By now, every reader of this blog knows that one of the biggest deals in recent memory (if not ever) just went down this morning:
Zillow, Inc. (NASDAQ: Z) today announced that it has entered into a definitive agreement to acquire Trulia, Inc. (NYSE: TRLA) for $3.5 billion in a stock-for-stock transaction. The Boards of Directors of both companies have approved the transaction, which is expected to close in 2015.
It appears the rumors were in fact true. The reaction so far this morning might be characterized as stunned confusion, leavened with the expected amount of zaterade. For a variety of reasons, including my business relationship with Trulia, I haven’t commented on the rumors. But now that it’s a done deal, and I’ve spoken with both Greg Schwartz, Chief Revenue Officer of Zillow, and Paul Levine, Chief Operating Officer of Trulia, about the deal, I think it’s worth discussing at least a little bit.
At this early stage, however, everything that isn’t directly stated is conjecture. They two companies announced the acquisition; it hasn’t gone through due diligence, the normal amount of litigation, and the long integration process. I’ll do what I can to provide actual information, and then speculate away.
Let’s start with actual information about the deal. From the Zillow press release:
The combined company will maintain both the Zillow and Trulia consumer brands, offering buyers, sellers, homeowners and renters access to vital information about homes and real estate for free, and providing advertising and software solutions that help real estate professionals grow their business. At closing, Trulia CEO Pete Flint will remain as CEO of Trulia reporting to Zillow CEO, Spencer Rascoff, and will join the Board of Directors of the combined company.
As Spencer Rascoff mentioned during the webcast about the deal, the plan is to run a multi-brand web media company like IAC, Priceline, Expedia, and Zillow itself (with Hotpads, StreetEasy, etc.).
The core benefits of the deal according to the press release are:
- Faster Innovation. By combining resources, the companies expect to accelerate innovation on mobile and Web to provide more valuable tools and services to consumers and professionals.
- Greater Access to Free Real Estate Market Data. The companies expect to share real estate market data, housing trend analysis, and forecasts to make more free data available to consumers and real estate professionals to empower people to make more informed decisions.
- Broader Distribution. Home sellers and their agents, brokerages, and participating MLSs will benefit from seamless free distribution of listings across even more platforms to reach an even larger audience of consumers.
- Enhanced Value and ROI for Advertisers. The companies expect to offer shared services and marketing platforms for advertisers that enhance agent productivity and marketing and deliver greater return on their investment.
- Corporate Cost Savings. By operating independent consumer brands through one corporation, the companies expect to realize synergies to improve overall operational efficiency over the long-term. By 2016, management expects to achieve at least $100 million in annualized cost avoidances.
We’ll discuss these below in the Speculation section.
Some Additional Color: Greg Schwartz & Paul Levine
I spoke with Greg Schwartz this morning and got a bit of additional color. These are in no particular order except how I took notes.
- The multi-brand strategy is truly a multi-brand strategy, at least at this point. Greg said that not only will Trulia be maintained as a separate brand, but that they expect to keep the product teams separate as well. He thought that the two companies (divisions?) will compete with each other. Greg used Realogy Franchise Group with its brands (Coldwell Banker, Century 21, Sotheby’s, BHG, and ERA) as the example.
- The $100m in cost savings will come mostly from savings on advertising (Z and T had planned to spend roughly $100m combined on advertising), and slower rate of growth. This was also mentioned by Spencer Rascoff on the webcast as well. But Greg did point out that Spencer, Amy Bohutinsky (CMO), and Kathleen Philips (COO) all worked at Expedia, and had all come to Expedia via acquisition. Meaning, Zillow has a culture of taking talented people from acquisitions and making them core. I suspect that job losses, to the extent they occur, will not be borne solely by Trulia as the acquired company. Much like the Seattle Seahawks, it’s gonna be competition every day at the combined Zulia.
- One of the most interesting points that Greg brought up was that one asset/capability that Trulia has is a great infrastructure for ingesting, processing, and distributing listings. He was excited to be able to combine Trulia’s capabilities with Zillow’s and offer a platform for listings distribution to the industry. He specifically mentioned that the new Zulia can offer a major benefit to the industry in terms of listings: send one feed to one company, and Zulia can make sure it goes where it needs to go, deliver huge consumer audience, and deliver top-notch detailed reporting. My notes say, “one feed to Zillow, and it goes everywhere.”
- On advertising, Greg thought that they would ultimately streamline the process by which agents and brokers can buy advertising. I asked about the differences in the model (Zillow has a CPM model, while Trulia has a % of leads model) and Greg said that they hadn’t had the integration meetings yet, so that wasn’t quite decided, but that he thought it would be a nice benefit to the industry to have a single point of contact to call to advertise on both Zillow and Trulia. (More on this below).
