Friday, October 13, 2006

LoopNet: the anti-Zillow

By this point, nearly everyone with even a passing familiarity with real estate websites has heard of or visited Zillow. The folks who brought you Expedia are behind Zillow and, in addition to creating great buzz for the site, have collected around $57 million in venture capital (though obviously the $57m and the buzz are not entirely unrelated). At Zillow, users can get an automated valuation of almost any home in the U.S. - a very neat trick that involves the intake of countless different types of sales data from counties across the country.

I think Zillow is a technical marvel and I like their clean interface. But I see two problems with their business model: 1) The site isn't sticky. While users may go there once or twice to see the value of their home, or more likely their neighbor's home, there's not much that would keep an average user coming back week after week. 2) Zillow has competition. Several automated valuation services have sprung up in the wake of Zillow, perhaps most notably RealEstateABC (horrible name and it's interface could be cleaner, but it works well).

In contrast to the buzz surrounding Zillow, LoopNet is a real estate website that has largely flown under the radar. LoopNet went public earlier this year and currently has a market cap around $500 million. One reason why you may never have heard of LoopNet is that the site caters exclusively to commercial real estate - apartment buildings, shopping centers, industrial warehouses. LoopNet has basically created a multiple listings service for commercial real estate - a central place where both brokers and buyer go to look at investment property. Before LoopNet, this information was all on the local level.

Unlike Zillow, whose business model I question, LoopNet is in an enviable position for the following reasons:

  • It is rapidly creating a network effect (a la eBay) - the more brokers list properties, the more buyers turn to LoopNet to find a property, which then encourages more brokers to list more properties, etc.
  • With the value of commercial properties often starting at $500,000 and going up into multi-million dollars, LoopNet can charge both brokers and users hefty fees. The value to an investor of finding the right property more than outweighs the monthly fees you have to pay to become a "premium member".
  • Unlike residential real estate, commercial real estate shows no signs of slowing down. Investors increasingly view commercial properties as safe havens which provide good returns.
I don't own any LoopNet stock and I have not followed their financial performance since their IPO. But I think the contrast between a company with a lot of buzz and an uncertain business plan, and a company that has kept a low profile and built a very nice business, is an interesting one.

38 comments:

John said...

I will be very careful with anything related to EXPEDIA. EXPEDIA has a very bad reputation in the travel industry. EXPEDIA is listed in the top ripoff link at the bad business bureau ( http://www.ripoffreport.com ) and has two "dedicated" websites due to poor customer support and lies: http://www.victimsofexpedia.com and http://www.shameonexpedia.com

Kind regards

Anonymous said...

However I think charging both the landlord and the tenant for the service is a little greedy.

A new site http://www.officesearchonline.com will make this market more competitive as they only charge the landlord.

This commercial on line advertising is about to get a little more competitive.

Anonymous said...

Loopnet is a ripoff. Commercial listings do better, and for the small investor in commercial real estate, it's a waste of money. Their website is extremely difficult to work through, and they're always trying to upsell. Poor customer service

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