Corralling Homestore's wayward operations proves no small hurdle.

Shortly after Thanksgiving 2001, Mike Long's sabbatical from the working life was cut short by a call from Silicon Valley venture capitalist John Doerr.

The two had worked together at Web start-up Web MD Corp. where Long was chairman before leaving seven months earlier on a long-held quest to learn horse-jumping.

Both were investors in real estate Web site Homestore.com Inc., and Doerr was on the board, which was grappling with major accounting irregularities and a stock price meltdown. One thing led to another, and soon Long had arrived at Homestore's Westlake campus to offer some advice.

"I thought it would be more of a consulting (arrangement)," Long said. "I wasn't going to charge anything because I didn't want to be held accountable for it."

Homestore runs the Realtor.com Web site for the National Association of Realtors and runs other homebuilding and apartment-hunting sites. It also collects data on movers for advertisers, and provides software for real estate agents.

For all the substantial woes, Long realized the company, now called Homestore Inc., had great potential. He accepted the board's offer to become chief executive a year ago this month. While bad for his horse-jumping, the move placed Long, 50, with the reins to a challenge unlike any he or other Homestore board members had ever encountered.

"There's not a lot of precedent for what we've had to deal with," Long said.

Today, Long is getting rave reviews. Customers are happier, some major legal entanglements have been unraveled, and the company appears positioned to fulfill at least a portion of its original promise.

"We certainly have hills yet to climb, things to put behind us, but we're getting those things behind us' said Ken Klein, a board member.

Chipping away

Among the items checked off Long's list: being back in compliance with financial regulators; regaining credibility with key customers and business partners; and turning cash flow positive. Earlier this month, Homestore renegotiated a marketing contract with AOL Time Warner Inc. that was so poorly written it threatened Homestore's existence.

Still unfinished are an outstanding shareholder lawsuit and a disagreement with Cendant Corp. over Homestore's purchase of its Move.com unit (talks are ongoing). The company also has a ways to go in integrating the remaining acquisitions from its earlier free-spending period; its 12 billing systems, for instance, must be combined into one.

At this point, it's time to spread the word about what has been accomplished. With a lock on nearly every home listed on the Internet, Homestore is a growing favorite of home buyers around the country, reaching about 80 percent of online home shoppers.

Long points out that as many home shoppers now use online sources as newspapers for leads, yet only a fraction of the industry's $9 billion advertising budget is spent online. He wants to put those prospective buyers in touch with real estate and homebuilding professionals, and ultimately profit on sales of advertising, software and data.

"I always believed that each vertical (industry) would produce one or two really successful Internet companies, or companies that would leverage the Internet to become great," he said.

Company In freefall

It's a far cry from the crisis Long inherited. When he arrived, the company was in the midst of an SEC investigation and an internal audit that would eventually lead to the restatement of $122 million in revenues in the first nine months of 2001. Shareholder lawsuits were streaming in.

Homestore also had alienated key customers and partners, including AOL and Cendant, owner of the Century 21, Coldwell Banker and ERA real estate franchises. It was bleeding cash; after burning through $50 million in the fourth quarter of 2001 it only had $38 million left.

The board was also in a tight spot. The problems had occurred on their watch, and directors felt a sense of disappointment, even betrayal, by the previous management team. The audit committee, led by Klein, felt a duty to straighten out the mess.

"We knew that this had to be not only a good move, it had to be the right move, and it had a low margin for error," he said.

Key to Homestore's survival: full disclosure to regulators.

Instead of circling the wagons when it discovered the accounting problems, Homestore's audit committee took the unusual step of asking the SEC for guidance. The agency gave a blueprint of sorts, and that helped the company, along with its lawyers, develop a plan for the internal investigation.

The investigation lasted four months, and its details were turned over to the SEC. Klein, who heads a Tulsa, Okla.-based home-building company, led 60 audit committee meetings in the first half of 2002. While four Homestore ex-employees have pleaded guilty to criminal charges, no charges were brought against the company.

While the board dealt with the investigation, Long focused on the other problems.

He cut the company's staff to 2,000 from 3,000 and began selling off non-core business units. The earlier regime, seeking to satisfy Wall Street's desire for revenue growth, made some acquisitions that didn't really make sense.

"The good companies that I've been part of and studied over the years are very good at figuring out how to do a few things really well," said Long, whose only other jobs were at Web MD and at Continuum, a vendor of automated systems to insurance companies and banks.

Today, more than half the desks in Homestore's expansive Westlake digs are empty, but it churned out an operating profit, without counting its legal expenses, in the third quarter. (The company plans to report fourth quarter earnings in early March.)

The AOL deal was another problem. In 2000, Homestore agreed to pay millions in stock for the right to be AOL's exclusive home-buying channel. But Homestore guaranteed its stock would remain above $60 a share, so dilution from its free-fall, to prices in the $1 range, gave AOL "a call on the company' Long said.

The marketing agreement was already in arbitration when Long arrived, and for the first several months AOL executives weren't responding to his efforts to settle.

After a new AOL team came in last August, the companies asked the arbitrator to hold off issuing a decision while they worked on the settlement. The deal, announced Jan. 9, retains Homestore as AOL's exclusive home channel, an outcome that would have been unimaginable a year earlier.

Market domination feared

Perhaps the most remarkable part of the turnaround has been with its customers.

To real estate agents, Homestore offered a one-size-fits-all plan that included a Homestore-run Web site and little flexibility. With a market capitalization that once reached $10 billion, Homestore was seen as a threat to the existing industry.

Inattention to customer service didn't help. Listings weren't updated in a timely manner, and sometimes information came out wrong, said Bob Hale, president and chief executive of the Houston Association of Realtors.

Long reached out to real estate professionals, listening, mending fences.

Local brokers have also noticed a difference. A new unbundled pricing plan will make Realtor.com more affordable for smaller agents, said Marty Rodriguez, owner of Century 21 Marty Rodriguez in Glendora.

At Troop Real Estate Inc. in Westlake Village, Ruth Friedman said an improved interface has made a difference from the results she's getting at Realtor.com, and she is spending more money advertising there.

Long said he is working on the remaining hurdles at Homestore, although he didn't discuss specifics. The only drawback to the experience has been his horse-jumping skills. "It's difficult to do business and family and horses at the same time," he said.