Notorious R.O.B.

(Management suggests you click play while you read this post.)

So while just browsing around looking for info (because I wanted to respond to something Alan Bernier of Rofo.com posted), I found something rather interesting:

We believe we are the leading online marketplace for commercial real estate in the United States, based on the number of monthly unique visitors to our marketplace, which averaged approximately 500,000 unique users per month during 2005, approximately 800,000 during 2006 and approximately 900,000 during 2007, as reported by comScore Media Metrix.

…

As of December 31, 2007, the LoopNet online marketplace contained approximately 560,000 listings.

…

As of December 31, 2007, we had more than 2.5 million registered members and more than 88,000 premium members.

…

For the year ended December 31, 2007, our registered members viewed property profiles on our website approximately 150 million times.

That is from Loopnet’s (NASDAQ: LOOP) 2007 10-K. Interesting data all around.

For one thing, 88,000 premium members is enormously interesting to me. Because Loopnet is the largest online market for commercial real estate, and really the only game in town, you have to imagine that any “real” commercial real estate broker (as opposed to someone who just dabbles in it from time to time) has to be a premium member. (Doesn’t s/he?)

As there is no real study of the size of the commercial real estate industry, I have to wonder if 88,000 is about the size of the full-time professional CRE brokers in the United States. Who knows, I guess, but it is an interesting number.

The thing I can’t quite understand is lining up the following:

• 900,000 unique visitors in 2007
• 2.5 million registered members
• 88,000 premium members
• 560,000 listings
• 150 million listing views

Hmmm... these numbers...

The first piece of information I would want, were I an investor in Loopnet, is how many of the 2.5 million registered users had visited Loopnet at least once in the past 12 months for more than let’s say… 2 minutes (clear out all the folks who clicked on the wrong bookmark or something). Is it 100% of the 2.5 million? 75%? 50%? It would be great to know what the actual “active membership” is versus the “everyone who has ever registered, including those who have become Chicago voters by reason of death”.

The next piece of information I would want is the average number of views per listing. In connection to this, please note this interesting tidbit:

Enhanced Listing Exposure. Property listings submitted by basic members can only be viewed by premium members. Property listings submitted by premium members are available for viewing by all registered members and have premium placement on search results.

So even if some large number of the 2.5 million “basic members” still hung around, their listings are viewable only by the 88,000 premium members. Now, remember this:

For the year ended December 31, 2007, our registered members viewed property profiles on our website approximately 150 million times.

That’s 267 views per listing. But, to be fair, presumably there was some turnover in the listings stock at Loopnet through the year. So how many total listings went through Loopnet during 2007?

Now, I can’t find any data based on 15 minutes of Google searching (and I’m not really willing to invest more time than that) on statistics of the average time on market for a commercial property in the United States. But I did find this Investment Property Forum study (PDF) back in 2004 for liquidity in the UK commercial market. According to that study, the “average time from formal marketing to completion” was 10 months. But the authors noted that this figure was skewed, and thought the median time to sale, at 190 days, is more representative figure. Just getting from initiation of marketing to “heads of terms” took 88 days on average.

So… let’s assume for the moment that from the moment a listing is posted on Loopnet to the moment it’s taken down because it’s far enough along that the listing broker feels he can take it down is 90 days. And let’s also assume that every listing on Loopnet found a buyer in 90 days. That would give us 560,000 x 4, or roughly 2.25 million listings. That gives us 67 views per listing.

When you think about how search works, where people don’t go past the first couple of pages of results, that’s an astonishing number. In residential real estate, we know there are listings that get ZERO views simply because it doesn’t appear high enough on the search results page. Maybe Loopnet has a different, advanced search system that ensures 67 views for every one of its 2.25 million listings? Every MLS in the country should immediately license that technology.

Furthermore, the basic members can’t view listings by other basic members. Only premium members can view those. Add in the fact that in all likelihood, Loopnet’s 2.5 million registered member number does not mean 2.5 million active members. Taken together, these facts strongly suggest that the 150 million listing views is not spread out among 2.5 million, but some much smaller number of users… like maybe 900,00 unique visitors in 2007?

