zillow-trulia-11No way.

That was my first reaction when Bloomberg News reported Thursday that Zillow was looking to buy its primary rival Trulia in a cash and stock deal valued at $2 billion. Wall Street loved the news, sending shares of both companies higher, a trend that has continued Friday with Zillow gaining another four percent and Trulia jumping more than three percent. (Zillow is now worth a whopping $6.08 billion, while Trulia comes in at a respective $2.05 billion).

Could this mega deal really happen?

Yes, and here’s why.

Spencer Rascoff
Spencer Rascoff

In one fell swoop, Zillow could consolidate its growing power in the residential real estate industry, knocking out its closest rival. That alone probably makes the deal enticing to Zillow CEO Spencer Rascoff, who has silently battled Trulia over the years and probably wonders why they haven’t yet killed them off.

An acquisition of this scope could knock Trulia out for good, while at the same time reducing the number of choices that real estate agents have to advertise their properties. That could mean higher ad rates, which means more revenue for Zillow.

As a media company, Zillow would like to control more eyeballs, and this is one way to do it. Think about it as a throwback to the golden era of newspapers when daily newspapers essentially operated monopolies on information flow and advertising rates in their local communities.

Zillow would love to get to that point in the real estate arena, one reason a deal could draw some regulatory scrutiny or at least the ire of real estate professionals. No wonder that more than half of those surveyed in real estate publication Inman News said that a Zillow-Trulia deal would be bad for the industry.

Nonetheless, Zillow buying Trulia would be a Machiavellian chess move.

But it doesn’t stop there.

Pete Flint
Pete Flint

Trulia has been rumored to be in the market to buy Move Inc., operator of Realtor.com and the third major player in the industry. An acquisition of Move by Trulia for a reported price of $712 million could combine the No. 2 and No. 3 players, creating formidable competition to Zillow.

Zillow likely doesn’t want that to happen, and therefore its interest in Trulia could simply be a smart defensive move.

Certainly, there would be some additional value that comes along with Trulia — the company attracted 54 million visitors in June and it has brokered dozens of strategic relationships with multiple listing services. It also owns Bellevue-based Market Leader, which provides customer relationship management tools to real estate agents.

Those factors should appeal to Zillow. But let’s face it, if this deal indeed happens, it is about more than gobbling up a valuable business. It’s about knocking out a rival, one which has nipped at Zillow’s heels for years.

Both Zillow and Trulia are spending tens of millions of dollars right now on consumer awareness campaigns. If they merged, those costs would slow and consumers would be left with one dominant player when it comes to finding real estate information.

But there’s even more going on behind the scenes here. Zillow and Trulia have common owners, some of whom might like the idea of a tie-up. (They certainly are enjoying the speculation of the deal given what’s happened to the stocks of both companies in the past two days). Australian investment firm Caledonia owns 25 percent of Trulia, and 18 percent of Zillow. Tiger Global owns 9.3 percent of Trulia, and 4.6 percent of Zillow.

Think those big investment firms would like to see consolidation around these two companies? You bet!

Stock prices of Zillow (in blue) and Trulia (in red) in the past 12 months.
Stock prices of Zillow (in blue) and Trulia (in red) in the past 12 months.

It also doesn’t hurt that Zillow’s Chairman, Rich Barton, doesn’t like the idea of playing “small ball.” Given the chance to swing for a home run, Barton says he’ll do it every time.

Buying Trulia certainly would be one of those big-time swings.

There are forces pushing against a deal, the first and most obvious is this: The two companies don’t really like each other very much.

One industry insider tells us that Zillow and Trulia “hate each other.”

They have sparred over the years, publicly and privately. Zillow views Trulia as a copycat. Trulia thinks of Zillow as an arrogant powerhouse.

And don’t forget that Zillow sued Trulia just before its initial public offering — a patent lawsuit that certainly stung.

Could Zillow and Trulia — bitter rivals for years — mend those fences?

That’s unclear, and should give some pause on whether these two cultures could truly match.

The size of the deal also is a roadblock. These are not small organizations at this point, and their product offerings are so similar that there would be a ton of overlap. Integration between the two companies would not be easy, and I could imagine Trulia doesn’t like the idea of their hard work over the past decade possibly being flushed down the toilet.

So, where does this leave things?

If I were a betting man, I’d put my money on a deal. It’s just crazy enough that it might work.

Get ready for Zulia!

Comments

  • http://2barSpirits.com/ Nathan Kaiser

    Very interesting. It also just happens to be Pete’s birthday today.

    -Nathan Kaiser

  • Seattleite

    As excited as I am for Zillow (as a fan and shareholder) and a Seattleite, the tone of this article bothers me.
    The acquisition of Trulia at a 30%+ premium is a compliment to their success and their growth. The fact that Zillow wants to buy them so bad once again reinforces Trulia’s competence. I’m worried that fervent fanboyishness will put off Trulia and will convince them that being acquired is similar to surrendering – it’s not.

    I hope this deal goes through and I hope the acquisition integration will be respectful of Trulia’s talent as well.

    • johnhcook

      True, not arguing with the fact that Trulia has built a successful publicly-traded business. Absolutely the case.

      I just think there are other motivators here for Zillow to buy Trulia, which makes the deal particularly interesting.

      Curious what part of the tone you didn’t like? Any specifics?

      Thanks for reading.

      • http://twitter.com/chrisamccoy Chris McCoy

        =Trulia has a data moat that Zillow needs.

        =Zillow started with a data moat of indexing public records–and productizing them.

        Zillow has built a better revenue engine than the Trulia gals/guys.

        To most things, the company/person who hangs on the longest usually wins.

        Let’s reward R&D, innovation, aka ‘hanging on’.

        We need more investors and risk takers willing to do that.

        • http://www.horizonapp.co/ Drew Meyers

          what data moat does trulia have?

  • http://blog.findwell.com Kevin Lisota

    Brad Inman over at Inman News also had some interesting commentary on a potential Zillow-Trulia deal

    http://www.inman.com/2014/07/25/zillows-trulia-move-is-checkmate/

    • johnhcook

      Very good analysis. I like the chess metaphor.

  • Kary

    When I saw this news I said it reminded me of Webvan buying Homegrocer.com, except that those two companies served a useful purpose. ;-)

    • Mike

      I remember those guys, them and Kozmo. Ah, the good ‘ol days of no business plan and lots of VC funding. Some things never change.

  • Kary

    Here’s a fairly recent Seattle Bubble piece on some issues with both companies.

    http://seattlebubble.com/blog/2013/09/16/zillow-trulia-still-apathetic-about-data-quality/

    Tim ends the article exactly right–it’s really about real estate agents converting leads. What’s interesting is that some of those agents who convert the leads don’t then convert their buyer clients to a better source of listings.

  • lexybben

    very insightful.Thanks
    http://iviewz.com

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