Report Overview

The vacation rental market is one of the most exciting and dynamic parts of the travel landscape today. It is changing on many levels from how the business is run to what kind of customer will stay in a rental. Underpinning the whole ecosystem is a network of different technologies. We view it as essential for leaders in the space, regardless of role, to understand how this complex system operates. In this report, we provide an overview of the vacation rental market and a deep dive into the different components of its technology stack. We also analyze the many stakeholders in this technology marketplace and how they vary from one another. We close with our outlook for the space.

What You'll Learn From This Report

• An overview of vacation rental market dynamics and how we arrived at the tech that exists today
• A deep dive into each component of the vacation rental technology landscape
• How software can help vacation rental operators drive sales
• Which tech solutions are creating operational efficiencies
• Who the three major types of vacation rental managers are and why their needs differ
• Why we believe there could be a convergence between vacation rental and hotel technology
• Why some tech solutions could consolidate while others will remain independent

Executives Interviewed

• Alex Aydin, CEO, MyBookingPal
• Alex Limpert, CEO, GuestReady
• Alexis Murray-Jones, CEO, Yoomondo
• Amiad Soto, CEO, Guesty
• Amy Hinote, CEO, VRMIntel
• Anurag Verma, Co-Founder, PriceLabs
• Brad Huber, CEO, Parakeet
• Dai Williams, SVP of Global Partnerships, SiteMinder
• Darik Eaton, General Manager and Founder, Seattle Oasis Vacation Rentals
• Drew Patterson, President, Properly
• Jordan Allen, CEO, Stay Alfred
• Kam Bain, Head of Growth, Beyond Pricing
• Michele Diamantini, Co-Founder and General Manager, Vacasa Europe
• Mike Montemurro, COO, VacayHome Connect
• Pierre Becerril, CEO, Transparent
• Roth Fouty, VP of Technology, Stay Alfred
• Steve Milo, CEO, VTrips
• Tim Andrews, CEO, OVO Networks
• Vanessa de Souza Lage, Co-Founder and CMO, Rentals United

Executive Summary

Today, technology is essential to running a vacation rental business, and we view it as necessary for leaders in the space, regardless of role, to understand how this complex ecosystem works.

On the front-end, a new era of software is driving vacation rental top-lines. On the back-end, applications are attempting to bring economies of scale to operations and maintenance, traditionally a difficult task as properties are so widely distributed. Meanwhile the first wave of smart home and voice assistant technologies are hitting the market.

We believe that a common mistake when analyzing the vacation rentals market is to assume that all operators, and by extension tech solutions, are monolithic. To better understand the market, we segment property managers into three broad categories: 1) Single-Listing Hosts (‘The Hobbyist’), 2) Small- to Medium-Sized Multi-Property Managers (‘The Mom and Pop Operator’), and 3) Large-Scale Multi-Property Managers (‘The Hotel 2.0 Property Manager’). Each have their own goals and tech requirements.

We expect to see a professionalization of the vacation rental market and its technology in the coming years. Part of this may include a convergence between hotel and vacation rental technology, though some differences will always remain. We also see the opportunity for modest consolidation and believe that best-in-breed solutions will need to develop a tighter set of industry standards to allow products to speak with each other.

At the end of the day, the name of the game is hospitality. Those vacation rental businesses that can provide an elevated guest experience will see the most success. Key to this vision will developing seamless and scalable technology solutions.

Overview of the Technology Stack

Current Market Dynamics

Wyndham estimates that the global vacation rental industry is worth over $85 billion and that there are approximately 1.4 million properties in the U.S. and 4.4 million in Europe. The market is highly fragmented with most managers operating 25-50 listings.

The market for vacation rentals is rapidly growing and being fueled by a change in consumer behavior. Travelers increasingly value experiences over hotel rooms and find that vacation rentals can better deliver unique activities. Additional reasons why guests prefer vacation rentals to hotels include cost, size, and location.

 

A prime example of the upswing in demand for vacation rentals shows up in the European hospitality data over the last decade. In Europe, the largest market for vacation rentals, alternative accommodations accounted for 34% of all room nights in 2006 but had grown to 38% by 2016. In absolute terms, that means that in Europe, room nights spent alternative accommodations have increased by 50% from ~800k to 1.175mn room nights. Much of the growth has come from foreign tourists, whose share of room nights in alternative accommodations increased from 27% to 37%, rather than domestic travelers whose share is mostly flat.

 

The Evolution to a Modern Vacation Rental Tech Stack

Airbnb was founded in 2008, and even its more senior peer HomeAway first appeared in 2005, so a certain generation might be forgiven for thinking the vacation rental market suddenly appeared over the last few years. That is of course, not the case. The below classified ad from a 1980 issue of New West testifies to the fact that the core offering – a Maui condo or a Tahoe three bedroom for rent by the owner – still exists in much the same way as it did decades ago.

 

However, nearly everything else about the industry has changed. Newspaper distribution has essentially disappeared, and the technology required to operate a vacation rental business has moved far beyond a simple telephone line. Plus, the traditional vacation rental offering has been supplemented by a variety of new guest experiences.

