Zillow + Trulia (with Zillow Group CFO Kathleen Philips)

CFO of Zillow Group Kathleen Philips https://twitter.com/kathleenphilips joins Ben and David to cover the show’s first true “merger” versus “acquisition" (only took 22 episodes!), Zillow’s 2015 combination with Trulia to form Zillow Group. Note: our audio glitches unfortunately continued on this episode, and quality is rough. We recommend listening on speakers vs headphones if you’re able. We apologize and will be back to normal quality next time! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Topics covered include: Zillow and Trulia’s beginnings during the “Web 2.0” era in the mid-2000’s Zillow, Trulia and other online players’ place within the massive US real estate marketThe lengthy “dance" between Zillow and Trulia and earlier aborted merger talks between the twoThe difficulty of "true mergers” among private companies and why the path is easier for public companies Public company shareholders’ influence and role in M&A transactions Details of the blazingly fast negotiations (27 days start to finish!) per disclosures in the SEC filings https://www.sec.gov/Archives/edgar/data/1349454/000119312514415642/d778624ddefm14a.htm (scroll down to "Background of the Mergers”)Structuring the deal and incentivizing Trulia and Zillow mangers to stay and continue growing as separate brandsTrulia cofounder Sami Inkinen’s whereabouts during the merger negotiations The experience going through a lengthy FTC review of the merger, and defining what the relevant “market” is the FTC should be consideringIntroducing our new acquisition category: a “timeline acquisition” ;) (h/t Kathleen)Zillow Group’s overall approach to acquisitions, folding into its broader HR strategy Zillow founder Rich Barton’s startup thesis of searching for "What piece of marketplace information do people crave and don’t have? http://www.nytimes.com/2014/04/14/technology/the-art-of-something-from-nothing.html?_r=0" Followups: Snap Inc. Spectacles https://www.spectacles.com! Hot Takes: Twitter-Disney rumors, according to “people familiar with matter http://www.acquired.fm/episodes/2016/9/27/episode-21-inside-the-ma-press-with-bloombergs-alex-sherman”! AppLovin’s journey from bootstrapped startup to $1.4B exit http://fortune.com/2016/09/26/applovin-orient-hontai-capital/ The Carve Out: Ben: The Marvel Symphonic Universe https://www.youtube.com/watch?v=7vfqkvwW2fsDavid: Shoe Dog https://www.amazon.com/Shoe-Dog-Memoir-Creator-Nike-ebook/dp/B0176M1A44/ by Phil KnightKathleen: The Struts http://thestruts.rtouring.com

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Hey Acquired listeners. We hope you enjoy this episode with CFO of Zillow Group Kathleen Phillips. Just a quick heads up that the audio quality is a little bit rough this time around, and we recommend listening on speakers rather than headphones if you're able. We'll get back to our normal standards next episode. Thanks for bearing with us.

• 0:17Ben Gilbert?

  Welcome to episode 22 of Acquired, the podcast about technology acquisitions. I'm Ben Gilbert.

• 0:40David Rosenthal?

  I'm David Rosenthal.

• 0:41Ben Gilbert?

  And we are your hosts. We're on a serious roll here at Acquired, and we have an awesome, awesome guest for you today. We'll be talking about Zillow's 2015 acquisition of Trulia and their M&A strategy overall. Kathleen Philips is our guest. She is the CFO of Zillow Group and was formerly Zillow's COO and General Counsel. She has run corporate development for her entire six-year history at the company. She's also previously been a VP and General Counsel for StubHub and Hotwire. Welcome and thanks so much for coming on Kathleen.

• 1:12Speaker 03

  Well, thank you guys very much for having me. I'm super excited about having this conversation with you today.

• 1:17Ben Gilbert?

  So are we.

• 1:18David Rosenthal?

  So are we. Thank you.

• 1:20Ben Gilbert?

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• 3:08Speaker 00

  All right. Well, I think, I think it's time to dive in.

• 3:11David Rosenthal?

  With that.

• 3:12Speaker 00

  Yeah. You know, normally Kathleen, David leads us through the acquisition history and facts. I figured the best way to cover it in this episode would be kind of David, you lead and kind of have a discussion with Kathleen on.

• 3:27David Rosenthal?

  Yeah, I'm sure lots of, lots and lots of good stuff will come up. This was a, as we joke on the show, and we were joking with Kathleen before we started recording, we love two things. We love public company acquisitions, two things on the show, public company acquisitions where everything about the negotiations comes out in the SEC filings and lawsuits where the same thing happens. So.

• 3:49Speaker 00

  Fortunately, we just have the former.

• 3:50David Rosenthal?

  Yes, fortunately, just the former in this case, for I'm sure for Kathleen's sanity. So maybe I will do a very quick history and facts on the founding of both Zillow and Trulia and then we'll jump into the acquisition process with Kathleen. So Zillow was founded in 2005 by Rich Barton and Lloyd Frank, who previously had worked together at Microsoft here in Seattle and then had founded Expedia in 1996, which probably most of our listeners are familiar with. And that was, a lot of people don't know these days, was founded within Microsoft. It was part, it was a division within Microsoft that they started. And then

• 4:33David Rosenthal?

  they spun it out from Microsoft and it became a separate public company in 2001. And then in 2005, they left and they started, started Zillow. And Zillow's is focused, as is Trulia, on the US.

• 4:52David Rosenthal?

  Housing market and buying and selling of houses and real estate. And Zillow's big innovation that was the big brand that they launched with in 2006 was this concept of the Zestimate. So it was a data-driven estimate for every home in their database about what that home would be worth on the market. And this was, I believe, the first time that US homeowners had any idea of what, you know, any indication of what the value of their house might be without actually putting it on the market. And it was based on a whole bunch of factors, but especially access to comps of houses that were selling in the market around the house.

• 5:35David Rosenthal?

  So this was a big deal, generated a lot of press. Zillow, over its private company lifespan, raised about $80 million in venture capital from Benchmark, TCV, and others, ends up going public in July of 2011. And we will press pause and pick up the story in a minute. Meanwhile, Trulia was, unlike Zillow, which was based up here in Seattle, Trulia was founded a year earlier, in 2004, in the Bay Area by Pete Flint and Sami Inkinen, who were actually students at a place close to my heart, the Stanford Graduate School of Business. They were MBA students, and they founded the company in between their first and second

• 6:18David Rosenthal?

  years, when they were, according to legend, and I know how difficult this was, having lived through it, trying to find housing for their second year at Stanford Business School in Palo Alto, and having a very difficult time and thought, there's got to be a better way. So they work on it during their second year. They end up raising, over the years, significantly less in venture capital, $33 million, from Excel and Sequoia and others. And then Trulia goes public in September of 2012. And that's where, we pick up the story actually a little bit before then, when, according

• 6:57David Rosenthal?

  to the SEC filings of the ultimate acquisition, it was actually before Trulia went public, but after Zillow had just gone public, that Zillow approached Trulia the first time about potentially acquiring the company in late 2011.

• 7:13Speaker 00

  So I want to... Pause and say Kathleen, number one, did we get any of that or is that all right? And then number two, had you been at Zillow yet at this point?

• 7:27Speaker 03

  Yes, I joined Zillow in July of 2010, almost exactly a year before we completed our IPO. So 2010 through July of 2011 for me was completely focused on getting that deal done. And then the rest of it, you got absolutely right.

• 7:45David Rosenthal?

  So you'd just gone public in 2011 and then it must have been very shortly thereafter that you approached Trulia this first time. What was, were you guys kind of waiting to get public and then, and then sort of approach Trulia from, from that position of strength there? How did, what was the thought process behind that?

