by Travis Willis
Over the last few years, the software space trends have migrated towards a Software as a Service or SaaS model. This model has now become the dominant model for enterprise business software. Nearly all of the property management and software solutions currently operate under this model. These include Real Page, Yardi, Entrata, and others. The access control industry is now in transition, similarly. Traditionally access control sales relied upon the hardware products to cover the software sales. Access control companies presented a single price upfront that combined the two costs under a hardware sale guise. The access control industry as a whole has been hardware sales-centric as opposed to software sales-centric. The access control industry realized this was not necessarily sustainable as all software requires ongoing maintenance and improvement. There is a constant array of work issues outside their control that forces them to write code continually. The access control systems began using Service and Support agreements to capture revenue to help defray their software maintenance costs after they executed the sale. Many times, they based these agreements upon a percentage of the total initial sale. In a way, many customers buying access control have been paying for SaaS. The industry just called it something else.
Companies like Latch have begun pushing a more SaaS like model into the Multifamily access control space based upon the multifamily market's adoption of SaaS for their other software needs. It is also born out of necessity as today's cloud-based software platforms are built around various solutions and ancillary platforms that themselves have a cost. All cloud software solutions pay someone for the use of the cloud. They are paying for running their code on the cloud services servers and their storage needs, maintenance, and security of the data they generate. They are paying for the cloud infrastructure as a service instead of carrying the full cost burden directly of building and operating everything themselves. Cloud Software companies are also paying for notifications and similar services.
An example is when a RING doorbell sends a customer a notification, there is a hard cost for that message to be sent via SMS (text). The same is true of any access control system. Most end users do not realize that modern cloud solutions have both ongoing maintenance and support costs and services costs themselves that their creators must carry.
The primary providers are Amazon Web Services (AWS),Microsoft Azure Services (Azure),IBM, and Google Cloud. These companies have made significant investments in hardware and infrastructure and recoup those costs by charging for the infrastructure in the form of services to cloud-based software companies. This unique relationship allows for unprecedented scale possibilities as well as efficiencies previously not possible in computing. Like any business, scale always helps ROI and software is no different. Cloud software companies can get started for a minimal initial investment, but as they grow, so do their costs. This tactic is how the big technology companies make their ROI on their cloud infrastructure they are providing.
Our industry, the door hardware industry, did ourselves a disservice when we began pushing RMR as opposed to SaaS. RMR, which stands for Recurring Monthly Revenue, makes it sound like it is all profit and we will get rich. The industry took a page from the alarm industry here and built models similar to theirs. However, the critical difference was that alarm companies were selling a more tangible services model to monitor and respond to customers. Customers felt like they were getting a real return on what they were paying each month. A lock sits there and does what it does. End users do not feel like it needs attention, even if it is a smart device. This perceived limited value is why most end users tend to object to paying recurring fees around locks.
Suppose the multifamily access control industry wants to find tremendous success and growth. In that case, we need to be showing end-user customers that our solutions are more like their other enterprise business solutions they purchase. We need to show that we provide real business value and not just recurring revenue to ourselves.