Now that you understand the core ideas and concepts and language around the different defensibilities, as well as the 16 network effects, my partners and I are going to walk you through case studies so you can see how these things play out in action, in the real world. Pay close attention to how these defensibilities reinforce each other, and how the network effects reinforce each other as you move through the seasons of building your company from tiny seed to giant, impactful company in the future.

Network Effects of Trulia

It was the summer of 2004, I was a grad student at Stanford, and I'd just gone through a painful home search. It was also the summer that Google went public. So the buzz in Silicon Valley was around Google, and I got a ticket to a real estate conference and attended. I remember driving from San Francisco back to Palo Alto. There was this eureka moment where I thought, what if we applied this Google Search model to real estate? And that was it, I was committed to it.

The core problem in a two-sided marketplace is solving the so-called chicken and egg problem. How do you get supply, which drives demand, which drives supply. How do you kickstart this? The first way we solved that problem was to index websites. We'd go to brokers and say, "Hey, can we index your website and put your listings on Trulia, for free, to demonstrate the value proposition?" The other key network effect that we added was a data network effect. And we used the scale and data that came from our users to improve the user experience. One example being a recommendation system - just like Amazon. If you like this home, you'll like these other homes.

The protocol network effect was key for us in the early days. Standardizing realtime XMO updates, bringing real time data from the fragmented MLSs and broker websites, all being published on Trulia. We realized early on we were not taking money on every household, but we had massive fragmentation, which makes it incredibly hard to monetize. We focused on working with the biggest corporate clients in the industry. In Q2/Q3 of 2008, everything changed.

The large real estate companies were struggling, they were laying off people, housing transactions collapsed, our advertising agreements evaporated. Business was in decline as every other real estate company out there. Up until that point, revenue came from a small number of big franchisees brokers and mortgage banks, who were paying a lot to advertise with us. But when the crash hit, their marketing budgets were too far removed from the actual transaction for them to see a direct ROI. So we were forced to pivot to targeting individual real-estate agents who could see an immediate ROI. Looking back, this was a bet on the company, because we had to change direction completely while the market was collapsing around us and we were running out of cash.