• 8:11Speaker 03

  Yeah, so it was, it was more a factor of us having, you know, liquid public currency following the IPO. And that was actually one of the primary reasons that we concluded the IPO. And you can see that if you look at our timeline of acquisitions. We had done one small acquisition prior to July 2011. But then as we had stock available that was liquid and publicly traded, that was really our goal was to give us the flexibility to pursue more acquisitions. And Trulia was the natural choice to start with first.

• 8:44David Rosenthal?

  Yep, and yes, we know, you know, being on the VC side and working with many private companies, you know, some of which at various times are either approached by or thinking about approaching other private companies to talk about merging. And it is so difficult to agree on value when both companies, nobody has any idea what either company's stock is worth.

• 9:09Speaker 03

  That's absolutely true and it's also a complex endeavor to think about an acquisition of the scale that it would have been between Zillow and Trulia followed by an IPO. And having to construct that story is far more complicated than, you know, knowing our own business as we did and being able to tell a great story to the street.

• 9:30David Rosenthal?

  And not to mention having, you know, when, when public companies acquire one another, all the, all their financial data is available to the public whereas when you're private.

• 9:39Speaker 03

  Absolutely.

• 9:40David Rosenthal?

  So in, in this round of talks in 2011, Trulia does end up hiring an investment bank as an advisor. They hire Catalyst. But talks break down in early 2012. And then in August 2012, so a few months later, Trulia is preparing their own IPO and Kathleen and Zillow approach again and try a second time. Did, did you guys know that Trulia was, was on the path to going public at that point?

• 10:11Speaker 03

  Oh, definitely. I mean, it was such a natural, a natural thing for them to be doing. You know, we had, we had forged the path ahead for them. They had a very similar story. We knew that that was something they aspired to do. So we expected that that would happen.

• 10:29Speaker 00

  Did you ever consider waiting to IPO for them to IPO first and give, give investors confidence in this sort of business?

• 10:36Speaker 03

  You know, we never really thought about it with respect to them. And we were always a much larger player. So, you know, we were charting our own course. So we didn't really think about our timing relative to theirs.

• 10:53David Rosenthal?

  Got it. Yep. So talks break down again for the second time. And in September of 2012, Trulia completes their IPO and continues executing as a public company for a while, as is Zillow at this point. And I believe during the first couple of years, I didn't look up the exact number, but I'm remembering, I remember it super well when Zillow went public. It was one of the first Seattle tech companies to go public in a long time. And the mark, Zillow's market cap, I believe was what, right around six, $700 million at, at IPO?

• 11:32Speaker 03

  Yeah, I think that's about right. It's been a while. The thing that I remember very well is that our revenue, I think, was something around 40 million, which the reason I note that is because when we look at our group of emerging businesses now, they're larger than we were when we went public. So we've made a lot of progress in the last five years. It's pretty terrific.

• 11:55David Rosenthal?

  Yeah, I mean, the growth was just incredible and still is, but in those early years as a public company. And by this point, you know, after Trulia's IPO and a couple of years later, again, I don't have the information in front of me, but you were, you know, your market cap was multiples higher of what it had been at the IPO, I believe, right?

• 12:15Speaker 03

  Yes, yes.

• 12:17David Rosenthal?

  And so a couple of years go by, finally, spring of 2014. So not quite two years after Trulia's IPO and the last time Zillow and Trulia had danced the acquisition dance. Zillow is still thinking about, about, you know, this and it's a natural fit that these two companies would come together. And so you guys take an interesting step and you go out and you talk to public shareholders of both Zillow and Trulia under NDA with major shareholders to talk about potential, according to the SEC filings, quote, potential

• 12:56David Rosenthal?

  strategic opportunities, including the acquisition of Trulia. What, how did you guys think about taking that step?

• 13:05Speaker 03

  So there's an important clarification here, which is they were the same shareholders. So our major shareholders also held a stake in Trulia. So this was not a matter of us approaching Trulia shareholders who we did not have in common. So it makes a little bit more sense when you think about it from that perspective. And part of the investors of our investors all along, who were invested in both, was that ultimately there would be a transaction. You know, they had no ability to predict when or to direct that. But it was such a natural industrial logic that that was part of what they were betting on.

• 13:46David Rosenthal?

  That makes sense. And at this point in time, and I'm sure still the thesis of a lot of public company investors, public markets investors that hold Zillow Group's stock is, you know, real estate is this enormous, enormous market and it's coming online for the first time. And, you know, the market share of online players in real estate is still tiny compared to the whole market. And we just want to invest in that wave that's coming.

• 14:14Speaker 03

  That's absolutely right. And, you know, one of the stats that bears that out is that we think that, notwithstanding our category leadership, you know, we have about two thirds of the traffic on the web overall and three quarters on mobile on Zillow brand properties. And yet we only touch about 4% of real estate transactions in the US.

• 14:35David Rosenthal?

  Yeah.

• 14:36Speaker 03

  So there's a massive greenfield still there for us to take advantage of. And we're, you know, we see this huge opportunity ahead of us still.

• 14:46David Rosenthal?

  Yeah, that's, it's incredible. It still boggles my mind, you know, having followed this market, you know, closely for several years. How little of the real estate market is, as you said, being touched by any online player, whether it's, whether it's you guys or Redfin or other folks. It's, you know, and having, having shopped for houses myself online, I can't imagine doing it, you know, the, the old way through, you know, newspapers or just working with, you know, offline agents.

• 15:18Speaker 03

  Yeah, I mean, it is remarkable. And obviously, it's, it's a key reason why we continue to invest in the business because we think it's really the long-term opportunity, you know, many years down the road, when this is going to be a mature market. So it's pretty exciting. And it honestly, it keeps us disciplined. You know, we get asked all the time, how come we haven't expanded internationally, for example. And, you know, the reason is because the opportunity right in front of us is so huge that we try to stay focused on that. So it's, it's a pretty exciting time. And with the Trulia acquisition, you know, we dramatically accelerated the expansion of our scale.

• 15:56Speaker 00

  And, you know, I would bet this is one of those things where there are a lot of different sectors right now that have a large generation gap, as with any adoption of new technology. But real estate in particular, it seems like, I'm 27, myself and my whole peer group. Kind of live on Zillow for entertainment value. I mean, it's amazing how

• 16:20David Rosenthal?

  And you're not a homeowner.

• 16:21Speaker 00

  Right, right. Yeah, I rent. And it's amazing how often Zillow links get sent around.

• 16:25David Rosenthal?

  Just wait till you own a home and then you want to track its value.

• 16:29Speaker 03

  Right. Right. Well, we hope so. Right. I mean, that's

• 16:32Speaker 00

  I would imagine you have massively, it's significantly more than than 4% of millennials buying homes. Right. It has to be many multiples of that, but significantly less than older generations. And do you guys like, do you guys track that and look at that and try to specifically target younger folks buying homes for the first time or anything like that?

• 16:54Speaker 03

  Well, I think it sort of happens naturally, right? Because of the, you know, the millennials are used to doing everything online. So yes, we keep them in mind when we're designing our products. The cool thing about that is, you know, we've just recently taken a look at buyer activity in the market. And for the first time, about 50% of home transactions are actually involving millennials. So they're starting to buy, which wasn't happening a handful of years ago. So, you know, it's great because it's a great, you know, opportunity for our product because it really resonates with them. So it's, it's an exciting time as that market starts to develop. And as you know, as you know, as you know, sort of the generational focus of the real estate market shifts.

• 17:38David Rosenthal?

  Yeah, it's, I mean, we see it every day in our peer group. I mean, I'm 31 and, you know, it's kind of like that. You know, when you get to the end of your twenties, early thirties, it's amazing how much your conversations start shifting to like, what's the real estate market like? And like, oh yeah, I've been home shopping and I put in like three offers and it's like a switch flips.

• 18:00Speaker 03

  Right, right. And I think that's, that's much more true in Seattle, you know, in San Francisco, unfortunately, it's still pretty challenging for young people. But I think in Seattle, you know, folks in their early thirties are really thinking about settling down. And suddenly, you know, it's not uncool to be a homeowner anymore.