- I asked about MarketLeader. Subscribers to my premium reports know that I wrote that Zillow had the opportunity to buy MarketLeader back in the day, but chose not to. Instead, Zillow went with a “Google Analytics” approach to CRM, allowing any and all real estate CRM apps to plugin to Zillow via its Tech Connect program. Then Zillow recently doubled down on that approach with its Retsly acquisition. And now, Zillow is about to own MarketLeader via Trulia. What now? Greg’s answer was that they’re keeping (and I quote) “totally open eyes” with the MarketLeader issue, and that they will go into the integration meetings and talk to the Trulia guys.
- Industry reaction, according to Greg, has been mostly positive. He granted that the people who dislike the deal are precisely those people who are not likely to contact him in any event, but that people he had heard from all loved the deal. Simplifying the dialogue with one company is good for them, he said. And business people understand the benefits of the corporate combination in terms of cost savings.
Paul Levine echoed pretty much what Greg said. He stressed that nothing really changes at least over the next several months. The only interesting comment of Paul’s was that his initial reaction when the deal was proposed was “Holy &()@$, this changes EVERYTHING!” but that after thinking about it more, looking at the deal more, he realized that actually, nothing much changes at all. Both Trulia and Zillow are media companies who develop products and sell them to agents and brokers. He thought things would change over the longhaul, but in the next few quarters, he didn’t really see much that would be dramatically different.
A Couple Things from the Webcast
Zillow and Trulia held a joint webcast to discuss the announcement earlier today, and there were a couple of interesting items from the Q&A with the Wall Street analysts. I jotted them down, but you can hear the whole thing here.
First, they were asked about agent overlap. The traffic overlap (more below on this) was helpful, so the analysts wanted to know about subscriber overlap. Spencer responded that they weren’t disclosing that yet, but that the overlap was “not very significant”. Interesting.
Second, an analyst from Oppenheimer asked whether the larger combined entity will have more resources to go after MLS and brokerage data deals, instead of relying on third parties. Spencer’s answer was that both companies have and continue to want direct relationships, and that they are well on their way. That will continue. And then he said this:
“I think it is quite clear — ought to be quite clear — to listing agents and to their brokers that it behooves the seller to have their listings on Zillow or Trulia or sites that Zillow powers like MSN, AOL, and Yahoo. It’s almost inexplicable to me how a listing agent could say to [her] seller that their listing is not on these websites and mobile services. Increasingly, the industry has reached that conclusion, that it benefits the seller and the seller is the client and listings ought to be displayed on these websites.”
Of course one would expect Spencer Rascoff to say just that. I wonder a tiny bit about the conclusion. More on this later, I’m sure.
Finally, Spencer said in response to a question about industry reaction:
Many Zillow Premier agents are incredibly excited. On the brokerage and franchise front, most industry participants realize that having a company with a large audience and with the resources to build great products to move the industry forward is advantageous to the industry. So far the early feedback has been great.
Speculation and Analysis Commences
I feel certain that we’ll all get more information and facts as this develops. The above is what I have to report. (Blogging is journalism, at times, folks.) Now I get to do the bloggery thing and speculate/analyze/opine.
Consumer Traffic… Interesting
Here’s one interesting factoid from the webcast:
According to comScore, in June of this year, about half of Trulia’s monthly desktop users did not visit Zillow, and about two-thirds of Zillow’s do not visit Trulia.
Since we’re only talking about desktop users (not mobile, which is really driving traffic to both Zillow and Trulia), it’s difficult to extrapolate to the whole traffic. Plus, these are comScore numbers, and Z and T both keep internal stats using Google Analytics. So keep all of that in mind.
But as a “back of the napkin” exercise, let’s assume that comScore’s numbers apply to all of the traffic. [EDIT: A commenter helpfully pointed out that my math is off. It has been corrected. I left my erroneous conclusions for all to read, point at, and laugh. 🙂 ]
Zillow posted 83m in monthly uniques, 2/3 of which does not go to Trulia. That means 56m (83m – 27m) are unique to Zillow, while 27m do go to Trulia.
Trulia posted 54m in monthly uniques, 1/2 of which does not go to Zillow. That means 27m (54m – 27m) are unique to Trulia, and 27m do go to Zillow.
The combined entity will have 110m (56m + 27m + 27m) in monthly uniques.
Which is exactly what Zillow is reporting. Acquiring Trulia results in no gain in actual unique traffic. Granted, this isn’t the whole analysis, since the comScore desktop report doesn’t necessarily reflect the gains that Zulia will make via mobile. Plus, with Zillow’s CPM-based advertising model, it ain’t the absolute uniques that may matter all that much. Nonetheless, it is really surprising (I know I was when I did the calculations) to see that Zulia isn’t going to have 137m monthly uniques at all; it’s far closer to 83m monthly uniques… which Zillow already has.
