Another home shopping network: LendingTree Inc., Charlotte, North Carolina, has been on a buying spree in the last year, snapping up online lending and real estate operations. Its acquisitions include GetSmart, Home Loan Center Inc., ServiceMagic Inc. and iNest Realty Inc.

OVER THE LAST SEVERAL YEARS, CHAIRMAN AND CHIEF Executive Officer Barry Diller has turned New York-based IAC/InterActiveCorp into an Internet conglomerate through a dizzying series of eCommerce acquisitions, including Ticketmaster and the Home Shopping Network. Last year Diller took a crack at the financial services market when he acquired LendingTree Inc., Charlotte, North Carolina, a successful online home mortgage exchange.

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Hanging out with Barry Diller must be contagious, because over the last 12 months LendingTree founder and Chief Executive Officer Doug Lebda has gone on a buying spree of his own--using Diller's money to broaden his online mortgage lending and realty platform. Lebda's acquisitions have included GetSmart, an electronic marketplace also headquartered in Charlotte, which provides consumer access to a variety of credit products and complements LendingTree's loan business; Home Loan Center Inc., Irvine, California, an online mortgage originator that is LendingTree's first venture into the direct-lending market; and Bloomingdale, Illinois-based iNest Realty Inc., a new-home builder referral network.

IAC also bought Golden, Colorado-based ServiceMagic Inc., an online service that connects home-owners with home-service professionals, and gave its lending and Realtor businesses to LendingTree to run.

His objective, Lebda says, is to "create the dominant lending and realty service exchange." Lebda doesn't qualify that statement with either "mortgage" or "online," but clearly this is a pure eCommerce play in the mortgage space that he and Diller are making here.

With less than 1 percent of the origination market nationwide, LendingTree has a very long way to go. And it remains to be seen whether significant numbers of homebuyers--as distinct from homeowners, who are merely refinancing an existing mortgage--will ever be comfortable using the Internet to execute what, for many, is the biggest financial decision of their lives.

The jury is still out, but Lebda and Diller are betting big on the verdict, and in the meantime have assembled--online--nearly every product or service a prospective homebuyer might need.

LendingTree is IAC's smallest operating company as measured by revenue, and Lebda says his bosses in New York believe that acquisitions can be used to drive revenue. The goal is for LendingTree to become more profitable so it can afford to continue spending heavily on marketing to raise consumer awareness even higher. Now, with IAC's capital behind him, Lebda has the capital to expand.

"This really was a building year," says Lebda. "We put all the pieces in place to reach a new level of profitability."

Lebda, 33, started LendingTree in the late 1990s after having a frustrating experience getting a mortgage loan on a condominium he wanted to buy. He survived on venture-capital funds for a few years before taking the company public in January 2000. But the collapse of the U.S. equities market later that year precluded LendingTree from raising additional funds through secondary stock offers, and Lebda had to look elsewhere for money to finance his strategic growth plan.

Given that Diller had been assembling a diverse collection of eCommerce companies at IAC--but hadn't entered the financial services market as yet--it made sense for LendingTree to become part of Diller's empire. IAC acquired LendingTree in May 2003 for $724 million, and Lebda stayed on to run the business.

The company exists in two separate but highly integrated segments. The first--which does business under the LendingTree brand--functions as an online exchange that connects borrowers with lenders. Mortgages and home-equity loans account for about 80 percent of this operation's revenue, and it works with approximately 230 originators.

Potential borrowers are required to fill out a lengthy application form at LendingTree.com that includes their personal financial information, and they also must permit lenders to pull a copy of their credit report. Applicants receive up to four offers from mortgage lenders, and more than half of those quotes are made in 10 minutes or less. Although it's a much smaller part of its business, the exchange also gives consumers access to lenders that offer credit cards and write auto, personal, student and even commercial loans.

LendingTree's other primary business, which operates under the RealEstate.com brand name, started out primarily as a service that connected homebuyers and home sellers to a network of participating Realtors. Over the last year, however, the redesigned site has evolved into a broader real estate exchange where consumers can get advice on buying or selling a home, find a Realtor in their location, access home listings online, find a home inspector or a moving company or even get competitive quotes on homeowners insurance through an agency affiliate of Alpharetta, Georgia-based NetBank Inc., an online bank.

