Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

I'm particularly interested in how AppFolio is moving upmarket. Could you describe what a typical 5,000 unit customer looks like in terms of staff, infrastructure, and owners?

I was reflecting on a customer I closed with, Bayshore. Their structure consisted of a CEO, a controller, and a Director of Operations, who I worked with most of the time. His role has now evolved into VP of Asset Management. They usually have a Regional Manager overseeing the Property Managers, a Director of Marketing, and on-site teams. Sometimes they would have a CFO in addition to a controller, other times just one or the other. The Regional Managers are usually involved in the conversation and decision-making process.

If you're managing 5,000 units, with the rental per unit per month around $1.4k, these are quite substantial businesses.

Yes, they had about 50 staff members, including leasing agents and maintenance staff. They are indeed sizable companies.

Do they typically own their maintenance staff?

For Bayshore, they had someone overseeing maintenance. Since they owned many apartment complexes, they had handymen and other staff members on-site, and someone to manage them. They might contract out depending on the scope of work. For regular maintenance, they have their own staff. But for larger issues like a significant leak, they might need to outsource. Usually, they have team members on-site.

How about the leasing agents? How does that work for larger firms?

Typically, each apartment complex has a person handling walk-ins and similar tasks. If there are apartment complexes in close proximity, one person might manage both. However, if you walk into an apartment, there's usually someone there, be it a property manager or leasing agent. The size of the property also plays a role. For instance, a property with over 200 units might have two people. Sometimes, a leasing agent might oversee more than one property, but it often depends on the individual property.

How does the leasing staff operate if you have different property types, like single family or multifamily?

That's a good question. We didn't delve too much into that, but the process is different for single family versus multifamily properties. For single family properties, someone has to schedule walk-throughs, unlike multifamily properties where potential tenants can just walk in. It varies based on the size of the portfolio and the resources available. It's not a one-size-fits-all situation. Sometimes, they have a model unit available for walk-ins. If someone expresses interest in applying, they can be shown around this model unit.

When dealing with a 5,000-unit portfolio, how often is it mixed versus just a single type?

Most portfolios of that size are mixed. They typically include a few single-family properties, some commercial properties, and perhaps some Homeowners Association management. So, there's usually a combination.

What percentage of these portfolios include student or affordable housing?

We usually avoid those, but I would estimate around 30%. That percentage might be growing, as student and affordable housing are significant market segments. So, it could be more than 30%. I think 30% is a conservative estimate.

Would you avoid a portfolio if it had around 10% of student or affordable housing?

I would still consider it. At the time, we had some limitations related to accounting and the mass move-in and move-out process. These processes require precise automation, especially when moving in 500 or 600 people over a weekend. However, if student or affordable housing made up 10% of the portfolio, I would still consider it. For instance, Trotter, a company I mentioned in our last call, specializes in student housing and has a significant share of that market.

Regarding the tech stack, what tools would a 5,000-unit customer typically use?

They might have used some external tools, but primarily, they were using Yardi.

You mean the original Yardi, not Breeze?

Not Breeze, Voyager. It really depends on the company. Some companies fully implement and invest in the technology, while others use it for a few tasks. They might use Google Docs for some processes or have their standard operating procedure elsewhere. However, the customer I'm referring to primarily used Yardi. They might have had some internal processes outside of that.

Is Voyager cloud-based?

There might be more than one version, but that was the version most larger companies used.

What would customers typically say about Voyager?

It depends on who you ask. They reached out to us and didn't return to Yardi. They were unhappy enough to contemplate change. There might have been an accountant or someone who was happy with it, but overall, they were not.

Did Bayshore have an engineering team?

Companies of that size usually do. The main person I spoke to was very knowledgeable about all that. He was probably the internal person in charge of the revenue management piece. He knew all the levers and seemed to spend most of his job evaluating software. So, it's fair to say that a company of that size will have someone overseeing the technology and maintaining the relationship with the tech provider.

How much did they typically spend on tech in a year? How much would you estimate their budget was? Let's say for a 5,000 unit with seven million in rental income per month. With a 10% management fee, that's $700,000 revenue. How much would they spend in a month?