Today, technology is essential to running a vacation rental business. It permeates every part of the operation, from distribution and pricing to back-end processes. Tech not only cuts costs, the traditional purpose of automation, but now also creates new business, leaving competitors without leading tech at a disadvantage. In this increasingly complex landscape, a slew of different software in different roles must all sit on top of each other (i.e. ‘stack’) and work together.

We decode each of the components of the modern vacation rental tech stack below.

 

A New Era of Software is Driving Vacation Rental Top-Lines

Distribution Platforms: Drivers and aggregators of consumer demand
What it does: A large and sustainable market requires both a strong product and accessible distribution. In the hotel space, the online travel agencies (OTAs) serve primarily to aggregate consumer demand. However, in the vacation rental market, we believe OTAs have a much larger role to play in creating new customers from whole cloth.

Steve Jobs once said that “people don’t know what they want until you show it to them.” He was talking about building new products at Apple, but we believe something similar happened in the vacation rental market.

Love them or hate them, it’s hard to deny what Airbnb has done for popularizing vacation rentals as an asset class. It invented a new product that people didn’t know they wanted until they saw it, the shared apartment for short-term rent. It also streamlined the online booking process and helped overcome trust issues through user reviews and property photos. This core vacation rental market has have existed for decades, but consumers had not necessarily been shown it in quite the right way before Airbnb.

Not only that, but the company’s success raised the profile of vacation rentals broadly, including for traditional rentals, such as full houses for rent in seasonal locations. Demonstrating its ability to activate consumers, by mid-2014 Airbnb had exceeded the Google search volume of four of its largest peers combined. Today, it receives five times as many Google inquiries as its peers.

In our view, broad distribution has helped stoke the strong demand – for both traditional and shared rentals – that the market sees today.

At present, the two largest online vacation rental marketplaces, Airbnb and HomeAway, have collectively seen their revenues grow at a 56% compound annual rate from 2013 through 2017. Skift Research estimates that these two websites drove over $25 billion of gross bookings worldwide in 2017. Booking.com is also a major player in the space but does not disclose vacation rental revenue.

 

Key considerations for adoption and provider selection: Online travel agencies are a major source of demand, that few property managers can afford to miss out on. However, these distribution platforms also carry very real costs in the form of fees and commissions.

For most professional managers, we believe a channel manager will be the most efficient way to reduce the complexity of managing multiple listing requirements, payment portals, and inventory/pricing updates. Smaller property owners may prefer to focus on a few platforms that work well for their specific market and customer demographics.

While we view OTAs as essential, we note that large property managers should build and maintain their own first-party websites. As there is no commission on these bookings, a property manager would ideally drive as much business as possible through its own platform. In practice, however, building direct traffic is extremely difficult.

Sample players: Airbnb, Booking.com, FlipKey, HomeAway, Vacasa, VRBO

Channel Manager: Connecting properties to a worldwide audience
What it does: The channel manager allows property managers to programmatically connect rental inventory to multiple distribution platforms. The benefit of channel management is straightforward: 1) it expands the reach of any given property, at the same time that it, 2) eliminates the need to push property updates to each site manually.

Alex Aydin, CEO of channel manager MyBookingPal explained that showing properties on “different channels, creates a lot more visibility but ultimately highly optimized content on those channels create bookings.” Aydin has seen as much as a 50-70% uplift in sales for property managers who had previously only been on one or two channels.

For property managers that already make use of multiple distribution platforms, channel managers simplify an otherwise tedious manual task. Vanessa de Souza Lage, Co-founder and CMO of channel manager Rentals United and founder of VRTech events, said that she worked with a property manager who updated pricing nightly for all 50 of his properties. “He was employing two people just for that… so that’s when technology comes in and goes ‘oh my God breathe on that.’”

The concept may sound simple, but it is easier said than done. “there is no standardization. Each platform operates differently. Each integration is a custom integration that takes a lot of work,” Aydin explains.

Building a quality channel manager faces challenges on many levels that both tech providers and property managers need to consider. For starters, unlike hotels and airlines, vacation rentals lack a representative unit. That means that if a unit is double booked on two channels, there is no depth of inventory with which to fulfill both customers. Compounding this problem, many property management systems were built for an older business model that received inquiries of interest and struggle with real-time transactions.

Channel managers also face problems with how to describe non-standard properties in a way that conforms to distribution platform specifications. Mike Montemurro, COO of channel manager VacayHome Connect, said that his platform does “quite a bit of work of our own as to how to normalize and map data and make sure it maps properly from system A to system B. We create the necessary mapping cross-references, to ensure that an amenity that’s called one thing in one channel is called the proper amenity in another channel.”

These nuances extend to pricing models, said de Souza Lage. On one side, property managers “all have different ways of pricing, length-of-stays, and last-minute rates.” On the other side, channel manager must translate this into the language of the distribution platform which each display pricing in a specific way.

In many ways, the channel manager is tasked with fitting a round peg into a square hole. And doing so at scale.

