Zaio's Response - The Business Model Examined

In Ken Verrett's earlier blog post Zaio and Me - The Business Model Examined , Ken reviewed the Zaio business model, from a fee appraiser's perspective, based on information he had gleaned from appraisal forums and the company's web site.

In response to Ken's blog article, Thomas J. Inserra, SRA and CEO of Zaio Corporation, contacted Ken to provide some additional information and insights into the inner workings of the Zaio Model.

With Ken and Thomas Inserra's permissions, I've reprinted the combined email responses from Mr. Inserra.  Minor liberties have been taken in reformatting the email responses, but otherwise the responses are un-edited.   Ken followed-up with his own response which I'll re-post as a "Comment" to this article.

This type of exchange is what Web 2.0 is all about!  THANKS to Thomas Inserra, SRA for his comments . . . READ ON!

Ken -

Enjoyed your Zaio article, but was surprised to take note of your rather glaring math error at the end of the article.

The way the Zaio program works is that the revenue cited is additional revenue above and beyond current revenues produced by an appraiser, since the whole purpose of the program is to broaden an appraiser’s client base, and help them attract new revenues.   

It would have been more thorough if your article had concluded by conducting an analysis of the expected “benefits” (revenues and cost reductions) compared with the original investment costs and calculation of a return on investment. 

For example, your article fails to mention that Zaio charges a 0% fee split for URAR appraisals, yet appraisers using the system are in fact receiving a “benefit” of increased URAR work, and an additional benefit of significantly reducing their costs to produce a URAR appraisal. 

It would be inaccurate to measure a return on investment without calculating ALL the revenues, and ALL the benefits and then comparing that to the incremental cost of the Zaio software.

Your article failed to mention 4 key items: 

1. The amount paid for the software is a one-time purchase while the revenue benefits to the appraiser are perpetual benefits that would likely increase each year and extend over a lengthy hold period that could in theory be forever, and would likely exceed 10 years to the typical purchaser; 
2. Your article failed to mention or take into account the time value of money;
3. The article failed to mention the reversionary value of the license (which goes up over time) can be quite high 
4. Your article stated it was a bad investment, yet no rate of return was calculated.  Using any hypothetical holding period from as low as 3 years to a high of 15 years, and given the constantly increasing price of a zone (due to supply & demand, the base price of a zone has been increasing quite rapidly), using any hypothetical reversionary value of $10,000 to $100,000, the “Math” which was not calculated in your article would result in a very attractive rate of return for any appraiser. 

It was disappointing that you want so far in your analysis, then when it was time to apply the math, you stopped, and then reached a conclusion that was not supported with the cash flows you presented. 

By the way, you might want to attend the more detailed on-line webinar presentation to get more information about Zaio’s solutions...

Thomas J. Inserra, SRA