Henry Blodget was a notorious Internet analyst for Merrill Lunch who famously predicted that Amazon.com's stock would hit $400. In 2004 he was charged with securities fraud by the SEC, for his roll in recommending certain stocks, and was banned from trading for life. More recently however, he has reinvented himself as a commentator for Slate Magazine and he also started his own blog, Internet Outsider, where he often opines on the business models of the Internet giants.

He makes an interesting argument in a post today that "As Goes the Housing Market, So Goes Advertising" – where he argues that the housing market and economy are inextricably linked and that as the economy stumbles, advertising is usually the first expenditure that is cut. This is certainly born out of experience in the first dot.com crash – where many web sites with advertising-only revenue models folded.

I think his comments are relevant to the Web 2.0 space and the new crop of real estate sites that are entirely advertising dependant. It strikes me that they are particularly vulnerable should there be any large scale slowdown in the economy. Whether that's spurred on by what happens in the housing market, that's anybody's guess – but would be especially ironic nevertheless.

So, with those conditions in mind, I've started to compile a ranking of real estate web sites and their prospects for survival.

Red (At risk of showing up on f***edcompany.com)

  • Trulia – Advertising dependant
  • Zillow – Advertising dependant

Orange (Fade into obscurity like the Pets.com sock puppet)

  • Propsmart.com – Great technology, but no discernable business model

Green (Have a decent chance of toughing it out)

  • Redfin – Real estate search, supplemented by buyer/seller tools
  • Realtor.com – Advertising supported, backed by NAR

Any other sites out there I'm missing?

Update: I may just have to move Redfin into the Orange column, even after their $8 million VC funding announcement today… Marlow over at 360Digest has unearthed some interesting facts about their business model.

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