CoStar Group CEO Andy Florance on Zillow, M&A, and Domain's Key Lime Pie Problem

I was fortunate enough to secure my hat-trick of interviews in consecutive years with CoStar Group founder and CEO Andy Florance in Madrid at last week's Proptech and Portal Watch conference. While our previous instalments ran for the best part of an hour, this year's iteration came in at a much more lighthearted 20 minutes.

Nevertheless, as attendees who enjoyed his on-stage chat with Simon Baker (pictured) will know, good-humoured feistiness is never far away when speaking with Andy Florance.

Take, for example, his response to a claim from Mike DelPrete's keynote presentation the previous morning that number two portals can't overtake leaders: "You can knock out a number one, especially if the number one treats their customers like garbage."

It's a fitting quote from a man whose company's press releases reveal the most interesting and emotive comms strategy of any business I've covered, particularly since CoStar Group sued its rival Zillow for copyright infringement in July.

Another example: just recently, Florance left a scathing review of Zillow's defence that it was the portal's listers, not the company itself, that was responsible for uploading CoStar's copyrighted images to its platform. A quote attributed to Florance called Zillow's behaviour a "shameful attempt to blame its own customers", and perhaps even more damning, "as predictable as it is unconvincing."

It's a question I've wanted to ask him for ages: what makes a great quote in a press release?

"The legal team puts a fair amount of work into it, and we don’t mince words. The quotes usually focus on the bottom-line moral truth of the issue—something people can understand. When we invest tens of millions of dollars and our people work hard to collect images and data, we can’t just let someone steal it. That’s my responsibility, and you can’t be unclear about that. This is violating the law in a significant way."

I pushed him on his opinion on Zillow's defence.

"If the page says, 'claim this property', how could someone have uploaded it? It's not feasible. It's not possible. I think it says something about the operations. It's just sloppy."

"I hate to say this, but being cynical, I could imagine a scenario where a competitor says, 'Look, I can steal a lot of content. I may get sued and have to pay $1 billion dollar judgment for violating copyright law, but I can make $2 billion by getting the Jumpstart'."

We move on to Domain, a historic acquisition for CoStar Group, as it enters the Australian market to engage in a turf war with REA Group.

First, some context. Domain, backed by the media company Nine, had fallen behind REA Group's flagship portal realestate.com.au as financial backing dried up after a string of underwhelming, non-transformative acquisitions. Florance suggests that a bootstrapped Domain has spent too long splitting its focus on low-yield revenue levers that distract from the far more lucrative core portal offering.

"My number one priority is building the best product possible, and that's number one, day one," says Florance. The good news, according to Florance, is that CoStar Group already has an excellent Product team that knows how to build residential applications. It's just a matter of bringing what they do to consumers in Australia.

Which begs the question: why has Domain's product been allowed to meander into relative non-competitiveness? Florance suggests that the problem lies in outdated business practices, revealing that obsolete directives have added unnecessary friction.

He tells me the story of his friend, the industry veteran Susan Hudson Wilson, who banned the serving of key lime pie from any event she attended, because she hated it that much. But, several years after Wilson's sudden passing, an event coordinator saw key lime pie being served and threw a fit: We can't serve key lime pie—Susan hates it! Given that Hudson Wilson had died several years prior, perhaps the directive should have been updated to allow key lime pie to be served at the event.

The moral of the story? Firstly, CoStar Group's founder has a story for everything. And secondly, some things need to change.

"Having acquired 40 to 50 companies, I never cease to be amazed by how a culture and a company can continue to follow faithfully orders that came from a rational executive 10 years ago, but make no sense today. If you can find that stuff and remove it, you get a cleaner company."

The almost $2 billion Domain acquisition poses a serious operational headache, and when public markets are involved, you have to get it right the first time. The pressure on CoStar Group to deliver results in Australia is not lost upon Florance. Part of me wonders if back-to-back billion-dollar acquisitions force a Group of CoStar's scale to slam on the brakes and work out what the hell to do next. In other words, does the Group need to stop M&A and settle into its new structure?

"It's a valid question. It's something we think about a lot. At some point you cannot buy a company if you have overrun your bandwidth. We're very sensitive to what talent we bring to CoStar with an acquisition. Probably 60% of our motivation is who's the leadership? Can we bring them in and can they help us?"

In this context, he says, Jason Pellegrino deserves another shot at leading Domain. "There were many good players in [Pellegrino's] team. The acquisition brought talent to us," says Florance as a new management structure takes shape.

Final question: Florance was reaching for his cellphone to take images of slides during several presentations at the conference. Is he still learning?

"I end up a much better leader by seeing what everyone is doing and seeing ideas from around the world. It's quite remarkable that everyone gathers here and shares some of their ideas, some of their challenges. I'm sure I will talk to various product leaders around the world here, and I'll say, Have you thought about this? Have you thought about that?

"I wanted to go back to graduate school."