First of all, congratulations to Justin LaJoie and the rest of the team at Diverse Solutions, as well as to Spencer Rascoff and the folks over at Zillow. I don’t know what the real motivations behind the acquisition were, but at a minimum, you can say that two great teams of real estate technology people are joining forces.
Second, I don’t have a whole lot of time to devote to deconstructing the Zillow acquisition of Diverse Solutions, but did want to present a quick reaction from three different perspectives: Friendly, Hostile, and Mine. I suspect most people’s response to the acquisition will fall into one of the first two buckets, while a very small minority (of one person perhaps) will fall into the third.
There is a fascinating post on Find It Fill It blog (looks to me like this is a commercial real estate brokerage of some sort) about how Loopnet’s “crowdsourcing” model will reinvent commercial real estate as we know it:
This is like aiming a cannon to your competition that’s holding a pistol. If you leverage your user base to work for you and you provide them a better data service in the process, that’s the promised land of a business-client relationship. In technology terms, LoopNet is using a business model from the Web 2.0 period called, “Crowdsourcing”. Crowdsourcing is when a web software company provides the platform and the data entry/update is in part generated by the contribution of its users. So, let’s say an office building in LoopNet’s property database says that it was sold in 1999, but you (the user) know that it was just sold on November 1, 2010 for $2 million, LoopNet allows you to update that data yourself. Not only does this help you, but also you fellow professionals and in the end, LoopNet. This is very POWERFUL stuff. Having commercial real estate professionals who are “in the trenches” update this property data is the best quality in data that a commercial real estate data operation like LoopNet can ever wish for. Its competitors will be very envious and if they don’t move fast, they can lose ground quickly. (Emphasis mine.)
Interesting. Well, I happen to agree with the FIFI blogger 100%, provided that by “reinvent” he really meant “imitate” the 100+ year old business model from the Telegraph 1.0 period called the “Multiple Listing Service”.
Eric Blackwell of Bloodhound picks up on this story that Zillow has entered into a relationship with a number of newspapers and asks a series of pointed questions. The comments section has some hot and heavy action going on therein, and it makes for an entertaining read.
I saw this deal cross the news earlier as well, and thought it was interesting on many fronts. For one thing, unless I’m very mistaken about the nature of the deal, it simply means a co-marketing arrangement where the partners simply add ammunition to their sales teams:
The agreement expands the network to include display non-real estate related advertising. Greg Schwartz, vice president of advertising sales at Zillow, said the Web site will focus on “moving-specific” advertisers like home improvement and furniture companies in search of national coverage. Meanwhile, newspapers, such as the San Francisco Chronicle, for example, can offer a furniture retailer additional coverage through Zillow’s San Francisco channel.
So a ad sales guy sitting in the LA Times office can sell a million impressions on Zillow.com, and a Zillow sales person can sell Home Depot on a package deal of Zillow ads plus say 150 newspaper ads.
It isn’t clear whether this covers only online, or print also, but either way, all we’re talking about here is a “Hey, you can sell my stuff, and I can sell yours” deal. Makes a lot of sense to me without a tremendous amount of downside.
Now, David G. from Zillow goes on to say in the comments of the Bloodhound post above that:
Today’s announcement relates to a large advertising network advertising for reaching real estate consumers but there are also technology and content aspects to these partnerships. Later this year, Zillow will begin to power the online real estate sections of our newspaper partners’ websites. And listing content is already pushed to Zillow via newspapers that are selling featured listings on the site.
This tidbit is interesting as well. Because as it happens, there is an almost exact parallel on this play that might prove illuminating (or not).
Cityfeet.com did this exact play in commercial real estate a few years ago. They went out and signed up newspaper partners, powering the online real estate sections of these newspapers for commercial real estate search. I’m guessing that Cityfeet couldn’t get the online residential real estate sections, because those were too closely connected to major revenue centers for the newspapers. That Zillow was able to wrest those away from the newspapers is extraordinary. And extraordinarily interesting as commentary about the newspaper business.
The new bad news is the decline in online revenues.
In the best of times, online never contributed more than 10% of most publishers’ total revenues, but with double-digit growth, it was the sole bright spot in the middle years of the decade, holding the promise that interactive revenues might some day make up the losses on the print side.
Unfortunately, most of the growth in the online revenues was due to “up-sells” from print classified listings. As the volume of print listings declines at an ever-faster pace, that means there are fewer opportunities for online “up-sells.”
Considering that real estate advertising in newspapers fell by a whopping 36% in Q2, if online advertising also fell for newspapers, it isn’t clear that there is a sustainable business here for the dead-tree media companies.
