Multifamily Technology and the "Small Problem" Problem

Multifamily Technology and the

Halloween is almost upon us. Texas has finally dropped out of triple digits for the year (phew). There are those who are excited about the presence of pumpkin spice in their drinks. That means it's almost time for NMHC OPTECH, the show that has so gracefully brought down the curtain on the annual multifamily conference circuit for as long as I can remember. I've been thinking some thoughts ahead of this year's event, the first of which I share in this post.

OPTECH is the tech vendor showcase for our industry. Everyone is there, and vendors have the opportunity to pitch to an audience that is in town to hear pitches. I've been noticing something about some pitches that I've heard lately, and it concerns one of my favorite hobby horses: the disconnect between technology buyers and sellers.

Regular readers of this blog are familiar with my view that vendors often position the wrong benefits of their solutions, favoring things that matter to them over things that matter to their potential customers. Recently, I've noticed something more specific: vendors often focus on problems that are smaller than they realize. And that's an opportunity as we head into the year's biggest technology show.

Don't ignore the basics.

First, let's remember some basic realities of the multifamily housing industry. Like all other industries, the main sources of financial benefits are reduced cost or increased revenue. Unlike other industries, however, the costs associated with apartments are mostly fixed, and demand is structural. Each has important implications for building a value prop.

Of the largest costs, property tax and debt service are unaffected by software. Personnel costs can be reduced, but it's a hard change to make, as we need a certain number of people to operate apartments (typically one per 100 units). Today, many companies are changing this model, but it is harder for most companies than it is for the vanguard of owner-operators at the front of the curve. And there is no single technology that can replace an entire role. This set of circumstances undermines vendor claims of substantial operational cost savings.

On the revenue side, "structural demand" means that most residents choose to rent with us due to uncontrollable factors, such as location, local sources of employment and amenities. Smart marketing, revenue management and leasing experiences can influence some of that demand toward one community rather than its competitors. But it's hard to create demand that wasn't already in the market.

Apartment communities also have a fixed inventory of units to lease, so our opportunity to grow revenue is constrained by availability. This set of demand-side factors makes it hard to tie revenue increases to any piece of software.

There are reasons why companies buy software products. They are usually good reasons. But they are seldom to do with directly increasing revenue or reducing costs. And when vendors try to shoe-horn their value propositions into conventional ROI models, they end up looking, well, small.

A couple of examples.

I'm researching a paper about connectivity (I will present an overview at the Connectivity session at OPTECH). It's a big deal in multifamily right now as communities' legacy wifi contracts expire and the need for web-enabled services like IoT, self-guided tours and, of course, reliable internet for residents grows.

I've been interviewing many vendors about wifi, including those who install it, those who measure its performance, and so on. I have been asking what convinces companies of the return on the (substantial) investment in improved bandwidth. One vendor focused their value prop on review scores. Poor internet means poor review scores, which will affect revenue performance.

The logic holds, but given that demand is structural and apartment capacity is fixed, internet would have to be bad (not just indifferent) to affect review scores to the extent that it would meaningfully impact revenue. What surprised me in this example was the laundry list of more compelling value drivers: improved revenue model, smart apartment infrastructure and self-guided tours, to name but a few. The example was emotionally salient to the vendor but financially too small to justify investment in most cases.

A more common example is the recurring claim that software boosts renewal rates. Here is a list of types of software that—according to presentations that I have seen—claim to increase renewals in the range of 2-3%:

  • Resident apps
  • Smart technology
  • Community Wifi
  • Maintenance apps 
  • Renewal processing apps
  • Move-in apps

This arithmetic has always bothered me. About half of all leases renew. Of that half, a significant majority move out due to relocation, household formation, or some other factor that has nothing to do with resident experience. Each 2-3% increase comes from the same small pool of "influenceable" renewal decisions. The list above is not exhaustive. If we take the perspective of a property manager weighing up multiple products simultaneously, the numbers don't add up.


The technologies listed above are great. There are very good reasons to want to deploy them. But the sources of benefit in the sales pitches are often smaller than vendors realize. 

Multifamily companies usually buy technology that aligns with their vision and priorities. Experienced property managers know in their bones how much impact it's possible to have on performance and the type of resident and associate experiences that will help deliver it.

The answer to: "Why and how much should I invest in this?" needs to reflect the potential buyer's wants and needs rather than what feels compelling for the salesperson. Vendors should prepare those talking points for the many conversations in Vegas in a couple of weeks.

I'm always acutely aware that at OPTECH, potential buyers receive pitches from the full gamut of tech providers. The breadth of technology gets wider each year. When trying to understand how divided propsects' attention is, it's helpful to understand the range of technology vendors on show. And that is a subject to which I will return next week.

White Paper: On Persuasive Content

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