Home, Contact Us, Site Map

 


home: portfolio:

Partnering with for-Profits

EXECUTIVE UPDATE  May 2000
By Fred H. Hutchison and Dennis Cronk

To write a successful screenplay, youíve got to pull all of the obvious elements together: plot, setting, characters. To add richness to the story, youíve got to get inside the characters. To do that, youíve got to know where theyíre coming fromÖ you need to know the backstory.

In todayís rapidly changing economic setting ó where the boundaries between companies, associations, and foundations are ever more difficult to discern ó it helps to know the backstory as well. A perfect example is the connection between Homestore.com, Inc. and its primary partner, the National Association of Realtors, and other strategic partners, including the National Association of Home Builders, the Manufactured Housing Institute, and the American Institute of Architects.

About Homestore.com
Homestore.com, Inc., a publicly traded company (NASDAQ: HOMS) is the leading network of sites on the Internet for home and real estate-related information, products, and services. Homestore.com, Inc.ís family of Web sites includes:

  • Realtor.com where consumers can view more than 1.3 million new and existing homes for sale and find broker and agent services.
     

  • HomeBuilder.com where consumers searching for new homes can find more than 130,000 models, new homes, and built to suit plans.

What makes these facts remarkable is that Realtor.com is the official Internet site of the National Association of Realtors (NAR) and HomeBuilder.com, is the official new homes site of the National Association of Home Builders (NAHB). What is even more remarkable is that in the first quarter of 2000 Homestore.com, Inc. also announced:

  • An agreement with the Manufactured Housing Institute (MHI) to host and maintain a consumer Web site for the association.
     

  • Its intention to help NAR build the REALTORS Electronic Transaction Platform, an online system which will integrate the essential steps in the process of buying a home over the Internet.
     

  • A strategic agreement with the American Institute of Architects (AIA) permitting visitors to www.homestore.com to find AIA member architects in their local area.
     

  • A 20-year extension of its alliance with the NAHB.

This is clearly a company thatís going placesÖ But, equally as interesting is where it came from. So, hereís the backstory:

Homestore.com ó Brainchild of the Realtors
Before the Internet was even a glimmer in a geekís eye, real estate brokers across the country invested millions in the Multiple Listing Service (MLS) system. Participants in local MLS systems set the standards for an orderly residential real estate marketplace by placing listings on the service and limiting access to industry professionals only.

By 1994, the first real estate listings were becoming available on the Internet. Intuitively, the NAR leadership knew that the Internet would not replace the knowledge, efficiency, sophistication, expertise, and personal contacts that make a professional real estate agent so invaluable to his or her customers. What the association did fear, with a great deal of justification, is that real estate customers would lose access to the expertise of its members, placing consumers at the mercy of individuals and companies who build and promote Web sites, not serve real estate customers directly.

Clearly, making listings available around the World Wide Web was a frontal assault on the priceless data that the real estate industry had laboriously accumulated through the MLS systems. The NAR decided to meet this challenge head-on. In 1994, to keep its members at the center of the transaction, the NAR created a wholly owned subsidiary, the Realtor Information Network (RIN), which represented a pioneering attempt to create a single, electronic network linking MLS systems nationwide.

However, like many others, RIN did not anticipate the true potential of the Internet. It attempted to duplicate the MLS model on a proprietary system by limiting both input of listings and output to industry professionals. RINís competitors, on the other hand, made information available for homebuyers to peruse from their desktops. By the spring of 1996, it was clear that private sector competitors with deeper pockets, greater technical expertise, and a broader vision were overtaking RIN.

By June 1996, NAR had invested nearly $17 million in RIN. The associationís members said, "Enough is enough." The membership demanded that no more money be spent on what appeared to be a bottomless pit. At that point, the NAR leadership could have surrendered the playing field to for-profit companies with the deep pockets capable of sustaining losses as large or larger than RINís for years to come. However, to surrender would mean loss of control over the channels of information that had built the profession. Instead, NAR decided to close down RIN and find an entirely new way to tackle the problem.

In December 1996, the NAR entered into an agreement with two large East Coast venture capital firms and one of RINís former vendors to create a new company to serve as the operator of the NAR Web site, Realtor.com and its then 500,000 listings. The new companies are known today as RealSelect and Homestore.com, Inc., its parent. Now in its fourth year, the revitalized Realtor.com is the one-stop virtual shopping site for homebuyers and sellers. And, it is going gangbusters.

