Over the past 12 months, we’ve participated in a dramatic shift in the online market place in the multi-family industry.

Screen shot 2009-11-25 at 10.04.55 AM.jpg

As you can see from the table showing the performance of five top multi-family sites, the share of the top 3 has declined by 1.4 million unique users, or 21%, while the share of the next 2 (ApartmentGuide.com and ApartmentFinder.com) has increased by 694,000 users, or 45%. The overall market for the top 5 sites has declined by 716,000 users, or 9%.

The overall decline of the market is a by-product of reduction of demand for investment-grade rental units, driven by the economic downturn, as evidenced by the declining financial performance of leading REITs and the sober outlook for the year ahead. In fact, two other leading multi-family sites, MyNewPlace.com and ApartmentRatings.com, were down a combined 501,000 unique visits versus prior year in October 2008.

All of the media players serving the multi-family market have experienced operating pressure as property managers have reduced marketing budgets and increased their demands for accountability and concessions from the marketplace.

Over at the blog Being Present, Todd Dubner looks at this shift in a more discrete fashion, with details for each of the participants over the last 12 months. Todd speaks to the benefit to online traffic that the distribution of print copies delivers. A very small percentage of traffic at ApartmentFinder.com is driven by paid search; the majority of traffic comes from direct log-ins to the web site and from organic search. This trend is a result of a focused strategy to build traffic from our print distribution and by developing targeted content and a broad social media footprint in order to tap into multi-word searches from apartment shoppers.

I’m intrigued, however, by the order of magnitude of the shift and the relatively small shifts in share of marketing spend that have accompanied this change. I would venture that fewer than 4 points of marketing spend share in a $750+ million market have shifted over the past year, despite the 200 basis point shift in online audience.

http://www.urbandigs.com/shift.jpgThe audience shift has definitely been reflected in significantly higher lead generation at the Apartment Finder business; anecdotally, we know that a similar increase, at least in terms of online lead generation, has been noted at Apartment Guide.

The surplus of marketing options, and the relative changes in performance, create an interesting dynamic in a tightly described market, such as multi-family.

From a purely objective point of view, marketing spend should shift to those media channels that are increasing their value by growing audience share and increasing lead share, while improving the quality of their leads.

In a declining market with seasonal variations, tracking this objective measure is challenging. And, ultimately, determining the quality of a lead in any market means being able to measure the conversion of hard leads — phone calls — into hard activities, such as visits or purchases.  Few businesses have the wherewithal to track these details accurately, never mind in the multi-family space, and, as I’ve noted before, trying to attribute leads to single sources in a market with multiple free information resources misses the benefit of saturating a market with branded messages.

From a subjective point of view, there is a lot of logic to slow shifts in market share.

An important part of working with a media or marketing partner is trust, reliability and continuity. When you shift from one partner to another, you take a risk that the benefit you’ve received from the service will be disrupted in the transition. During periods of shifts in market dynamics, businesses are slow to change their buying habits because of the relative risk of change.

Typically, price can be a lure, but price is rarely the primary reason for making a change from one partner to another.

What happens, then, is that market shifts develop over time, as emerging new forces in the market demonstrate reliability, productivity and trust.

The decision to shift is also influenced by a calculation about whether the market change is structural or marginal.

In the Internet marketplace, share can shift fairly rapidly as new entrants dilute the market or as existing entrants change their investment in acquiring customers. Ironically, the relative ease of transfer experienced by consumers is not equally experienced by the marketer: Each partner has different systems for order entry, billing, service and fulfillment.

In some respects, the changes in the multi-family internet market over the past year are structural. At Apartment Finder, we’ve built our larger audience base by changing our operational approach, not by increasing our overall spend on Internet marketing. We’re only half way through our operating plan and expect to see improvements in audience growth, lead production and lead conversion. Apartment Guide has also clearly shifted their operating model. [For insight into the Apartment Guide strategy, see the investor relations section of their  corporate web site.]

http://www.pixalo.com/gallery/data/500/crystal_ball.jpgIn this challenging environment, I would venture that property managers are acting logically in evaluating their third-party marketing spend by emphasizing  subjective criteria while insisting on accountability and concessions from their favored vendors. They are also acting logically in looking at solutions that can reduce their reliance on third-party marketing while bolstering their own control over lead generation and renewals. (At NCI, we have some interesting visibility into these conversations by virtue of our CommunitySherpa service.

The multi-family marketing landscape has been highly ordered and orderly over the past five years. This past year has witnessed  dynamic market shifts that will  have a profound impact on the size and distribution of marketing investments by property management companies. It is going to take some time to play out, but the landscape will look very different when it is done.

What it will look like and who will sit in which seats? I don’t have that kind of crystal ball!