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Gift Baskets And Apple Watches: How CoStar Courted 1,000 Former Xceligent Clients In 2 Months


CoStar's efforts to court former Xceligent customers after its competitor shut down appear to be paying off. 

CoStar Group HQ
CoStar Group's HQ at 1331 L St. NW in Washington, D.C.

The D.C.-based commercial real estate data company has signed roughly 1,000 former Xceligent client firms since mid-December, CoStar CEO Andy Florance said on the firm's quarterly earnings call Thursday. 

CoStar had been embroiled in a year-long legal battle with Xceligent before its competitor ultimately filed for Chapter 7 bankruptcy protection Dec. 14. Florance said this left 5,000 companies nationwide without a commercial real estate data provider, a potential customer base that he estimated could yield CoStar an additional $50M in annual revenue. 

"This left us with an unprecedented opportunity to act quickly and pick up tens of millions of dollars of orphaned business," Florance said. "It was an important moment. We pulled out all the stops to respond with the maximum level of effort." 

Among those stops CoStar pulled out were holiday gift baskets and Apple Watches. Florance said the company spent roughly $500K on chocolate gift baskets that its sales representatives hand delivered to former Xceligent clients during the holiday season. 

"Putting sales people in the doors of thousands of these people immediately was a good investment," Florance said. 

In the 13-day period from Dec. 18 to New Years Eve, CoStar said it signed up 400 former Xceligent clients. Then in January, CoStar embarked on a 30-city roadshow, sending its executives across the country to meet with 1,500 former Xceligent clients. 

"Our objective was to meet as many former Xceligent users as possible, to educate them on the depth and breadth of our service offering," Florance said.

During its visits, CoStar gifted the companies with Apple Watches to promote a new product it is launching that will be compatible with the wearable technology.  Florance told CoStar's investors that each new client signed up yields at least $50K in net value, and potentially much more. With a 30% to 60% rate of closing deals, he said the watches were well worth the investment. 

These new additions propelled CoStar to its two largest months of sales ever in December and January, Florance said. Its $254M in Q4 revenue represented a 16% increase over the prior year. 

The company said it spent $13M in 2017 on the Xceligent litigation. It also expects to incur another $4M in legal fees related to the Xceligent case in Q1. Those costs would come from protecting its "stolen data" in bankruptcy court, CoStar Chief Financial Officer Scott Wheeler said, and concluding lawsuits with Xceligent subcontractors in India and the Philippines. 

Gift Baskets And Apple Watches: How CoStar Courted 1,000 Former Xceligent Clients In 2 Months

Also contributing to CoStar's strong Q4 numbers were 5,400 new subscribers that it converted from LoopNet, a property listing service that CoStar acquired in 2012. In October, CoStar completed the integration of its database with LoopNet's, allowing users to upload and manage listings for both services on one central platform. It then notified users of LoopNet Premium Searcher, LoopNet's largest product, that the service would be discontinued. Florance said real estate professionals had been using LoopNet's subscription service as a cheaper alternative to CoStar and that had "cannibalized" the company's revenue.

Florance said the overwhelming majority of LoopNet premium accounts will be discontinued by the end of February, with a small number throughout the rest of the year. While it has already converted thousands of those users to CoStar subscribers, Florance said another 80,000 LoopNet users are losing the service that have yet to sign up. 

'We’re focused on upselling them to CoStar this year," Florance said. "This is a great investment for these prospects to make in CoStar, and it’s the most important revenue opportunity I believe we’ve ever had." 

CoStar field research car
A CoStar field research car parked on the streets of Washington, D.C.

Bringing the former Xcleligent and LoopNet customers under the CoStar umbrella would not only boost its revenue, Florance said, it would also make the product better. 

"This already has had a dramatic effect on further improving our data as the new clients are regularly contributing updates and sharing information with our research team much more proactively than they had been," Florance said.

Wednesday, CoStar closed on the $385M acquisition of multifamily listing company ForRent, after receiving approval from the Federal Trade Commission. Florance said it is the company's largest acquisition ever, in terms of revenue and the number of employees in the acquired firm. 

Following the acquisition CoStar plans to continue to operate ForRent as its own website with distinct branding and user interface, just as it did with Apartment Finder after it acquired that multifamily listings company in 2015. CoStar also acquired in 2014. 

"As we have demonstrated, it is valuable to have multiple leveraged brands in the apartment rentals website space," Florance said.