The two biggest players in residential property management software, Santa Barbara-based Yardi Systems and Texas-based RealPage, are locked in an arms race of acquisitions. And both have taken note of the threat posed by Santa Barbara-based AppFolio, an upstart backed by the founder of one of the South Coast’s most successful software firms.
Yardi, one of the largest private companies in the Tri-Counties, and RealPage, which hopes to raise $150 million in an initial public offering, have been snapping up ancillary companies. By adding services such as utility billers and resident screeners, the firms are vying to make their platforms a one-stop-shop for residential property managers looking for cost efficiency during the recession.
“It’s sort of a dogfight in many cases because we are the only two players,” said Yardi Vice President Brad Setser. “At the same time, it’s healthy competition. We keep each other on our toes and keep each other sharp.”
Yardi and RealPage target residential property management companies and apartment overseers with programs that do everything from collecting rent to heavy-duty investment management. Both go after big players with hundreds of thousands of units, and both companies also have applications for smaller property mangers with a few hundred to a few thousand units.
AppFolio opened shop in 2008 betting it could serve those modest property managers better with a Web-hosted product. It’s raised more than $30 million in venture capital and is guided by Chief Strategist Klaus Schauser.
In the 1990s, Schauser, a UC Santa Barbara computer science professor, founded Expertcity. It is now Citrix Online, a division of Citrix Systems that employs more than 600 in Goleta.
Founded by Anant Yardi in 1984, Yardi is one of the largest private companies in the Tri-Counties, with more than 1,400 employees. In the past few moths, it has made a string of purchases, buying up Energy Billing Systems, RentGrow, PropertyShark and DIY Real Estate Solutions.
Setser said the company doesn’t have a formal acquisition strategy, but instead looks to whether it’s more prudent to build or buy when expanding its features. Energy Billing Systems provides utility billing services for property mangers, RentGrow is a resident screening service, and PropertyShark maintains property and market data.
“All of these things over the past decade have been separate providers cobbled together, but we’re able to provide it all in one system,” Setser said. “We’re answering to a demand in the marketplace” for more efficiency, he said.
Those buys also put Yardi in head-to-head competition with RealPage, which in late April filed papers with the U.S. Securities and Exchange Commission to raise as much as $150 million in an IPO. Citing quiet-period requirements connected to its IPO, RealPage declined to comment.
But RealPage has been growing fast, and in its filings names both Yardi and AppFolio as its main competitors. In 2009, RealPage had 1,141 employees, up from 654 in 2007. In 2009, it had a $28.4 million profit on $141 million in revenue, though $26 million of that came from deferred tax assets from years of losses. Revenue grew steadily from $83 million in 2007 to the $141 million in 2009.
The other recent Yardi acquisition, DIY, is a Web-based property management software company that goes after clients with about 1,000 units — essentially the same market as AppFolio. Yardi already had a successful Windows-based offering for those property managers, Setser said, but saw increasing demand for a Web version.
“DIY and AppFolio are geared toward the same market,” Setser said. “AppFolio had a solution for that. We didn’t. So now we do.”
At AppFolio, CEO Brian Donahoo said his company is looking to peel away customers from Yardi and RealPage. Offerings from the big names may have more features than a small property manager needs, he said. And smaller property managers often need deeper customer service because they don’t have an IT staff.
“The trick to pleasing [smaller property managers] is having software that is easy enough for them to use and having service that makes it easy for them to get up and running,” Donahoo said. “That’s our core focus. That’s difficult to do for a bigger organization — it’s the kind of thing where they have to figure out how to disrupt themselves.”
Despite all the activity in the property management software space, Setser said Yardi has no plans to follow RealPage toward the public markets.
“There’s no plan for an IPO for Yardi,” Setser said. “We’ll continue to be privately owned for the foreseeable future. We think it’s what’s best for our clients, and it serves us well.”