Key considerations for adoption and provider selection: The most important factor in deciding on what provider to use should be whether it integrates with the necessary property management software as well as the scale of distribution partners available through the platform.

Increasingly, these connections are table stakes for channel managers which are beginning to integrate additional tools. “We find that just merely connecting a channel from a technology point of view isn’t enough,” said Montemurro. One example of a differentiator he gave is whether the manager can, “understand the nuances of how the algorithms work in the channel to ensure that you get the [best] placement.”

We expect further growth in this segment of the tech stack, a result of positive dynamics on both the supply and demand sides of the market. Aydin noted that “all of the OTAs want to expand their vacation rental inventory,” while at the same time, only “a very small fraction of properties are linked up to a property manager.”

Sample placement: Avantio, FutureStay, MyBookingPal, NextPax, Red Awning, Rentals United, SiteMinder, VacayHome Connect

Revenue Management: Charge the right price at the right time to the right customer
What it does: It doesn’t require an economics degree to understand the role of supply and demand in setting prices. It follows then, that if demand is not constant, your prices should not be either. Airlines and hotels have long understood this and developed sophisticated pricing tools that measure and segment customer demand and price accordingly.

Historically, however, vacation rental pricing was done with a handful of static rates that varied by season – a property manager might have considered themselves sophisticated with a half-dozen prices – two rates were most common.

Static prices mean that properties can end up underpriced during peak-season, leaving money on the table, or overpriced during off-season, hurting occupancy rates. Static rates also have difficulty adjusting to sudden, out-of-season demand, such as that created by a local festival, concert, or conference.

Revenue management software that enables dynamic pricing is just now coming to the vacation rental market as it grows big enough to support these complex and costly applications. We believe vacation rental operators will benefit greatly from this type of software because, as Anurag Verma, co-founder of PriceLabs, told us, “vacation rentals … go through peaks and valleys in demand even more than hotels.”

Kam Bain, the head of growth for Beyond Pricing, says that their pricing model works off “three main factors – day of week, seasonality, and local events – though magnitude of those all differs by each market.”

Bain shared that, “one of the biggest differences between pricing vacation rentals and hotels or airlines is that you cannot use internal inventory [to proxy demand] because it’s all different.” The solution is to use external data that help predict demand such as historical demand, vacation rental occupancy, hotel occupancy, and inbound flight reservations.

Another wrinkle in the vacation rental market is that supply is also dynamic. When a large, unexpected event hits town, Airbnb house/apartment shares can rapidly come online to soak up that demand. In contrast, hotel pipelines must be decided years in advance and supply is relatively fixed. This adds volatility to vacation rental pricing markets and further builds the value proposition for revenue management software.

Bain estimates that the move from a single, year-round, static price to a dynamic price can double sales, though this would only apply in rare circumstances. More commonly, Skift Research believes that a large property manager can see as much as a 20% uplift in sales from implementing a revenue management software.

Key considerations for adoption and provider selection: We believe that some form of revenue management will become a requirement for professional property managers, just as it has become standard for hotels.

Property managers should bear in mind that the purpose of revenue management is to optimize revenue per available room (RevPAR), not simply room rates. RevPAR is a function of both the average daily rate (ADR) charged and the occupancy rate of the property. This can mean that, somewhat counterintuitively, the best way to optimize RevPAR might be to drop rates to boost occupancy. Bain has seen “massive” lifts in overall revenue to property managers that drop prices to capture off-season demand.

Property managers should also consider the seasonality of their operating markets. A year-round market may not have as much need for revenue management as a highly seasonal locale. “The more volatile a market is, the better it is for our software to be successful,” Bain explained.

Jordan Allen, the founder and CEO of Stay Alfred, considers revenue management essential to his business, though he offers one caveat. “It’s not something that can be left just up to the machines to figure out,” he said. “The best revenue management system serves up the most important data that revenue managers need to look at to make a decision … I think there will be human oversight on this because it’s such a critical part of your business.”

We understand that many large property managers already implement some form of revenue management through either: 1) manual updates, 2) add-on software provided by an existing platform, 3) stand-alone 3rd party software, or 4) self-built software.

In our view, the human element cannot be replaced but manual pricing options are not sustainable and will require a software solution at scale. Add-on pricing technology, provided as part of an existing software platform, is a cost-efficient option that works well for individual owners and non-seasonal markets. However, many we spoke to raised concerns about conflicts of interest. For instance, would add-on tools be incentivized to drive volume to a parent’s platform or be unable to access full pricing transparency from a competitor’s channel? While we suspect that these conflicts are rare, a dedicated revenue management tool, either in-house or third party, likely makes the most sense for the professional property manager.

Sample players: Beyond Pricing, PriceLabs, Transparent

The Operational Side of the Tech Stack Drives Cost Efficiencies for a Fragmented Market

Property Management Systems: The nerve center of a modern technology stack
What it does: At its core, the property management system tracks inventory and uses it to run the reservation system and availability calendar.

From there, many property management systems go on to offer a wide range of additional capabilities. It usually acts as the central location for customer relationship management efforts by collecting information on current and past guests as well as tracking new leads. The system will also commonly offer back-end features such as expense tracking, housekeeping/maintenance management, and accounting tools.