I would estimate their annual budget to be around $250,000. They were looking for a solution that could handle as much of that as possible.

And that's just the spend on software. It doesn't include the salary of the tech person you mentioned, right?


When you were trying to sell to this 5,000 unit firm, how was their workflow different from when you were selling to SMBs in the early days?

Reflecting on the early days, the increase in volume and number of people was significant. In comparison between a 1,000 unit manager and those managing larger volumes, the roles are quite similar. However, with more staff, there's a higher possibility for human error and a greater need for checks and balances. This is a key difference when scaling from 1,000 to 5,000 units. It's essentially about managing more people, and ensuring the software is designed with user roles in mind.

This is crucial in technology. For instance, a leasing agent's access to information should be very different from a CEO's. Therefore, having a technology that's user-based is important. This was a challenge with Buildium, as it lacked such infrastructure. As a result, people didn't trust it beyond a certain unit size, as anyone could change things that shouldn't be altered and access sensitive information. This could lead to issues like staff members stealing money.

The main difference is handling a larger volume. You're dealing with more owners to report to, and more tenants with questions and needs. It's about amplifying the existing workload and ensuring you have a platform designed for that scale. It's about making sure that people can perform the right tasks within the system. These are the key differences.

In terms of the actual workflow, there's a significant difference between managing 100 or 500 units and managing 5,000 units, primarily due to the number of staff and how they function. But you're suggesting that the difference between 1,000 and 5,000 units isn't that significant?

Yes, it's primarily about the volume of activities. When you have more owners, you need to report to them more often and answer more of their questions. You also have more tenants coming in. This is why technology becomes increasingly important as you grow. If you can create a great user experience that allows self-service and answers questions independently, you can manage with fewer staff. This is why our tenant and owner portals were very successful in terms of self-service and ease of use, and we had high adoption rates.

Are you referring to the tenant side?

Yes, both tenant and owner sides. Owners also have portals. Some solutions, like the RealPage product called Propertyware, notify the owner every time a tenant pays, is late, receives a fee, and so on. This can actually be detrimental to a management company because it leads to an influx of questions from the owner. The owner should only see what they need to see and not be overly notified. Once again, technology plays a significant role in scaling.

But what about when they expand from 500 units to 1,000 or 5,000 and start managing different asset types? 

I believe that for accounting and reporting, you need a robust system capable of handling different asset types and ensuring that money is directed correctly. One feature that I found particularly impressive in AppFolio was the customizable workflows. These workflows allow your standard operating procedures to be executed within the software itself. For instance, everyone knows that an applicant needs to be screened, but the actual business process might be to follow up within two hours, and then again within 24 hours if there's no response. AppFolio's customizable workflows allow for this process to be automated. This means that on their first day, a new employee doesn't need someone sitting next to them explaining each step. The software guides them through the process, which our customers appreciated, as it enabled their new hires to use the software and complete their tasks from day one.

You mentioned that the owner and tenant portals were very popular. Do you know what percentage of owners or tenants used them?

Tenant adoption was around 80%. I'm not certain about the owner side, though.

Why did the tenants use it so much?

Tenants used the portal to pay rent and submit maintenance requests. Companies that made this the standard process had high adoption rates. Of course, there were exceptions, such as senior living situations. AppFolio was also smart in its setup. From the application stage, tenants would activate their portal. If they were moving in, they would have to go to the portal to sign and execute their lease. Leasing agents would then explain that they could set up automatic drafts and access any information they needed through the portal. This early initiation made it the standard mode of communication.

Did enterprise customers also encourage their tenants to use the portal?

Yes, the more tenants used the portal, the easier the job became. Higher adoption rates led to fewer phone calls and less data entry for rent collection. Some even made it a requirement, which helped manage accounts receivable.

I came across some Reddit posts where tenants were upset about AppFolio charging them ACH fees. Have you seen this recently or in the past year?

AppFolio didn't used to charge these fees, which is likely why tenants are upset now.