• 18:17David Rosenthal?

  Yeah. And with the market such as it is and how competitive, like, I can't imagine not having these online tools to, to help navigate it.

• 18:25Speaker 03

  Yeah, oh, for sure.

• 18:26Ben Gilbert?

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• 18:40David Rosenthal?

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• 18:54Ben Gilbert?

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• 19:38David Rosenthal?

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• 20:04David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you. So, getting back to the drama of the deal. So you'd spoken to shareholders, and obviously, they were Holding, you know, if they were already holding both stocks, they were, their thesis was, I would imagine, quite supportive of a, of a combination. In early June, you guys end up hiring Goldman Sachs as an advisor before you approach Trulia again. And then this is where the day by day, we'll link to this in the show notes, the day by day

• 20:46David Rosenthal?

  negotiations in the filing are, just start to play out and it's, it's so much fun to read. So apparently on June 3rd, Rich Barton contacts Pete Flint, the Riches is, at that point, was Rich still the CEO of Zillow or had he moved to?

• 21:02Speaker 03

  No, Spencer became CEO prior to our IPO and Rich is, Rich was chairman throughout that time and still is.

• 21:10David Rosenthal?

  Got it. So he's chairman and he contacts Pete Flint, who's CEO and co-founder of Trulia and attempts to schedule a dinner on June 3rd and quote, "Mr. Flint indicated that his near-term schedule would not accommodate a dinner. Little did he know what was coming."

• 21:28Speaker 00

  It happens to me all the time, so I totally understand.

• 21:30David Rosenthal?

  Yeah.

• 21:31Speaker 03

  Right. Well, I would say, you know, not to put any words in Pete's mouth, but I think he knew very well what was coming. But keep in mind the backdrop of this, which is, you know, we were, we were pretty fierce competitors for a long time. We each admired what the other was doing, but we were playing in the same sandbox. We had been around and around about valuation a couple of times. And I think both companies went through a long period of believing we should just go in our own. And, you know, shifting course from that is challenging when you're looking at a company that you've grown from the ground up.

• 22:07David Rosenthal?

  Yeah. Not to mention the, you know, the psychology here. I mean, it's a little bit of a prisoner's dilemma, right? Like you, you know, both sides probably, I can only imagine the amount of posturing. Like you want to show strength because even though, you know, both sides might feel and obviously did in the end feel that a combination was, you know, the best outcome for both, you know, I'm sure you were very focused on how you were going to do in that negotiation.

• 22:34Speaker 03

  Absolutely, absolutely. I mean, we owe nothing less to our shareholders, right?

• 22:38David Rosenthal?

  Absolutely.

• 22:40Speaker 03

  Both parties are interested in getting the best terms possible.

• 22:43David Rosenthal?

  As did the, you know, Pete and the Trulia board for their shareholders. So on June 5th, two days later, Rich contacts Pete again, and this time is more overt and says, "The Zillow board fully supports a merger proposal," and mentions that you've spoken to these shareholders that you have in common and that they're supportive of the merger as well. And then a couple of days later, Rich does send a letter to Pete and to Greg Waldorf, who was Trulia's lead director. Had, in the previous negotiations, had things gotten to that point before? Had you had, was there, had you guys put a deal on the table, so to speak? Or was this a new tactic you were taking?

• 23:25Speaker 03

  We had not directly put anything before the Trulia board. We had had, I recall, one meeting with more representatives of management on both sides. And I expect and am sure that Pete and team would have conveyed the substance of our discussions to the board, but we had never directly approached the board. I mean, this was a way of kind of turning up the urgency of the offer a little bit.

• 23:55David Rosenthal?

  Indeed. I mean, it's, the process must have been a whirlwind. I mean, it was six weeks, less than six weeks later, I think, the merger ends up getting announced. So from kind of, you know, even though you'd had these stalled talks in the past from, over the couple of years, but, you know, to go from zero to fully negotiating and announcing a merger, that's a tight timeline.

• 24:15Speaker 03

  Yes, and I actually was going to bring that up as I was looking over this. I was getting tired just reading it because I remember this time so well. But the really critical time period that you're looking at is, you know, from July 1st, when we start diligence, to July 28th, when we announced the merger, we did full diligence and negotiation of the acquisition agreement.

• 24:39Speaker 03

  So 27 days is pretty quick. We have a terrific internal finance and legal team and they were working around the clock. We all were. But it's part of how we do deals at Zillow. We try to move them through really quickly so that we can get back to our day jobs. I can't think of an acquisition that we've done that we took more than about 20 days. This one took a little bit longer because it was a little more complex, but we try to get them kicked off and done to avoid distraction, to avoid risk of us losing the deal, and like I said, to get back to business as usual.

• 25:17David Rosenthal?

  Yeah, which, as we were talking about before the show, I mean, one of the things that I really admire about getting to know some of the folks at Zillow over the last couple of years, you know, and it's important for our audience to know, Kathleen, it's not like your only job was to be, you know, head of corp dev, right? You had quite a lot of other operational responsibilities at the company at the same time, right?

• 25:39Speaker 03

  That is absolutely true. At the time, I was still chief operating officer of Zillow. So in addition to having legal under my umbrella and corporate development, I had the whole people organization. And people are our most valuable asset, so I couldn't just ignore them while we were busy on this deal. And, you know, that didn't end with the signing of the acquisition agreement. We'll get to the FTC review and all of that later. But for me, it was about eight months that I was pretty fully consumed on this.

• 26:10David Rosenthal?

  Wow.

• 26:11Speaker 03

  Which was great fun. Don't get me wrong.

• 26:14David Rosenthal?

  Yeah. So what's pretty interesting here to me is especially not having lived through this with public company merger side, but on the private company side, you guys converged on a number pretty quickly. I mean, there's a range there from, you know, 30 of your first offer to Pete coming back after a few rounds with 37. But like, that's not a lot of difference compared to, you know, I'm used to, well, we think 10% and we think, you know, 60%. You know, how did you guys, you know, think, structure things like, I'm sure this helped it move along much faster. Like, were you, were there specific things that you did that got that range, you know, tight very quickly?

• 26:57Speaker 03

  Yeah, so I mean, I wish I could say we're some kind of financial geniuses and we had some model that dictated this, but it really was as simple as we had, you know, side by side, nearly 10 years of operating history and we were always kind of two thirds and they were one third. So it was a pretty natural way to think about the valuation. And interestingly, even now, you know, a year post closing in terms of lead volume, it still is about two third to one third. So, you know, we really were quibbling at the margin there because with all the public company data out there, it was very obvious to us what the correct proportion was, given how similar the businesses were.

• 27:38David Rosenthal?

  Which is interesting because two days later, on July 5th, Rich and Pete talk again and on that conversation, they basically agree like, yep, 33% is what makes sense here. And then they move on to start discussing some of the non-price related terms, which I want to get into, which I'm sure were fascinating. And at least according to the filings, that's when they first start discussing retention packages for the Trulia management team and employees. Especially for you, given that you were in charge of people at the time too. Like, how did you guys start to think about that? I mean, it ends up, the final package, I believe, you know, we'll get to at the end, but I believe ends up

• 28:22David Rosenthal?

  being $33 million in equity retention for Trulia management. How did you even get to, you know, set a framework for thinking about that?

• 28:31Speaker 03

  Yeah, I mean, you know, it was super complicated, I will say, as you might guess. And it really involved an exercise of kind of putting ourselves in the shoes of the Trulia management and thinking about who did we need to keep for various time periods? And we were cognizant of preserving their culture and preserving their team and keeping folks interested. And, you know, we never lost sight of the psychology of this deal, which is, you know, being acquired by your primary competitor who you have competed

• 29:11Speaker 03

  with ferociously for 10 years. So, you know, we felt like we needed to keep folks energized and make everybody feel like this was a winning deal.

