The point here is that techies surely abound at Zillow. The firm employs 155 staff, and I reckon that the majority must be developers (only 20 people work in sales). That’s a large pool of people to be working on a startup. Boo.com got up to 400 or so, back in the day.

Does Zillow actually need more people? More costs? We reckon that the 155 existing staff could feasibly cost the firm $10m a year as things stand…

How does it make money?

Ex-Google staffer Vanessa Fox joined Zillow in summer and outlined the company’s business approach yesterday while commenting on the New York Times’ move to a free content model:

“Here at Zillow, we’ve always taken the approach of offering our content and services for free. Whether you’re looking for a home, selling yours, or are an agent providing real estate services, all the tools and information available on Zillow are free for you to use. Online advertising, particularly when contextually targeted and relevant as it is on Zillow.com, continues to grow and be not only a good monetization strategy, but a useful service for visitors.”

So we know that Zillow rightly perceives itself as a media business. It makes money by selling contextual advertising, including Google Adsense units. It also hosts display ads from ad networks. Clickthrough rates should be relatively high, since it operates in a niche / vertical search area, and when people are in ‘search mode’ they are more likely to follow relevant links.

But is it making $10m a year to offset my estimated staffing costs? Doesn’t seem like it, based on what they’re saying, so now we’re getting into questions about the dreaded C-word: cashburn.

How is it performing?

Well, only the Zillow executives know the numbers, but let’s take a quick look at where it’s at. There’s no doubting that Zillow has some really good things going on.

The website pulls in more than 4m unique users per month, according to the company. Better than that, CFO and VP of marketing Spencer Rascoff claims that “more than 25,000 contributions are made to the site every day by the Zillow community”. Now that’s what I call participation.

Furthermore, some 6,000 advertisers have bought an ‘EZ ad’ since these premium ad slots were introduced six months ago. Good going, but then again if these advertisers spent a minimum of $10 per ad slot then we’re not talking big bucks. If it averaged $100 then Zillow would have at least one seven-figure annual revenue stream.

Any roadblocks?
Well let’s not forget that many rubbish-at-doing-internet-stuff real estate brokers will see Zillow as a threat, despite it’s obvious consumer appeal. The rate at which these brokers adopt Zillow as a route to market might make all the difference, so the company will be ramping up an under-strength sales and marketing department to engage these brokers.

Keep in mind that Zillow is on a quest for comprehensive listings if it is to become the go-to destination for all things property. It needs the brokers on-side for a number of reasons. The brokers must know – although let’s assume that they still have their heads in the sand – that if Zillow doesn’t prevail then some other upstart will.

Investors like Benchmark Capital don’t normally throw bad money after good, so the firm must be in reasonable shape. But it is going to take one hell of a valuation on exit for the VCs to make their money back.

So, will Zillow make it? Or will it burn out?