At times one, or all, of these features are provided through a third-party integration.

Additional tools that may be included are systems to allow individual owners to track their operating performance and receive regular updates. Some, though not all, PMS systems will also have tools to help property managers build first-party booking websites.

Key considerations for adoption and provider selection: The property management software is arguably the most important piece of the vacation rental technology stack and selecting it is one of the most impactful software decisions a property manager can make. This is not the time to be stingy.

A professional PMS system needs to perform its core functions of reservation management in a way that matches the current and future scale of the business and should have the ability to integrate with third-party software providers.

Skift Research suggests that a modern approach to the vacation rental stack recognizes that it is unrealistic for a single piece of software to meet every need. This means that the property management software will sit in the center of the tech stack, and nearly every other piece of software will need to speak with, or to other tools by way of, the PMS. Therefore, the PMS should have a robust and up-to-date application programming interface (API) with multiple integrations.

It should be noted that this is a fairly new approach to property management software. De Souza Lage described legacy property management software as “the guys that said, ‘we are the all-in-one solution,’ [but] soon you realize that yes, they are all-in-one, but they can’t do anything really well.” She advocates for seeking out “innovative tech providers that … are very open in terms of APIs and partnerships.”

Aydin agrees but also flagged that just because a PMS offers a functionality in its software, does not mean it is available through its API, complicating integrations.

Darik Eaton, the general manager and founder of Seattle Oasis Vacation Rentals, corroborated this point when he told us that, “for the most part, people want to play nice with the other software … I think there’s the spirit of cooperation, but then there’s the reality of operations and of [technology] not working together on a day-to-day basis.”

We would suggest property managers do proper due diligence and speak with representatives to ensure that open integration is a core part of the PMS offering and not merely lip service.

Geographic considerations should also be top of mind as global PMSs may struggle to compete with a strong specialist in a specific region. De Souza Lage cautioned that “it’s very hard to find tech that translates well from Europe to the states and vice versa. [Europe is] very fragmented in terms of language but also has different types of rules … and different [owner] priorities.”

Sample players: CiiRUS Guesty, GuestReady, Escapia, Kigo, LiveRez, VRBookings.com

Housekeeping and Maintenance: Automate the boring stuff
What it does: We get it, housekeeping is not the most glamorous part of running a vacation rental. But in many ways, it is the basic blocking and tackling of operating the business day-to-day.

Drew Patterson, president of Properly, calls cleaning and maintenance an “essential part of what it takes to run a vacation rental unit.” Despite its centrality, Patterson said that, “you’ve seen substantially less [tech] activity on the operations part of the business.”

That’s a missed opportunity, in our view, because maintenance operations are a part of the vacation rental ecosystem that has struggled to scale thus far. Hotel housekeeping creates economies of scale by concentrating all the rooms within one dense building. The marginal cost to the hotel owner to clean each additional room is minimal. After all, the housekeeper need only wheel his or her cart a little further down the hall.

These unit economics break down in a vacation rental business. Rather than cleaning 50 rooms in one location, a property manager might have to clean a single room in 50 separate locations dispersed across town. This requires hiring more cleaners and scheduling them more efficiently, while maintaining consistent standards of quality.

A new generation of cleaning applications are springing up that allows team members to chat with each other, auto-schedule cleanings, and hire staff on demand. “What’s changed,” said Patterson, “is the role that mobile can play in the operations of the business. A property manager using our app can interact in real time with his or her cleaners, with his or her folks doing guest meet and greets and key exchange, and all the individuals associated with their business.”

Allen said that existing hotel technology is not able to meet the unique demands of the vacation rental sector. He uses software to optimize Stay Alfred’s cleaning schedule based on guest check-in/out information and it has become a competitive advantage. Allen insisted that his tech “really moves the needle on cleaning costs and as a result, we can provide a lower cleaning fee to our guests than other competitors.”

Key considerations for adoption and provider selection: Our top considerations for a housekeeping application are the ability to repeatedly provide high-quality cleanings and to source reliable staff. Also important are scheduling, task assignment, and team communication capabilities.

Property managers should consider that, as Patterson said, “[Vacation rental housekeeping] is more than cleaning. It’s staging, it’s all the things that go into preparing a listing for a guest, versus what has to happen in a residential environment.” Another professional marker that PMs need to solve for is reliability. If a guest is checking-in at 3:00 PM, the housekeeper must be finished with no ifs, ands, or buts.

Hiring and retaining talent is also a major concern. An urban market may have a lot of housekeeping supply, but quality is diluted. Conversely, a small mountain town might have a limited talent pool. Patterson, told us that, “one of the things [property managers] constantly struggle with is, where do they go to find the individuals that do work for them?” His app, Properly, and others like it are attempting to tackle this issue through Uber-like marketplaces that track past jobs, ratings, and reviews.