Yes, it used to be free. Now they're charging $2.50 to pay rent, which has upset many tenants. However, if the landlord pays a dollar, the tenants aren't charged. It's quite a clever move.

That's intriguing. It was a significant selling point for us. We absorbed some cost as a company, but if it helped our customers get their tenants to pay, it was worth it. So, it's interesting that they've now started charging for it.

Do you know the proportion of customers who pay via ACH versus those who use credit or debit cards?

The majority, about 95% of those who pay online, opt for ACH over credit or debit cards.

I wasn't even aware that you could pay your rent with a credit card.

There's a substantial fee associated with that. Many people avoid it, and the portal informs you of the extra cost if you choose to pay that way. If you want to pay without a fee, you should use ACH. It's unfortunate that they've started charging for it. That was a significant selling point.

Who was the selling point aimed at? The property manager?

Yes, we promoted it as a free method since most of our competitors would charge. It was an additional cost that was added to the software cost. We were trying to simplify it.

Do you know how much Yardi and other companies like RealPage charge?

It's probably close to $2.50. Some of them calculate it based on a percentage, while others charge a flat fee. But it's probably around that amount.

Could you provide some context on how and when AppFolio decided to target the upmarket?  

We had a large customer base and we leveraged our reputation and the fact that we are a publicly traded company. However, one of the biggest challenges in targeting larger clients, assuming the software checks out, is the onboarding process.

People are reluctant to deal with the headache of changing everything, training all the staff, and causing disruption to their clients, their tenants, and owners. So, we had to emphasize our onboarding process as a white-glove experience. We invested a lot of resources into it. We took over all your data. We acted as your moving company. That was a key aspect. We needed to do this better and offer more than anyone else to get people over the hump. We also had to leverage our other large customers and the fact that we're publicly traded and that we had millions of units on the platform.

I think going upmarket and also promoting Plus was a significant push for us. We wanted to back up our claims by investing in new capabilities to support our customers. We listened to what our customers were saying. We knew that we did a good job on the sales side of creating feature needs. So, anytime we lost a deal, we'd have to note down why. If it was based on a feature, was it a deal breaker or not? We really did leverage the feedback to determine our future steps.

We told our customers that we really listened to them. We knew that this was a significant factor in why we lost your business in the past or didn't earn your business. So, we invested a lot into this Plus product to really earn your business.

You previously mentioned that everyone uses ALN and data to see when contracts end. These are annual contracts, even for larger enterprises. Isn't it a big fight when everyone knows a contract is ending? It seems like everyone reaches out and the client is bombarded by salespeople.

Yes, ALN does have contract dates, and indeed, clients are constantly contacted by everyone, including AppFolio. We try to track when contracts are up for renewal, but I don't think that specific information is on ALN. It really depends on how well your company tracks those dates. Are your representatives aware of them and do they give themselves two, three, or four months to reach out and ensure they have enough time for an evaluation? AppFolio did a good job of tracking that. It was a metric we had a field for.

What was the biggest challenge in getting in the door? 

If you're referring to outbound prospecting, that's different from someone within a company expressing interest. The challenge with outbound prospecting is getting in touch with the decision-maker. You might be able to reach the property manager, but it takes a lot of work to reach the decision maker, build value, and establish a relationship. They need to be willing to let you in. Outbound prospecting is about getting someone who is very busy to take the time to consider another option.

So, is it mainly inbound for the larger customers?

Yes, the larger customers we typically closed were primarily inbound. However, we had to spend most of our time building outbound relationships. That's where our time had to go. But the ones that were closing, and often, required years of groundwork.

That was my question because it was mentioned that it takes years. But how would you describe the length of the sales process, including the outbound, warming them up, and all that?

If you have an inbound lead who is going to make a change, that sales process is about three months, maybe less. But you're trying to get that done within a quarter. You get inbound leads who are just having a bad day, their technology partner upset them, and they're emotional. So they want to see what else is out there. Sometimes those take a year too because they were just emotional. Once they actually consider all the factors, it becomes a more intense sales cycle. It's a big responsibility to switch everything, and it impacts hundreds of people.

Who is the decision maker?