We’re talking about a rather lot of views then.  That’s 166 listing views per unique visitor.  Yeah, it could happen absolutely.  That’s only about 40-some views per quarter for someone in the commercial real estate business.  I just… well… it makes me go hmmm….

I don’t believe Loopnet is lying about these numbers (not in the age of Sarbanes-Oxley, not in a SEC filing).  I just wonder if they’re counting things correctly, or perhaps there’s something iffy in their traffic analytics package.

Or… maybe… could Loopnet be counting the traffic from its LoopLink product?  Seeing as how a large number of commercial brokerages (including the world’s largest, CBRE) use LoopLink to power their own websites (without membership limitations for visitors to their own websites) via a frame, that could explain a lot of the uniques and listing views numbers.

So the final number I would want to see, were I a Loopnet investor, is the traffic, unique visitors, and so on broken down by source: Loopnet.com, BizBuySell.com, CityFeet.com, and LoopLink.  That would give me a much better sense of where the growth is, where the traffic is coming from, and let me evaluate whether the company was deploying its resources properly.  It is absolutely relevant whether 100 million of the 150 million listing views or 10 million of the 150 million listing views are coming from LoopLink versus the main website.

But then… what do I know?  I’m just a blogger who uses Arsenio Hall pictures….

-rsh

Joe Ferrara asks whether listings are like airline tickets in his post about American Airlines pulling its ticket listings from Kayak:

Are home listings like airline tickets to be freely given by listing brokers and agents to any and all third party listing sites? Do listing brokers have any reason to complain so long as they get exposure of home listings to consumers and a link to their websites?

My take is that home listings are completely unlike airline ticket listings for one very important reason: the listing broker does not own the underlying property.

For American Airlines, who provides the actual service of transportation, to get pissy with Kayak is its decision.  If the decision to pull its ticket listings from Kayak results in fewer sales of American’s seats, that only affects American Airlines and its shareholders.

In contrast, a listing broker who pulls listings from TruZillia or some other online aggregator has to answer to the ultimate client: the home seller who has engaged the listing broker to represent his property.  If pulling listings results in fewer leads and fewer inquiries and therefore a lower sale price than might have been possible, I’m 99.99% certain that any court anywhere in the United States would be finding for the homeseller plaintiff against his “fiduciary” broker.

I note that there is a difference between failing to list on some website (which could theoretically be justified as there are a plethora of websites out there, and the broker might not have heard of XYZ listing aggregator) and pulling listings off of a site.  I would think that the broker would have to show that the listing aggregator was 100% ineffective at generating additional leads, so that pulling listings from it had no impact whatsoever on the exposure (and ultimately the offer) that his client received on his house.  And how in the world do you show that?

In short, pull listings off of aggregators at your own peril, brokers.

-rsh

My friend John is moving from Cambridge, MA to some tiny little town on the Illinois/Iowa border whose name I can’t remember — possibly because I don’t believe he ever told me.  The move is on account of his academic wife getting a job at the local college — and seriously, if you think you’ve got it bad on the employment front, you have no idea until you start looking for a job teaching anthropology.

In any case, the very first thing he said to me as he was mournfully relaying the news was, “There’s not a Starbucks or a Whole Foods for at least a hundred miles around.”

I was reminded of this when I saw this cartoon from gapingvoid (whom I love, incidentally):

What I couldn’t figure out was whether Hugh was making fun of the small town guy or the big city yuppie fuck.

For one thing, it seems… highly ignorant to blithely assume that Small Town, USA doesn’t have a cafe that serves iced lattes.  Is the idea that rural areas and small towns are populated exclusively by uncultured dumbasses?

For another, and relevant for blog like this one, is the notion that one would move from some metropolis to Small Town, USA, and still expect to have everything one had in the big city.  What kind of a provincial moron thinks that?