Sample players: Doinn, Handy, Properly, VQuarter

Connected Home Technology and Voice: The next generation in property management technology
What it does: On the cutting edge of the vacation rental tech spectrum is building software and connectivity into parts of the home itself. This ‘Internet of Things’ will likely have a major impact on the tech stack in the long run, but is perhaps an overbroad term, so let’s be specific.

Keyless locks are the primary use case for connected homes at present, with perhaps as much as 60% of the market or more. That’s because they solve a major guest pain point with minimal installation work required. Brad Huber, the CEO and Founder of Parakeet, said that with keyless locks, “[property managers] don’t have to staff a front desk or send somebody after hours to let a guest in the door. The guest doesn’t have to travel across town. They don’t have to mess around with a lockbox or something like that in the dark.” Keyless entry systems also solve the problem of how to grant access to large groups, which prefer vacation rental over hotels, as a keypad or phone app can easily be shared.

Next up is the Wi-Fi system itself. The reality for many vacation rental properties today is that their networks are built on a patchwork web of personal routers. This is not a great guest experience to begin with, but also becomes unwieldy at scale. “Let’s say that you manage 100 rentals and you have 100 different homeowners,” says Huber, “if you’ve ever had to unplug your router and plug it back in to make it work again, that’s fine if you live there, but it’s not great if these are all remote properties.” Ultimately, we see professional property managers taking an enterprise-like approach to managing their networks.

A robust enterprise network also lays the groundwork for further IoT integrations, such as thermostats, sensors, and, voice assistants. Connected thermostats are another growing part of the smart home ecosystem. This could let be integrated with PMS/CRM systems so that the temperature is set to the guests preferred temperature at check-in, but resets to the most cost-efficient level on check-out.

Thermostats can be integrated with a variety of sound, temperature, humidity, and positional, sensors to, say, turn the air conditioning off when the window is left open. These sensors have a wide range of further applications. Flood and freezing sensors are a popular option for property managers to remotely monitor which homes should be manually inspected by staff. Sound systems can flag sustained, high volume activity, such as a party, that might violate house rules.

Perhaps the most exciting new technology in vacation rentals is voice assistants, such as the Amazon Alexa or Google Assistant.

Google introduced an early form of voice search almost 15 years ago, but the technology struggled. Even as recently as 2013 Google suffered a 23% word error rate, meaning it transcribed one out of every four spoken words incorrectly. But recent improvements in machine learning have led to dramatic gains in voice recognition. This year Google dropped its word error rate below 5%, the threshold for human accuracy. The company now receives 70% of requests to the Google Assistant in conversational language.

The newfound ability to understand natural human speech, at both Google and the other tech giants, has created an explosion of digital personal assistants. Confirming their mainstream status, a recent survey by the Pew Research Center found that nearly half of U.S. adults (46%) had used a voice assistant. Much of this activity is taking place on mobile. Stand-alone digital assistant devices, like the Google Home or Amazon Echo, are still mostly limited to early adopters – just 8% of Americans have used one – but are a rapidly growing category.

 

 

Steve Milo, CEO of VTrips, sees a future where guests, “can be welcomed by an automatic butler that greets the customer and works with them to provide concierge-level service.” The service could act as a controller for connected devices throughout the house, suggest experiences, and order food or groceries.

Milo, believes it voice integration will be “revolutionary” for vacation rentals. The kernel for this technology exists today, but we still see substantial logistical roadblocks to mainstream adoptions. Nonetheless, while voice may have many years to go before becoming ubiquitous in vacation rentals, we tend to agree with Milo – voice technology and smart homes overall will be a massive change for hospitality.

Key considerations for adoption and provide selection: Security and privacy are the overriding concerns in this space. Any vacation rental connected home solution must be designed with these two considerations from the ground up and they need to be prioritized over any guest experience or cost considerations.

Huber says that his devices “take a security-focused approach … for example, everything is encrypted and when our devices …. don’t actually sit on the broad internet, which helps on the security side.” But, in our view, the greatest threat is not from flaws in design/software, but from lax management policies.

For instance, systems should control who has access to the property and guest information. Passcodes should not be reused. It should be noted that in many respects, these concerns already exist with current processes and may actually be abated by the smart homes. Huber points out that, “there might be a dozen copies of those brass keys that are floating out there with previous renters that forgot to return them. … What you’re doing is you’re trading those problems for a different set of them.”

Property managers must also be careful to balance the benefits of connected devices with privacy concerns as well. Devices such as sound sensors are voice assistants must be used with subtlety so as not to cross the line into ‘creepy’ in the guests’ eyes.

Another, more practical, problem is the logistics of installing IoT devices. Retrofitting existing homes can be difficult, time-consuming, and expensive. At present, for most property managers, the benefits are unlikely to outweigh the costs. But that equation seems to be changing, especially for large-scale property managers and the early adopters have already begun investing in this space.

The technology here is not yet settled as it is on the cutting edge. Implementations will take time, but we are excited by the possibilities and see it as potentially transformational for travel broadly – not only vacation rentals, but hotels, airlines, and travel agencies as well.