The CEO would usually give the final approval, but often they rely on their team to make the decision. This includes the Director of Operations, Regional Managers, and Controllers. The accounting team's approval is crucial because no one wants to switch if the accounting isn't robust and all their needs are met. Sometimes this might require a process change, which can take time. Accountants can be a make-or-break factor in this decision.

What do they typically want?

They usually don't want any changes.

That's not very helpful.

It's a challenge. Everything usually works fine. People don't typically switch software based on accounting needs. It's usually for other reasons.

What are those reasons? What was the issue with Yardi?

The functionality of Yardi is quite outdated. Our tenants are reluctant to use the portal because it's not user-friendly and we have very low adoption. The owners have numerous complaints about the portals.

Was it more on the tenant side or the owner side that were dissatisfied?

Probably more on the tenant side. Everything was just very antiquated and old school.

Was it mobile-friendly?

They might market it as such, but it's quite clunky.

The push for change doesn't come from the accountants, but they do have to approve it?

Absolutely. No one would proceed without involving the accounting team and ensuring it meets all their requirements. They can be major deal breakers. Our job was to build value and understand why we're having this conversation. Usually, the Director of Operations and Regional Managers were the ones who were excited about the new system because it would make their lives much easier.

What did the accountants typically push back on when it came to adopting AppFolio?

Most of the time, they didn't see a problem with the current system and didn't want to change what they were doing. This would require them to take time out to learn something new, which they were not inclined to do.

But what's new about it? Can't they just download it to Excel and do reporting as they wish if they wanted? 

Our system is designed to handle all your Accounts Receivable and Accounts Payable, presenting a completely new user interface of technology. We knew we had to do things differently, not just continue using Excel and QuickBooks. This might be fine for smaller operations, but when you scale up, you need to leverage technology in every aspect as much as possible. For instance, many of our workflows were done within Yardi. Yardi presented a challenge due to its customization complexity, especially when generating reports.

In contrast, with AppFolio, you could only edit reports to a certain extent. You could remove a field or a column, but you couldn't create your own custom column. This was primarily because it affected updates, as everyone would have a different version. Our updates were more about enhancements rather than bug fixes. So, we had to be very specific about what could be included in our solution. The updates were actually something people looked forward to.

However, accountants would often resist change, citing the inability to create custom reports as a reason. While we could probably make it work, it might require an extra step or creating two reports instead of one. Despite the fact that it could work, it would just look a little different. So, dealing with accountants was interesting.

If the accountants are the most significant obstacle, who were your biggest fans?

It's more like the property managers. The Director of Operations and CEO would probably like it, especially if their team did. Some of them are really involved, but most of the time, they appreciated our visualization tools and the reporting and insights we could provide.

If you could suggest one major product change based on your experience that would have helped gain traction with large enterprises, what would it be?

I believe they've made some of those changes already. However, the barrier to entry was quite high because we had to wait for a contract to be up for renewal, or for a significant change to occur. We also had to get approval from every single person and overcome their preference for other point solutions that they really liked.

The company did make some changes, like integrating with other solutions through the AppFolio Stack. This was a significant change because in the past, we had to convince customers to give up some functionality for the overall benefit. This was challenging, especially when they were making a big change and investing a lot of money. So, finding a situation where everyone was on board, including the accountants, and where they were okay with losing other point solutions that they really liked, was like finding a needle in a haystack.

Did people actually do that, though? Would they give up some of their favorite point solutions to switch to AppFolio?  

It was either a deal-breaker, or we managed to get them over the hurdle. It was quite challenging. Our enterprise team was struggling for a while because we couldn't just abandon something that was functioning well for the team. If a group of people said no, the whole deal was off. It was indeed hard. However, I believe they're making progress and implementing changes to meet people where they are.

Was that when AppFolio Stack notably changed?

Yes, indeed. That happened after I switched. I moved over to investment management in 2022. I had completed all the sales roles on the property.

Really? I wasn't aware you'd done that.

Yes, it was when I was trying to find that needle in the haystack, and it was quite tough. It was a period of significant personal growth. I believe they started making those changes to help us get in the door because they knew that was necessary.

