In Conversation With Andy Florance, CoStar Group CEO: The United States and Matterport

In October this year, I had the chance to spend some one-on-one time with CoStar Group Founder and CEO Andy Florance in Barcelona, who in the past nearly forty years has achieved almost unprecedented success building his real estate company from the ground up.

In Florance's case, this is true—literally. He founded CoStar in 1986 and has led the company since its inception, a rarity in any industry.

Now into his fifth decade as a CEO, Florance has built one of the most imperious publicly-owned real estate businesses globally and has embarked on an intercontinental expansion plan that will surely see him head up CoStar Group on both sides of the Atlantic for at least the next ten years. It would take a brave man to doubt Florance's ability to lead CoStar Group to further success in Europe and beyond—he has the track record to prove it. Again, this is true—Florance used to be a competitive runner before trading in sneakers for computers!

After a lengthy and wide-ranging interview on stage with Online Marketplaces chairman Simon Baker, Florance kindly agreed to go on the record so we could share some of his behind-closed-doors thoughts with readers and stakeholders globally—even though his schedule conflicted heavily with a follow-up interview.

I asked him if it was the nature of rivalries and competition that pushed him to even greater heights.

"I enjoy competing for sure," says Florance. "When I was a competitive runner, I never would have set a lap record without my competitors. I prefer to win, not lose."

I then suggest, perhaps unfairly, that he also enjoys lawsuits—CoStar Group has had its fair share of them in Florance's time.

After a surprised chuckle, Florance put his CEO hat back on and told me that, in fact, he does not enjoy lawsuits, "but I’m not afraid of them."

"There’s no sports team with a better track record than our legal track record. We know what we’re getting into, we know what we’re doing, and we overwhelmingly prevail in the things we go into."

This isn't the main topic of our conversation today, but I push him for more.

"I am a fierce protector of our shareholders’ interests. So I do not sit quietly by when someone comes to try and steal my shareholders’ equity. You’ll find that I can be quite assertive."

There are bigger fish to fry than CoStar's ongoing legal battle versus Move Inc.—but Florance did allow himself one small dig at rival CEO Damien Eales from Realtor.com.

First, the context. Amid an ongoing paradigm shift in the United States, Florance's residential portal Homes.com occupies a safe seat while rival portals Zillow and Realtor.com will need to work hard to circumnavigate a historic lawsuit that will effectively outlaw buyer agent commissions (paid for by home sellers who may never meet the agent).

How will Zillow and Move react to this seismic shift in the industry landscape?

"The United States is fascinating right now. I believe that you're not going to be able to do lead diversion by this time next year in the United States, which means Zillow and Realtor have to find a new revenue model in 2025.

"Homes.com, maybe by luck, didn't go anywhere near lead diversion because it violated one of our core principles which is to treat the customer with respect. And so we are focusing on what portals do around the world, which is helping people generate interest for their homes and generate traffic and leads to sell the home right and maybe to win listings.

"I believe you'll have a completely different situation in the United States in the next year or two or three. The existing business models will not be viable."

This begs the question: can Zillow and Realtor.com achieve these pivots? As always, Florance has an answer and wastes no time in sharing it.

"I would say that Zillow has acknowledged that our business model is the future. They've publicly said 'we're working hard to get rid of our lead diversion revenue, and we are trying to get to the 'Your Listing Your Lead' model like Homes.com'.

"They're watching what we're doing, and Zillow is trying to change to what we're doing."

It's here that Florance challenges Realtor.com:

"Uh, Realtor[.com] doesn't understand anything I'm saying and is just doing what they're doing."

We swiftly move on to CoStar Group's latest big-name acquisition target, Matterport. With a $1.6 billion takeover set to be completed in the next 3-6 months, where does CoStar Group see the use case for Matterport technology as part of a digital real estate journey in the future?

"I think exposing the capabilities of Matterport more broadly to the world is very valuable. Matterport is a great technology that has sub-5% penetration. As people see it more on our portals and see how fantastic it is, more portals will use it. The exciting thing about Matterport is that it is at the beginning of its development cycle, it is not an ageing technology that is ‘done’—it is in the beginning."

It is clear that Florance is excited by Matterport and enjoys talking about it.

"Matterport is a real implementation of AI. If I can take this room, for example, and ask Matterport to remove this table, remove these chairs, and just show me the carpet, that is real Artificial Intelligence. And as Matterport grows, it becomes more intelligent."

It appears that Florance's vision for Matterport is to bring sniper rifle accuracy to the industry's hitherto scattergun approach to property valuations.

"I believe that Matterport will be essential to valuation. The current valuation models fall short, modern-day Valuation Models are about as accurate as a hand grenade, but you’ll be able to do rifle shots eventually. When the model can assess the condition of the property effectively when you have an exterior Matterport that observes the neighbourhood and the software is looking at the renovations, the bedrooms, the walls, the wallpaper, the layout, the configuration—everything—it will surpass a human’s ability to value a property accurately."

Part two of my interview with Andy Florance—focused on Europe and other industry topics—goes live tomorrow. Read it for free on Online Marketplaces.