Not long ago, Internet lead-generation companies were the hottest, most innovative and most controversial new idea in real estate. Today, this business model appears to be more than passé and faces significant threats in the marketplace.

Not long ago, Internet lead-generation companies were the hottest, most innovative and most controversial new idea in real estate. Today, this business model appears to be more than passé and faces significant threats in the marketplace. That’s by no means a death knell for the companies that created or copied the model, but surely, the time has come for some new thinking about lead-generation’s benefits and opportunities.

The most significant threat is that brokerage companies and individual agents now have their own Web sites, which can generate plenty of leads for practitioners, who consequently have a less-compelling need for an independent lead-generation service. Add blogs and social networking sites to the mix, and again, brokers and salespeople now have other demonstrably effective and efficient ways to generate their own leads online without the cost of a separate service. A crop of new “free” listing Web sites also offers brokers and salespeople a potential alternative to the lead-generation model.

Moreover, brokerage companies have bought or built their own in-house lead-generation departments. Access to a large captive agent population, competitive pricing and a comparable cost structure could give these internal services an advantage over independent services in their ability to attract and retain customers. An internal service operated at a loss also could have a competitive advantage over a profit-oriented service for that reason alone. And an internal service needn’t battle the “outsider” image that has clung to so-called “third-party” providers since their inception.

On the flip side, lead-generation services as a group haven’t convincingly demonstrated that they produce better-qualified leads, higher close ratios or a lower cost per lead than other new or traditional channels of new business. That’s particularly true if, as Andrew Coleman of LeadQual notes, the recipient of an online lead must compete against a dozen others who obtained the same lead, not to mention the however-many others who also obtained the same lead by other means.

Whether services (such as LeadQual, incidentally) that aim to provide prescreened and warmly handed-off leads can operate profitably over time on a standalone basis remains to be proven. As Inman News reader Tom Wolf opined, the marketplace of real estate agents may not demand enough third-party-generated leads to support new entrants unless the leads are either cheaper or higher quality than those already available. Cheaper prices or a higher-quality product would “eat into their margins significantly,” Wolf noted.

Online or offline, real estate agents typically spend surprisingly little money to obtain new business, and many of them continue to utilize old-fashioned techniques despite the advent of the Internet. The U.S. Mail doesn’t appear to lack Realtor postcards. And stop by any gathering hosted by a business or civic association, and you’ll find plenty of Realtors eager to make a contribution and meet the locals at the same time.

For those real estate practitioners who lack the desire, know-how or resources to set up their own online lead-generation systems, the current providers have introduced some intriguing innovations:

Realtor.com has reassigned CEO Allan Dalton, now president of parent company Move Inc.’s real estate division, to a top-secret new venture that Move CEO Mike Long declared could be “transformational” for the company.

Reply! has offered customers a 72-hour money-back guarantee on invalid leads and free leads for as long as a year to agents who don’t convert at least one lead into a closed sale within 12 months. The company also has offered no long-term contract arrangements.

RealEstate.com has opened eight real estate brokerage offices to leverage leads obtained from the Web site. Four offices opened last year and four more were added last month, though the number of salespeople remains small. This approach is a mirror image of the traditional model: The legacy companies started with bricks-and-mortar offices and then added online lead-generation systems while Interactive Corp.’s unit began with a Web site and then added on-the-ground personnel.

HomeGain, owned by Classified Ventures, has re-launched the HomeScout.com Web site, which offers automated home valuations, home sales data, databases of for-sale homes and a Realtor search function.

HouseValues, which reported a $3.14 million loss last year, has halted a planned expansion into mortgage lead generation and cut the headcount 12 percent to focus on the core business. An unanticipated shrinkage of the company’s customer base might add credence to the argument that the lead-generation business model is due for some serious tweaking in today’s marketplace.

Marcie Geffner is a real estate reporter in Los Angeles. Companies mentioned in this story may at times have purchased articles from the author.

Copyright 2007 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.

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