Dull thoughts in a sharp world.

Wired recently published an article on “Why Craigslist is Such a Mess”, highlighting the history of Craiglist, the personalities involved with Craigslist, and some interesting insight into Craig Newmark.

This is old-fashioned. But craigslist is old-fashioned in any number of ways. It relies on email and the telephone in an era of SMS and social networks. It sticks to traceless transactions in an industry that makes its living collecting data from every touch. And just as people who run technical companies are reaching an apex of confidence in their ability to invent new forms of community based on sharing everything, craigslist still treats social life as dangerously complex, deserving the most jaded caution. Corporate isolation, user anonymity, refusal of excessive profit, glacial adoption of new features: These all signal Newmark and Buckmaster’s wariness about what humans, including themselves, might do if given the chance. There may be a peace sign on every page, but the implicit political philosophy of craigslist has a deeply conservative, even a tragic cast. Every day the choristers of the social web chirp their advice about openness and trust; craigslist follows none of it, and every day it grows.

Seems that though Craiglist has it’s problems with spam, scammers, and immortal and unethical community members, it continues to thrive.  I’ve seen startup after startup attempt to solve the “Craigslist” problem, but come up empty handed.  Seems that consumers choose free over reduction of spam/risk of being scammed and improved functionality.  Solid article and worth a read… view here.

In recent conversations amongst founders at RentWiki.com, we’re have prioritized our goals and visions.  One of our main goals is to provide maximum value to both renters and property owners and reach product/market fit as quickly as possible.  Product/market fit as defined by Marc Andreesen…

Product/market fit means being in a good market with a product that can satisfy that market.

You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck’s.

To do so, we have placed a high priority in shortening our feedback loop, listening to clients and customers, pushing quick iterations, and being laser focused on this goal.  We do not get into the featuritis game or the beautiful product game, because none of those have any significant impact on our two key drivers… listings and content.  What are the sacrifices?  Our focus places items such as integration with Open ID, Facebook Connect, Social Apps, I-phone apps, and the like as secondary items to providing value to renters and clients.

Why should these items be secondary?

In order to successful launch and utilize these tools, companies need the time, resources, and strategy to do so.  Every second we spend not focusing on our content and listing, is a second not providing substantial value to the consumer.  I often cite the analogy of vitamins vs aspirin (vitamins supplement health, aspirin solves pain), and being the first with an i-phone app or integrating XYZ widget does not solve dire pain.  And the pain is not content fragmentation or portability of content, but it is the existence of the content online.  As we approach our product/market fit, we can reallocate resources to play the feature game.

Why should these items not be secondary?

In our particular industry, we are in a bit of a branding battle as part of our sales strategy.  It seems that our competition is in a foot race to see who will be crowned the next king of social media.  Though this means nothing to the renter, which subsequently should mean nothing to property owners, it is a reality we have to face.  Value is not enough to shorten a long sales cycle.  Though content is still king, if we developed the magic twitter-flickr-digg-facebook-youtube one click integration, we’d be seen as providing more meat to renters.

That being said, we are getting request from renters to develop an i-phone apps, integrate with Facebook Connect and Open ID, and provide more syndication of fragmented content.  We have those features slated in our development schedule.  Will we be the first?  Probably not, but I’m not convinced that a renter knows or cares who’s first.  Let’s take some classic examples:

Netscape — Internet Explorer

Ofoto — Flickr

AltaVista — Google

Napster — iTunes

Next post I will cover the advantages and disadvantages of being a first-mover vs. a fast follower.  But long story short, we believe focus will drive a better core product, more robust content, and more listings.  And a combination of those three drives our magic one click button… value.

In a short conversation with Eric Brown at Urbane Apartments, he mentioned that he is seeing in an increase in in the demand for 2 bedroom units.  This seems obvious and logical, considering that decreases in real income (loss of assets, no bonuses, unemployment) will cause consumers to want cheaper alternatives to housing.  We know that consumers will be looking to save money so the trend of lower per unit costs will continue as the recession seeks a bottom.  My take on lower real income will cause:

1) Increase in shared units – For example, if under a stable economy 10 people would occupy 10 one bedroom units, to account for the lower income, the same 10 people may occupy 5 two bedroom units.  Same for rental houses… 4 bedrooms with 2 empty rooms will be filled.

2) Empty nests will be filled – Along the same lines with shared units, I’m guessing well see an increase in young professionals moving home.  Thus, a 4 bedroom house with two parents will become sharing living.  But I’m not entirely sure how much impact this will have on the vacancy and rental rates.