My wife and I talk all the time about leaving the rat race behind, finding some lovely Small Town, USA, and moving there.  We know we would have to leave some of the things we take for granted behind.  Not many Small Towns have the opera, for example.  Perhaps the selection of restaurants will be limited. Maybe finding gourmet cheeses will be more of a challenge.

But one thing we’re pretty sure of is that we wouldn’t be walking around Small Town, USA going, “Where the hell is Whole Foods?”  That strikes me as provincialism of the worst sort.

Furthermore, my time in real estate has afforded me the ability to meet some of the most sophisticated, worldly, intelligent, and savvy people from all kinds of Small Town, USA’s.  One woman I remember clearly was one of the best-dressed people I have ever met, who would have fit in perfectly in any chablis-and-brie gathering in the Upper East Side of Manhattan.  She carried herself with an innate grace, wit, and culture and was the COO of the dominant commercial brokerage in her local market in rural Alabama.

I’m frankly not sure where the provincialism of the cityfolks comes from.  I just can’t imagine it’s anyplace good.

-rsh

Thanks to Pat Kitano, I saw the cute YouTube ad that San Francisco based Rofo.com produced.  Pat already discussed the video itself, and how it shows that smart, creative people can product TV-quality advertising on a fraction of the budget.  I agree with him on all points there.

All I want to do is wish the boys and girls at Rofo all the luck in the world.  They’ll need it.  And then some.  And quite possibly some sort of deus ex machina on top of that.  They are swimming in a pond that bears only the most superficial resemblance to residential real estate, and it’s a pond that is populated by a couple of  great whites.

Commercial real estate is definitely a space that is in dire need of technological innovation.  Rather, the technology is fine; it’s the business processes leveraging technology that is in need of an update.  The profusion of MLS systems and lack of listings standards in residential real estate create problems… but compared to commercial, the residential real estate industry looks like futurama.  Off-market “pocket listings” are not only the norm, but actively encouraged.  The industry feeling is that any listing that is on the Web “has hair on it” — i.e., something’s really wrong with it.  And with the overwhelming dominance of Loopnet and CoStar, it’s unclear that a web play based really on nothing more than a friendlier user interface has any room for survival.

I wish them the best, in case Rofo ends up being the catalyst that CRE needs.  But I can’t help but feel as if I’m applauding someone in a drag car heading towards a large brick wall.

-rsh

The latest Pew Internet & American Life Project survey on search engine usage has been released (PDF).  (H/T: Joe Ferrara)  I think they provide an invaluable service in terms of gathering the data.  But their analysis ah… leaves much to be desired.  To wit:

WHY ARE MORE INTERNET USERS NOW INTEGRATING SEARCH INTO
THEIR ONLINE ACTIVITY?

While the number of internet users who search on a typical day has been steadily rising,
this is the second time since the Pew Internet Project began tracking search engine use
that we have seen a demonstrable leap in the numbers. The first came in late 2005, when
percentage of users searching on a typical day rose from about 30% (in June 2004) to
about 40% (in September 2005). We speculated at that time about a few possible reasons
behind the increase, pointing out that it was a time of much media coverage and buzz
about search engine companies, including the Google IPO.

Now, the percentage of users searching on a typical day has risen again, from about 40%
to 49%. What has changed in the search world that might account for this increase?

One likely reason is that users can now expect to find a high-performing, site-specific
search engine on just about every content-rich website that is worth its salt. With a
growing mass of web content from blogs, news sites, image and video archives, personal
websites, and more, internet users have an option to turn not only to the major search
engines, but also to search engines on individual sites, as vehicles to reach the
information they are looking for.

Another reason may be related to the fact that fully 55% of American homes have a highspeed
internet connection. Of all the demographic variables we analyzed, the presence of
a home broadband connection had the strongest relationship with a user’s propensity to
use a search engine on a typical day. Previous studies have shown that when a user
upgrades to home broadband, she is more likely to turn to the internet first when she has a question – and now she is increasingly likely to visit a search engine to find the answer.