• 29:21David Rosenthal?

  And this is a good spot, I think, too, to jump off into one of the really interesting things about this deal. The plan was never, or at least at the beginning, not immediately, to combine the two products. I mean, they're still very much separate brands, separate products, separate sites with separate customer bases. So of course, you needed Trulia management to stay involved and motivated, and they were obviously very good at running Trulia. How did you guys at Zillow sort of evaluate from that spectrum of completely independent Trulia within the Zillow Group umbrella to merging Trulia directly with Zillow.com? What was that evaluation process like?

• 30:04Speaker 03

  Well, we always knew that we wanted to keep both brands. You know, it's easy when you're looking at Zillow in a vacuum to kind of forget about what a strong business and strong brand truly was on its own. So there was a lot of brand equity there, very strong team doing different things than we were doing, even though our ultimate consumer missions were very well aligned. And we knew that there were consumers out in the marketplace who strongly preferred one over the other. So there never was any question about just folding the Trulia brand into Zillow. But what we did recognize was there were a lot

• 30:46Speaker 03

  of other things that we could fold into one. For example, our ingestion of real estate listings. We run from a central source now. So there's efficiency there, which unlike in, you know, more industrial type mergers of competitors, rather than us shedding product development resources because of these efficiencies, instead, it let us deploy a bunch of very talented people to new products and new projects that we never would have had time to do on our own. A perfect example of that is there's a substantial Development team in San Francisco that were former Trulia people who now work for Zillow

• 31:28Speaker 03

  Group broadly and they developed our Premier Agent app, which is one of our most successful product launches of this year and is really the foundation for a lot of the developments that we've been seeing in our ad products. So, you know, it was a goldmine of talent that we could deploy to things that were far more interesting in the end for both our consumers and our advertisers.

• 31:51Speaker 00

  Yeah, can you, you mentioned the Premier Agent, I guess, product or business line. Can you talk a little bit more about that and what the strategy is behind that for Zillow Group all up?

• 32:00Speaker 03

  Sure. So, you know, fundamentally, what it is, is a subscription-based advertising product where agents pay to be promoted next to for-sale listings to be potential buyers' agents for consumers. With the acquisition of Trulia, that advertising is purchased by agents across both properties. So, the agents are advertising on both Zillow and Trulia. And it has been, you know, it is the workhorse of our revenue, definitely the focus of our efforts, our sales efforts, as well as our development efforts. It's been hugely successful.

• 32:40Speaker 03

  More recently, what we've been seeing is really innovative and entrepreneurial agents who are forming agent teams and buying advertising in large quantities and really building big businesses from which to operate.

• 32:54David Rosenthal?

  One of the things that we talk a lot about on this show is, we joke about it, Ben Thompson, we are just huge fans of his writing and his thinking and, you know, he talks about aggregation theory and one of the consequences, aggregation theory being that, you know, in the kind of the information economy as opposed to the industrial economy, aggregating customers and having the best customer experience and ability to do that is the winning strategy versus in an industrial economy where distribution is costly and has friction, you want to aggregate distribution and think about customers second. And one of the things I love about

• 33:35David Rosenthal?

  The Zillow Group business and this merger in particular is it's such a like pure play example of that like there are these levers in distribution that by being internet based you have and then by combining these businesses whether it's acquiring the data feeds about data on homes and home sales which we'll get into in a minute because there's more drama to come there or advertising sales or you know what have you website backends it doesn't make sense for any of that to be separate but what does make sense to put the combined effort of the companies into is exactly what you're saying is developing these great customer experiences

• 34:17David Rosenthal?

  whether it's the advertising customer or the the homeowner homebuyer customer it's it's cool to watch and it so when you guys were were thinking about the rationale for this merger was that like as you're identifying kind of the key levers for this like were those was that at the front of your mind or

• 34:41Speaker 03

  Oh absolutely and I would say it has unfolded in a way that was even far more beneficial than we could have imagined you know we were most focused on the acceleration of our audience growth which is you know natural when you're running an internet media business and we thought that there would be some other benefits of scale but those have far exceeded our expectations and real estate listings is a perfect example of that I mean we we struggled and I see I think we're going to get to this a little bit later about the listings drama you know we struggled in acquiring listings over the years there were parties who just didn't want to provide them to

• 35:22Speaker 03

  us now it's pretty difficult for listings providers to look at you know the the dominant real estate brand on the web and say oh no we you know it's not in our seller's interest to have their listings on Zillow or Trulia it just it's unfathomable to make that argument anymore so that has certain our ability to Attract direct listings was certainly strengthened by this acquisition because of the scale.

• 35:48Speaker 00

  And that that perfectly follows the, you know, same same framework that you can apply to Facebook or Google that, you know, if it's if it's what the users want and it's what the people on their app or their website, the best user experience they can flock to, it gives you enormous power in, you know, getting the content to get in front of them and then run whatever business you want to on top of that. And in Zillow and Trulia's case, it's, you know, selling advertisers to, uh, selling advertisements to the real estate agents who want to list next to those properties.

• 36:19David Rosenthal?

  Yeah. Uh, Ben, you're

• 36:21Speaker 03

  Exactly.

• 36:21David Rosenthal?

  bleeding into my tech theme, but all right, let's get through the, let's get through the acquisition drama, uh, which there's still more juice to come and, uh, and then we'll get into the also fun stuff on, on tech themes. Um, Trulia's board comes back with a counter offer at thirty four and a half percent. Um, and then also starts to includes official terms on some of the non-price stuff. So includes a go shop clause, uh, which for our listeners who aren't familiar with that, would basically mean that, um, if this clause were in the merger agreement after it was signed and announced, Trulia could still entertain other offers from other potential acquirers. They also wanted a fairly large breakup fee in case the merger didn't happen that Zillow would have to pay.

• 37:04Speaker 00

  And to give people enough, uh, to give people kind of a sense of how taxing this is on an organization, um, the breakup fee ended up being a hundred and fifty million dollars. So that's effectively the kind of opportunity cost that, um, the two parties believe that, uh, Trulia could be spending focusing on their own operations instead of being distracted by a deal that didn't go through.

• 37:26David Rosenthal?

  Yeah.

• 37:27Speaker 00

  So I mean, uh, just imagine, um, how many people and how much time it would take to justify a hundred and fifty million dollars of value.

• 37:34David Rosenthal?

  Yeah. Uh, and, and interestingly, not even a day goes by, the Zillow board basically says right off the bat, like, nope, not going to fly, no way, thirty three percent final offer and no go shop, uh, in the, in the agreement. Uh, what was that like when you guys received that counter offer?

• 37:52Speaker 03

  Oh gosh, I'd have to mine my memory on that one. I mean, it was, you know, the This is a dance, so you don't, throughout this process, I try to avoid placing too much weight on any specific set of terms that somebody is coming back with because we know where we're going to end up because we know what we're willing to tolerate. And you just, you kind of push each other around. So I, I don't recall that there was any particular shock. You know, with an acquisition of a competitor like this, there was just no way we were going to entertain a go shop. It, it wouldn't have made sense. And honestly, I'm not sure it would have made sense for either of us because it just would have created a, you know,

• 38:36Speaker 03

  some, some frenzy in the market that wasn't going to benefit either of us in the end. So, you know, I, I don't recall any particular drama associated with that. We knew what we were marching toward and what we would tolerate.

• 38:48David Rosenthal?

  There was, there was no way that, at least you guys were going to have that. So July 28th, finally, the merger gets announced and you start working towards close.