When did they launch AppFolio Stack?

Was it around 2022?

I believe so, yes.

Yes, that was just starting when I was leaving, and now they have Max. I'm curious why Max was rolled out. I thought AppFolio Stack was supposed to be the main focus. Maybe there's some psychology around having three options. I'm not sure.

There's not much difference between them. I believe you get the AI Lisa feature with Max and not with Plus. Could you explain how the investment management product worked?  

The investment management product was geared more towards a different segment, such as those managing funds. There was a lot of crossover in terms of clients and information, but it catered to a different segment. This would include people managing funds, for example, private equity real estate. They would have investors who wanted to track and see how their investments were performing. So, it was more geared towards investors themselves and providing performance insights. It also created a platform for people to pitch new deals and opportunities in one central place.

That's completely different.

Yes, it's totally different.

Why even do that?

I believe they always aimed to venture into new verticals that were somehow related. We had a database of contacts, including real estate investment trusts and others in the industry. We had enough data to consider building something new. The goal, which has shifted since the C-suite personnel changes, was to expand into new markets that were adjacent and had customers in common. As the company grows, there are customers who might be using another tool for investment management. If we offer that service, they might integrate it into their operations. So there was some crossover, with real estate clients also setting up funds.

Was the market as big as you expected?  

I'm not sure. The sales process was simpler. There's a company called Juniper Square that offers a similar but more expensive service. It's a relatively new industry in terms of technology solutions. Juniper was so costly that we had an advantage. We were just as good, cheaper, and we already had some leads from property management clients. So it made sense. The sales cycle was much faster, often just a demo and a decision.

That quick?

Yes, some took a bit longer, but generally, it was fast.

What were they using before?

Typically, they were using nothing. The size of companies I worked with were using spreadsheets and Google Docs. I wasn't in that space for very long before I decided to move on. Juniper Square was a big player, but there weren't many others. I'm not sure what the company is doing now in that area. I'm curious about how much they're investing.

My sense is that they don't mention it much. Historically, in their reporting, they claimed to be a vertical market SaaS business, building software for verticals. Now they just say they're property management software. I don't know if this subtle change suggests that they're not investing in other areas anymore.

That's interesting. The original vision was to build software for various verticals.

Yes, they had legal software as well.

Yes, MyCase and others.

I suppose real estate is somewhat related. You could argue it's property management. It's probably somewhat adjacent.


Again, I believe it's slightly under 5% of revenue. Investment management, I think, is around 20 million ARR.

That's interesting. I anticipated a significant push in that direction, but there were many changes. Nat's departure was quite surprising. He was a crucial part of the property management and investment management sectors. It was quite a shock when he left.

Why did he leave?

He had a close relationship with the former CEO, Jason Randall. They collaborated closely at the inception of the property management sector. He was the vice president of the market. The new sales force executive team seems to be quite different.

I had the impression that Shane, who ran the property sector, and Nat, who ran investment management. It seemed like when Shane got the top job, Nat decided to leave.

Shane's arrival brought about significant changes. He's quite different.

What did he change?

He altered the company culture. He brought in people that transformed the environment into a numbers-driven one. For instance, there was a significant layoff of many long-standing leadership team members. We used to operate in small, agile teams, regardless of our size. However, Shane removed many managers, leading to a shift in reporting structures.

Some changes were expected. As a sales organization, we had been somewhat autonomous and successful. We were meeting our targets, so we were left to our own devices. However, Shane's arrival led to a more structured approach. Everything was documented, and there was a playbook. We had to invest a lot of time in building out our strategies. This change eliminated the small team feel and shifted our approach to development and marketing. We were no longer focused on vertical markets and an all-in-one product. We had to open up our product to everything else. This change was challenging for those who had been with the company for a long time. We had built an entire brand and marketing strategy around our previous approach, and now we were being asked to change.

But the product had to become more open, didn't it?

Yes, that was the reality. Changes were necessary, but some of the higher-ups weren't willing to be the ones to implement them, so they're no longer with the company.

