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Reading Room Articles
Despite the immaturity of the Application Service Providers market for the real estate industry and the lack of consensus on ASP definitions, ASPs do provide three clear benefits: cost advantages, shared expertise, and flexibility. How many management companies are using ASPs? What I have been finding is very interesting. There's a ton of hype out there! A lot of companies are researching the ASPs and are sitting on a ton of information. The jury is still pretty much out, and in my opinion it's due to the fact that right now we have so many ways to collect information that we would all love to have a little of what each ASP offers. The problems are that each offers something different and they aren't compatible with each other. Unfortunately no single ASP offers it all. The difficulty for management companies comes in when we have to continually train the on site level people to use the systems due to turnover and then the aggravation of having so many options on the information we can receive, evaluate and ultimately utilize. I believe that over the next 6 to 18 months we will see a huge consolidation of services. As the venture funds have all but dried up many of these companies are going to look for ways to survive. The only way I see this happening is consolidation. What's the right approach, especially when this is a model that's unprecedented and pricing seems to be all over the map? The Answer: Do a Thorough Cost Analysis. The thing that's unprecedented here is that there are a lot of options. There's a lot of neat software out there you can rent. There's much more economic astuteness in vendors that are selling. They're now really sophisticated. They have the tools now to answer tough questions like, "How do I set the price?" and simulations to help you find out if you'll make enough money. Pricing structures are all over the map because this is a very competitive marketplace and the investor money behind it has all but dried up. Once we start seeing consolidation you can expect prices to rise. A start-up fee and a monthly fee is still the most common model. Now the typical contract is more in the two- to three-year range. There are two sides to that: I don't think you can be a really good partner if you're doing a short-term deal. People learn as a result of the experience, and it takes awhile to get it down. In this business, leasing and marketing (turnover, pricing, vacancy, concessions, bad debt, etc.) are the biggest areas that impact our revenue. In one-year contracts, companies can't make enough money to amortize costs. Typical outsourcing contracts are three to five years, and trying to be seven years. A one-year ASP contract would have to be subsidized by investors. Recommendations For Evaluating ASPs Beyond the appeal of ASPs' offerings, consider how the whole ASP model changes how you'll work. Not only do you and your employees have to be connected via the Internet to use the software, but you'll probably also need a fast connection. ASPs may tell you their software runs just fine on a standard 56K dial up line. DON"T believe it - at least not until you and the key employees who will be using it have put the system through its paces. 1) Get an extremely clear picture of your company's drivers and outcomes. What do you have to have happen in your company in order for this to be a successful decision? REITs and private owners will all want and need something entirely different although they want basically the same information. For example, your target outcome might be to handle the reporting process of all your current communities and be able to add 20 more communities without any more administrative staff and still be able to maximize your yield. 2) Next get a clear statement on what services you need to source. Look at what capabilities you already own and are happy with, and then look for services that deliver the capabilities you need to move your company to the next level. You'll also need a clear plan to put the new capabilities into place. Try to compress those decisions into a short period of time -- less than 90 days if possible. A small company can probably do it in less than 60 days. When you get down to evaluating whether an ASP can meet your needs, you really have to understand your needs and what the company considers its success factors to be. 3) Lastly, focus on being able to get a successful solution instead of comparing vendors. Say the cost difference between two vendors is 10 percent. You can chew that up pretty fast going into a lot of due diligence. Focus your efforts on making sure whatever you choose can provide the services you need, and have an exit clause in place. Comments On Service Level Agreements (SLAs) SLAs are very important, but a completely enforceable contract won't do you any good if the company you've contracted with goes under. Suing someone when your business isn't functioning isn't a good thing to do. Your real concern should be with how an ASP gets it's money, and who is behind it. The SLA helps you manage a successful ASP relationship after you have done a financial due diligence. Marketplace Consolidation Choose a survivor. There are a large number of people that are selling solutions that are relatively horizontal. There are important questions to ask here. Even if the