Finally, it may be that general search engine sites have become so useful and well tuned
that people turn to them for an increasingly broad range of questions.

O rly?  As far as analysis goes, this is juvenile.  It’s like some high school book report.

First of all, “search engines on individual sites”?  When most people say “search engine”, they do not typically mean the little Search box at the top of most websites — including this here blog.  They mean Google, Yahoo!, and MSN, and the like.  If every act of searching for information is using a “search engine” then by golly, the Pew survey should also cover the Microsoft Windows Search tool that’s on every PC in the world.

Second, and more importantly, when Pew people say that a broadband user is more likely to turn to the Internet first… uh… what are the alternatives?  Encyclopedia Britannica?  Isn’t the real news not that 58% of home broadband users use search every day, but that 42% of them don’t?  I mean, what do these people do then instead of using search?

“No way, man — I’m telling you that Dan Marino has more career touchdowns than Joe Montana!”

“You’re crazy, bro, you don’t know what you’re talking about! Montana was the greatest.”

“Fine, let’s look it up.  I’ll start on this stack of Sports Illustrated back issues, and you start on that stack of Sporting News!”

“Oh man, if only there were a global network of computers that we could access using some sort of a digital connection, and some sort of an application that could take our query terms and match them up to database records… this would be much easier!”

As long as we’re being extraordinarily obvious, why not just say this as analysis of why more people are using search:

We think more people are using search, because they want to.

It’s about as useful in terms of insight.  The report itself is worth a read, even though it won’t surprise anyone who has not been living under the digital rock for the past five years.  But the analysis?  Pee-ewww.

-rsh

Stop Global Warming! Drive A Prius Today!

So let’s say that some brave soul out there has decided to gamble away his life at the urgings of a certain blogger who works for a certain data company in New York City. To him, I offer my deepest sympathies.

But courage! If this works, please do remember to look down upon us peons as you fly overhead in your Gulfstream G650. (Damn, even the website for that plane looks like it cost more than I make in a year.)

This brave soul would have gone forth, found rainmaking partners, installed an institutional CRM system, and is ready for business!

Well, not quite… there are still more steps, more things to consider.

One of the things this brave soul and his partners must do is to think about redefining the profession of “realtor”. [ED: Oh, is that it? I was worried they might have to do something hard.... /rolleyes]

Keep in mind that by going the institutional route, the Firm has taken on a very different cost structure than traditional brokerage. Instead of commissioned 1099 independent contractors, the Firm has 1040 salaried employees with benefits (which are costly). It has to take on the cost of CRM, of support staff, and of support professionals in IT and marketing that a traditional brokerage simply does not have. As older and wiser heads have pointed out, the Firm forgoes the very sweet IRS rules treating real estate agents as Statutory Nonemployees.

The 1099-based approach rewards brokerages that unleash a horde of low-training, low-skill agents to go forth and blanket the marketplace. They will make up in volume what they lack in quality, because even the worst agent will probably get her sister to list with her, at least once. Since the 1099 doesn’t actually get paid until some sort of transaction has closed, the brokerage could have nearly an unlimited number of such agents running around. For that matter, it almost appears as if some traditional brokerages have become de-facto landlords to their agents based on some of the desk cost oriented business model.

The 1040-based approach simply cannot compete with this low-cost, low-skill, high-turnover model on the same basis. At the same time, it should be pointed out that the 1099′s simply cannot compete with the high-cost, high-skill, low-turnover model of the 1040-based Firm on its home turf.

Therefore, for the Firm, it becomes necessary to shift the grounds of competition. If your thoroughbred can outrun any other horse running in a straight line, you don’t take him to a steeplechase competition. You take him to the Kentucky Derby. Read the rest of this entry »

In Part 1 of this series, I put forth the notion that a real estate company built on the law firm model — rainmaking partners + salaried associates + support staff — could work. The main requirement is that there is some sort of a competitive advantage that arises from the structure of the partnership such that individual rainmakers would want to pool their resources.