Did the sales process become more effective despite the changes? Although you had more rules to follow, did you hit more numbers?

Indeed, maybe now. I believe that when a culture changes, especially one as good, fun, and familial as ours, there's bound to be some loss. Over time, however, new representatives who weren't part of the original culture will come in and rebuild. There might be a temporary dip in morale among those who've been there longer and remember the old times. But eventually, the company will recover and move forward. If there were any negative effects, they were likely short-lived. Now I'm on the lookout for something else. If you have any recommendations, do let me know.

Would you consider going back to AppFolio?

I'm not sure. I was there for a while. I need to work remotely because I live in a small town in Colorado. Shane was a big proponent of in-person work, so I'm not sure if that would be an option. I should find something remote. Maybe I should reach out to Nat. I enjoy working for industries that are behind the curve, where technology can make a significant impact. Perhaps something in construction. We'll see. Everything will work itself out.

What was your pitch? Let's say you're this 5K account. You're in the door. I assume you're pitching to the head of operations. What was the pitch? It seems you have a bit of a cold.

I found that a lot of my pitch involved extensive research on the competitors. You can have the best product, but if you don't understand what your customers are experiencing, it's hard to explain why your feature is better than theirs and the value it brings. So, I would conduct a lot of research. I would really understand the team, who they are, and their interests. I would know their competitors and their shortcomings. Then, I would pitch it like, "I worked with another company just like you, ABC Management. They're right down the street. They were actually on Yardi. They started with about 5,000 units. They decided to switch to AppFolio because they found that X, Y, and Z weren't working for them and they were looking to grow. After they switched to AppFolio, they grew to 8,000 units within two years." So, that was my approach. I tried to personalize it by knowing exactly who they are, where they're going, and how their technology is preventing them from getting there. I would leverage a current customer that was thriving in their area to get in the door. That was my pitch.

What was the hook that got them interested?

I would say, "You have nothing to lose. It's your job to understand what technology is the best fit for your business. You have nothing to lose by going through a demonstration with me and my team and allowing me to highlight what we did for a company just like yours. What are your thoughts?"

So that was your closing statement. Did the value-added services come into this at all, or was it mainly just the core workflow?

The main focus was on the core workflow. If they were using a value-added service, the question was whether we could offer the same thing that they were paying Yardi for, particularly in terms of insurance.

Which value-added services were they typically interested in discussing?

Insurance was a common one. If they had insurance with a competitor, they wanted to ensure they could still have that. That was probably the most significant one. They were likely using online payments, so we would pitch that as a free value-add to our products. However, that has changed. We used to offer utility management, which was a big deal, but it's gone now.

I believe they sold that.

Yes, that was a complex service. We hoped to sell a lot of it, but it was a complex conversation. We didn't want to give people another reason not to evaluate us. It was risky to bring up too many things as it could deter potential clients. The leasing assistant, Lisa, was a good feature to mention because it was unique and added value. However, utility management was a complex conversation. They usually had other vendors and systems in place, leading to potential errors and objections.

What was the typical reaction when you got them on the phone for a demo?

They were usually impressed.

What aspects of the core workflow impressed them the most?

The look and ease of navigation were often praised. They found it refreshing and much easier than older versions of Yardi and RealPage, which can be complex and difficult to navigate. The universal search feature, allowing them to search anything in the system without having to navigate through multiple pages, was also a big hit.

So, even enterprise customers found it easier compared to Voyager?

Yes, the universal search was a major selling point.

What is Yardi doing? They've been around for years. They know the market.

It's difficult to change an entire software infrastructure to a web-based, easy-to-use platform.

How did Voyager, which you mentioned is cloud-based, convert all their existing DOS users to the cloud?  

They would assure people that the transition was seamless, like flipping a switch. However, they actually had to set them up as a brand new customer. They would do anything to convince them to upgrade, saying it's easy. This is the AppFolio of Yardi. I'm quite certain they would say that, especially with Yardi Breeze.

Breeze is designed for properties with fewer than 500 units?

Yes, it's targeted at SMBs. I believe it could probably handle more, but it was the foundation of Yardi.

