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Oh, this is rich.
A couple of Expedia alumnae, both serial travel investors and board members, just shepherded their real estate site Zillow’s $2.5 billion acquisition of Trulia through the regulatory process and the successful outcome foreshadows how Expedia Inc.’s $1.6 billion acquisition of Orbitz Worldwide could likewise weave through and gain an antitrust nod in the U.S., as well.
The co-founder and executive chairman of the now-aptlly named Zillow Group is Rich Barton, who founded Expedia within Microsoft in 1996. Barton is also a co-founder of Trover, a venture partner at Benchmark Capital and has invested in numerous travel startups, including HotelTonight, Hipmunk, and Room77, among others.
Meanwhile, Spencer Rascoff, who was vice president of lodging at Expedia more than a decade ago and was a co-founder of Hotwire, now owned by Expedia, is the CEO of the Zillow Group. Rascoff currently is a TripAdvisor board member, and formerly did board stints at travel startups Switchfly and Room77.
The U.S. Federal Trade Commission took a hard look at the Zillow-Trulia merger deal, which was announced on July 28, 2014, and the all-stock acquisition closed yesterday without the FTC taking any action to block or even amend the terms of the combination.
Like the pending Expedia-Orbitz merger in the travel industry, the Zillow Group, with about 10 consumer and B2B real estate brands, will dominate the online real estate advertising sector in the U.S.
Appearing on CNBC yesterday, Rascoff made the case that post-merger the Zillow Group only wields about a 5 percent share of the $13 billion real estate advertising market.
The Big Picture
Like the Seattle-based Zillow Group, Expedia, located in the suburbs about 11 miles away, can argue to U.S. regulators that it only wields about a 6.3 percent share, according to Euromonitor, of the $1.4 trillion global travel market.
Expedia Inc., too, has lots of brands to call its own, and would have about two dozen with the addition of Orbitz Worldwide, including Orbitz, CheapTickets, Orbitz for Business, eBookers, and HotelClub.
In both the Expedia Inc. and Zillow regulatory scenarios, regulators had — and will have — to consider whether consumers are harmed by their respective mergers and whether there are plenty of online and offline alternatives for travel transactions and real estate advertising.
Asked about the parallels, Barton tells Skift that Zillow didn’t get much elaboration on the FTC’s rationale in deciding not to stand in the way of the Zillow-Trulia merger.
“Ultimately, it’s hard to ignore Zillow and Trulia have relatively low penetration of the $13 billion ad spend by real estate, mortgage and rental professionals and there are thousands of other channels through which they can market,” Barton says.
Lessons for Expedia
“I expect the same kind of logic is at play in the Expedia-Orbitz deal evaluation,” Barton says. “It’s hard to argue that consumers don’t have an abundance of choice and that the vast majority of travel commerce transactions don’t go through Expedia Inc. Sorry for double negatives, but I think that is the right way to think about it.”
At the same time, while both Expedia-Orbitz and Zillow-Trulia have strong online penetration and a relatively low share of their overall markets, there are important differences in their respective online positions.
“Yes, real estate is meaningfully behind travel in online penetration because it got such a late start,” Barton says, adding that Zillow debuted its real estate information portal for consumers in 2006. That was about a decade after Expedia got its start.
“So the consumer doesn’t have the 20 years of training on digital real estate information the way they do in travel,” Barton says. “Real estate has a lot of room to run before the Zillow brand has anywhere near the brand recognition of Expedia,” Barton says.
Online real estate advertising dominated real estate advertising in the U.S. in 2014 with a projected $10.69 billion in spend, or about 78.5 percent of the market, according to Borrell Associates’ “2015 Outlook, Real Estate Advertising.”
Zillow and Trulia combined had about a 7 percent share of the U.S. digital advertising market for real estate.
“They’re about the biggest single player in just about any form of real estate advertising,” CEO Gordon Borrell of Borrell Associates tells Skift, referring to the Zillow Group. “Even newspapers collectively get less print advertising from real estate than Zillow/Trulia. Homes.com/Realtor.com is a bit smaller. Then there are thousands of much smaller guys.”
“More than any other ad category, at $30 billion, real estate seems like an 800-pound gorilla but is really about 25,600 half-ounce monkeys,” Borrell adds.
In the U.S., according to PhoCusWright, the new Expedia would have wielded a 75 percent market share among online travel agencies, including Priceline.com, Booking.com, and CheapOair, among others, when considering the numbers in 2013. Booking.com has gained U.S. share in the interim, though.
Expedia would have to pay Orbitz a $115 million fee if the deal gets broken up in an antitrust review but the Zillow-Trulia closing points the way toward a similar scenario for Expedia-Orbitz as travelers would still have abundant alternatives to booking their travel.
That’s of course if the Priceline Group, TripAdvisor, major hotel chains or airlines don’t band together to oppose the Expedia-Orbitz deal.
Unlike in the early days after Google’s announcement in 2010 that it intended to acquire ITA Software, which ultimately led to a consent decree that cleared the way for the merger, no one has yet indicated a desire yet to lead a spirited opposition to Expedia-Orbitz.
Of course, the FTC or Department of Justice in any antitrust review, would likely be more concerned about any potential for consumer harm than how the merger would ruffle competitors’ feathers.
European regulators might view the deal under a different lens. However, apart from Expedia Inc.’s Trivago hotel metasearch business, Expedia is less a factor in Europe than it is in the U.S. and Orbitz Worldwide is relatively weak in Europe, too.
Expedia and Orbitz have undoubtedly considered the possible regulatory hurdles and are counting on the prospect that the deal clears the antitrust process.
And a couple of Expedia alumnae would likely put a downpayment on that scenario too.