3)  Unemployment rates rise causing vacancy – As residents lose their job, they will be again forced to seek even cheaper housing alternatives.  Though housing is a staple and people always need housing, this is affected by point 4…

4)  Overdevelopment will be actualized. - In many cases around the nation, overdevelopment of housing occurred because of the present of “secondary homes” and a flood of speculative investors.  As job growth and population growth boomed the past 5 years, areas like Phoenix, Miami, and Las Vegas were in a foot race to develop as many homes as possible.  Since job growth and population growth has completely halted, we have seen and will see excess supply of units (apartments and homes) available for rent.

However, in my attempt to understand how the governments recent monetary policy actions will affect vacancy rates, here is my logic:

1)  Refi’s increase – Via open market purchases to lower the fed fund rate to next to nothing, the fed will attempt to infuse cash into the marketplace and spur lending and growth.  Though people will be able to borrow money at extremely cheap rates, resembling the 4.25% 30 fixed loans of 2001, this will not greatly impact housing prices.  There will be lots of refi’s, but it will not drastically change the value of an home that is already underwater 25%.

2)  Foreclosures rise - I believe foreclosures will continue to rise, regardless of what the fed does.  Though it is cheap to borrow money, there is little incentive to pay a mortgage for a property that is 25% underwater with such lenient bankruptcy laws. People have already started to realized that personal credit is not that important.  Continued foreclosures cause derivatives to come due, and job losses.

3)  Long-term inflation – We’re likely to see long-term inflation.  This is very good for investors with low interest rate mortgages, but I expect some price rigidity in rental rates as many consumers are locked into long-term leases.

My conclusions:

1)  Vacancy rates will rise - Yes, people are not buying houses and instead renting, but overdevelopment has wiped out all that potential benefit.

2)  Nominal rental prices will decrease or stay the same – LT inflation should cause real rental price to rise a bit, but not enough to off set the lack of demand.

3)  Revenue for apartmets will be squeezed - Obviously with higher vacancy and the same prices, revenue will be down.

So where is the opportunity?  I have no idea.  If you have cash, yes, there will be lots of buying opportunities in the future.  Maybe in educational classes that teach parents and children in their 20’s to live together?

After working on RentWiki.com for about 9 months now, consumers have been responsive to the generally concept and vision of the project. It is nothing complicated, just compiling advice, reviews, and opinions about moving to a new city. Having moved 4 times in the past 2 years, I know the value of advice when trying to find a suitable rental. On the surface, seems very simple, useful, and a much needed service.

So why isn’t there a flood of competitors like all the other review sites. There are literally dozens of electronics and gadget review sites, hundreds of business review sites, book review sites, etc. So let’s start by listing some current direct competitors (neighborhood and rental reviews):

Yelp.com
ApartmentRatings.com
Neighboroo.com
RottenNeighbor.com
StreetAdvisor.com
SquidZipper.com
Realtor.com (Wikihoods)

And aside from ApartmentRatings.com, none of those sites have an Internet listing site/help users find rentals. Here is what I think is keeping social media sites to from flooding the Multi-family housing space.

1) Relationship driven industry – At every conference I go to, I feel like I am at a ABC High School reunion and I went to XYZ High. The sales people, marketing directors, VP’s, and even CEO’s all know each other from years of working together, and it is like a revolving door, with employees moving from company to company. So everyone knows each other and it makes it much easier to get a meeting with the decision makers of REITs or management groups if you’ve been buddies with them for years. Incumbents have a much easier time keeping sales contracts, and new-comers are left to have to take those away. No revenue = No company

2) Small Market Size – VC’s typically want at least a market of one billion. I’ve hear $500 million, but VC’s are looking for a 10 times return and you really have to have a strangle hold on the market to return 10 times in a small market. The total spend on online advertising in the multi-family housing space is $700 million. No funding = No company

3) The Stickiness Factor – Since people only move once every 18 months, creating a community and stickiness is a difficult obstacle to overcome. Unlike restaurants, news articles, or electronics, people only move once every 18 months. However, I think it is similar to TripAdvisor with reviewing major trips. No content = No company

4) The ApartmentRatings Factor - I call this the ApartmentRatings factor because the website ApartmentRatings.com was one of the first social media entrants to enter the Multi-family housing market. However, they set the stage for why the industry is so behind in dealing with social media. Inherently, most people are not satisfied with their apartment and satisfied with their location. So they used ApartmentRatings.com as a medium to voice their dissatisfaction with their property management groups and it left a sour taste with the Multi-family housing industry. Mention ApartmentRatings.com with a group property managers is like saying you’re voting for McCain in San Francisco. No support = No Company

I’m sure there are a dozen other reasons, but I am predicting a flood of new companies/existing companies switch their model to incorporate social media in the next 12 to 18 months. Moving is one of the most difficult things to do in life, and it doesn’t have to be.

*As an aside… how is it that there are three toilet review sites out there? SitorSquat.com, MizPee.com, and Diaroogle.com.

