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CoStar CEO Andy Florance punched back at legal claims made by one of its fiercest rivals this week, saying he has a superior business model that has already surpassed competitors in meaningful metrics.
Florance said he was happy to be in the ring with Move, Inc., CEO Damian Eales, whom Florance called a “boxer” leading a team whose latest punch was a newly filed lawsuit. Move, which owns Realtor.com, filed suit in California last week accusing a CoStar employee, who previously worked for Realtor.com, of stealing trade secrets to gain an unfair advantage for CoStar’s Homes.com.
The lawsuit came amid an ongoing battle between the nation’s four largest real estate portals — Zillow, Homes.com, Realtor.com and Redfin — for the largest audience of consumers browsing listings and real estate professionals who pay the sites for various services.
Realtor.com accused a former senior editorial director at Realtor.com, of improperly accessing a key document that helped guide and inform traffic to the website for months after he was hired by Homes.com.
Florance minimized the employee’s role in the organization, saying he “came to work for us as an editor writing condo descriptions” after being laid off from Realtor.com early this year.
“I called five different people and couldn’t find anybody who’d ever heard of the guy,” Florence said. “I’d never heard of the guy.”
Instead, Florence said Realtor.com was lashing out at its rival because its business model was facing an “existential crisis.”
In response, a Realtor.com spokesperson said the company would handle the matter in the courts.
“We don’t take action like this frivolously and have only had one similar case in the last decade,” the spokesperson said. “We’re confident in the merits of our action, and out of respect for the judicial system, we will litigate in the courts, not the media.”
Inman spoke with Florance the day before an arm of the Better Business Bureau recommended Homes.com stop using two key traffic claims in its advertising due to a challenge filed by Move, Inc. The BBB said the traffic for Homes.com was 110 million monthly unique visitors, rather than the 156 million claimed in ads by Homes.com. Realtor.com’s traffic, meanwhile, is 66 million, the group said.
Florence shed light on his thinking about the battle for web traffic, the lawsuit and competing with Zillow ahead of his appearance July 30-Aug. 1 at Inman Connect Las Vegas.
Below is a transcript of the interview, edited for clarity and brevity.
Inman: Let’s focus on the new lawsuit. It seems touchy because this employee, according to them, was central in driving traffic to Realtor.com and then had a competitive advantage taking that over to CoStar because of the access that he had to the document, according to their lawsuit. And it just seemed to me to keep the focus on that data — that the web traffic to both Homes.com and to Realtor.com and the others — everyone seems touchy about that. This was kind of the latest turn of that storyline.
Florance: Before I answer the question, I would say that Zillow is not touchy about it. They’re pretty laid-back. I would say specifically Realtor’s touchy about it. And by Realtor, I don’t mean the National Association of Realtors. I mean News Corp.
I would say that they’ve got an existential crisis in that business. They had hoped to sell the business last year for $3 billion or so, and that hasn’t happened for them. And it’s an existential crisis if they are no longer one of the largest websites where people shop for homes.
And it’s also an existential crisis if their business model becomes ineffective. And so the two things that are being threatened there are real. And that’s why you end up with things like a PR-oriented lawsuit.
So traffic is a big component of this and has been since October when CoStar first announced it surpassed Realtor.com in traffic.
Nobody in the world would have predicted that that would have happened that quickly. It’s like the White House when Sputnik launched or something.
So that’s why you’re getting a lot of flack blowing up around the numbers. Because in any marketplace, having a huge audience of potential home shoppers is important. And the second major issue is we are bringing Your Listing, Your Lead to the market. I know I go on and on about it, but it’s real and it’s important and it is going to be the future. I do not believe that the business model that was here when we arrived, the Zillow and Realtor lead diversion model, is the future.
Universally, Zillow’s lead diversion business model is wildly unpopular. Agents universally hate it. Realtor[.com]’s historically gotten a little bit of a pass. They have the exact same business model as Zillow, but they’ve gotten a pass because agents don’t realize that the National Association of Realtors sold off Realtor.com a long time ago, and it has no affiliation with NAR. News Corp is stealing the leads. That’s why this lawsuit exists. Something to try to change things.
So that’s why they filed this lawsuit?
It’s an entry-level employee and a team of a thousand people producing content. Our content strategy is clear and well-known. This is ridiculous. If this employee had any files or access to any files, he never gave it to anyone doing strategy. Never had contact with anyone doing strategy. This guy is a pawn in a PR stunt. It’s a little cruel.
You fire the guy, and then you sue the guy for something that is immaterial if anything happened. The guy’s a writer, right? So what we’re doing is we are writing narratives on condominium buildings. There’s a small team of writers in New York.