But how does such a competitive advantage arise? In this and succeeding parts, I hope to explore some ideas on how it might be possible.

———————

The similarity between legal practice and the post-Internet real estate brokerage is remarkable. In both cases, you have service providers who provide what is essentially a commodity service in all but the extremes, and yet are of varying qualities as professionals.

The typical lawyer does not do only the extremely complex, novel questions of law that end up before the Supreme Court. The average attorney does run of the mill contracts, wills, real estate transactions, incorporations, and typical lawsuits — the so-called “slip and fall” cases, or breach of contract cases, or some such. There isn’t much to that practice — the law is more or less settled in most of the situations, and all that the attorney is doing is to represent his client in the most favorable light possible. Yet, there is no question that some lawyers are simply better than others. They are more knowledgeable about the law; they are better writers, better researchers, and better negotiators. Some speak better than others, and are more effective in litigation. Still others are just smarter, and can help their clients more than another attorney can.

Similarly, in the post-Internet real estate brokerage, where simply matching buyer to property is no longer seen as particularly valuable, real estate brokerage is a fairly commodity service (except at the extremes). Brokers help sellers list a house, market it using various techniques, price the house in order to move it, coordinate various activities with third parties (lawyers, inspectors, government, etc.), and promote the listing in various ways. For buyers, brokers do inventory searches, work with third parties, negotiate on their behalf, advise them on various subjects, and educate them about the real estate process, about the local market, and so on. Again, there are clearly brokers who are more talented than others, smarter, more informed, better educated, and so forth.

In both cases, the consumer is confronted with a conundrum: How do you select a professional for something of which you yourself have very limited knowledge, but the importance of which is extremely high? Pick the wrong lawyer, and you could end up going to jail. Pick the wrong realtor, and you could end up stuck for years in a house built on top of a toxic waste dump.

In both cases, consumers often end up going with either (a) brand names, (b) recommendations, or (c) gut feelings.

For all three — branding, recommendations, and emotional connection — there are enormous advantages to institutionalization for a service provider. In Part 1, I listed five things a real estate firm (“The Firm” hereafter) must do:

• Institutional CRM: The Killer App
• Systemic Brokerage: Learning from Bill Belichick
• Redefine the Profession: Shifting the Grounds of Competition
• Specialization for Domination
• Outsource Everything But Profit Centers

Three of the five are directly related to institutionalization: Customer Relationship Management, Systemic Brokerage, and Specialization. In this part, let us cover CRM: The Killer App.

[CAVEAT: Before we begin, I feel it is imperative to stress once again that in real estate -- as in law, or any professional service -- the commoditization of the service and therefore the institutional advantage fades. Meaning, if you absolutely MUST have the best criminal defense attorney for your death-penalty trial, you really won't care whether he's with Big Law Firm or a solo practitioner. If your company is involved in some ridiculously complicated international tax case, you are going to seek out the absolute best specialist -- institution be damned. Same with real estate. If you're trying to list a $50 million condo, there just aren't that many people who can service your needs -- finding buyers for a $50m house is in and of itself a valuable service. Traditional "transactional" brokerage based entirely on personal relationships may be the best solution when you're in an extreme situation.

These posts are not intended to address the exceptional cases. They are, rather, intended to discuss the vast majority of non-exceptional brokerage.] Read the rest of this entry »

Jonathan Washburn (whom I have named J-Dub, without his permission or approval) of ActiveRain and Localism hath sounded a call to arms for NAR to buy out Move, Inc (NASDAQ: MOVE).

J-Dub makes some good points (and the commenters on the thread support him) — namely, that Realtors hate Realtor.com, and that Realtor.com has lost its once enormous first-move advantage to newcomers like Trulia and Zillow:

Most Realtors I talk with hate Realtor.com. Or perhaps more accurately they hate the way Move monetizes the Realtor.com asset by selling extremely high priced marketing packages to Realtors. Prominent placement on Realtor.com should be a member right.

and

Realtor.com has less than a 5% market share among real estate category websites, with most of it’s top competitors boasting a marketing budget of less than 10% of that of Realtor.com’s. Realtor.com had a huge first mover advantage, perhaps the most valuable domain name possible, hundreds of millions of dollars in marketing support, and the, at least initial, grassroots support of 1,000,000+ Realtors.