• 39:00Speaker 03

  And I should mention here because when we walk through it like this, it makes it feel like all that was happening was the price negotiation. You have to picture, you know, 50 people or so at Zillow working on the merger agreement and all the diligence. Because we needed to announce it right away. So, you know, it was a pretty nerve wracking period of time where we were still waiting to reach agreement on key terms. But meanwhile, we're negotiating the whole host of other things that you negotiate in the merger agreement.

• 39:31David Rosenthal?

  Which gets me to the, what I think is the, certainly the most amusing part of this deal. That I was going to bring up, you know, after close on, announce on July 28th. And then, and news comes out and the market reacts. But news also comes, comes out then that Trulia's co-founder, not Pete, but Sami Inkinen.

• 39:54Speaker 03

  Sami.

• 39:54David Rosenthal?

  Was literally in a, in a rowboat, in a, in a cruise skull, rowing across the Pacific Ocean for the entire time that this negotiation was going on.

• 40:07Speaker 03

  That is right, that is right. You know, I don't know what it was like in that boat, but we probably would, you know, jockey to say who was feeling a little bit more miserable at the time.

• 40:19David Rosenthal?

  So he was, he was, he and his wife, the two of them in a, in a rowboat, you know, in a cruise skull, rowing thousands of miles across the Pacific Ocean.

• 40:28Speaker 00

  Yeah, to Hawaii.

• 40:29David Rosenthal?

  To Hawaii, from California.

• 40:31Speaker 03

  Yep.

• 40:31David Rosenthal?

  Were you able to reach him by satellite phone or, you know, was, did that, what was that like?

• 40:39Speaker 03

  You know, I honestly don't remember whether he had given someone his proxy before he left. I don't believe he was in any kind of substantive contact beyond, you know, making sure they were safe out on the boat. But I really just don't remember.

• 40:57David Rosenthal?

  Well, presumably he'd given proxy to somebody because I would imagine his, he would need to vote his shares for, for the deal, but.

• 41:09Speaker 03

  Yeah, yeah.

• 41:10Speaker 00

  That's, that's a first here on acquired.

• 41:12David Rosenthal?

  Yeah, that is a first. We have never had a story like that. It's pretty awesome. He seems like quite a, quite a cool guy and, and character, as you would imagine from that. So that was, that was sort of all the pre-close challenges. But then the, then the, well, pre-announced challenges and then the post-announcement challenges start. So this deal underwent a serious amount of FTC and government regulatory scrutiny, right? I mean, there were two requests for information, which is uncommon. Typically, the FTC will make one request for information in reviewing, you know, coming to a decision, which they ultimately decided that Trulianzilla was not, but whether this merger would create

• 41:54David Rosenthal?

  a monopoly in the market, which obviously would be illegal. And, and so typically they'll do one request, but in this case they did two, and that's usually taken as a bad sign by the market. And indeed, when that happened, the share prices reacted negatively. What was all that, you know, drama like? I mean, you guys must have been on knife's edge.

• 42:14Speaker 03

  Yeah, it was a pretty nerve wracking period for all of us. You know, I essentially spent four months in DC full time trying to get the deal pushed through. For those out there who aren't familiar with the FTC approach in this kind of case, what they're trying to determine is what is the correct definition of a market? And once they have defined that market, then whether there is monopolized pricing power in the market based upon the combination. And, you know, the FTC was having fits and starts about, you know, is online real estate,

• 42:55Speaker 03

  is the online real estate portal market a market unto itself? And, you know, our view was no. I mean, most of the activity that takes place in this market takes place way outside of where we are. You know, one stat about that is what I mentioned at the beginning of this conversation, which is, you know, we think we touch about 4% of transactions. And we think we have a small percentage of advertising spend by real estate agents. That being said, if you look solely at consumer transaction to real estate portals only, we're pretty big. So, tons of back and forth and economic analysis, hours and hours and hours of depositions. And ultimately, we think they reached the right decision.

• 43:39Speaker 03

  But I had a lot of sleepless nights, I can tell you that. And, you know, for me personally, I felt like the weight of the deal was on me running this process.

• 43:49David Rosenthal?

  Not only have I cooked up, but also general counsel, right?

• 43:52Speaker 03

  Right, well, I have, we have a general counsel, Brad Owens, who runs most of this. But for this, I'm still chief legal officer and I was on point for the deal. So I was the one in the thick of it while he was holding down all the things that needed to be done in Seattle. So, yeah, it was quite a time. I think I aged a few extra years in that six months.

• 44:15Speaker 00

  I bet. How does the FTC decide what the market is? Is it like a number of transactions? Or is it a dollar amount? Or how do they determine? Because you could imagine two people hanging out on the street. One guy wants to sell something to the other, that right there is a market.

• 44:30Speaker 03

  Yeah, so they they look at it from through many, many different lenses. You know, we had multiple economic experts, many, many antitrust lawyers who work on these kinds of cases every day. And what they're looking for is any characterization of the market that can give someone, you know, additional pricing power simply by virtue of the combination is what they're concerned with. It's an interesting thought process in our transaction because the pricing power they were thinking about, of course, our products are all free to consumers, was will the price

• 45:10Speaker 03

  of online real estate advertising be impacted by this combination for real estate agents? So, you know, does it become more expensive for real estate agents to advertise simply by virtue of this combination?

• 45:24David Rosenthal?

  Yeah. How deep did they go? I mean, I imagine it was a six-month review and you practically lived in Washington for four months. I mean, were they, were they subpoenaing or the equivalent thereof in this process information? I mean, like, were they looking back at, like, the Series A pitch decks of both companies?

• 45:44Speaker 03

  Oh, yeah. All of our email, everything. Yeah, to see our own characterization of the transaction, right? And given the long history of this acquisition dance, there was a lot there. They were talking to other market participants. They were talking to individual real estate agents. You know, we didn't have full visibility into all of their activities, but we would hear anecdotally from people in the industry who would say they had had calls or been deposed or provided documents and they had their own economic experts. So it was an incredibly in-depth and detailed process.

• 46:20David Rosenthal?

  Yeah, I mean, it's a good reminder for those of us, you know, in the, you know, broader defined Silicon Valley ecosystem, it's so easy to be like blasé about, oh, I'm starting a startup, we're gonna like take over this market or you know, just like, you actually need to be really careful about how you characterize things, because you could end up in this nightmare scenario.

• 46:40Speaker 03

  Yeah, and even with, you know, perfectly innocent characterizations of market dynamics can be, you know, taken out of context or paired with other information and can cause real questions about your intentions and the potential outcome.

• 46:56Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 47:09David Rosenthal?

  Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 47:26Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 47:41David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 48:05Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 48:24David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 48:54Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com/acquired and just tell them that Ben and David sent you.

• 49:19Speaker 00

  Well, hey, you know, I want to talk a little bit about the MLSs and data feeds.

• 49:25David Rosenthal?

  Yeah, that's exactly.

• 49:25Speaker 00

  But maybe let's do that quick. And then I really want to talk about Zillow Group's overall acquisition strategy and sort of how it fits into the landscape for the next few years and kind of Kathleen, give you a chance to talk about that. So let's do the, let's talk about kind of what happens.

• 49:39David Rosenthal?

  Yeah, well, real quick, and then we'll wrap up the history. The final twist in the story here is right before, so the FTC finally approves the merger in February, and then it goes through and you close the deal. But right before that happens, both Trulia and Zillow were getting, I believe, if not a majority, a significant amount of your real estate listings from a company called List Hub, which is a data provider, which was actually owned by a third competitor in the market, Move.com, which had, I believe, just been acquired by News Corp. And List Hub actually cuts off both Trillo and Zillow

• 50:20David Rosenthal?

  from these data feeds, which are the lifeblood of your business. And so you had this other wrinkle of like, now you have to go rebuild your supply essentially from the ground up by signing direct, direct data deals with all the MLS or multiple listing service for people who aren't familiar with the market. These are local organizations that aggregate real estate listings as they come on the market in each, you know, each city, each, you know, each geography kind of within the country. And there are hundreds, if not thousands of them. And so all of a sudden, now you guys have to go do biz dev deals with all these folks directly. Wow.

