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 (NASDAQ:LOOP) 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.