So… Cityfeet couldn’t wrest away residential real estate sections from newspapers. Zillow did. In large part, this is because Zillow is many times larger and better funded than Cityfeet ever was.
However, let’s pause a moment and consider this.
Newspapers lose 36% of real estate ad sales.
Newspapers lose online ad sales for first time in years.
Newspapers do a deal with Zillow that is essentially “We take 50% commission for selling your ad space, Zillow.”
Zillow stands ready to “power newspaper real estate sections” — meaning all of that traffic probably goes to Zillow.
This looks like a total abdication of the real estate space by the newspaper industry, at least to me.
While that’s a big win for Zillow, I have to sound a cautionary note.
Cityfeet, you see, sputtered along for a couple of years before getting bought by Loopnet for $15m. (Since Cityfeet at the time boasted 100 newspaper relationships, including the big names like New York Times, Boston Globe, and the like, that means each relationship was worth about $150,000. Maybe. It isn’t yet clear that Loopnet has made back its $15m investment in Cityfeet.) The reason, quite simply, was that the brokers and agents who listed on Cityfeet were not seeing a lot of traction. Newspaper readers and newspaper website visitors tend not to be serious consumers for commercial real estate.
Now, given the differences between commercial and residential real estate, this may not be a problem for Zillow. 80% of commercial buyers/lessees do not start their search on the Web, for one example. But this should sound some warning gongs:
“This partnership allows advertisers with our papers to reach not only local real estate consumers who live in particular markets, but also consumers who may be moving to particular markets, via their searches on Zillow.com,” Lincoln Millstein, senior vice president of Hearst Newspapers, said in statement. “This is a significant opportunity for advertisers to target a very large number of consumers on the verge of major home-related commerce.”
Um, Lincoln… I don’t know how to break this to ya but… I doubt that visitors to Zillow.com can be described as being “on the verge of major home-related commerce.” Maybe Zillow has statistics that prove me wrong, which I would welcome, but going to a Zillow or Trulia or any of the major consumer real estate websites strikes me as merely the first step in a fairly long journey that may or may not end in “major home-related commerce”. If by “being on the verge”, Lincoln Millstein meant “within three to six months” then his expectations are properly set. If he means more like, “a matter of weeks”, I think he might be disappointed.
And his advertisers might be disappointed. Will consumers remember seeing some ad for a mortgage product on Zillow.com three months later as they’re finally sitting down with their realtor and going over mortgage paperwork? I really, really doubt that one.
As with all prognostications, I might be dead wrong on this one. But all in all, I’m not sure I see this major win here that the newspapers and Zillow would like us to see. Time will tell, but the trends are not encouraging for either party.
Thanks to a comment on my About page, I thought to look into the dance going on between CoStar and Reis. It’s fascinating stuff, actually. If the story weren’t being told through boring press releases, SEC filings, and dated news clippings, it might make for a great opera, full of passion and melodrama. As a matter of fact, I wrote a little story — it’s at the end of this monster post.
At least, I think it would, based on what little I can tell as a totally uninformed outsider who has not been following the story. But hey, when did being uninformed ever stop your faithful scribe?
The latest chapter in the tale is that CoStar has reiterated its offer to buy Reis for $8.75 a share earlier today (the press release is dated 2:38PM on Wed, August 13, 2008), for the total price of $96.1m. An important point here is that CoStar made the exact same offer back in June, and was rebuffed. A mere ninety minutes later, Reis rejected CoStar’s offer for the second time (the press release is dated 4:01PM, Wed, August 13, 2008), saying:
In the view of the Board, the price offered in the CoStar proposal is inadequate. The price is below the long-term value REIS could realize for its stockholders by the pursuit of its business as an independent entity and the continued disposition of its real estate assets, or by a sale of the Company.
Mr. Lloyd Lynford, CEO of REIS, stated: “It is extraordinarily disappointing that, after our Board unequivocally rejected CoStar’s $8.75 proposal, CoStar has seen fit to come back with exactly the same proposal in a hostile fashion. To judge the value of our company by the daily trading prices of its relatively illiquid common stock makes no sense. We trust that our clear second rejection of CoStar’s offer will prompt CoStar to withdraw it. Our Board will, of course, review carefully any serious proposal from any responsible third party.”
I believe words like “extraordinarily disappointing” and “unequivocally” and “makes no sense” are corporate chieftainspeak for “Fuck off, you loser!” Reading between the lines, you can almost feel the heat.