• 51:00Speaker 00

  Can you just talk about that process and what that was like?

• 51:03Speaker 03

  Sure. So let me just tie that back to the FTC for a second, because of course, one of our arguments to the FTC is how can we be a monopoly when our oil, which are, is our listings, are controlled by a competitor who's sponsored by the National Association of Realtors? It kind of boggles the mind to think we could be the monopoly when they provide us all these listings. Um, so, you know, the, the, the cutoff of the listings actually came as a result of a natural termination of our contract and we had engaged in negotiations to try and renew. So it, it wasn't overnight. Um, we, we knew this could happen. So we had been gearing up

• 51:46Speaker 03

  for a substantial amount of time to try and cover this because of course you never want to run your business at the mercy of, of one of your competitors, which is, you know, essentially what, what that was. Now, that's sort of a plain way to put it. One thing that people don't focus on is there was actually a pretty symbiotic relationship between Zillow and Trulia and List Hub because List Hub's primary business is not syndication of listings. It's the sale of listing reports to agents that say things like, "Your listing on 123 Main Street was viewed 50 times on Zillow." So it, you know, it, it's not as straightforward as to say we were at their mercy because actually we were a key ingredient to their business as well. It's just that once they were acquired by Move and then

• 52:31Speaker 03

  subsequently Move was acquired by News Corp, they were thinking about that business differently from a strategic perspective. So we had already engaged in a ton of effort, um, knowing that this could happen and not wanting to, to, you know, have this relationship with a competitor. But, you know, we certainly had to try pretty hard at that. And as I said at the very beginning of this conversation, you know, one of the unforeseen benefits of the combination was that our increased scale sure made it a lot easier to get those listings. Not that it was easy and it's an ongoing process, but, you know, it, it was a lot easier to go as number one and two in the market to try and acquire these listings than it had been when we were on our own.

• 53:13David Rosenthal?

  Yep. Let's move on. I think Ben, the right frame to discuss, um, what you were talking about in Zillow's M and A strategy generally is, uh, let's, let's quickly do acquisition category. To me, this is pretty clearly a business line acquisition of, well, I guess, I don't know, maybe you think differently, like.

• 53:31Speaker 00

  Yeah, it's, it's funny. The way I was going to categorize it is, so, um, Kathleen, and for our new listeners, we have, uh, several different categories. People, technology, product, business line, asset, which is newly added, or other. And in this scenario, um, you know, what I really think was, was the way I look at this deal is, um, It's a rapid way to expand the kind of core marketplace that Zillow offers. So on the supply side of the marketplace, you have people who are looking at pages that display homes and on the demand side of the marketplace, you have real estate agents that want to advertise their services.

• 54:11Speaker 00

  And so to me, this is just providing, it's buying more supply and more demand and kind of putting the two together. And there's all sorts of interesting ways.

• 54:25David Rosenthal?

  Yeah, it's a good point. It's like, I totally agree with you. It's a business line acquisition, but not a new business line. It's the same business line.

• 54:32Speaker 00

  It's buying more supply and demand of the same business line and kind of like having multiple marketplaces, but having ways to, for example, the combined portal for real estate agents to put their ads on both. You know, the ability to funnel to both of those marketplaces simultaneously. Yeah, I almost want to say asset in that case, but it's like an asset generating product.

• 54:57David Rosenthal?

  I don't want to create another new category. That's when I stuffed it into business line.

• 55:02Speaker 03

  Yeah, I mean, another way to say it is, it was sort of honestly, kind of a time machine acquisition, right? Just accelerating what each of us was doing already by putting it together. So you're exactly right. It's both sides of supply and demand and we each, you know, combined got where we were going a lot faster.

• 55:24Speaker 00

  Yep, very cool. Well, how does this fit into, you know, what's the Zillow Group's strategy for the next couple of years and why have you been doing the acquisitions you're doing and how does this fit into that picture?

• 55:34Speaker 03

  Yeah, so I mean, this one is pretty different than our other acquisitions because it really was just an acceleration of our scale. In terms of overall strategy, I mean, we continue to invest in a number of different things. You know, Dot Loop is a good example of a product that is designed to help real estate agents become more efficient and close more transactions more quickly, which in the end we believe will make our advertising more valuable to them. Um, it's also, you know, kind of doubling down on having agents embrace technology by

• 56:16Speaker 03

  closing transactions um on online versus on paper. Um, so that that's that's an extension of the products and services that we provide agents that really enhances the value of the advertising they buy from us. Um, you know, the other branded acquisitions, Naked Apartments, Hotpads, and Street Easy are just continuing to build out our portfolio of brands so that we have something for everybody for whatever they're looking for. You know, Hotpads tends to focus on younger urban renters. Um, Street Easy, Street Easy is focused only on New York, primarily was focused on um

• 56:58Speaker 03

  purchase and sale, but um always had a rentals product and now with the addition of Naked Apartments has open rentals, which are, you know, something that Street Easy had not um focused on before. And as we look at at each of these candidates, and I mean, we look literally like last year, I think we went back and counted, we looked at about a hundred and twenty-five potential deals. We think about, you know, will this accelerate something that we are already doing and and get us there faster? Is it something we haven't figured out yet? Um, is another way of going. Um, but fundamental in every acquisition, what we start with is we look at the people and decide whether they are people who we could work well with within our existing

• 57:42Speaker 03

  um Zillow Group uh portfolio because ultimately we we are acquiring the people who have built these brilliant products and we want them to stay and we want them to be successful with us.

• 57:53Speaker 00

  How do you think about, you know, when you acquire a Naked Apartments or a Hotpads, you know, those properties aren't being combined, they're they're different websites with their own um ability to acquire traffic. Do you combine the the back end, um, you know, real estate agent services or what what ways do you, I hate using the word, but how do you achieve synergies and and why is it advantageous for Zillow Group to own those businesses?

• 58:20Speaker 03

  Yeah, so you know, Hotpads is a great example. You know, one of the things that that's pretty cool is we look at teams that are really good at certain things. And when Hotpads joined us, we realized, for example, that they were really good at ingesting rentals feeds and normalizing them to present them in a way that was useful to consumers. So now a segment of the Hotpads team is responsible for all rentals listing syndication throughout our entire platform. And so we tend to kind of pick and choose where there are strengths within each of the teams. It's StreetEasy, for example, because they're a New York City brand, very focused on vertical living.

• 59:03Speaker 03

  And, you know, while they don't work directly on vertical living products for our other brands, they certainly inform and educate our teams about how to present a condo building versus a single-family home.

• 59:15Speaker 00

  Very cool. So it's almost like a little reverse acquisition of of knowledge there to get that DNA up into the the rest of the Zillow Group products.

• 59:22Speaker 03

  Sure, yeah.

• 59:24David Rosenthal?

  Let's let's move quickly into tech themes then, which is one of our favorite parts of the show. I had a tech theme written down that I'm going to mention, and we'll link to this in the show notes. There was a great, great interview with Rich Barton in the New York Times a couple of years ago. The interview was focusing on like, you're like this hitmaker, you know, you have Expedia, you have Zillow. Rich was intimately involved in the origins of Glassdoor and AVO and many other marketplace-based, really, you know, important marketplace-based businesses, you know, kind of what's your secret? And Rich said, the thing that I think about is, is quote, what piece of marketplace information do people crave and don't have? I think that's really interesting.

• 1:00:07David Rosenthal?

  You know, Zillow is like a perfect example of that. Like, I want to know what my home's worth, you know? And I don't have that.

• 1:00:13Speaker 03

  Right.

• 1:00:14David Rosenthal?