Sample players: Amazon Alexa, Honeywell, Kwiklock, Nest, NoiseAware, Parakeet, ResortLock

Understanding the Different Types of Operators and Their Tech Stack Needs

Single-Listing Hosts (‘The Hobbyist’)

Profile: The hobbyist is the quintessential Airbnb user. He or she has a single property available for rent, potentially a primary residence. The hobbyist may offer a shared room for rent, but this is not necessarily the case.

For the hobbyist, rental income is most likely a supplemental revenue stream. This is a crucial distinction as it changes the incentive structure of the operator. With a primary home in particular, the fixed real estate start-up costs (e.g. mortgage payments) are effectively a sunk cost as the operator would be paying them anyway. Therefore, the rental income is marginal revenue and the hobbyist only needs to price the property to cover their variable costs.

Hosts with a single-property listing are more prevalent in year-round, urban markets. Skift Research believes that single-listing hosts may represent upwards of 55% of all hosts in urban markets; shared/private rooms, a subset of this category, could account for a quarter of all hosts. We believe the comparable figures for seasonal markets to be 47% and 10% respectively.

We base our estimates on data from Airdna.co in sample locations for both seasonal and urban markets as well as in the U.S. and Europe. We recognize that this approach will not yield a perfect representation of the global market, but we do believe it provides a useful sense of relative market makeups.

Challenges and tech solutions: Top of mind for the hobbyist is convenience, ease-of-use, and cost. As this business may be run part-time, software that reduces the required time investments is a top priority. This would include, for example, apps that allow the owner to hire freelance housekeeping and greeting staff. This owner is less likely to have a hospitality background and therefore may not feel comfortable using some of the more sophisticated software available on the market.

The hobbyist is less likely to make large upfront investments in technology. Not only do they not have the tech staff to implement a complex integration, but the single-unit operator does not intend to build to the scale that would allow them to earn a return on such a large capital expenditure. Pay-as-you-go pricing models and software with an immediate payback period work best for this client.

Integrated software platforms make the most sense for this client base. For instance, both Airbnb and HomeAway have recently launched a variety of software solutions in new verticals, such as revenue management. Professional property managers, which we discuss below, may prefer a more specialized solution, but, this type of integrated offering strikes us as ideal for the ‘hobbyist’ customer. Not only do these clients value the convenience of a one-stop solution, but the costs are variable, which fits well with the revenue model discussed earlier.

Small- to Medium-Sized Multi-Property Manager (‘The Mom and Pop Operator’)

Profile: This is the classic vacation rental property manager. Our sense is that the typical ‘mom and pop’ property manager operates 25-50 properties on average.

Backgrounds vary though many in the U.S. come from a real estate background – often the real estate agent that sells a vacation home will also offer to operate the property as a rental on behalf of the new owner. European operators tend to have a more direct hospitality background and are more likely to have properties in more than one location. The differences are at least partially explained by the fact that European travelers tend to take multi-destination trips rather than only staying in one location.

Though in any given market, there may be a similar number of multi-property and single-property managers operating, the scale and revenue of their businesses vary considerably. In almost every market, we observed that multi-property managers collect the majority of revenues. The order of magnitude may vary, but the relative positioning remain similar. This is unsurprising, given their full-time focus on the business, and generally higher quality inventory.

We provide two examples drawn from Airdna.co data to illustrate our point. In Seattle, professional vacation property management is now more than a $100 million business, up 47% from last year. In Myrtle Beach, a seasonal destination, the market for professional property managers is at least $10 million dollars, up 142%. Note that this data is limited to the Airbnb platform and so these numbers are simply floors and not true market valuations.

Challenges and tech Solutions: This segment of the market faces a number of challenges from new entrants and changing guest dynamics. Most struggle to integrate the various, ever-changing pieces of software.

Alex Limpert, the CEO of property management software company GuestReady, said that “there are too many systems across the value chain that are not integrated well,” which creates major headaches for property managers.

Eaton, of Seattle Oasis Vacation Rentals, agrees. He called integrating multiple vacation rental software solutions a “complete nightmare” and said he hasn’t, “heard of a single property manager anywhere that would say that they absolutely love everything about their software.”

Other challenges feel familiar and include hurdles in running day-to-day logistics as smoothly as possible. “I think most of the needs are in operations,” said Eaton, “I think there’s been a dearth of … software and tools [in that space].”

Despite integration frustrations, most managers we spoke to recognize the need to lean into new technology and are eager to embrace new solutions. Integrated software-as-a-service platforms likely make the most sense for these customers, rather than buying each tech separately or building it in-house. That’s because we believe these managers’ tech stacks will need to include most of the pieces we describe above, but minimized cost and complexity remain at the fore.

Large-Scale Multi-Property Manager (‘The Hotel 2.0 Property Manager’)

Profile: An evolution of the professional property manager is a shift towards large-scale and increasingly branded operation. Historically, it had been hard to generate economies of scale in vacation rentals, because the distributed nature of both inventory and customers meant that costs grew at the same rate as, or faster than, new revenues.

Technology platforms in vacation rentals are changing that math and creating opportunities that did not previously exist.