Essentially, you received a similar reaction when demoing to SMBs and enterprises, like a universal appreciation for the search functionality and ease of use?

Yes, what I noted was that the key functionalities they were interested in, and how I pitched it to them, often depended on what system they were currently using. The system they use can reveal a lot about a company. Yardi and RealPage are the major ones. I would delve into their portfolio type. For instance, do they have class A properties? Do they have affordable housing? Is there something we're not as good at, which could be why they're using it? If not, then I consider it a good lead. I know our product is superior in every way. You have systems like Rent Manager, for example, and some large companies use it. That tells me a lot about their company. I know they're going to be very cost-conscious and my pitch to them might be different than to someone who's on RealPage. I also made sure I understood their market. For example, with ALN, you can see how many customers in a state or metro area are using this software. So I would try to gauge if they're just using it because others are, and then how many customers we have in that market and how I can pitch to them.

Did you use other customers as references?

Yes, probably too often. I believe we're supposed to get approval from all of them, but I didn't have time for that. I also noted that accounting always had to check out. When deal breakers occurred, they were usually related to accounting.

Could you explain how revenue management works, if you're familiar with it?

Revenue management is incredibly complex. It should be a whole software industry in itself. If I can find my notes, I'll send them to you. But there are different options and the factors they choose are varied. Some are based on occupancy, some on the level of incoming interest. They're pulling on levers and making pricing decisions based on certain criteria. Certain solutions will determine the criteria based on their reasoning of why it's better. I will say that it is very expensive, but when done well, it significantly increases a company's revenue. They are able to demonstrate a clear ROI. Some of it's theoretical, but it's also very tangible. Once you've experienced the benefits, it's hard to go without it.

How important was that in your pitch?

When I was presenting our product, I wasn't often dealing with people who already had it. Bayshore was the only company I sold it to that had previously used it.

So, you mean they had any revenue management system?

Yes, that's correct. It's a relatively new concept, especially for smaller companies.

So, the market adoption of revenue management systems is quite low then?

Yes, primarily because they're quite expensive. Typically, larger companies are more likely to adopt them, not the smaller ones. This might be changing, but in my experience, I rarely encountered it. If I did, I probably wouldn't pursue it because I know it's challenging to convince them to switch. At the time, we didn't allow integration with other revenue management systems.

Which was the most popular revenue management solution?

RealPage has one, and I believe Yardi does as well. LRO was another one. This is an area AppFolio will need to figure out because I'm pretty sure Yardi and RealPage both have one.

That was my question. But you suggested that the adoption of revenue management in the wider property management market isn't that large.

I'm not saying that. In our experience, we weren't targeting larger companies yet. A company with around 5,000 units was a good size for us. If you're dealing with companies that manage more than 5,000 units, it might be worth looking into. My guess is that revenue management systems are more popular than we think. AppFolio will need to address this. I don't think we have the capability yet. Before Elliot left, our approach was to build it ourselves. My guess is that they're still planning to do that, which takes time and requires a lot of data.

Yes, I think they mentioned building it.

I think LRO is the RealPage product, and Yardi has one as well.

These systems are designed to help optimize the price per unit and the price of properties. They require a lot of data to do that. Does AppFolio have enough data across markets or property types to do that for enterprise-level clients, like student housing, affordable housing, or class A properties?

I'm not sure if it breaks down into that type of segmentation. If they were able to use all the data from our system, all the million units, then yes, that's probably enough. Elliot was making some good progress before he left.

What was the best point solution you mentioned that you have come across for revenue management?

LRO, was what I came across the most.

It's strange they don't integrate with one now that is listed on AppStack unless I’m missing it?

You know what's interesting, back in the day, we were actually supposed to buy LRO. We had already announced it, and then RealPage came in and swooped it up. I mean, that's crazy, because I feel like that would have totally changed our company for the better. Yes, I remember we announced it. We were like, we got this revenue management thing.

That's pretty crazy. It wasn't announced to the market though, right? Was it pre-IPO? It must have been. I think it was 2017. 300 million. They've optimized pricing for over 1.5 million apartments, coupled with recent access to Axiometrics. So, what's so difficult about doing this internally? Is there any reason why AppFolio can't do it?

