Imagine going head-to-head with a company featured in the cover story of the April 27 issue of Forbes magazine, whose headline reads: "Microsoft: Is Your Company Its Next Meal?" That's just what Realtor.com did. And the megalisting site, operated by RealSelect Inc., brought out the heavy artillery to do it. While the ramifications aren't yet clear, the desired effect has been achieved. Realtor.com is shaking up the industry -- and its most formidable competitor in the process.

In what many consider to be a direct counterattack to the upcoming debut of Microsoft's online real estate service HomeAdvisor, Realtor.com has unveiled its Gold Alliance Program, which dangles the proverbial carrot in front of the Multiple Listing Service (MLS) giants with the promise of more revenue, with one catch. The agreement requires Gold Alliance members to agree not to share their listings with any other national site. These "preferred partners" are, however, entitled to give their listings to as many local outlets as they choose. This catch is, of course, raising eyebrows left and right -- most notably Microsoft's.

According to Clareity Consulting co-founder Greg Larson, Realtor.com's announcement has yanked the red carpet out from underneath Microsoft's very large feet. Not that Microsoft is likely to lose its footing, mind you. Take a look at any magazine cover these days, and our overriding national sentiment immediately becomes clear: Microsoft has the power -- and more important, the money -- to become a major player in most any business sector. The company isn't likely to be daunted by Realtor.com's latest maneuver, but the development has changed the rules of the game slightly.

Under the terms of the Gold Alliance Program, MLSs and associations receive the greater of $1 per new property listing provided to Realtor.com (Larson says MLSs experience an average yearly turnover of two-to-four, meaning between $2 and $4 per average active listing per year), or 10 percent of the revenue generated by Realtor.com. Payments continue to be made by Realtor.com on a quarterly basis.

It's important to note, however, that MLSs and associations may continue, if they choose, to be affiliated with Realtor.com under its old program. Under the traditional system, Realtor.com paid participants 10 percent of revenue, generated either from banner advertisements or various transactions including services such as school reports. And MLSs and associations may still join as partners under the "old" system.

Larson says this latest development creates a "two-tier" system, in which big guns Microsoft and Realtor.com sit at the top, with the most listings and the most money; and beneath them, smaller national sites such as CyberHomes and HomeSeekers, whose advertising budgets represent pennies compared to, for example, Realtor.com, a company currently investing $30 million to drive traffic and build its brand via exclusive relationships with AOL, Infoseek, Lycos, and television advertising.

CyberHomes, HomeSeekers, and other second-tier national sites are going to have to change their strategies, Larson says, in order to survive. The sites will have to reshape their businesses, targeting new niche markets such as going direct to brokers versus MLSs, he says. Regardless of their plans of attack, it's going to be an uphill battle.

What about local MLSs? Larson is quick to add that they shouldn't be discounted, adding that he's always encouraged his clients to go to local MLSs and avoid "trusting everything" to large national entities.

The nation's two largest MLSs already signed up as Gold Alliance Program partners. You can be sure that Microsoft won't be left out in the cold, but the room is getting awfully chilly.

Coming tomorrow: Which MLSs have signed up as Gold Alliance Partners, and how is Microsoft responding to the program?

Published: April 29, 1998

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