Although they operate under different brand identities, LendingTree.com and RealEstate.com are inexorably connected as part of an overarching strategy. Links on both sites pass mortgage applicants who need a Realtor, or homebuyers who need a mortgage, back and forth. Lebda says that closing rates on purchase mortgages for those companies participating in the LendingTree exchange jump dramatically when the borrower is also working with a participating Realtor at RealEstate.com. This is especially important now as LendingTree--like most other mortgage companies--struggles to segue from a market driven by refinancing activity to one focusing more on purchase mortgages.

There's no question that LendingTree's mortgage origination volume received a huge boost in recent years from an unusually strong refinancing market brought about by the lowest interest rates in several decades. As that refi activity has gradually abated with the recent rise in rates, the exchange has worked hard, with some success, to replace that volume with purchase loans--a more challenging transaction for the online environment.

In the second quarter of this year, the entire LendingTree operation reported operating income (before amortization) of $5.6 million on revenue of $44.6 million, according to IAC's earnings release. The company said that revenue was essentially flat compared with the prior year period, due to a 44 percent decrease in revenue from refinance mortgages. This was partially offset by an 83 percent increase in purchase mortgage revenue.

For the third quarter this year, and in a highly competitive mortgage market, LendingTree's operating income (before amortization) inched up to $6.5 million on revenue of $47.9 million, according to IAC. A hefty 104 percent increase in purchase mortgage revenue helped offset a 52 percent drop in refinancing revenue.

With one exception, LendingTree's acquisitions of the past 14 months have not altered its business strategy so much as broadened and enhanced it.

The company acquired GetSmart in October 2003 from San Francisco-based Providian Corporation, but has continued to operate it under its own name since it complements rather than competes with the LendingTree.com offering. The exchange offers mortgages, home-equity loans, credit cards and auto loans through a network of approximately 100 lenders. GetSmart operates on a somewhat different business model than LendingTree.com. Whereas the latter uses a long application form that asks for detailed personal financial information, GetSmart uses a shorter "self-scored" form that does not require as much confidential data, including access to a credit report.

Using GetSmart, applicants still receive offers from multiple lenders, but all personal information is communicated offline. Bill Lawrence, general manager at GetSmart, says it focuses on "security-conscious" consumers who are reluctant to give out confidential information online. "We're appealing to a whole different set of consumers on this," he says.

GetSmart connects LendingTree to a different set of lenders as well. One of LendingTree.com's more ambitious goals is to provide mortgage applicants with financing offers in 10 minutes or less. However, this requires that participating originators have a robust technological infrastructure.

"LendingTree isn't the perfect fit for every lender out there," says Lawrence. And GetSmart's "lower technology hurdle" enables the exchange to "work with a lot of the small lenders in the market," he adds. Only four LendingTree.com lenders were also participating in the GetSmart exchange at the time of the acquisition, so there was virtually no overlap.

Although it has never disclosed what it paid for GetSmart, LendingTree decided to acquire the exchange rather than build a similar model from scratch because it would take significantly less time. "Would it have been cheaper?" asks Ed Powell, a vice president at GetSmart. "Who knows? It was definitely faster."

IAC acquired ServiceMagic in July and turned over its lending and real estate businesses to LendingTree while giving its home-service operation to another division within the company. ServiceMagic will continue as a separate brand.

Though smaller in volume, ServiceMagic's mortgage exchange operates in a manner very similar to GetSmart's, with an emphasis on security-conscious consumers and lenders that may not be technologically advanced enough to meet LendingTree.com's quick response times. This business was of special interest to LendingTree, because it is skewed in favor of purchase loans and should help the company make that transition. Lawrence also says that ServiceMagic has done a good job cross-selling mortgage loans and home-service referrals.

Buying a direct originator

Lebda's acquisition of HomeLoanCenter.com in September was especially interesting, because unlike LendingTree.com, GetSmart and ServiceMagic--all of which operate on an exchange model where applicants are matched with competing lenders--it underwrites mortgage loans directly through its own origination platform. (These loans are later sold into the secondary market, and borrowers can choose which company will own and service their loan.)

Lebda declines to provide a lot of specific detail on how HomeLoanCenter.com will fit into LendingTree's mortgage strategy, including, for example, how leads will be distributed to lenders. In its three exchange operations, LendingTree receives a referral fee on closed loans. Loans booked through HomeLoanCenter.com should be much more profitable, which raises the question of whether LendingTree will cherry-pick the best prospects for itself.

While HomeLoanCenter.com is still being integrated into LendingTree's overall strategy, Lebda downplays the likelihood that its exchange participants will be disadvantaged by this deal. Although he won't go into great detail, Lebda says that HomeLoanCenter.com will be "channel-specific"--similar to a series of strategic partnerships with the likes of Costco Wholesale Corporation and several major U.S. airlines, which source leads for LendingTree.com and RealEstate.com. So rather than competing with the exchange lenders for leads, HomeLoanCenter.com might end up sourcing leads through entirely different channels.