Steve Milo, the CEO of VTrips, said that he uses his tech advantage to create scale and that “whenever we acquire companies, we are converting them over on an average of 60 days to our platform.” This reduces processes, “which before were manual and inconsistent,” he said, and creates “synergies by rolling [their operations] up onto a centralized-database platform.”

Many others are following Milo’s lead and aspire to build large-scale vacation rental businesses. In many ways, these entrepreneurs feel like the spiritual successors to the Hiltons and Marriotts of the 1950s and 1960s. None have yet to succeed at the same scale, but the concept is still in the early-innings of development.

Challenges and tech solutions: Hotel 2.0 operators face massive technological hurdles. Off the shelf technology may not meet their needs and third-party software must be integrated in a scalable way.

Roth Fouty, VP of technology for Stay Alfred, said that: “the big thing that we’ve strategically worked on over the last year and a half is getting our data under control. A lot of times, in this space there’s a ton of off the shelf products that you can use … [but] one of the issues that we ran into was we wanted to start getting a better feel of our own data so we could be more informed about how to [make decisions and] improve our guests’ experience.”

Another challenge for this segment of property managers is inconsistent customer experiences. In response, many are beginning to build a branded vacation rental product with technology at its core.

Allen of Stay Alfred said his brand is aiming for high-quality and consistent standards. “The reason why we think Facebook won over Myspace is they had a really clean, consistent look and you knew what you were going to get on everybody’s page,” he explains. “It’s important as you start to scale into the hundreds of millions of revenue to have the fate of your technology in your own hands.”

These are hotel-like problems and will require hotel-like tech solutions. At this high-end of the market, customers will demand best-in-class tech software and be less likely to buy bundled platforms. The ‘hotel 2.0 manager’ will prefer to maintain control over their customer data. They will build in-house when necessary and will not necessarily shy away from complex integrations.

Skift Research’s Outlook on Vacation Rental Technology

Continued Professionalization and Convergence with Hotels

In a similar vein to the changes that took place throughout the hotel industry in the 1950s and 1960s, we expect to see a professionalization of the vacation rental market and its technology in the coming years.

Our research shows that more consumers than ever before are staying in vacation rentals. The latest data point, amongst many others, comes from Skift Research’s survey of 1,304 high-income U.S. travelers, who have a combined household income of more than $100,000. We found that half had stayed in a vacation rental at least one time, up from 36% last year. Only 10% of this coveted demographic said that they would “definitely not” consider a vacation rental, down from 18% last year.

Yet, there is some evidence to suggest that vacation rental property managers have struggled to meet the standards of their new guests. With higher usage, comes higher expectations.

Skift Research found that satisfaction with the vacation rental experience has declined, at the same time that adoption has increased, at least amongst the high-income demographic. When Skift asked survey respondents about their vacation rental experiences, 47% said they were ‘very satisfied’, down from 60% last year.

This is still a positive response rate on an absolute basis, and not a reason for outright panic, but we flag the decline as a potential risk. Especially so as these ‘very satisfied’ customers are the most likely to be highly dedicated to the market and willing to promote the experience to others.

 

Lower satisfaction is being partly driven, in our view, by customers that differentiate less and less between vacation rentals and hotels. This means that guests expect to have a seamless booking experience, painless key exchange, a clean house that matches the online description, and immediate responses to requests, to name a few.

Unfortunately, many vacation rentals still struggle to meet these needs. Technology is a prerequisite part of any solution here. The booking experience is a function of the distribution platform, channel manager, and PMS working together. Key exchanges are being increasingly automated through smart home appliances. Housekeepers are hired and scheduled through mobile apps.

The other, still nascent, response from the industry to this challenge has been brand standards. Vacation rental management companies such as Vacasa, Stay Alfred, and Inspirato are in the early stages of building a consistent, branded vacation rental experience. The backbone of their operations is technology, and it needs to be hotel-quality or better.

Michele Diamantini, the co-founder and general manager of Vacasa Europe, thinks that, “one of the biggest changes that you will see [in the vacation rental industry] … is more and more professional owners.” He believes, “the whole industry needs to change, and technology will have a big impact on it.” Allen of Stay Alfred is of a similar mind, he told us that he has been investing millions of dollars in building a technology platform using both third-party and in-house technology. Skift understands that Inspirato has also spent considerable sums on building in-house tech.

Putting further pressure on vacation rentals to provide high-quality, tech enabled experiences is the growing encroachment of hotels into traditional vacation rental territory.

There is perhaps no better poster child for this overlap than SiteMinder. In early February 2018, the hotel distribution system struck a deal with Airbnb to list small independent hotels and bed and breakfasts on the vacation rental booking giant’s platform.

While the deal represented one of the largest moves by hotels into vacation rental channels to date, many may not have realized the opposite is taking place as well. Dai Williams, SiteMinder’s SVP of Global Partnerships, said that the channel manager does, “have a number of customers that would classify themselves as vacation rentals, but from a distribution perspective, act like hotels.”