Realtor.com is accessible to anyone with access to the Internet, but because NAR owns and controls Realtor.com, the association retains control over the use and presentation of property ads. Property data or information derived from the site canít be marketed to any other entities. Basic property ads, which include a photo, are free to REALTORS for life. With NARís backing, Realtor.com negotiated additional contracts with MLS boards, brokers, and agents to list their properties on the Realtor.com site.

Others shared the NARís vision. They understood that this was nothing less than a race to build not only the primary real estate site, but also one that would continue to dominate when the inevitable shakeout occurs. From the RIN experience, NAR learned that e-commerce works like a poker game in which the players capable of raising the stakes high enough will never lose because competitors will simply have to fold.

Start-up funding for RealSelect came from the REALTORS, with a small investment from Allen & Company and Whitney Equity Partners, venture capitalists. The total capitalization was $7 million, with 10 employees at the beginning of 1997. Since its formation, RealSelect has attracted such notable investors as John Doerr of Kleiner Perkins Caufield & Byers, General Electric Capital, the National Association of Home Builders, and Fannie Mae.

As NAR developed Realtor.com further, they sought to do more than reach committed homebuyers and sellers. They wanted to create a site that would bring people into the home buying process. Thus, NAR worked with Homestore.com to develop additional sites for homebuilders, apartment owners, interior design firms, and home remodeling and repair operations. This was done through a number of acquisitions and strategic alliances.

In August 1999, when Homestore.com went public, the partnership brought NAR access to millions of dollars of capital that no nonprofit organization, no matter how large, has been able to match. As of April 5, 2000, Homestoreís market capitalization is about $3 billion and the company has more than 1,000 employees. NARís 15 percent equity stake in Homestore is worth nearly $300 million, a handsome recovery from the $17 million investment in RIN.

In just three years, NAR has moved at "Internet speed" to assure that its members remain as the first point of contact for buyers and sellers. Today, Realtor.com is by far the leading real estate site on the Internet. The site carries 1.3 million listings ó 90 percent of the estimated number of homes for sale in the United States and twice as many as its closest competitor, Microsoftís HomeAdvisor.

In terms of traffic, Realtor.com delivers more traffic than the next five home listing sites combined, and research shows the gap is widening. The six million monthly visitors to the Realtor.com site stay longer and learn more than at competitorsí sites. Exclusive distribution agreements with America Online, @Home, Excite, and Go Network/Infoseek drive traffic to the site.

Other Associations Follow the REALTORS Lead
Nothing begets success like success. In 1997, Homestore.com and the National Association of Home Builders began discussions about creating a Web site for new home listings. A partnership agreement was signed in June 1998 and the new homes site, Homebuilder.com was officially launched in September of that year. More recently, the Manufactured Housing Institute and the American Institute of Architects have also come on board.

Jay Shackford of NAHB says, "We thought about our own consumer-focused Internet site. However, even an organization as strong as ours didnít have the financial wherewithal, technical capabilities, organization, and staff to go it alone. We needed a strategic partner and we were delighted when the Homestore.com opportunity materialized."

Michael OíBrien of MHI echoes Shackford, describing his associationís decision: "Nonprofit associations simply donít have the marketing muscle to access millions of consumers the way a for-profit company like Homestore.com can. The startup expenses and manpower costs are truly prohibitive." OíBrien went on to note that the strong ties between Homestore.com, NAR, and NAHB were factors in their partnering decision. "They had a well established track record, and we saw this as a clear win-win situation for the MHI membership."

OíBrien sums up the situation succinctly: "Dot-coms cannot supplant the myriad services that trade associations offer their members. But, associations that donít embrace emerging technologies could find themselves seriously undermined. The association that leads, rather than follows, is the one that best serves the interests of its membership."

Author Link: Fred H. Hutchison is Vice President of Fleishman-Hillard Government Relations. Dennis R. Cronk is president of the National Association of Realtors and a commercial REALTOR from Roanoke, Virginia.

 

  © 2008 Fred H. Hutchison. All Rights Reserved.

Edited on: May 19, 2006