"The lender reaction has been totally fine," Lebda says. "We haven't lost any lenders because of this."

Lebda also says the acquisition should increase LendingTree's profitability and allow it to invest more in marketing--which in turn benefits all its lenders. "It's going to dramatically increase our profit per customer," he says.

The real estate piece

LendingTree's various acquisitions should prove to be a boon to its real estate business, as well. Last December it acquired RealEstate.com from New York-based Primedia Inc. and adopted that brand name for its own existing real estate site.

Thomas J. Reddin, chief executive officer for real estate at IAC Financial Services and Real Estate and formerly LendingTree's chief operating officer, says it was important that LendingTree's Realtor referral business have its own brand identity.

"In order to get more aggressive, we needed a brand or a URL that stood for real estate," says Reddin. And with RealEstate.com, the company acquired both.

The Realtor referral process at RealEstate.com works pretty much the same way as lender referral at LendingTree.com. Applicants fill out a form online and are soon connected to as many as four brokers.

Andrew Taylor, general manager of ServiceMagic Real Estate, says that through extensive market research, consumers have told LendingTree they like to have real estate agents and brokers competing for their business, just like lenders. And through its acquisition of ServiceMagic's real estate business, LendingTree effectively tripled its network of agents and brokers to approximately 30,000.

The RealEstate.com and ServiceMagic.com networks operate on different business models. RealEstate.com is paid a fee for every closed loan in which it referred a borrower to a broker or agent, and LendingTree returns a portion of this fee to the consumer in the form of a Home Depot or American Express gift card. ServiceMagic.com, on the other hand, receives a fee for providing agents with leads regardless of whether the homebuyer secures or closes a loan through LendingTree.com, and borrowers do not receive any rebates.

Even though it is not formally part of LendingTree, ServiceMagic's extensive home-service referral network will eventually be available through RealEstate.com. By visiting the site, homeowners can find everything from architects and engineers to plumbers and garage-door openers.

Branching into new homes

And in November, LendingTree acquired iNest Realty Inc., another referral network that specializes in builders and buyers of newly constructed homes. The seven-year-old service has a directory of more than 500 contractors and more than 8,000 new-home communities in 20 states.

Like most of its other acquisitions, iNest will be maintained as a separate brand, but will be integrated into RealEstate.com. A LendingTree spokesperson says the acquisition enables the company to "reach out to a market that we haven't been able to serve as well as we'd like to, and it's definitely a growing one." And over time, iNest may facilitate the growth of LendingTree purchase-mortgage business.

iNest also becomes one more service offering tacked onto the RealEstate.com site, where the strategy is to become a one-stop shop through a combination of advice, content and products. "If you're buying or selling a home, you can find everything you need," says Reddin.

Mortgage and home-equity loans aren't the only things sold at LendingTree. LendingTree.com, HomeLoanCenter.com and GetSmart all sell a variety of other consumer loan products through their sites, including credit cards, auto and debt-consolidation loans. And while they do not add up to significant loan volume or revenue for the company, Lebda says they are still important to its future.

Part of the problem is that closing rates on these products are so low that LendingTree can't afford to spend big marketing dollars on raising consumer awareness. Still, Lebda points out that inside IAC "we're not called LendingTree--we're called Financial Services and Real Estate." Here's his point: The present may be all about mortgages and real estate services, but LendingTree's tomorrow is in the broader financial services marketplace.

"The future of these [nonmortgagecredit] products is good," Lebda says. "We have them because they're profitable and consumers want to be able to access their financial products in one place."

But for today, LendingTree's primary focus remains squarely on the mortgage and real estate businesses. The company spent around $70 million on marketing this year in an ongoing effort to build its brand, which is key to generating the kind of lead volume that will keep its mortgage lenders happy.

Lebda claims that 80 percent of the country knows what LendingTree is, but he would like to drive that brand awareness even deeper into the ranks of U.S. consumers so that his company is "as top-of-mind as local bankers and brokers."

Indeed, this was a central rationale behind the slew of deals that Diller and Lebda undertook this past year. "If we want to grow, we have to invest more [marketing] dollars," says Lebda. And to invest more, LendingTree needs to make more.

Jack Milligan is a freelance writer based in Charlottesville, Virginia, and the former editor-in-chief of U.S. Banker. He can be reached at [e-mail].