  And once you give that to me, like, I'm like a, I'm like a mouse in a lab, like, you know, turning the wheel to get the cheese. I want to know every week, what's my home worth? And I think that was a really good example. The other one I want to throw out quickly, Kathleen, that, you know, you've talked about a bit on this show, isn't so much at the normal level of technology themes for us on this show, but we talk, being a VC and working with management teams and entrepreneurs and founders. You know, hiring and building your organization from a people perspective takes as much time as anything else in the business, if not more time. And we always talk about like, oh, it's so important to hire athletes, you know, like not literally athletes,

• 1:00:56David Rosenthal?

  although literally athletes can be great too, but you know, and people talk like, well, what does that really mean? I think Zillow and your M and A strategy is a great example of that of like, people who are very smart, very flexible in their thinking and can adapt and over time, play multiple roles because that's what you need in a startup. Like you can't predict exactly where the market's going to go, where your product's going to go, your organization and you know, I think you guys have done a really good job, both in your hiring, obviously of your management team, but also your acquisitions of looking for these types of people who can evolve their thinking and evolve their abilities as the company does. Because that's going to be, you know, that's going to be the constant in a high-growth industry.

• 1:01:38Speaker 03

  Right, no, that's absolutely true. And I, you know, I can give you a couple of specific examples from the acquisitions. Susan Daimler, who now runs Street Easy here in New York City, which is where I'm standing right now. She came to us by way of acquisition of the company Bifolio that she and her husband Matt started. And you know, as we needed a new leader for Street Easy, Susan and Matt stepped in and now they play a key role in the, in the Street Easy business. So, you know, they, they went from running a very small company that was focused on sharing of information among co-shoppers to now running Street Easy. So, you know, perfect example of that. Justin Lejoy, who was the founder of Diverse Solutions.

• 1:02:22Speaker 03

  We've recently divested Diverse Solutions, but Justin is still with us, running an entirely different product line. So we definitely look, we look for culture fit and you know, a broad ability. Subject matter expertise is important, but it's not the critical piece. And you'll see that throughout our management team as, as we all move around in different roles and, and expand our skillsets.

• 1:02:46Speaker 00

  Very interesting and totally, totally validates the, the tech theme. Mine.

• 1:02:54Speaker 00

  So what we do here at Pioneer Square Labs is come up with new business ideas and then work on them and try and spin them out as their own startup companies. And so we're always thinking about, you know, how do we apply a framework from some business or a theme that's been successful in the recent years to new businesses? And one thing that Zillow and Trulia totally nailed is this idea that real-world objects are also media. And in traditional media companies, you can sell advertisements, you know, against content, against articles people make or photos. And something that Zillow's done is, I touched on this earlier, they've made it a form of entertainment and a thing that people do together to share these listings, a lot because

• 1:03:38Speaker 00

  it's so aspirational. And Airbnb capitalizes on this too, where a lot of traffic is there not to buy, but just to like participate in that experience.

• 1:03:47David Rosenthal?

  Yeah, we used to joke when I worked at the Wall Street Journal that this is house porn.

• 1:03:52Speaker 03

  Oh, yeah. And something that folks miss a lot is, we didn't have any real estate listings on Zillow for the first three years. We only had these estimates.

• 1:04:01David Rosenthal?

  Oh, wow. Wow, didn't, did not.

• 1:04:04Speaker 03

  So.

• 1:04:05David Rosenthal?

  Wow. So was there, I didn't know that. Was there a business model then, or was it kind of in construction?

• 1:04:12Speaker 03

  You know, I was not around. I'm sure that people had in mind all kinds of different ways that we were going to monetize. And we tried lots of different things, different kinds of ads for homes. But ultimately, the initial thought was, build your audience first and advertisers will come. And we still believe that. And that's, you know, that's also central to the investment thesis for Trulia is, you know, advertisers follow audience. So if you can increase your audience by a third over, you know, the span of six months, you're going to be in a pretty good spot.

• 1:04:46David Rosenthal?

  Should we move to rendering a conclusion on that note?

• 1:04:50Speaker 00

  I think so. So for me, this one is, obviously, it's very recent. So some of the acquisitions we do, and we're looking back at Bungie or companies that are 10-plus years old. In previous episodes, we have a lot of information to be able to render a conclusion on. And in this case, you know, I think it's pretty new. But Kathleen, like you were saying, you know, you look at the financials from each of the companies over the entire, you know, existence of the companies, and it looks like kind of one-third, two-third. So the way that we generally grade this acquisition is from the perspective of the acquirer. So from Zillow Group's perspective, was this an A, B, C, D? And, you know, to me, this is a solid B+. It is, it's sort of obvious.

• 1:05:35Speaker 00

  It's amazing that the legwork got, that you guys did the legwork to really get the deal done. It's an accelerant to the business, you know, it has all kinds of returns. But, you know, our As, and we've said this on other episodes, are for these like ridiculous multiple, you know, 10x things in the

• 1:05:55David Rosenthal?

  The Instagrams.

• 1:05:56Speaker 00

  Yeah, the Instagrams, the Androids, the things that change the course or save a business. And, you know, to me, I think, like we've been talking about earlier, I feel like a B+ with some variance here and there to see where it goes in the next few years is what I

• 1:06:12David Rosenthal?

  Yeah. One of the things for me, I'm super, I was super impressed doing the research for this episode, reading, reading the filings, and then, you know, talking to you now, like, you guys did just such like a professional and elegant job valuing this deal, negotiating it, making it happen, dealing with all these roadblocks along the way. And, you know, actually, this will come up in my car about in a minute, but, you know, when the FTC review and the, and the List Hub, you know, situation, even though you knew that might have been coming anyway. Really impeccable job. Like this is like just a, an A plus execution deal.

• 1:06:53Speaker 00

  Yes.

• 1:06:54David Rosenthal?

  Overall, I agree with you, Ben. You know, it's a fantastic deal, but when Instagram is our benchmark, that's, that's just, that's just a different class of, of acquisition. And you guys might ultimately have Instagram type acquisitions that way surprise you on the upside. But, you know, you thought this would give you, you knew exactly that this would boost your traffic by 30, you know, about a third. You paid about a third of the combined company market cap for it. Made total sense. So I'm going to go also with, with B and then the plus, B plus, B for the deal and plus for the execution.

• 1:07:31Speaker 03

  Excellent. Well, I will humbly accept your compliments on the execution. I often said during the time that everything was happening that I felt like I was living in a textbook and that the opportunity to participate in a deal like this in the way it played out really only comes along once in a lifetime. So it was a fantastic experience for our whole team. And, you know, I think, I think B plus is, is fair because I think we're early days still in, in reaping the benefits of this combination. And as I said earlier, there are all kinds of ways in which we've benefited that we hadn't foreseen.

• 1:08:07David Rosenthal?

  Yeah. All right. Let's move quickly into the, the tail end of our show. We have three quick sections, follow-ups on episodes we've done in the past where new news has come out, hot takes on deals that are relevant in the moment in the press, and, and then carve-outs, my favorite at the end. First follow-ups. Ben, Snap Inc.

• 1:08:30Speaker 00

  Yeah, I mean, well, I'll be buying some spectacles. I can tell you that much.

• 1:08:34David Rosenthal?

  Snapchat is releasing basically like the cool version of Google Glass and changing their name to Snap Inc. Had an Apple moment.

• 1:08:43Speaker 00

  They are. And, you know, when we talk about Apple moment, I haven't been this excited about. Kind of like following a company since like the early days of Apple's Renaissance.

• 1:08:53David Rosenthal?

  Yeah.

• 1:08:53Speaker 00

  Like, I can't help but feel like what Snapchat is doing right now is it's like smart and super ambitious and so unexpected. I tweeted this when, you know, they dropped chat and they just became Snap Inc. It reminds me a lot of Apple dropping computer from their name. And they have ambitions far beyond being constrained to exactly the form that they're in now. And I think that, you know, there I've been thinking like, oh, they're this new form of communication. But this kind of changes it outside the software world. And I think where Snap is going right, where Google went wrong with glasses. They're not starting with these ridiculous grand plans of like, you can do anything on this thing.

