has faced down an ever-increasing array of competitors, but the online real estate company could be facing its toughest challenger yet: none other than the 800-pound gorilla of the tech business, Microsoft Corp.

A recently announced deal with some of the nation's largest home lenders will allow Microsoft to begin offering online mortgages, appraisals and other support services to homebuyers.

So far, Homestore has been able to fend off competitors because its online service carries more home listings than any others, but Microsoft, which is setting up a new division called HomeAdvisor Technologies Inc., could chip away at Homestore's market share.

"Anytime that Microsoft decides to enter your space, there is legitimate reason for concern," said Damon Southward, technology analyst for, which tracks Homestore. "A large segment of potential Homestore users will be captured by Microsoft before they ever have an opportunity to gain exposure to another service."

Although a U.S. District judge last week ruled that Microsoft was guilty of antitrust violations, the ruling was largely confined to the company's personal computer operating systems, and HomeAdvisor Technologies Inc. will proceed as planned. "It's definitely business as usual," said Microsoft spokesman Matt Heinz, adding that the expanding HomeAdvisor Web site is on schedule to launch in the next few weeks.

One-stop real estate shop

Founded about three years ago, Thousand Oaks-based Homestore established itself as the first online real estate service by setting up partnerships with brokerages and the multiple listing services they feed into. Consumers who use the site provide the specifications they desire neighborhood, size of home, amenities and other information and receive a list of homes that fit their criteria, along with the name and contact information for the broker handling the property.

Thanks to its early entry into the marketplace, its relationships with the National Association of Realtors and the National Association of Home Builders, and the many exclusive listing deals it has tied up with brokers and search engines, the company boasts a roster of 750 multiple listing services from which it culls about 1.3 million home listings nearly all the homes posted for sale nationwide.

As a result, Homestore has also garnered the lion's share of traffic despite the entry of about 15 competitors into the business in the past few years. And the company has grown dramatically.

Homestore now has about 1,200 employees and, busting at the seams, the company last month signed a lease for a new, 137,000-square-foot headquarters in Westlake Village.

Revenues have risen steadily, climbing 233 percent to $28.1 million in the fourth quarter of 1999. And although Homestore, like many Internet startups, has yet to turn a profit in the fourth quarter, the company posted a net loss of $16.2 million (23 cents a share) officials say they expect to be in the black next year.

"We could cut out a lot of expense and be profitable today," said John Giesecke, executive vice president and chief financial officer for Homestore. "Today is the time to invest in infrastructure and build a commercial-strength company that has the ability to be much larger. Two to three years from now, if we don't go after it, someone like Microsoft will."

The strategy has called for expanding from home listings to a one-stop shopping site for homebuyers. The company's Web site now includes nine categories of goods and services, with information on everything from financing to home improvement to decorating. It expects to go live shortly with an online home furnishings store.

Homestore has also announced a marketing alliance with GMAC Residential Funding Corp., and officials say they will announce other mortgage lending partnerships shortly. But Microsoft threatens to be a formidable competitor because it is establishing a similar, one-stop-shopping portal, analysts said.

Going head to head

Microsoft's existing Web site,, already carries real estate listings, and its plans call for expanding beyond mortgages to a full gamut of services.

"It's the beginning of the process," said Nick Karris, Internet real estate analyst for research firm Gomez Advisors. "HomeAdvisor Technologies, which initially will allow them to improve their mortgage offering, very well could evolve into the whole purchase transaction."

Microsoft last month struck deals with Freddie Mac,, GMAC-Residential Funding Corp., Norwest Mortgage Inc. and Bank of America to offer consumers a way to shop for and secure a home loan online, a process that promises to save people both time and money.

There's also some doubt as to whether Homestore will be able to keep its dominant hold on the real estate listings segment of the business when its deals come up for renewal in the next few years.

Homestore secured many of its exclusive deals by offering shares of its own stock. The company which went public last August, saw its shares jump from an initial offering price of $20 to a high of more than $120, but hit $36.75 on April 5 amid a downturn for tech stocks.

"The opportunity to cash in on Net-mania was clearly the driving force behind the decision to list exclusively with Homestore," said Southward. "I believe, however, that the debate over the conflict of interest associated with listing properties with a single site will cause many Realtor organizations to not renew their deals once they expire. A flagging stock price will make the decision that much easier."

Noting that the company has already been through a first round of contract renewals with a high rate of success, Homestore officials say they are confident they can maintain their lead.

For reprint and licensing requests for this article, CLICK HERE.