It's very complex. I'll see if I can find notes for you. I'll send them to you.

So, it's more of a technical challenge rather than actually having the data?


Do you remember what point solutions these big enterprises wanted to keep most then? Obviously, revenue management was big.

Leasing stuff. Like I Love Leasing, or Knock was one. So that was leasing related, sometimes maintenance related, but it was primarily all the bells and whistles around the leasing and marketing stuff. People would want certain website features. The larger companies that you get, the more they're wanting really customized and tailored marketing stuff. I would say it was primarily front-end stuff, like leasing and marketing stuff, and maybe maintenance.

I've heard maintenance mentioned before, saying that it was differentiated to others. Did you find that was important at all to enterprises?

I don't think maintenance was ever really a big deal breaker. It probably had the least amount of emphasis in an evaluation. But sometimes people would have a solution that they liked on the maintenance side that they didn't want to lose.

How was the pricing difference? How did the price compare AppFolio Max to RealPage or Yardi for those bigger ones?

Yes, I recall AppFolio Max now. At the end of the day, if you're sophisticated and want to use the full sophistication of AppFolio, then we're talking about similar numbers. So, the value proposition doesn't need to be around pricing. I'd say they're pretty close.

So, $3 plus is kind of equivalent to what Yardi offers?

There's a whole matrix to all of these. Yardi's pricing, for instance, has many components. By the time you add everything, you'll notice that Yardi charges a year in advance. RealPage made it difficult for people to leave because you'd have to do it property by property. In this industry, many people are acquiring properties all the time. AppFolio would always tie that to the initial contract to make it easy. If you came in six months, great, you're just tying into this, and we'll renew it all at the same time. Having sporadic contracts impacted our ability to close people because it was too confusing. We really pushed for the whole portfolio. We didn't like to do partial portfolios because that's just too complicated. RealPage almost came down to that requirement.

One big question is, how much pricing power is there in the core tier?  

At a $2 level, the price is fair for the customers they're trying to attract. For people who aren't as sophisticated, let's just get them on core. They're not thinking the same way, and they're not wanting to think the same way. So you could sell core to a larger company that just doesn't care as much about all those other things.

Would these bigger enterprises negotiate down like that? With Max at $5 per unit, would they say they wanted $2 or something similar?

We wouldn't do that. But there was definitely a lot of negotiation for the larger customers for that onboarding. I don't know if this has changed, but for Plus, they wanted us to charge a lot for onboarding. I think 10 times what the monthly cost was.


Yes, but it rarely happened.

So, they just refuse to pay that, essentially?

Yes, they would say there's no way. I think it's like 10 times the monthly cost.

That's like $100,000 or something.


What's the rationale for that? 

I guess we were trying to overcome the onboarding conversation by allocating a lot of resources to it and trying to make up a cost of what we were paying.

How much did it cost, though? Do you know how much it cost to onboard? How many people, depending on whether you're a salesperson or inbound? Outbound?

We weren't involved in the implementation. There's a dedicated team for that, consisting of at least four or five people per account. Our team often worked on site, even around the clock, to meet deadlines. We invested significantly, but I'm sure it was still profitable for us. In terms of negotiation, we would try to sign clients up for as many services as possible at a certain price point, rather than reducing the cost.

So, the SMBs also pay an onboarding fee, correct? Everyone does?

Yes, that's $2 per unit.

$2 per unit for the SMBs. One last question. What do you think is the biggest challenge for larger portfolio managers to grow?

The industry has become extremely competitive. Everyone is offering similar solutions. The challenge is deciding where to invest as a company. If we're offering point solutions that they can use, do we still invest in leasing and maintenance? It's about deciding where to invest their money and product that will continue to earn more business. There's also the challenge of overcoming the paradigm shift that the company has made. We've always said we're sticking to one lane, and now we're not. There's probably a little bit of credibility in proving that out before people are like, okay, you're just going to revert to your old ways. So I think that's a big challenge.