Initially, I was really puzzled. In normal course of business, getting a 97% premium over the last stock price (which hasn’t moved at all until the offer came in) is cause for celebration and a rush to the alter lest the groom come to his senses. I mean, imagine that your house was valued at $300,000 and some dude rolls up and goes, “Hey, I’ll give ya $600,000″. That’s normally a “Honey, start packing — we’re moving!” type of thing. But Reis was like, Talk to the hand:
The price is below the long-term value REIS could realize for its stockholders by the pursuit of its business as an independent entity and the continued disposition of its real estate assets, or by a sale of the Company.
Okay, so like, let’s go with that.
I spent the last 30 minutes or so of my life looking at stock charts and old new reports and such. Frankly, I hadn’t known that Reis was a public company at all. Back when I was still in commercial real estate, Reis was privately held, or so I remembered. Continue reading →
(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….
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.
A National Association of Realtors tech incubator company has acquired a commercial real estate data exchange company and plans to use its technology to launch a national commercial real estate listing and transaction platform in May.
Second Century Ventures LLC, a private equity fund established by the Realtors trade group supported by a membership dues increase this year, acquired Gig Harbor, Wash.-based ePropertyData.
EPropertyData operates CommercialMLS.com for the 4,500-member Commercial Brokers Association in Seattle and CommercialGateway.com for the 2,000-member commercial division of the Houston Association of Realtors.
…
Gaylord said the platform will offer NAR’s commercial members “national exposure for all their sale and lease listings” and serve as a resource for national property searches.
Meanwhile, an advisory group formed by NAR leaders is studying the feasibility of creating a massive property information database, dubbed the “Gateway” — featuring detailed information for all types of properties — that could be governed by brokers, owned by NAR and accessible to varying degrees by consumers, real estate professionals and others.
Oh. Wow.
I don’t know how to feel.
On the one hand, anything that could get the Galactic Empire and the Keystone Kops to focus on serving their customers instead of suing each other is a real positive. On the other hand, is NAR the organization to challenge either behemoth — nevermind both of them — in the extraordinarily tricky commercial real estate space?
Even if NAR is the right group to bring reform to CRE, is ePropertyData the vehicle to use?
I mean… look at this:
The value of the ePropertyData acquisition was not disclosed. According to B121.com, a business information Web site, ePropertyData has fewer than five employees and annual sales of $500,000 to $1 million.
Um, okay…. I know a deli in my town that has more employees and has more sales.
In comparison (well, more contrast), CoStar’s market cap is $774M, and in 2007, it did $192.8M in revenues. Loopnet’s market cap is $435.7M and its 2007 revenues were $70.7M.
NAR really ought to have thought this one through more, methinks. All that CoStar needs to do here to crush this nascent problem is to go to the five guys who work at ePropertyData and offer them $150K a year jobs working at CoStar. They’d be fools to turn that down. And that’s if CoStar were even remotely worried about ePropertyData instead of more pressing problems, like whether to have the corporate retreat in Las Vegas or in Orlando.
Here’s a tip for NAR: if you were going to buy any small company that has a reasonable shot at competing with the Two Big Boys, you should have bought Catylist. At least Catylist has experience working with some major institutions that are respected in the CRE space, like CCIM. And Dustin Gellman at Catylist is one of the really smart guys in CRE who really gets the web.
But really… you’re the frikkin National Association of Realtors, with a technological marvel of a building that looks like this in Washington DC:
You couldn’t get Google or Microsoft to talk to you about doing something in commercial real estate?
And yet… I can’t help but cheer the efforts of NAR. The online commercial real estate space is desperately in need of an alternative to the really-smart-but-evil guys on the one hand and the bumbling-simpletons on the other hand.
I look forward to seeing the reaction of the commercial real estate industry, as well as CoStar and Loopnet and Xceligent and everyone else in that business.
With everyone focusing on the gloomy residential real estate market, I thought it might be interesting to take a look at what’s happening over on the Dark Side of the Force, aka, commercial real estate.
CoStar released their Q4 financial results recently, and boy, are they impressive:
BETHESDA, Md., Feb. 20 /PRNewswire-FirstCall/ — CoStar Group, Inc. (Nasdaq: CSGP – News), the number one provider of information services to the commercial real estate industry, today announced that net income for the year ended December 31, 2007 increased 28.5% to $16.0 million, or $0.82 per diluted share, compared to $12.4 million, or $0.65 per diluted share for 2006. EBITDA (earnings before interest, taxes, deprecation and amortization) for the year ended December 31, 2007 was $34.0 million, an increase of 31.3% compared to EBITDA of $25.9 million in 2006. Revenues for the year ended December 31, 2007 were $192.8 million, an increase of 21.3% over revenues of $158.9 million in 2006.
