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Untangling the Web's 'value proposition'

Apartment-industry leaders have spent a lot of effort trying to grasp the real "value proposition" in the Internet. For the last year, the focus has been on the online apartment listing services/search engines and on whether the third-party providers active in the online apartment-marketing business are capturing too much of the revenue generated by these searches.

Stepping back from it a bit, however, I would suggest that the current focus on the online listing services is missing the mark. While many see these Internet-based apartment guides as an exciting vanguard of our industry in Internet space, I would contend that they are just the first-generation business model of an Internet-enabled apartment industry.

The online search engines were the apartment industry's first move into the Internet space, but they certainly are not the last step in this evolutionary process, nor are they the ones likely to produce the biggest bang. "First in" doesn't mean highest value - or the best use of executive time and attention. That's why we don't celebrate Alan Shepard (the first American in space), but we lionize Neil Armstrong (the first man on the moon). John Nunn, executive vice president of San Francisco-based BRE Properties, sums it up when he says, "Online listing services are like low-hanging fruit. They're an easy first entry for the apartment industry online."

The true money makers will be the next generation of Web-based applications - programs that replicate the operational processes that lie at the very heart of apartment management which streamline, automate and enhance analog processes. These are the applications that should be drawing the attention of today's leading apartment firm executives. Unlike the listing services which merely use the Internet as a new medium for an existing product, tomorrow's (and in some cases today's) Web-based applications improve upon and enhance the actual firm itself.

Back in September of 1998, I used this space to present my theory about the three phases of change that new technology brings: phase one - quick efficiencies from streamlining; phase two - adding low marginal-cost services and information to existing products to increase value; and phase three - radical transformation of the enterprise in ways previously unimaginable.

Although there are many phase-one applications still to come, the advent of new Web-based business products puts us squarely in the domain of phase two. In 2000, the apartment industry will move even further into this second phase and start using the Internet to screen prospective residents, integrate supply procurement and accounting capabilities, and secure mortgage financing, among other things.

So, why the current attention to the online listing services? Part of it is due to the fact that the product is so recognizable. They are basically souped-up classified ads that add valuable new functionality. These services are marketing middlemen that create viewership in the new Internet medium. They use marketing volume, money and know-how to create an orderly place where consumers can easily locate plentiful apartment listings, or in some cases, options along the entire continuum of shelter.

But the familar product is changing, and that's where much of the industry's concern lies. As these services have expanded into new areas, such as surrounding their sites with banner ads for single-family homes and mortgages or competing with apartment firms to provide the same move-in convenience services, apartment executives' attention on them has increased. Questions about pricing and who owns and can use the captured resident data are also contentious.

Although these issues are important, we've forgotten that the online companies are simply an analog to the printed classified-advertising companies. Market forces and innovation will compel these issues to be resolved. Our attention should be directed elsewhere.

As an industry, we've lost sight of the fact that we control our image, not others. The online listing services may have established a marketplace, but apartment-industry executives still can and should focus on creating identities for their individual firms and for the industry in general in the new medium. It may even be an opportunity to make a fresh start and make new media allies where we have failed in the past. Industry leaders should be planning how to use the Internet's flexibility and permeability to create their entire online corporate identity. Certainly, they should be developing other Internet media relationships besides the classified players. How many readers ofthis article can name a full-service online advertising firm?

Web applications Focusing some executive time and talent on Web applications is critical for the apartment industry, not just because they will provide phase two efficiencies, but also because executive-level attention to this issue will increase usage and familiarity of the Internet, and ultimately its role in the business.

Since we've come to the Internet as adults, it's not likely that any of us will invent the 900-number or the answering-machine equivalent for the 'Net. However, we can focus on the powerful automation available to us as well as the exciting things that happen when applications and data onverge in digital space.

First, consider resident screening - a necessary evil that takes time and carries some risks. By combining database technology, screening protocols and Web connectivity, several firms have created whole new businesses. One company, for instance, provides uniform decision-making recommendations and is developing a delinquency-management product to dovetail with it. Another firm takes the same type of application one step further and has created a risk management product that insures residents' deposits - a great cash flow saver and possibly an additional incentive to rent instead of buy. What else might be possible?

Taken separately, the Web applications simply mimic analog functions like resident screening, supply procurement, maintenance tracking, property inspections, etc. But put all of these applications and their data together on a single platform, and you have what Jim Melson, president of Carrollton, Texas-based RealPage, refers to as Digital Real Estate.

"Digital Real Estate in its simplest form is a property-specific Website, constructed in phases with an expandable structure," he says. "Ultimately, all information and e-commerce pertaining to the property is captured and retained in this central repository."

"Additionally, the Website provides the optimal location for all e-commerce transactions capable of generating ancillary revenue for the property," says Melson. "Digital Real Estate adds value to the physical property and title of this intellectual property transfers upon sale."

Digital Real Estate has potential economic value far greater than the sum of its parts. Creating Digital Real Estate is agressive value creation and a great use of executive energy. Online listing services are important, and some of my closest friends work for them. But let's focus on the play away from the ball, and pay attention to where the real action is - intelligently managing and maximizing the value of rental-home communities. Online.

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