Here's Why Latch Has a Big Advantage Over Rivals

Smart home technology company Latch (NASDAQ: LTCH) recently went public via SPAC merger, and the early results have been very encouraging. However, it isn't the only company that provides smart home operating systems for commercial buildings, so what makes Latch different? In this Fool Live video clip, recorded on July 12, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why Latch is unique.

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Matt Frankel: Dwight says Matt, "Have you looked at SmartRent, the competitor to Latch coming to the market through SPAC merger, thanks." We know and love Latch, we had their CEO on our show not long ago, I'm an investor in the company. SmartRent is a competitor in the sense that they are a smart home operating system for design for commercial multi-family properties, so like apartment buildings. The key difference is Latch makes their own hardware and their system works with their hardware. The SmartRent system works with, for example, the Ring Video Doorbell, the Honeywell (NASDAQ: HON) thermostat. It's not their own hardware. Here's why that's so important. Latch's customers don't switch. A Latch operating system works with Latch's hardware products. There's no switching that. Remember, they said they've never turned a customer in six years. The reason for that, is because the customer would have to get all new hardware. Whereas if you have SmartRent system, anyone else who makes an operating system that's compatible with the Ring Doorbell, the Honeywell thermostat, etc., they could switch that software very easily. Controlling both the hardware and the software gives them a real nice advantage when it comes to keeping their customers.

Jason Moser: I mean that's a bit Apple-esque.

Frankel: Amazon (NASDAQ: AMZN) to a certain degree. Think of a Kindle, can you get a tablet at that price point that does the same thing anywhere else? Controlling the hardware makes it a much more sticky business.

Moser: That's an interesting point, too, because when you think about that market, when you think about what you're trying to accomplish, a smart home or a smart building is going to incorporate lots of different hardware that serves lots of different purposes. On the one hand, I understand having the freedom to basically just pick and choose what hardware you want, but the flip side of that, is that you start getting very convoluted. It becomes very scattered and oftentimes can be a little bit difficult to manage. It can be glitchy. When you have different hardware and the software that accompanies that hardware all trying to work together, it can start to get a little bit glitchy. That's just something. Any consumer has done that, you know what I'm talking about. That's what Apple has always sold itself on. They are saying, "Hey listen, this may limit you to our walled garden. But our walled garden is really awesome and we know that you're going to love it." Half the world seems to. But half the country at least, I mean, not the world.

Frankel: There's an ADT (NYSE: ADT) alarm system installed in the house that I'm sitting in right now. It only works with the ADT hardware. There's an ADT Video Doorbell, there's the control panels, there is a camera out by the pool, so we can keep an eye on that. It only works with that hardware, so I can't just switch to another security company without buying another thousand dollars security system. Whereas if you build your own security system and just pay for some monitoring, which you can do, you can easily switch to another provider. The same concept applies here. AvalonBay (NYSE: AVB) is a partner of Latch. The new buildings, AvalonBay Communities is building have Latch's operating system integrated into it at the time of construction. They can't just choose another software provider for that. Say, they're not happy with Latch in two years and want to shop around, they can't. They would have to get a whole new hardware for their building. It's cost-prohibitive.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jason Moser owns shares of Amazon and Apple. Matthew Frankel, CFP owns shares of Apple and Latch, Inc. and is short shares of Apple. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool recommends AvalonBay Communities and Latch, Inc. and recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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