software has been customized, can you can get it transitioned? If it's a highly customized vertical, then you might not have long-term support, but you can drop it on a rack in a different company and probably run for another six months to a year if something drastic happens. Make sure you can move your applications to a different place, and try a strategy that minimizes customization, because it will be easier to be supported at a different site. Consolidation Isn't the Only Risk Right now there is a lot more perceived risk than there are actual real-world horror stories, but let that perceived risk serve a purpose. Keep it in mind to ensure that you have a good contract and exit clause, but don't let the perceived risk stop you from moving ahead. There is another risk that is of a different magnitude than consolidation, and that's performance risk. That's something that people know how to take care of in terms of networking technology. You just have to be prepared for the possibility that you may have to spend more money. Make sure your provider is positioned to be able to upgrade its network so that if they do consolidate, you're fairly comfortable that the transition won't be problematic. There are also normal computing risks including appropriate security, and ensuring that applications can run when and how they're needed. An awful lot of people today are accessing applications over a network -- so you have the same risk if you own the system. This is a case in which the perception of risk is definitely greater than reality. Ask the ASP what authentication methods they use to make certain the person signing in to use the app (and your critical data) is who they say they are. The fact that you're working over a network is risky to some extent. There are protection issues involved. Ask what level of protection you're paying for. Do you use a VAN? Does the environment have 24x7 intrusion monitoring? Is the environment certified and tested? Does the data used by the ASP application reside on your computers or on the ASP's servers? If it lives on theirs, what backup procedures will the ASP use? If the data reside on your computers, does the ASP offer an optional backup service that creates an extra, secure copy of the data on its servers every time your employees use the application? How safe is the copy? If you're going to try to achieve above average, competitive advantages in your business outcomes, then you're going to have to confront issues of network performance, security, and managing sophisticated applications. The question becomes: How do I source the talent? When you start asking this, that's when you see that you're provisioning talent. The scarce resource you're really buying is talent, efficiency, access to better information that enables your company to make more focused and intelligent decisions. To be successful, you need a high degree of expertise to tell whether you're getting the right talent. That may require a consultant. You're not buying a commodity. What Should We Expect In The Future? There are a lot of companies that can use an ASP model to provide their service. There wasn't much interest in that about it a year ago, but the level of interest is much higher now. The ASP model is a lot like a private extranet model, but you're being charged for the services ... as more and more people are looking at how to provide services over the Web. They're trying to figure out an economic model over the Web. The major difference between Web services and ASPs is how you pay for them. I think that if I were investing money in a ASP, I would focus my decision-making attention on the people who provide infrastructure services -- the hardware companies, networking companies, or traditional outsourcers. As the bandwidth becomes available, you'll see people that put your applications into factories. These will be very large players -- the "mom and pop" ISP or ASP won't be able to compete. Traditional outsourcing will ultimately have to move here, and some of the networking services will have to follow suit. Lastly, you'll see verticals. Right now, there are many ASPs offering specialized services, and each one is attractive to the multifamily professional for different reasons. When someone can eventually provide a turnkey solution - let companies better compete - then we can utilize these specialized services more effectively. I don't know whether some of the services where companies are providing commodity applications over the 'Net will ultimately fly. In summary, don't let the perceived risk of using an ASP stop you from putting one to use, provided you negotiate a good contract with a necessary exit clause; expect consolidation; and look for a turnkey solution to eventually emerge. 
As Chief Operating Officer of The Sales & Marketing Magic Companies, Tami Siewruk shares more than 20 years of experience in multifamily housing, encompassing leasing, marketing, management, training, authoring, consulting, developing, and Brainstorming! For more information on Tami's newsletter, Sales & Marketing Magic for Apartment Managers; the latest Tools & Forms Catalogue; The 12th Annual Multifamily Housing Brainstorming Sessions™; or to receive Tami's top ideas Too Great To Wait, FREE, via e-mail, please call 727-784-9469 or visit www.SMMOnline.com. |
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