If you don’t mind me pushing back a little bit on that, Andy. This guy’s resume is insane. He has a very prestigious pedigree from other journalistic outlets. And when we look back at the traffic component of things, CoStar has a news team that drives traffic to CoStar and builds its brand reputation. I presume he has strategic importance for CoStar. I assume, given that everyone else has that same kind of component — Realtor.com, Zillow — they all have news teams. This guy is a content lead and it seems like you might be diminishing his role, with all due respect.
There’s a guy in Richmond who’s in charge of the content blog for the site. This guy’s not that guy. There’s a guy in Richmond who that guy reports to. It’s not that guy. And this guy is employed as a person editing condo narratives in New York. There’s nothing strategic about it.
There’s a right to work in America. If you’re a person who has a job and your company lays you off, and you’re a writer or an editor, you have the right to go be a writer or editor somewhere else. This guy has the right to work.
The bigger issue is this is obviously a frivolous lawsuit that’s an act of desperation because they face an existential crisis because they’ve got a bad business model. To credit Zillow that had a lead diversion model, when you listen to Rich Barton talking nowadays, he is downplaying the lead diversion model and he’s upplaying everything else. Realtor[.com] hasn’t yet figured out they have to get away from that business. And instead, they’re throwing relatively junior employees that they laid off under the truck.
You mentioned Zillow. Presumably, they’re in your sights. You want to surpass them. We’ve talked a lot about traffic. They’ve been updating their business model. But you’re presumably coming for them now.
Well, you might have heard a rumor that I was competitive.
Yes.
It’s not true. What we want to do is we want to build the premier residential site where people market properties for sale and people find properties for sale. And in order to do that, you have to have a lot of traffic. I’m highly confident that we’ve reached a traffic level in which we can provide a ton of value.
Anecdotally, I can see already that for our members, we’re providing dramatically more traffic to their listings than those members get on Zillow right now. All in all, our members are getting up to 10 times as much traffic on their listings on our site as they get on Zillow.
So we’ve already beat Zillow to some degree because our business model is different. They’re trying to sell the agents. We’re trying to sell the properties. And, when we help people sell properties, it helps them win listings. By playing on a different playing field like we’re doing with Your Listing, Your Lead, we’re already beating them on traffic as far as our customers are concerned.
How does this traffic dispute get resolved? You focused on who’s making the noise here and how they’re making the noise. You are a competitive person. Presumably, you don’t like a company that’s questioning your company’s, and maybe thereby your, reputation in public. They’ve questioned your traffic numbers, and now, they’re kind of claiming trade secret theft. How does this end?
This is an entity that’s owned by News Corp, and that’s the Murdoch family. If you look at News Corp, approximately 85 percent of the value of the company is the real estate websites. So if you take the [New York] Post and The Wall Street Journal and everything else, all the other media operations they have, that’s only 15 percent of the market cap of News Corp. So you can imagine having these websites is pretty important to them. It’s most of the value of the business and you would probably agree with me that the Murdochs are not exactly shrinking violets in media.
When you go to compete with News Corp, which is Realtor.com, which is not part of NAR, they’re going to fight in the media. And that’s what they’re doing.
When we really started gaining traction, it pulled a guy from Australia, Damian [Eales]. I think they brought him because he’s a boxer, and they’re going to throw all kinds of punches. Frivolous lawsuits will result in nothing. We just made a choice that we’re trying to build the best site. And if people want to hurl personal insults or if people want to create fake news stories or lawsuits, that’s not going to stop us from delivering the best product possible and winning over the agents one agent at a time with a better product. So, yeah, I can take the heat.
Looking ahead
I know the ink’s not dry. I know it’s going through regulatory review. I don’t know what you’ll be able to share, but can you open up at all on what Matterport the acquisition means for CoStar? What are you going to use this thing for? What can you share?
I can just say, fundamentally, I really believe in their product. I’ve had the joy of seeing some good technology in my time. What we know is that a high-quality, easy-to-build, 3D digital twin is the best way to experience real estate online. And it’s been underutilized in commercial real estate, in residential real estate.
We just want to go all in on that technology, and we want to make it ubiquitous on our platforms. We believe it will draw more traffic. It’s the best way to market a piece of real estate. And it has fantastic, real AI extensions. So already it is the best example of AI in real estate because the way you build the Matterport relies on a huge learning model and is AI-generated. Other products use human labor to try to stitch them together.
Is this a Homes Pro offering? I know how their revenue model works. So presumably you can’t shut it off and just move it all to CoStar, and you’ve got to be a member to use Matterport, right?
We wouldn’t do that. We’re going to provide it to anyone. Everybody. What we’re doing is Homes Pro members, we’ll just Matterport their listings and generate floor plans. But anyone that wants to do Matterport, that’s fantastic. We think we win by jumpstarting demand, by putting Matterport up on homes.
I believe homesellers are going to want that same advantage with their marketing, and that will drive sales of Matterport outside of Homes Pro.
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