• 1:09:35Speaker 00

  The comp for me is, you know, you look at Postmates and they said, you can order anything. And Uber said, you can literally just order me to drive you from here to there. And people immediately latched on to that, oh, I get it. Uber is for taking me places. And so I think with, you know, Google Glass being, who knows what it will do for you. What the spectacles does is here, it's just for this little thing. We'll see if we expand from there, but right now it's a toy. It's almost flamboyant. It's crazy. It's ridiculous. Try it out.

• 1:10:01David Rosenthal?

  My, my favorite take on this was I saw Bill Gurley retweeted a tweet from one of the Collison brothers, the founders of Stripe, saying something in effect of it is Snapchat with this move like, well, just following Snapchat in general. Like they are just so astonishingly original in what they do. And I think that's like why they've kind of captured this zeitgeist. You know, it's, they're not like, you know, X for Y. It's, you know, even though this is Google Glass done right. It's like, whoever would have thought that Snapchat would release sunglasses that take video like, super cool. Kathleen, are you going to buy a pair?

• 1:10:43Speaker 03

  I'm on my way now.

• 1:10:46Speaker 03

  I thought they were pretty cool and I have to say I like the blue lipstick too. Actually seen lots of comments about that.

• 1:10:53David Rosenthal?

  Hot takes moving on from one social media empire to, you know, on the rise to one potentially on the decline. Twitter, we talked about this with Alex from Bloomberg on our last show, but also heating up.

• 1:11:07Speaker 00

  Yeah, I mean, it's super interesting that the most credible rumor yet is that the Disney, the potential Disney offer coming in. And awesome having Alex on the last show. Alex actually broke the story that, you know, people familiar with the matter, both from Disney and from Twitter.

• 1:11:23David Rosenthal?

  People Ben, people, not a person.

• 1:11:24Speaker 00

  That's right. Are our sources in, you know, kind of confirming that that we're in talks. So it seems to be a little out of the woodwork, but makes a lot of sense when you think about Disney's other acquisitions of late. It's not just, you know, Mickey Mouse. It's, it's really a media empire.

• 1:11:40David Rosenthal?

  Yeah.

• 1:11:41Speaker 00

  If Disney owns ESPN, why couldn't they own Twitter?

• 1:11:43David Rosenthal?

  We've, Disney's made some great acquisitions that we've talked about on the show already. Pixar, Lucasfilm. But, you know, I mean, like so many companies these days, like they face, as successful as they are, like they're an industrial age company and like, what is Disney's future in the information age? And they've done great things organically, you know, magic bands are an incredible experience if you haven't gotten to do it yet at the parks.

• 1:12:07Speaker 00

  That's the thing you are on your wrist at the Disney parks.

• 1:12:10David Rosenthal?

  But yeah, well, I don't know. Who knows what will happen with this? There will be an episode coming, I'm sure. Next, real quick hot take. We got some requests for this in the Slack channel. This is pretty amazing. Company called Applovin that is a mobile app, marketing, broad-based marketing firm, customer acquisition, advertising and analytics was just acquired by a Chinese private equity firm for $1.4 billion. They were basically bootstrapped. They'd raised about $4 million in kind of seed money that they didn't really need. They were profitable the whole time. Pretty incredible story.

• 1:12:50Speaker 00

  Yeah, pretty unprecedented to have a bootstrap company turn into that. I mean, they almost always have have institutional backing. And I think my only comment on this one is it's interesting to see how history repeats itself. I think 10 years ago, we were in the same place with email marketing and the start of sort of the digital marketing.

• 1:13:08David Rosenthal?

  That we talked about with Scott on Exact Target.

• 1:13:10Speaker 00

  Exactly, exactly. Now seeing it in the in the mobile era.

• 1:13:13David Rosenthal?

  Yep. Okay, that's what we got. Carvouts. Ben?

• 1:13:19Speaker 00

  Yeah, so for for any new listeners, this is a thing that is unrelated to the episode, or really the theme of the show in general, but it's just something something we've enjoyed over the past few weeks. There is a great video floating around called the Marvel Symphonic Universe, and it's on YouTube, and it looks at why is it that we can on command hum the theme of Star Wars,

• 1:13:43Speaker 00

  James Bond, but when asked, how about any of the Marvel movies, despite being the highest grossing franchise ever in Hollywood, none of us can hum a Marvel franchise theme?

• 1:13:54David Rosenthal?

  Oh.

• 1:13:55Speaker 00

  So it goes into.

• 1:13:55David Rosenthal?

  Yeah, I have no idea what the.

• 1:13:57Speaker 00

  Yeah, when you start peeling that apart, there one of the really interesting things they bring up is temp music. And it's so cool to watch what music the director used as temporary music like, oh, yeah, grab that one song from that other movie and throw it in until the the real music is written and composed for for this movie. And it's a it's a super interesting 10 minute watch. So highly recommend it.

• 1:14:18David Rosenthal?

  Ah, that's fascinating. Mine is a book I just finished reading that lots of people recommended to me is Phil Knight, the founder of Nike's memoir Shoe Dog, and had some personal significance for me because Phil actually I went to went to Stanford Business School, which or I studied on the Knight Management Center campus that Phil donated to Stanford an incredible, incredible new campus for the business school that was constructed a few years ago. And then Phil gave the graduation speech at my at my graduation. And it was in many ways, although we didn't know it at the time, kind of an outline of this book. And I

• 1:15:02David Rosenthal?

  went back and rewatched it. The book is fantastic. It's, you know, I mean, it's, I guess broadly, you'd call it a business book, but it's. It's really just the story of Nike in this, and it's pretty incredible. And one of my, my favorite thing from it is in the introduction, Phil talks about going for a run in 1962. He just graduated from Stanford, had this crazy idea to start a shoe company. And he's just thinking like, I have no idea where this is going to go, but I'm just, I'm just running, I'm going to keep running and I'm not going to stop. Don't stop. And that's just, he's like, I made so many mistakes, so many things I regret along the way, but like, I just kept going and like, didn't stop. And, and that's where he is today. A great book.

• 1:15:44Speaker 00

  Very cool. Kathleen, do you have a car about?

• 1:15:46Speaker 03

  Sure. Mine's a little more frivolous. My husband and I spend our free time traveling to music festivals and thought I would recommend the band of the summer, which for us was the Struts. So if you're in need of a dose of glam rock, I would say, check them out.

• 1:16:03David Rosenthal?

  Love it.

• 1:16:04Speaker 00

  Awesome. Well, I think that is, that's all we've got for today. So Kathleen, where can our listeners find you on Twitter?

• 1:16:12Speaker 03

  You can find me at Kathleen Philips on Twitter with one L and Phillips.

• 1:16:17David Rosenthal?

  On Disney Twitter.

• 1:16:18Speaker 03

  That's right.

• 1:16:19David Rosenthal?

  Thank you again, Kathleen. This has been super fun and also always great to have a hometown Seattle company on the show.

• 1:16:29Speaker 00

  That's right.

• 1:16:30Speaker 03

  It was my pleasure. Thank you guys very much.

• 1:16:32Speaker 00

  Yeah.

• 1:16:33David Rosenthal?

  All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:16:39Ben Gilbert?

  Yes. There is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:16:50David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:17:10Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:17:23David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:17:34Speaker 00

  Well, for any listeners, if this is your first episode and you'd like to hear more, subscribe through your favorite podcasting client. And if you enjoyed it, feel free to share it with your friends or leave us a review on iTunes. Thanks so much for listening.

• 1:17:46Speaker 04

  Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Huh? [Music]