J-Dub believes that NAR cannot get out of its agreement with Move, so the solution is for NAR to just take Move private and buy it outright. The cost, Jon says, would be cheap with enterprise value of Move just under $250m.

Let’s assume that J-Dub is correct on all counts. I still don’t believe that NAR should buy Move.

1. NAR knows nothing about running a business, never mind a complex technology-centric business, like Move’s. In my view, NAR has bigger fish to fry, bigger problems to solve — namely, how to improve the REALTOR brand such that it is not perceived by the public as “hateful lying sons of bitches”. (The main issue is how to establish clear distinctions in the consumer’s mind between a REALTOR and a real estate agent — read this and the comments for interesting observations.)

2. NAR already owns Realtor.com. Seeing as how its own members supposedly hate Realtor.com, it could just let it die. Just refuse to make any changes to the homepage, ever — NAR has that right as per the operating agreement. NAR can erect so many barriers in the way of advertising on Realtor.com which make it financially unattractive for Move to continue operating Realtor.com. Why buy the cow, when you can have the milk for free? Because NAR has these powers, simply letting Move know that it would like to terminate the agreement post haste is likely to initiate a cascade of events under which Move will exit the Realtor.com business at a price far less than the purchase price of the whole corporation.

In Move’s 2007 10-K (PDF), they list the relationship with NAR as a risk factor:

If it is true that Realtor.com is not adding any value to NAR and to its members, then NAR can simply let it wither on the vine, and lavish its love and money on other channels.

But it will never get to that. Move has no reason to want to continue operating a site — no matter what the agreement — in face of hostility from the actual site’s owner. In all seriousness, if NAR wanted Move to get out of the Realtor.com business, it merely need say so. NAR has too much power in how Move can operate Realtor.com, too many ways it can truly make life miserable for Move, for Move not to agree to let Realtor.com go. There might be a separation fee or something involved to avoid protracted litigation, but I just can’t imagine a scenario in which NAR tells Move to take a hike, and Move hangs on like some desperate girlfriend.

Thing is… if you’re NAR, what do you do to replace the 7.5 million unique visitors to Realtor.com under Move’s management?

Trulia and Zillow combined still have less than half the traffic of Realtor.com. So to kill the golden goose at this point in the game doesn’t strike me as an advisable strategy.

I have a better idea. Instead of spending $250m+ to buy Move, NAR could do a special assessment and spend $250m supporting new initiatives by the industry. Invest $25m into Localism and see what that can become (I’m frankly shocked that J-Dub isn’t making this argument). Throw $10m at the hordes of social media companies doing innovative things. Spend $50m setting up a real Center for Realtor Technology and challenge them to fix some of the widespread problems with data collection and distribution, or with geocoding and mapping, or with new ways of incorporating wireless and real estate. Still cheaper than spending $250m buying a public company, with far bigger upside for NAR and for the industry as a whole.

There are so many ideas that can really improve the industry that never see the light of day because funding for trying them do not exist.  $250m is a ton of money.  It could foster a whole environment of innovation in real estate — and with NAR leading the charge in investing in new technologies, new methodologies, new solutions to old problems, the private investment community will absolutely start to take notice.  That $250m seed can start to attract hundreds of millions more in investment from the VC and private equity communities.

In fact, this can be done for half that amount.  $100m NAR angel fund that fosters new ideas, then releases them into the wild of VC-land, could be the genesis of a transformation of the entire industry for the better. I am convinced more than ever that there is no shortage of talent in our industry — merely a shortage of will and of funding.

So, don’t look backwards into the past, NAR, in an attempt to fix something that isn’t working perfectly but is still working somewhat.  Look forwards into the future to start a new cycle of change, but one in which the industry is not caught completely off-guard.

-rsh