28.5% increase in profit; 21.3% increase in revenues. Wow. Nice. Congratulations are due to the people at CoStar.
For the sake of comparing apples to apples, here’s CoStar’s archnemesis, Loopnet:
Revenue for the fourth quarter of 2007 was $19.6 million, an increase of 41% from $13.8 million in the fourth quarter of 2006. Net income for the fourth quarter of 2007 was $5.7 million or $0.14 per diluted share, compared to $5.3 million or $0.13 per diluted share in the fourth quarter of 2006. The effective tax rate for the fourth quarter of 2007 was 38.1% compared to 25.8% in the fourth quarter of 2006.
LoopNet’s Adjusted EBITDA (earnings before interest, tax, depreciation, amortization and stock-based compensation) for the fourth quarter of 2007 was $9.4 million, an increase of 40% from $6.7 million in the fourth quarter of 2006. The Company has reported Adjusted EBITDA because management uses it to monitor and assess the Company’s performance and believes it is helpful to investors in understanding the Company’s business.
For the full year, total revenue was $70.7 million, an increase of 46% from $48.4 million in 2006. Net income for the full year of 2007 was $21.1 million or $0.52 per diluted share, compared to $15.5 million or $0.40 per diluted share in 2006. Adjusted EBITDA for the full year of 2007 was $34.0 million, an increase of 46% from $23.2 million in 2006.
$5.7M vs. $5.4M — that’s a 7.5% increase — but as LoopNet points out, Uncle Sam and the People’s Republic of California took a much bigger chunk. So LoopNet points to EBITDA: $34M vs. $23.2M, or 46%. Revenues were up 46% as well.
Again, a great year, and congratulations are due to the boys and girls at LoopNet.
What about some of the other stalwarts? Maybe some non-web companies?
CB Richard Ellis Group, Inc. (NYSE:CBG – News) today reported full year 2007 revenue rose 49.7% to $6.0 billion and earnings per share increased 23.0% to $1.66 per diluted share – both record levels for the Company. Fourth quarter 2007 revenue increased 30.4% to $1.8 billion and diluted earnings per share increased slightly to $0.54 compared to the fourth quarter of 2006. Excluding one-time charges, full year diluted earnings per share was $2.11, an increase of 42.6% from 2006 and fourth quarter 2007 diluted earnings per share was $0.63, representing an increase of 10.5% from the fourth quarter of 2006.
Yowza. 23.0% increase in earnings, and 49.7% increase in revenues.
Jones Lang LaSalle Incorporated (NYSE: JLL – News), the leading integrated global real estate services and money management firm, today reported record net income of $256 million, or $7.64 per diluted share of common stock, for the year ended December 31, 2007. This represents an increase of 46 percent over the prior year’s net income of $175 million, or $5.24 per share. Revenue for the full year 2007 was $2.7 billion, an increase of 32 percent from the prior year, the result of strong performance in all operating segments. Operating income for 2007 was $342 million compared with $244 million for the prior year, an increase of 40 percent, led by Asia Pacific and EMEA. Included in the firm’s 2007 full-year results was a significant advisory transaction fee earned by the Asia Pacific Hotels business. Included in the firm’s 2006 full-year results was an incentive fee from a single client of $113 million, or $1.01 per share, earned by LaSalle Investment Management. The strengthening of foreign currencies against the U.S. dollar in 2007 contributed $0.07 per share in the fourth quarter and $0.23 per share on a full-year basis.
JLL with 46% increase in earnings, and 32% increase in revenues. Woot!
These firms somehow managed to post these numbers and do this kind of business in a world without MLS, and without a NAR-type of organization that spends millions burnishing the Realtor brand (although, yes, there is a commercial specialty at NAR).
Just something to think about. You don’t know the power of the Dark Side.
Looks like the latest CoStar blog post takes the rivalry between CoStar and Loopnet to a new level. It’s exciting — almost as if we’re in a Presidential Election season. Oh yeah….
If the impressive-sounding number LoopNet claims as its “registered users” is really the cumulative number of times someone ever registered to use their web site over the past decade, why would LoopNet say that it can “immediately expose” listings to 2.5 million people?
We think the answer is clear: LoopNet doesn’t have extensive research facilities. It doesn’t spend millions of dollars on trained researchers to track down listings all over the country the way CoStar does. Which is why CoStar has a higher quality, more comprehensive database, with the information you can’t find anywhere else.
