LoopNet Lures a Crowd

"The Multiple Listing Services in the residential world does a very effective job of creating an electronic database of single-family homes that are available for sale, and a very effective job of creating a searchable database of the available property," said LoopNet CEO Richard Boyle at a recent investment conference.

"There is no Multiple Listing Service in the commercial real estate space. So the practices of marketing and searching for deals are still happening primarily in [the] offline world," Boyle said. "And what we are trying to do is analogous to what that does in the residential real estate space."

Whichever company is the first to develop the commercial equivalent of the MLS will likely win the network effects prize. But doing so requires a critical mass of active real estate players. CoStar has the advantage of offering a broader array of research and information, but LoopNet may benefit from its purer marketplace focus.

That concentration is certainly helping it on the income statement. CoStar's gross margin in the third quarter was only 66%, compared with LoopNet's 89%. Similarly, CoStar's operating margin was 14%, below LoopNet's margin of 41%.

LoopNet also is working to put more distance between it and its rivals. In 2004, it bought BizBuySell, which runs a related marketplace for small businesses for sale.