“There is a pretty blurred line,” between vacation rentals and hotels, Williams explained. “The phrase ‘hospitality’ is coming back into it a lot … accommodations providers, whether they host an Airbnb, have a vacation rental, or run a hotel, need to provide a local expert positioning on the area. [They need to] provide more than just a room.”

Ultimately, these two-way dynamics should drive a convergence between hotel and vacation rental technology, in our view. Differences will always remain, but vacation rental managers should expect to be held to a far more professional standard than in the past.

We expect that property managers who cannot meet this new generation of guest expectations will falter. The key to successful businesses will be vacation rental tech companies that can develop seamless, scalable hospitality software solutions. Those that cannot, will fail.

Consolidation and Standardization

Following closely from the above trends, we expect to see modest consolidation within the industry at both a property-manager and technology level. From the technology perspective, we believe that best-in-breed solutions will need to develop a tighter set of industry standards to allow products to speak with each other. We expect to see a horizontal consolidation (i.e. one PMS buys another), and to a lesser extent, vertical integration (i.e. a distribution channel acquiring a PMS) as well.

Vacation rental technology is currently undergoing what Patterson of Properly calls a “Cambrian explosion of innovation.” Inspired by the success of Airbnb, a new generation of startups have entered the vacation rental market. The startup-focused website AngelList has tracked 400 new vacation rental startups since 2011 and we suspect that number is an underestimation.

The need is undeniable, and we are excited to see so many new, innovative ideas come to market in vacation rentals. The fresh competition has the added benefit of reinvigorating long-time incumbents, which are raising capital to develop new technology as well.

However, Alex Rampell, a venture capitalist at Andreeson Horowitz said that, “the battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation.” With the race on, some of these new startups will succeed, though many more will fail. Already, nearly one-fifth of the new startups tracked by AngelList have folded or been acquired. The net result, though, should be a more dynamic tech ecosystem overall.

To be clear, our view is not for vacation rental technology to become a Coke-and-Pepsi-like duopoly; there are too many different business models for that to happen (except, perhaps in distribution). Urban property owners have different needs than those in highly seasonal markets. The ‘hobbyist’ Airbnb owner has a different tech requirement than a ‘hotel 2.0’ property manager. Large-scale businesses have bigger budgets than ‘mom and pop’ operations. Geography draws a number of language and regulatory borders.

We do not expect these fault lines to disappear. Yet consider that within each individual segment the trend is still towards consolidation.

Large-scale, professional property managers are moving towards hotel-like technology stacks. Here, we expect world-class software solutions to gain greater market share as they crowd out lesser competitors. Vertical integration at this level will be difficult because, as Patterson points out, “the likelihood that one player is world class around each function … isn’t that high.”

Next, mom and pop operators are a classic ‘long-tail’ market. Their budgets are individually small, but in aggregate large. The business model tech companies approach this type of market with has been laid out by software-as-a-service platforms like Salesforce.

Limpert of GuestReady, said that up until now small tech providers have not faced “much competition locally but, I feel there will now be competition from players like us that have a more global approach [and are] building a technology platform.” He expects consolidation, “especially in the more rural vacation rental management space,” due to the opportunity to “bring these local businesses onto the same platform [which is] … something that didn’t exist 10 or even five years ago.”

In this sub-market, it is possible to see some vertical integration as well. Limpert tells us that “there are too many systems across the value chain that are not integrated well,” which creates major headaches for property managers. Eaton concurs, and said that his, “overall goal when I partner with a technology is getting it to work together, which sounds so incredibly simple, but is so incredibly difficult.” One fix for this would be for tech providers to build a full suite of verticals into their own platforms. We believe this is likely, though we concede that in discussions with industry experts, this idea received many mixed opinions.

The top concern of property managers is conflicts of interest. If HomeAway builds a channel manager, won’t it be incentivized to deny listings to its competitors. Couldn’t a revenue management tool from Airbnb optimize for transactions on the platform rather than RevPAR to the manager? While we believe these conflicts are rare, they are likely enough to preclude distribution channels from fully integrating this market.

However, it seems likely that we will see integration within the operational side of the tech stack. Property management, channel management, revenue management, and housekeeping could all well be offered as one platform. In fact, doing so would create network effects and enhance the value proposition to the local property manager.

Finally, the single-listing property manager. Here, the client acts more like a retails customer and, we suspect, the distribution channel owns the relationship more fully. We do not believe it is a coincidence that many vacation rental startups we spoke with began by targeting this sub-market but ultimately pivoted towards professional customers. That’s because, at this level, it seems there is a strong business case for horizontal and vertical integration at the distribution level.

We agree with Allen of Stay Alfred, who told us that “this is not a one winner take all in this space because the various business models operate so differently.”

Nonetheless, there is a clear need for integration and standardization of systems. As the vacation rental tech stack becomes more professional, there will only be so many world-class solutions. At the end of the day, we see an opportunity for consolidation amongst vacation rental tech leaders.

No matter what role you play in the travel industry, the name of the game is hospitality. Those vacation rental businesses that can provide an elevated guest experience will see the most success. Key to this vision will developing seamless and scalable technology solutions.

Endnotes and Further Reading