Granted, the two of them have been going at it for some time now, including variouslawsuits enriching various corporate litigators from coast to coast. And I gather that they’re tussling with each other over who will be the National Commercial MLS when it’s all said and done, since the commercial real estate world doesn’t have domination-by-MLS that the residential side does.
I personally can’t wait to see the response by Loopnet. It’s going to be an interesting time in the tiny, arcane world of online commercial real estate.
Here’s the thing, however, for those who don’t follow the Inside Baseball stuff about commercial real estate websites.
There is little doubt that CoStar is right. Loopnet does make silly claims. 2.5 million registered users just doesn’t fly considering the size and scope of the entire commercial real estate market. Not to mention aging of users, as CoStar brings up. At the same time, CoStar shows its character with not only the blog post but the lawsuit that inspired it.
CoStar is extremely good at what they do. Really, they are. Their technology is very good, and their research capabilities (which CoStar has spent hundreds of millions of dollars developing and maintaining) are second to none. CoStar singlehandedly changed the way that commercial real estate firms conduct business. But they’re evil. If you look into their business practices, you realize that you are seeing the wielding of monopoly power the likes of which you haven’t seen since the pre-Google Microsoft days. That CoStar looks upon litigation as a good competitive weapon says much about how they compete: to win, and to win in Conan-like ways. Crush your enemies, see them driven before you, and hear the lamentation of their women. Not that there’s anything wrong with that, but that sort of competitiveness isn’t going to make you a lot of friends.
Loopnet may not be as evil as CoStar, but they’re incompetent. This is not the place to go into the details of their incompetence, but suffice to say that they remain in business because (1) how much the industry despises CoStar, and (2) their competitors are even more incompetent than they are. Going out with a 2.5 million registered users claim when even a cursory examination of the numbers based on public records (as CoStar did) shows that claim to be… how shall we put this… marketing fluff is not the height of competence, especially when you’re locked in a death match struggle with the Death Star CoStar.
Looking at this particular little fight, I feel like I did when (as a Jets fan) the 2007 Patriots played the Dolphins. Do you root for the evil empire? Or the utter incompetence of the Fish? Eeek.
I will point out one thing, however.
CoStar says it plays straight with its subscriber numbers. Curiously, I haven’t been able to find those numbers. I’m sure they publish their subscriber numbers somewhere in their voluminous marketing materials, since that is the substance of their lawsuit against Loopnet: false advertising. I just can’t find them.
But beyond that, the way that CoStar defines ‘subscriber’ isn’t necessarily what one might think when one thinks of the term “Subscriber”. Subscriber typically implies some sort of voluntary act, coupled with payment, by an individual to a publication. In CoStar’s case, that ain’t necessarily so.
CoStar agreements tend to be at the enterprise level, not at the individual level. For example, Cushman & Wakefield has a single agreement with CoStar covering all of its agents (some part of the 11,000 employees it claims worldwide). Let’s say for the sake of discussion that 5,000 of the 11,000 are actual commercial agents & brokers, with the remainder support staff. That means that all 5,000 Cushman brokers are ‘subscribers’ to CoStar, under the enterprise agreement — even if they have never used CoStar, never will, and don’t even know how to use the Internet. As long as you have a listing in your name, or an administrative assistant could conduct a property search in your name, you may be covered under the agreement as a ‘subscriber’. In fact, word is that CoStar fairly insists on having some pretty stringent definitions to ensure that the maximum number of ‘subscribers’ are covered (since the fees a compay pays to CoStar is closely tied to the number of licenses, aka, subscribers).
Let me give one example I happen to have personal knowledge of. A firm with 35 brokers wanted CoStar, but only for the 5 brokers who are full-time commercial agents. The other 30 are what one might call “resumercial” agents who dabble in commercial now and again. The firm was planning on having an admin conduct property searches for its agents, and putting listings up for agents — a common arrangement. How many subscribers would you imagine were covered in the agreement between said firm and CoStar? If you guessed 35, you get a gold star.
And technically, that’s true — because the firm was paying CoStar the fees for having 35 licenses, and each of the 35 agents had his/her individual login and password. The admin would login under an agent’s login/password to do the work for that agent. But 35 people in that firm were not looking at CoStar day in and day out. One person was, with perhaps another five checking the site once in a while.
Nonetheless, one cannot deny that CoStar’s numbers are ‘more straight’ than Loopnet’s. Which is why CoStar’s pimp hand is so strong. I can’t wait to see Loopnet’s response, beyond the generic “Allegation is ridiculous” pooh-poohing that isn’t going to convince anyone.
