Who pays for R&D?

The other day I read an article on Inman News titled “Why is nobody making my dream real estate app?” and was inspired to highlight the R&D expenses most companies, including document management companies, must incur to support mobile devices and who is going to pay for it.

I asked a simple question to the author “how much would you be willing to pay for it?” and the reply was $20-30/mo or better yet, sell to the MLS or brokerage so they offer it for free.  This I believe is the same mentality with consumers (including real estate professionals) around the U.S. that everything should be cheap or free, but I fear we forgot how the world worked even 10 years ago before massive venture capital investments flooded into technologies companies devalued good software and paying for what it’s worth.

The author cites the lack of a single solution that does everything and the frustration to workflow various tools to do their day-to-day duties.  I agree, things should be simpler, and if someone does something great then be willing to pay a premium for it (think Apple).

There are some great tools and companies already, as mentioned in the comments to the article, but I can attest that mobile engineering often doubles and triples their engineering costs to build/support all the various devices/screens, etc.  What they should do is double/triple their fees to fund it, but pressure to offer the additional tools at no extra cost means they must sacrifice margins or provide “good enough” solutions to end the immediate complaints.

Remember the days when something new came out and the early adopters paid a huge premium (your first computer, television, VCR vs. current one)?  Today, with insanely-large venture capital investments to cover those R&D losses for years, consumers have become accustomed to no longer paying that early adopter “tax” for R&D with new products.  The traditional, privately-owned, profitable companies still must fund that R&D and recap expenses through revenues so if they don’t raise outside capital and sell off huge chunks of their company, they are forced to move slower and fund R&D through existing revenues, or increase revenues/prices.

I believe if you want more, you should be willing to pay more, and you’ll get much better service but for some reason people today want more and to pay less – Wal Mart.  It doesn’t seem to apply to everything, however, which is hardest to understand yet.  For example, if I want great service at a restaurant I frequent, I make sure to tip well so they eventually remember me and I get top-notch service.  We can all relate, I’m sure.  What I find puzzling is the reverse mentality when it comes to investing in critical tools for doing business.

I was reading Trulia’s S-1 filing the other day and saw their engineering costs alone were over $10 million/year.  Assuming a company investing the same in technology likely needs at least $25 million/year in revenues to profit (or say $2 million/mo), they need over 66,000 agents to pay $30/mo to reach that revenue.  Trulia’s S-1 filing revealed they have 20,000 paid subscribers and it’s taken 6 years to get there and they’re just breaking even, earning $140/user (far more than $30).  Nearly $100 million in total cost (reinvesting revenues plus over $30 million VC funding) and 6 years later, and they’re only 1/3 to the 66,000.  Very few can float those kind of losses.  There will always be companies investing much, much less in engineering and will provide “good enough” solutions as you mentioned, but put some simple numbers down on paper like I did and you’ll see why you get what you are willing to pay for.

Rest assured, there are many companies dedicated to providing the best-of-breed and taking this financial risk to hopefully be rewarded some point in the future through volume sales.  Don’t forget what it really costs these companies and the significant financial risk they make to try to improve the lives of real estate professionals like yourself.  They should instead be celebrated and recognized for their efforts.

References:

Inman News Article

Trulia S-1 Filing