Partnering with for-Profits
EXECUTIVE UPDATE May 2000
By Fred H. Hutchison and Dennis Cronk
To write a successful
screenplay, you’ve got to pull all of the obvious elements
together: plot, setting, characters. To add richness to the
story, you’ve got to get inside the characters. To do that,
you’ve got to know where they’re coming from… you need
to know the backstory.
In today’s rapidly changing economic setting — where
the boundaries between companies, associations, and
foundations are ever more difficult to discern — 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.
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.’s 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
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 that’s going places… But,
equally as interesting is where it came from. So, here’s the
Homestore.com — Brainchild of the Realtors
Before the Internet was even a glimmer in a geek’s 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
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
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. RIN’s
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 association’s 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 RIN’s 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 RIN’s
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 can’t be marketed to any other entities. Basic property
ads, which include a photo, are free to REALTORS for life.
With NAR’s backing, Realtor.com negotiated additional
contracts with MLS boards, brokers, and agents to list their
properties on the Realtor.com site.
Others shared the NAR’s 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
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, Homestore’s
market capitalization is about $3 billion and the company has
more than 1,000 employees. NAR’s 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 — 90 percent of the
estimated number of homes for sale in the United States and
twice as many as its closest competitor, Microsoft’s
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
competitors’ 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 didn’t 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 O’Brien of MHI echoes Shackford, describing his
association’s decision: "Nonprofit associations simply
don’t 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." O’Brien 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."
O’Brien sums up the situation succinctly: "Dot-coms
cannot supplant the myriad services that trade associations
offer their members. But, associations that don’t 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
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.