Nonetheless, Zillow might be gaining 27m from the transaction, which is a healthy amount to be sure… but given their aggressive advertising of late, I do wonder if they might not have gotten to that figure at any rate.
The one clear takeaway from the merger is that Listhub’s lifespan might be measured in months, not years. I believe both Zillow and Trulia’s agreement with Listhub is coming up for renewal in the next year or so. Well, with this merger, and with Greg’s commentary on it, it seems patently clear that Zulia intends not only to go it alone, but to replace Listhub entirely as the platform for syndication, data distribution, and reporting.
“One feed to Zillow, and it goes everywhere” is essentially Listhub. Plus, Greg mentioned really ramping up the reporting capabilities. Combine those with the fact that the Zulia entity will essentially be the dominant online real estate consumer destination, and one has to ask what the future of Listhub is.
Greg Schwartz thought that perhaps Listhub will remain valuable as the gateway to the “long tail” of real estate websites. Um, yeah.
One Reason Why Zillow and Trulia Are #Winning
John Cook at GeekWire writes “The deal came together in the past six weeks after Rascoff approached Trulia’s management team.”
SIX. WEEKS. To do a $3.5B deal that puts the top two giants in online real estate together.
Meanwhile, the average MLS might take six months to approve a single change to the user interface, and Project Upstream is approaching the one year anniversary of the “You have ten days” announcement at CMLS last year.
The most viewed post ever on Notorious was this one about the Five Unspeakables, in which I noted that the MLS is broken. One reason, as I say in my presentation on the topic, is the broken governance system of the MLS. 850+ MLS’s still in the U.S., with people urging consolidation for the past ten years, and nothing much happens to put two small MLS’s together to share costs.
Meanwhile, Zillow does a $3.5B deal in six weeks and gets both Boards of Directors to approve.
Yeah, that would be one reason why they’re crushing it. Speed kills… the competition.
I quoted Spencer Rascoff at some length above because I’m not quite as sanguine as he may be about the industry’s reaction.
For one thing, the “industry” isn’t exactly unified. The interests of large brokerages are not those of the smaller brokerages, nor are the interests of the MLS necessarily aligned with the interests of national franchises. It’s a fragmented, highly divided, groups of companies that compete with each other.
When Spencer says that most industry participants realize that having a company with a large audience and with resources to move the industry forward is great for the industry… what he’s leaving out (not intentionally, I think) is that what might be great for the industry is not necessarily great for big chunks of the “industry”. For example, having a Zulia that can move the industry forward may not be good in the least bit for big national franchises like Remax and Coldwell Banker. It may not be good in the least bit for large regional brokerages, like a Crye-Leike or Edina Realty.
For another, Inman News reported on “unease” within the industry about the rumors of the merger, with this lovely graph:
Now that the rumors have turned out to be real, is it really likely that the 54.4% who said a merger would be BAD have changed their minds?
Not just yet.
I do plan on taking the temperature of the industry over the next couple of days and weeks, but right now, I doubt that the mood in Madison, NJ or in Denver, CO or in Minneapolis, MN is one of jubilation and exultation. No, I think “fear and trembling” might be a more appropriate term for what’s going on in those places.
One major question the merger raises is where NAR and Move head with their much-ballyhooed partnership. It’s one thing for NAR/Move to spend $36m on advertising with the whole Accuracy Matters mantra, when Zillow was planning on spending $60m and Trulia was planning on $40m or so. Even after Zulia achieves some cost savings on advertising, the combined entity will outpace Realtor.com in consumer traffic by quite a lot, and have far more money to spend on branding and advertising.
Strategically, it’s one thing for NAR/Move to join forces in a three-way race with two competitors ripping each other to shreds (or trying their very best to do so). It’s a whole different ball of wax if it’s a two-way race between a distant-third-place company and the new Zulia multi-brand platform.
Plus, as discussed above, Listhub is doomed if Zulia does in fact launch something that will take everything that isn’t the “long tail”. So what’s Realtor.com’s competitive advantage then? #AccuracyMatters even less than it does today (which is to say precious little, given the history of the three companies).
I don’t know. I’ll try reaching out to some of my contacts throughout the industry but… I’m just not sure where those things head.
I think any hard conclusions are unwarranted at this early stage, save perhaps two.
1. Listhub is doomed.
2. The “industry” will find it awfully hard to resist the combined juggernaut whether in data licensing, advertising, or what-have-you.
I’ve been predicting the end of the syndication war for so long that I feel like a broken clock that isn’t ever right. But maybe this $3.5B deal finally ends that silliness so we can move on to the next set of problems? Eh, time will tell.
What are your thoughts on the deal, and on the shape of things to come?