In recent weeks, a couple of companies have announced the entrance of the pay-per-lead model in the apartment industry. ApartmentMarketer.com was an early announcement, followed by MyNewPlace, and now Rent.com. I wanted to recap the three models, who’s using them, and the advantages and disadvantages of each. So the three current revenue/payment models available for apartments are pay-per-lease, subscription, and pay-per-lead.

1) Pay-per-lease – apartments pay only if a resident signs a lease. The resident is responsible for reporting the lease back to the website, usually providing a monetary incentive to do so.

Pros:
- Pay for performance – no monthly fee
Cons:
- Tracking is very difficult – residents incorrectly claim the source
- Difficult to estimate monthly budget
- Expensive

Major websites include:
Rent.com – $389 per lease
MyNewPlace.com – $375 per lease**
HubBuzz.com – Anyone know?
LiveByCampus.com – $100 per lease minimum
ApartmentSearch.com – ?
ApartmentHomeLiving.com – ?
RentMoney.com
*There are a slew of regional ones, so let me know and I’ll add them to this list.
** No longer offering pay-per-lease

2) Subscription -Apartments pay a monthly fee to list their properties.

Pros:
- Monthly budget can be estimated
Cons:
- No guarantees on leads or leases

Major websites include:
Apartments.com
ApartmentGuide.com
RentVine.com
Rentals.com
HotPads.com
Move.com (Also a pay-per-click model)

3) Pay-per-lead – Apartments pay for only leads (email or phone calls).

Pros:
- Least expensive model
- Pay for performance – no monthly fee
- Budget control – you can set the number of leads you want.
Cons:
- Necessity for high quality leads

Major websites include:
MyNewPlace.com – $18 per lead
Rent.com – $15 per lead
ApartmentMarketer.com – $25 per lead (max of $100)
RentWiki.com – $10 per lead

From what we can tell so far, apartments are very receptive to the pay-per-lead model. Apartments should be paying for performance, will be able to budget properly, and can track the performance of the vendor. However, the lead quality is a must.

Following up on the discussions from the Multi-Housing World panel about interacting with Online Communities, here is an interesting post from Alexander van Elsas.   I know this is an old post, but it was relevant to the discussion we had about the value of advertising on social networks.  Here is the issue with the multi-family housing industry I am finding:

1)  I referred to Internet Listing Services and SEM as “Traditional Advertising” in our panel. In the case of the apartment industry, this is far from the truth.  Over one billion dollars is still spent on print advertising, mediums that were affective in 1999.   Though these mediums are essential for C properties and still may drive leads to others, the effectiveness is low and cost/lead is high.

2)  The overally industry will be a generation behind. Though there are significant advertising opportunities outside of ILS’s or SEM, those slow to adapt an online ad strategy will not be able to utilize the value of social media.

That being said, here is another interesting post about the actual value being provided to consumers of social networks.

I was recently invited to speak on a panel, Online Communities, by Steve Lefkovitz, president of Joshua Tree Consulting and the AIM Conference (a very well organized and progressive conference).  The panel included Ben Zimmer of Property Solutions and Israel Caranungan of Bozzuto Properties.

The conference had a diverse group of attendees from vendors to developers, but the show room seemed to have more remodeling/rehabbing companies than usual.  Our audience for our panel was a room comprised of vendors, property managers, and developers.   Here are the main highlights from our panel:

1)  Online Communities, soical networks and social media provide for very targeted advertising channels. There is a niche online community for every imaginable person, from MMOs to Pet Lovers. Furthermore, online communities are not limited to just younger tech-savvy individuals.  The majority (80%+) of internet users are either reading blogs, watching online videos, or in a social network.  Last, certain online communities segment the market for you through their common interest groups.

2)  If you can identify your value proposition and audience, you can reach prospective renters more effectively. All apartments are not created equal.  Some properties have different competitive advantages over others, whether it is location, price, amenities, environment, or marketing.  If you can identify which characteristics satisfy your target market, you will be able to more efficiently advertise online.  Israel provided an example of one of his properties that is near the subway station, which is convenient for young professionals.  So Bozzuto is able to more effectively advertisement to young professionals via Facebook and emphasize the properties convenient proximity to the subway.

3)  Retention and customer service are increasingly more important with social media forcing transparency. By joining the conversation or being available to address issues, property managers are able to build trust, receive feedback in real-time, increase retention rates, build brand, and become the sounding board as oppose to other social media websites.  Using social media outlets is not for everyone, but those who can effectively execute and consistently interact will reach more renters.

Overall, the audience was very reception and interactive.  Though a great deal of the information did not apply (because most of the attendees were either builders or our competition), the message was well received.  Here are my slides from the panel: