Consolidation among the property management groups has created demand for more sophisticated technologies that help manage increasingly larger and geographically dispersed portfolios of properties. That includes core back-of-house functions such as availability, revenue and channel management, as well as front-of-house services such as maintenance and concierge services.
Report OverviewThe vacation rental market has captured serious attention from investors and travel consumers in recent years. The Airbnb marketplace disrupted and transformed the space by introducing a new category of rental: the underutilized resident-occupied flat, room, home, villa, treehouse, houseboat, and other forms of non-hotel accommodations. And while Airbnb has captivated the imagination of the mainstream media, an undercurrent of technological innovation has also taken root within the traditional, professionally-managed vacation rental space. In this report, we analyze the role of Airbnb as a marketplace and distribution channel, but also look more broadly at the tech-enabled ecosystem that has developed around the professionally-managed investment property — most often referred to as the vacation rental (VR). Investments in the form of acquisitions and venture capital have poured into property management groups, third-party technology providers, and online marketplaces including Airbnb. Competition on the supply and demand side has exploded as a result of the Airbnb effect. In this context, the large OTAs including Expedia and Booking.com are stepping up to compete against Airbnb on the distribution front. Meanwhile, the dominant property management companies including Wyndham and Accor continue to roll up a heavily fragmented supply of vacation rental properties. Here, technology will continue to play a key role in shaping a rapid evolution of the market. Until recently, innovation in the VR product category has remained slow compared to other segments in travel. Access to real-time pricing and unit availability across a deeply fragmented supplier base is one example; discussions with industry insiders point to further efficiencies and savings that can be achieved both in distribution and property management costs. This competitive environment will spur new investments and innovations targeting the full breadth of the VR value chain, i.e. the property owner, manager, distributor, and end consumer.
What You'll Learn From This Report
- State of fragmentation and consolidation in the vacation rental industry
- Supply and demand-side market sizing of U.S. and European markets
- Overview and assessment of acquisitions and venture capital funding rounds
- Overview and assessment of the vacation rental technology ecosystem
- Inventory and assessment of new players entering the space
- Insights into the major vacation rental marketplaces including Airbnb
- Gail Mandel, President and CEO at Wyndham Destination Network
- Eric Breon, CEO at Vacasa
- Evan Frank, CEO at onefinestay
- Sean Conway, CEO at Pillow
- Steve Milo, Manager and Founder at VacationRentalsPro
- Tracy Lotz, CEO at LiveRez
- Mathew Hoffman, VP and General Manager at Kigo
- Mike Copps, Executive Director at VRMA
- Ian McHenry, CEO at Beyond Pricing
- Andrew Kitchell, CEO at Wheelhouse
- Alex Aydin, CEO at BookingPal
- Andrew McConnell, CEO at Rented.com
- Vanessa de Souza Lage, CMO at Rentals United
- Nathan Tobin, Director of Sales at Guesty
List of Figures
- The three waves of consolidation
- Comparison of large Hotel Brands Vs. Vacation Rental Sites
- Largest Vacation Rental Marketplaces
- Funding in the Vacation Rental Sector
- Traffic Volume of the large Marketplaces
- Wyndham Financial Performance
Introduction: The Three Waves of Consolidation
Technology has allowed the traditional vacation rental market to grow and move into the consumer and travel industry mainstream. Airbnb popularized apartment sharing and managed-by-owner rentals, which has consequently done wonders for the professionally-managed rental market. On the demand side, this so-called “Airbnb effect” fostered consumer awareness and appetite for non-traditional accommodations, i.e. apartments, homes, etc. On the supply side, it generated investor interest in the way of acquisition and venture capital, in just about everything that touches the vacation rental market. This evolution and the shifts taking place among suppliers, marketplaces, and technology are what Skift Research refers to as the three waves of consolidation within the vacation rental market ecosystem.
Local property management brands such as Vacasa and Vacation Rental Pros for example are snowballing in size as they fold more and more properties into their portfolios. These companies work directly with property owners to create viable rental businesses out of their investment properties. New technology platforms have made it easier for these property management groups to acquire more listings under their management. The tech-enabled giants are still few and far between. Wyndham Vacation Rentals and its roll-up of six large players in Europe is the extreme case of this consolidation. For the most part, the market remains heavily fragmented with local vacation rental management companies controlling well over one-third of the supply.
The explosion of Airbnb and the evolution of the HomeAway family of brands emphasizes the consolidation taking place among regional and national vacation rental marketplaces. Perhaps obviously, these marketplaces do not get involved with property management functions such as channel management, room cleaning, or guest services.
As marketplaces, Booking.com and TripAdvisor also hold a strong position in the professionally-managed segment. These platforms leverage large marketing budgets and strong branding to capture global market share. Airbnb focuses primarily on the do-it-yourself property owner, rather than the multi-property management group. Increasingly, the company is also growing its footprint with property management groups that consequently use Airbnb as a distribution platform. Vacation rental metasearch platforms, including tripping.com, could signal a vacation rental market consolidation push.
This consolidation among property managers has also created demand for more sophisticated technologies that help manage large, geographically dispersed portfolios of properties. As these groups grow in their complexity, the need for more sophisticated and turnkey platforms has become more prevalent. That includes core back-of-house functions such as availability, revenue and channel management, as well as front-of-house services such as maintenance and concierge services. HomeAway white labels its technology to serve their property management partners. Other SaaS platforms including LiveRes, Guesty, and Kigo are pushing their way into the market.
This movement in the VR market has also kicked up discussion about the impact that Airbnb is having on traditional hotels. At Skift Research, we believe that these conversations have been somewhat misguided and superficial. Ultimately, Airbnb is part of a much bigger and complex ecosystem that brings together a global and fragmented landscape of owners (and renters), managers, marketplaces, and layers of technology platforms all catering to a limited supply of inventory. The Airbnb impact on traditional hotels will be discussed in this report, but the bigger objective aims at unraveling the inner workings of this complex and shifting ecosystem.
Sizing the Market
Many of the inherent challenges associated with estimating the total VR market opportunity stem from the lack of consistency in stock; ownership structure; and relationship between owner, manager, and distributor. Geography is another challenge. Most estimates cover Europe and the U.S., while other markets including Latin America and Asia remain nascent for the larger turnkey property management groups. In terms of revenue, certain estimates point to the industry reaching a global market valuation of $169 billion  through 2018.
During executive interviews held for this report, industry leaders roughly estimate today’s U.S. market to be worth $30 billion. Growth reflected in revenue can come from different sources: acquisition-led growth as reported by companies like Wyndham Vacation Rentals and Vacasa, as these entities roll up local property management groups into their brand portfolio; improvements in occupancy rates as a result of growing marketing spend and consumer interest in the VR product; growth in online bookings reported as more property managers and owners pull away from traditional sales channels and into online marketplaces such as HomeAway and Airbnb. Aside from what Airbnb has done with the primary-residence category, organic growth for the VR market has some limitations.
On the supply side, we note constrained growth dynamics. Here we consider both primary and secondary residence rentals. Airbnb exploded on the scene by essentially creating a new rental category: the owner-occupied primary residence rental. These are units rented out while the resident is away or has a free room available and include private rooms but also entire apartments in geographic areas that property managers and platforms (including HomeAway) had not previously penetrated, most notably in urban markets where local regulations kept these types of single-unit rentals from propagating.
With Airbnb now in its seventh year of operation, the key consideration here is whether this primary-residence market has additional room to grow. Different scenarios play out here and regulation will play a crucial role in the outcome. Amid backlash from local city policy makers, Airbnb has begun to limit the number of properties that individuals can list. Most recently, Barcelona and Amsterdam collaborated with Airbnb to set these types of limitations. This will certainly curtail inventory levels for Airbnb, particularly as other cities adopt similar policies and as professional management companies face higher costs in doing business in urban markets.
On the other hand, these property limitations could legitimize the sharing concept by bringing it even further into the mainstream with both residents and regulators, as people look to their underutilized apartments and homes as additional sources of revenue. The home sharing concept has indeed gone mainstream in terms of awareness with the general public; whether primary residence sharing grows much beyond its current position will depend on other factors including growth and softness of global and local economies, and the premiums that a resident can harvest from renting their spaces.
2010 data from the U.S. Census Bureau approximates U.S. supply at 4.6 million vacation homes including “summer estates,” “timeshares,” and “fishing cabins.” Year-round availability is another factor that can skew market estimates. Owners may or may not keep their properties available on the market 365 days out of the year.
Wyndham Worldwide, a major player in the VC market, estimates the eligible U.S. vacation rental inventory supply to sit at “approximately 1.3 million properties” and the European supply to be as high as “4.3 million properties.” Given these estimates of the U.S. and Europe alone, Wyndham’s total inventory of 110,000 units accounts for just two percent of the total market. This gives a strong sense of how fragmented the market is on the supply side. In fact, most of global professionally managed VR supply is controlled by small local players.
In comparison to the hotel industry, the number of rentable VR units is much lower. Yet, vacation rentals generate more revenue than a single hotel room, given their size and appeal to family and group travel. When looking at Wyndham, which operates both in the traditional hotel lodging industry as well as in vacation rentals, the number of rentable hotel units is six times that of vacation rentals. The revenue share for both segments generated was almost on par. While Wyndham Hotel Group generated roughly $1.3 billion in 2015 with a 27% EBITDA, Wyndham Destination Network turned over roughly $1.5 billion with a 24% EBITDA.
Looking at the distribution platforms to quantify the number of available listings online, we identified roughly seven million property listings, with the platform’s inventory being mostly concentrated throughout America and Europe. Yet when taking into consideration the fact that properties are typically listed on multiple platforms, the total number could plummet significantly. We estimate that the online listings available on the major platforms through the Americas and Europe lie between two and 3.5 million.
Growth in the industry has mostly been measured by higher revenue streams and the number of properties on both the larger vacation rental marketplaces, as well as among the larger property management companies. However, the growth among the larger players is often heavily fueled by the acquisition of companies rather than solely due to organic growth. Inventory displacement in the sector is far more common among the larger companies than actual organic growth driven by new supply.
Supply growth has stagnated according to some industry experts. “The real supply issue is in the core vacation rental market and there hasn’t been any new inventory to any extent since 2006 when the residential housing market throughout the world went into a depression,” said Steve Milo, founder and owner of Vacation Rentals Pro. “In certain markets, you’ve had housing shortages which have resulted in vacation rentals being converted into full-time residences. The supply market is shrinking while demand is accelerating.”
The U.S. housing bubble leading up to the 2008 market crash directly and indirectly contributed to a growth phase for vacation rentals. Market exuberance during this time period sparked a housing construction boom, which left many owners and banks with empty foreclosed properties in markets that depended heavily on housing for their economic base. These properties in turn opened up to local VR property managers as a means of recovering losses. HomeAway raised $250 million in 2008, the year marked as the largest price drop in history of the home price index.
U.S. Vs. Europe
The vacation rental trend is a global phenomenon, yet the European and U.S. markets are still the key regions for the industry. The larger U.S. vacation rental companies including property management companies, distribution platforms, and those providing additional tech services have already branched out their presence beyond the U.S. Yet, the markets themselves can be very diverse in management structure and relationship with the owner across different geographical areas.
One of the key differences between the U.S. and European markets is inventory exclusivity among property management groups. In the U.S., a typical leisure trip is more likely to take place in one specific location, which limits the benefit of working with other management groups. In Europe, “city hopping” is more common with trips often occurring in multiple cities. Matthew Hoffman, VP and general manager for Kigo, explains that property managers “need to accommodate that type of demand style by networking with other property managers.” For this and other reasons, property managers in Europe are more likely to form property pools, allowing others to tap into their inventory and vice-versa, looking to “control the entire guest experience.” These types of arrangements also impact occupancy, says Matthew Hoffman. “We look at average occupancy for a vacation rental in the U.S. being just over 38%, and if you look at an equivalent sized company in Europe and the average occupancy there is just under 20%.”
Urban Markets Vs. Vacation Markets
Traditionally, vacation rental units have predominantly loomed in leisure locations. With the rise of Airbnb and the mainstreaming of the rental model, the entire VR value chain including turnkey property management groups have redirected their interest toward urban markets. Companies such as onefinestay and Pillow are almost exclusively focused on building this inventory. Vacation rental giant Wyndham has also expanded its exposure in the urban market with recent investments and acquisition of companies in the space.
In 2016 alone, Wyndham acquired Spanish Friendly Rentals, which has roughly 3,000 properties across urban European destinations. Wyndham also invested into Veeve, a UK luxury property management company in London with around 1000 properties. “We see more customers who are including city trips and urban rentals within their resort vacation,” said Gail Mandel, president and CEO of Wyndham Destination Network, the company branch that oversees vacation rentals and vacation exchange.
Airbnb’s dominant position first-mover advantage with primary-residence host puts it at a competitive advantage in urban markets. Its brand strength with both hosts and consumers will make it difficult for HomeAway and Expedia Group to compete in this space, but not without trying. HomeAway (and TripAdvisor) actively recruit the do-it-yourself hosts. However, the platform holds a stronger position in traditional vacation markets catering to beach, golf, and ski goers. Part of the reason why it has managed to retain its position is the technology. The HomeAway platform has catered to the professional multi-unit manager for much longer than Airbnb. This has made it a favorite among traditional VR managers.
The recent regulatory climate is another consideration, as more city markets take a negative position against rentals. Airbnb’s recent move to limit the number of properties that hosts can publish in cities like Barcelona and Amsterdam is telling about its future as a platform-of-choice for professional managers. As the supply side consolidates — i.e. with Wyndham, Accor, Vacasa, and other players rolling up smaller local players — multi-property management technology will become increasingly important for all marketplaces in the space. Airbnb will need to improve its technology to break into more consolidated markets via supply acquisition. The danger for Airbnb is with losing its brand positioning. For HomeAway with Expedia, Booking.com with Priceline, and TripAdvisor, the challenge will also play out on the branding side.
Vacation Rental Investment Landscape
When looking at the investment landscape in vacation rentals, it would be hard to overlook HomeAway. As one of the earliest companies looking to bring consolidation to the distribution aspect of vacation rentals, it also remains one of the most funded companies in the sector. The company’s journey began with an initial series A round of $49 million in 2005, which the company used to directly acquire and merge multiple marketplaces. Over the years it continued growing through large and frequent acquisitions; HomeAway raised roughly half a billion dollars by 2010 and was later acquired by Expedia for $3.6 billion in 2015. With a greater interest from startups and large companies to emulate the success HomeAway had in bringing intimal consolidating to an aspect of the vacation rental industry, competition in the industry has risen and attracted a growing amount of venture capital funding.
Marketplaces have typically been the most funded type of companies in vacation rentals even when excluding alternative accommodation sites such as Airbnb, which don’t strictly focus on vacation rentals. Although Airbnb’s focus is not strictly on vacation rentals, it is estimated that roughly one-third of its total inventory is made up of “Entire Home/Apt” listings, roughly one million listings. Alongside Airbnb, similar sites, particularly from China, have also seen great interest from investors including Tujia, Zhubaijia, and Xiaozhu.
Over the past three years, the funding for the vacation rental industry was almost exclusively headed toward the large alternative accommodation platforms. However, excluding the large investments into Airbnb and similar companies, the segments of the industry were fairly represented in terms of funding received, ranging from property management companies to vacation rental software companies and distribution services.
2014 saw a strong year of funding for property management companies, including the likes of Veeve, InvitedHome, and TurnKey. Funding going into the property management segment was both aimed at companies looking to address the consolidation aspect on the property management front but also toward companies taking a totally different approach and focusing on niche markets. Veeve for instance promotes itself as “hand-picked London vacation rentals with traditional hospitality and concierge.” Following the likes of onefinestay, it focuses on the niche urban luxury segment. TurnKey on the other hand is looking to shake up the current vacation rental landscape as a tech-enabled company. Compared to the traditional fees ranging between 30 and 50%, TurnKey charges homeowners 18%.
In 2015 the short-term rental sector attracted north of $2 billion. Yet typically, the majority of the funding went almost exclusively toward alternative accommodation sites such as Airbnb ($1.5 billion) and Tujia ($300 million), China’s Airbnb. When looking strictly at vacation rentals, i.e. professionally managed properties, funding in 2015 reached roughly $125 million.
Property management companies saw another strong year in 2015, onefinestay alone raising a total of $65 million. The funding again was split between the niche property management companies, such as onefinestay and Veeve, and the newer tech-enabled companies such as Pillow, which like Turnkey is looking to optimize efficiency in property management through technology and pass the savings on to the homeowners.
2016 saw funding in vacation rentals reach roughly $120 million. Unlike previous years, property management companies did not represent the major share of the capital. Although Vacasa alone raised a total of $40 million, 2016 saw a strong year for metasearch platforms. Tripping.com raised $35 million toward the end of the year and German competitor HomeToGo raised a total of $20 million earlier in the year. The metasearch trend seems to address not only the price comparison service, as mostly known through hotel metasearch, but also aggregates inventory of the largest vacation rental platforms to offer customers a view of all properties in the area.
Although the funding into the industry was roughly equal to that of 2015, 2016 saw some large acquisitions take place in vacation rentals, including onefinestay, Wimdu, and HouseTrip.
While still young, 2017 saw a $15 million investment going to Stay Alfred, a U.S. property management company, and Oasis Collection raised a total of $2.5 million. Accor has also initiated talks with Travel Keys, which could potentially lead to an acquisition and Accor strengthening its exposure in vacation rentals.
Venture capital firms were not the only group showing interest in the industry. Larger travel companies looking to bring consolidation and dominate specific functions of the industry have entered the industry through the acquisition or through investments into companies in vacation rentals.
Booking.com released a vacation rental booking platform, Villas.com, in late 2014 which was ultimately merged into its main platform in late 2016. OTA rival Expedia entered the sector through one of the largest acquisitions in the sector thus far, by acquiring HomeAway in 2015 for $3.6 billion.
Accor purchased luxury property management company onefinestay in 2016 for $168 million, entering the vacation rental sector but also expanding its luxury inventory, something sought after by the company, which also acquired Fairmont Raffles in 2016. However, the company also demonstrated a keen interest in the vacation rental sector with investments into Squarebreak and Oasis, and in early 2017, the French hotel conglomerate announced that it had begun “exclusive negotiations,” which eventually could lead to the acquisition of Travel Keys, an Atlanta-based private vacation rental broker.
TripAdvisor acquired vacation rental platforms FlipKey, HouseTrip, and Niumba, looking to increase its presence in the industry. Amadeus IT Group invested in a series B round of BookingPal, a vacation rental distribution system, which closed at a total of $5 million. Hyatt invested in a series D round of onefinestay, which closed at $40 million, before it was acquired by Accor.
With the larger companies entering the sector either by competing with, or acquiring, young startups, competition is rising.
“It’s a gold rush. There are a ton of new people pouring in and a ton of investment dollars pouring in. It’s going to be a bloodbath, people will try to undercut each other, cost of acquisition is going to go up and margins are going to go down. It’ll be very hard for traditional managers to compete,” said Andrew McConnell, CEO at Rented.com, a marketplace that brings together homeowners and property managers.
Technology has played a vital role in moving the industry toward the initial stages of consolidation, and while Homeaway was an early mover in bringing consolidation to the distribution aspect of the sector, new companies are looking to disrupt other segments of the industry through the use of technology.
Property management companies took on technology services such as PMS and channel management, which allowed them to grow by enabling and easing the oversight and management of larger portfolios. While the traditional property management companies have been growing, a new type of property management company is looking to go to market with new business models built around in-house technology.
Although the new tech-enabled companies are establishing themselves, the larger software companies don’t see them as a threat to their business; the smaller property management companies still vastly dominate the market. In fact, a similar scenario to that of property management companies is playing out in the software space itself. Competition in the software space is vast, and the larger companies are looking to increase their market share.
The key components of the vacation rental tech-ecosystem have traditionally included the property management and the distribution aspects of the value chain. While competition has increased in both of those tranches of the tech ecosystem, new players have entered the scene looking to fill certain technology gaps and bring new services to the industry.
Most of these services have enabled property managers to outsource tasks ranging from pricing to smart home tech, insurance, payments, and on-the-ground staff including maintenance and customer care. While outsourcing can reduce costs for the property management companies, a new approach to the on-the-ground operations used by Pillow is looking to further reduce those costs by using a marketplace model. Similar to Uber, the company operates its own platform where it will post jobs and tasks that need to be completed and, in this case, PillowPros can claim the task. This approach circumvents the need to hire staff on the ground as well as the need for outsourcing, reducing costs that Pillow wants to pass on to the owner.
A further area where technology is looking to fill a gap is before the PMS, looking to enable the very acquisition of inventory for property management companies. Homeowners who want to drop off their keys and see a monthly income stream are one acquisition channel for property managers. Other acquisition channels property management companies use to source new inventory can be direct, such as employing staff on the ground which actively approaches homeowners, as well as indirect, such as working with estate agencies to acquire new properties. Rented.com is a marketplace looking to better the conditions for those homeowners looking for a property manager, it allows them to list their property and have property managers bid on it by offering a guaranteed income or a percentage fee for which they will take the property. Looking to bring transparency to the fragmented industry, Andrew McConnell says, “Auction and competition gets homeowners the best deal and ensures that the best companies are the ones that grow.” Others in the industry, such as Eric Breon, CEO of Vacasa, are not too enthusiastic about the model: “There’s the winner’s curse where the person who wins is the person who pays too much, and so the bidding-based model securing inventory isn’t something that we’re super excited about.”
Property Management Systems
The key feature of a Property Management System (PMS) is to aggregate all the data that property management companies have. The data will then be used to provide the company with an overview of its inventory, but also serve as a database for other services such as distribution and pricing from which to pull data.
PMSs in the vacation rental scene are plentiful, from platform-owned PMS systems such as HomeAway’s Escapia and V12.NET to platform agnostic PMSs and proprietary ones by larger property management companies.
The larger PMS companies are diversifying beyond their core offerings to retain customers by incorporating additional services and features. Channel management and pricing have been the two most sought-after services and therefore also the most-adopted technologies among PMS companies. The advantage PMS companies looking to cover more steps in the ecosystem have is that they sit at the source of the data. Larger property management companies such as Vacasa have transitioned from using third-party PMSs to building in-house solutions to tailor the software around its specific needs.
The third-party software companies will have to demonstrate the value they provide, if PMS systems make building their own channel manager a trend, particularly as the PMS has access to all the data and the customers already using the platform.
“They will have difficulty, I think, scaling over time if they are not able to be able to tap directly into the nucleus where the PMS, or the authority of the data is being managed,” said Matthew Hoffman, VP and general manager for Kigo.
Vacasa on the other hand has outright abandoned third-party PMS, and built a proprietary solution that caters better to their needs. However, such a solution only becomes viable for the largest players in the industry and is also dependent on the business’ strategy. While Wyndham is considerably larger than Vacasa, by acquiring companies that already have consumer-facing platforms and not aggregating all inventory under one platform, it would find it a significant challenge to consolidate the technology among all its brands.
In 2010 HomeAway entered the professional software space by acquiring Instant Software Inc. (V12.NET) and Escapia. At the time, both companies together represented roughly 1,700 property management companies and are one of the most popular PMS solutions to date.
HomeAway positions its V12.NET software as the more advanced platform, with the software offering more advanced capabilities such as integrated marketing campaigns, long-term reservation capabilities allowing to set specific rates in the future, the ability to manage timeshares, etc. The HomeAway software suite has also followed the trend of adding more functionality, offering services such as yield management, channel management capabilities, and easy integration with on-the-ground workflow.
Vacation rental PMS LiveRez claims to be “the most widely used cloud-based software for professional vacation rental managers.” From the very beginning of the company, it has been looking to make vacation rental inventory bookable online. LiveRez.com went live in 2007 with its flagship service “Book It Now,” a tool allowing vacation rental managers to accept bookings through the web. LiveRez announced their 1,000th property manager in late 2015, although the company doesn’t disclose numbers on volume of property managers and listings, we estimate that LiveRez currently works with 1,150–1,250 property managers and has roughly 64,000–70,000 listings. The typical property manager on LiveRez has an inventory size ranging from 20 to hundreds of properties.
Over the years, LiveRez has added functionality to its technology suite, ranging from improved property management capabilities to custom website development, accounting functionality, and integrating with Airbnb.
From a pricing perspective, LiveRez charges a 0.5% fee for every booking without monthly fixed fees, positioning the company in a very competitive position.
One area where the company has, intentionally, been behind in terms of integrations is channel management. “We’re definitely getting into the channel management part of the industry. We have a team of 14 engineers working on LiveRez all day long. We’re constantly adding more features,” said Tracy Lotz, Founder and CEO at LiveRez. Changes are coming in 2017 and “HomeAway is on the list.”
LiveRez has been vocal about their thoughts on distribution over the past years, and the current lack of further channel management capabilities beyond Airbnb is not due to technological limitations. “HomeAway has wanted to integrate with us for years. We’ve never been able to put a deal together that we felt protected the interest of our managers,” said Lotz.
In 2011 the VRMA partnered with Pegasus Solutions to provide a VRS (Vacation Rental Switch) which set out to standardize how a vacation rental should be presented and distributed online. Although the project stalled, LiveRez was strongly in favor of the VRS and then President of VRMA, Steve Trover, joined the LiveRez team as chief strategy officer in 2013.
With Lotz and Trover teamed up, new plans for their distribution and approach to channel management seem to be in the pipeline. At LiveRez’s latest conference in October, the company announced it was developing “a revolutionary new channel management system.” The new service will create an internal marketing network and allow third-party companies to build into LiveRez’s API, allowing LiveRez to set the terms and guidelines.
Although specifics have not been released, we believe the service will function as a distributed marketplace of LiveRez’s inventory, whereby property managers using the platform will be able to add other LiveRez inventory to their websites and vice-versa, have their listings on other property management sites. Whether a barter system will suffice to list what could be your competitor’s inventory on your own website is unclear; we believe LiveRez introducing an affiliate booking fee to be more feasible and likely to happen.
LiveRez aims to also give third-party platforms access to its inventory through its own API, which allows the company to set the terms and guidelines.
“Building an avenue for professional managers to fairly distribute their inventory to listing sites has been incredibly important to me. Although we couldn’t get it built at VRMA, we will absolutely get it done at LiveRez,” said Trover in a press release.
LiveRez takes a very interesting approach, particularly when it comes to distribution. Property management companies that currently want to list their properties on sites such as HomeAway and VRBO have to either manage these manually on the platforms or use a third-party channel manager. The upcoming developments LiveRez is working on could be a key differentiator for the company in the long-term.
From a pricing perspective, the company offers a very competitive pricing structure, favorable among property managers in the traditional leisure markets, due to charging on a merchant model rather than also having a fixed monthly fee.
Founded in 2008, Kigo also caters to property management companies by offering them property management software. Kigo.net went live in 2009 offering freemium-style pricing, which evolved to a three-tier plan with a monthly charge and a fixed amount per booking.
Over the years, Kigo has expanded their offerings beyond the core property management capabilities, working on integrations such as channel management, custom websites, revenue management, and most recently offering its users a customer support feature that deals with booking inquiries. All the services provided by Kigo are in-house solutions. “At the nucleus of the property management business is the PMS, but every other service around that is what we are putting together to be sort of a salesforce for property managers,” said Matthew Hoffman.
On the channel management front, Kigo has a “less is more” approach, says Hoffman. “We took a step back last year, and we looked at what were the channels that were actually providing value to property managers. Because of the cost for distribution, you could say I want to be on a hundred channels out there, but if only 10 of those 100 channels actually bring you demand, the other 90% are actually costing you money. You have to respond to the leads, it’s still an opportunity cost there. We’re focusing on quality demand through channel management.”
One of the more recent additions to Kigo’s offering suite includes the Contact Center with 24/7 support for quick customer engagement and multi-lingual support. “Almost 25% of bookings are actually happening in that timeframe, so a core of your bookings a year are happening in a timeframe where your doors are closed? That’s a problem. So, getting back to the customer the next day is okay, but our contact center services, this is where real page is a big benefit, and I think it’s a competitive differentiator for Kigo,” said Hoffman.
As the company itself states, it’s aiming to become a salesforce for property management companies, adding functionality that traditionally has been outsourced to third parties. The move seems a logical progression to consolidating the software space. While the software space remains heavily competitive, Kigo also relies on its parent company, Real Page, to help tackle the market.
From a pricing perspective, the company remains competitive through different plans catering to different needs and charging a fixed fee monthly and on every booking.
Built out of Ycombinator, Guesty is an Israel-based vacation rental tech company that has pivoted throughout the growth of the industry. Originally a receptionist service for Airbnb listings, Guesty ultimately turned into a PMS service specifically tailored around Airbnb. “Our sweet spot has been urban markets […] our PMS is designed specifically for Airbnb,” said Nathan Tobin, director of sales at Guesty.
While the platform offers the typical property management services expected from a PMS, the company has kept its original receptionist service, which aims to ease the communication process, following up to booking inquires and dealing with any inquiries and information guests request all in a timely manner. It most recently announced its addition of channel management capabilities. However, rather than building a proprietary platform, Guesty partnered with Rentals United.
Being built around the Airbnb environment, the platform allows property managers to connect multiple Airbnb accounts to their Guesty account and directly use Airbnb features such as messaging across all accounts through the PMS.
Guesty’s fees start at 2% per booking for the basic software, and depending on listings and add-on services, the fee can reach up to 5%.
Guesty appears to have positioned itself closely around Airbnb, and although it has expanded beyond it, with channel management capabilities provided through Rentals United, the platform seems a tool for companies or individual managers for whom Airbnb is a major channel due to the advanced integration into the platform.
Marketplaces and Distribution
Marketplaces have served as a key component in the establishment of the vacation rental industry. While HomeAway has been the early riser and consolidator when it comes to distribution, and still holds the title of largest vacation rental platform, competition is rising and even coming from the property management companies themselves. While larger travel companies such as TripAdvisor, Aribnb, and Booking.com are strong competitors in the online vacation rental segment, the larger property management companies are also looking to take distribution into their own hands. Wyndham and Vacasa already operate their own platform and allegedly drive most of their traffic through their proprietary channels.
The basic functionality of distribution systems is to bridge the gap between the PMS and the range of customer-facing marketplaces available, by allowing users to keep all their properties updated simultaneously. Any changes pushed through a channel manager, such as rates, availability, or even content, will be updated automatically on all the platforms connected with it.
One of the major challenges in the vacation rental is the lack of standardization among the platforms on the distribution. “There is no standardization on the vacation rental front, unlike hotels, so each integration is a custom integration which is fairly time-consuming and doesn’t allow to fully automate everything,” said Alex Aydin, CEO of BookingPal, a global distribution system for vacation rentals. When posting a listing to a platform, the platform will require certain information to publish the listing, such as pictures, a description, prices, and amenities. However, due to the vacation rental platforms being fairly recent, every platform has built its own way of integrating listings, rather than following a standardized system. While the industry has been working toward a more standardized approach in distribution, currently most platforms need to be integrated separately to suit the individual requirements.
Customer-facing platforms such as HomeAway, Booking.com, and VRBO are where most property management companies tap into the demand. Direct booking is not as much of a trend as it is in the hotel industry, mostly due to the distribution fees being split with the guest, which reduces the distribution costs significantly for the companies and thereby justifies the cost. Moreover, some property management companies pass the distribution fee onto the homeowner, on top of the fee they already pay.
Larger management companies or even companies focusing on a specific niche are more likely to have their own customer-facing platform, but ultimately also rely on third-party platforms to fill their homes.
Channel Management in Vacation Rentals
Distribution in vacation rentals has also seen great improvement thanks to technology and the increasing competition in the space. The two most common approaches encountered when looking at distribution are:
- Presence on all platforms
- Presence on selected platforms
With more distribution platforms coming online, some channel management systems are focusing more on the important and demand-driving ones. Other channel management systems prefer a truly global exposure by integrating as many platforms as possible, including niche local platforms around the globe.
The value of the large customer-facing platforms becomes clear when looking at the volume of traffic they receive. While companies such as Wyndham and Vacasa, which both offer a customer-facing booking platform, manage to get a large share of bookings through their proprietary platforms, they both still rely on the larger platforms.
With exponentially higher traffic than even the larger property management companies, the major platforms in the vacation rental space are HomeAway, VRBO, and Booking.com. Airbnb also brings a large number of bookings to the industry and has been working on expanding its vacation rental business by integrating directly with property management systems.
Based out of Europe, Rentals United has a total of 250.000 properties, with most of their business in urban European cities. Rentals United’s approach to expansion has focused on both the large important players as well as the demand driving niche platforms. Rentals United recently expanded its global presence by integrating directly into Chinese Ctrip and Russian Ostrovok. They also provide channel management capabilities directly to property management companies, like onefinestay, and integrate into PMSs, like Guesty. Rentals United charges a 2.8% fee per booking and provides its customers with a platform that shows the various channels they support and the fees that the various channels incur.
Pricing and Revenue
Among the most common add-on services are revenue management and dynamic pricing. After the airlines found success in the practice of dynamic and differential pricing in the late 20th century, hotels were quick to adopt the practice, aiming to maximize revenue. However, the vacation rental industry has only recently seen the emergence of companies offering revenue management. The delay in adaptation can be attributed to several factors:
“The revenue models you use for vacation rentals are actually far different from what you use for a hotel or for an airline. In the hotel space and airline flights, you’re optimizing for 100 similar seats or hotel rooms, you do more of a portfolio management in the hotel and airline space,” says Andrew Kitchell, CEO of Wheelhouse, a vacation rental pricing platform that raised $7 million in funding.
In a similar vein, Ian McHenry, co-founder and CEO of Beyond Pricing, a vacation rental pricing platform, elaborates on how in hotels and airlines, “you have 200 rooms or seats, you can sell the first ones at a low price and the other ones at a higher price when you see the demand coming in. All that matters is the average across those 200. In vacation rentals, there’s an owner behind each property.”
Today revenue management and pricing extends from managing rates in the short and long term, by measuring market demand and analyzing market trends or adding a minimum length of stay for periods that are likely to sell out. However, using competitive sets in the sector as is common in hotels is unfeasible. Rather than comparing a single property to a preset number of competitors, in vacation rentals the market can be looked at in terms of daily ADR for specific characteristics, such as a two-bedroom house within a two-mile radius.
The revenue management platforms cater to both large property management companies as well as individual homeowners managing their own property. Competition in the revenue and pricing is increasing as it becomes a more popular add-on and as property management software companies are branching out proprietary pricing solutions.
The cost for revenue management systems are usually based on a merchant model, with 1% being the average fee. A modest fee, when considering the advertised 20–40% revenue enhancement for newcomers. However, it’s a significant fee when compared to PMS companies that offer the services as a part of their technology suite and some of which have comparable fees.
Ultimately, if the specialized companies like Beyond Pricing and Wheelhouse can generate higher revenues than proprietary solutions, even if the fee may be considered high, they could possibly integrate with the larger PMS companies directly.
Instant Bookings and Moving Mainstream
While the industry is still in the phase of moving listings online and making them bookable online, a new trend among the larger platforms is looking to make vacation rentals instantly bookable. The capability of instant bookings offer a better experience for consumers, who experience a more hotel-like experience during the booking process, but they also assure that the marketplace taking the booking can charge its fees on the booking.
With instant booking in place, the larger OTAs can also offer their vacation rental inventory through its organic search results alongside hotels, something which is already happening on both Booking.com and Expedia. Expedia announced in 2014 that it would include 115,000 vacation rental properties on its main platform. Booking.com on the other hand merged its entire vacation rental platform, made up of 580,000 holiday rentals, into its main platform in late 2016.
Airbnb has also introduced its instant booking option, and while it offers the same benefits as on vacation rental platforms, the company also alluded to the instant booking service being a measure of preventing discrimination on the platform. Activating instant booking also positions listings better in search results, increases guest interest, and helps users reach Superhost status.
Instant booking seems a logical progression for the industry. Instant booking is what the traditional OTAs specialize in, and once turned instant, the OTAs can easily expand the audience for vacation rentals and possibly increase demand. Overall the aspect of instant booking also makes the vacation rentals more comparable to hotels and therefore could increase the competition with them, even further attracting audiences that highly value the ease of booking a hotel compared to vacation rentals, for instance business travelers or the younger generation seeking instant gratification in every aspect of life.
HomeAway has been looking to consolidate the distribution side of vacation rentals ever since its founding. Founded out of the acquisition of multiple vacation rental sites, HomeAway.com launched in 2006 with 60,000 listings. Acquisitions were at the core of HomeAway’s growth; the roughly half billion raised helped the company acquire competitors such as VRBO, VacationRenals.com, and competitors outside the U.S. such as FeWo-direkt.de, OwnersDirect.co.uk, and AlugueTemporada.com.br.
HomeAway has traditionally held a major presence in the leisure markets, which was mostly fueled through acquisitions specifically focused on leisure vacation rentals. Although leisure continues to be HomeAway’s largest segment, its urban inventory has seen strong grown over the years and increased the extent to which HomeAway and Airbnb compete.
HomeAway went public in 2011 with an IPO of $27 and closed at $40.21 on the first day of trading. After going public, it saw solid revenue growth and was purchased by Expedia in 2015 for $3.6 billion.
In Expedia’s Q4 2016 earnings the company revealed total revenues of $689 million for its HomeAway segment, with $163 million EBITDA. Expedia has also continued growing its vacation rental inventory accessible through expedia.com, adding 20,000 listings in 2016, and looking to add more throughout 2017. Egencia has also announced that it will be looking to add HomeAway inventory in 2017, pushing the company’s vacation rental inventory even more.
Since Expedia acquired HomeAway, it has been looking to turn more inventory directly bookable online and made changes to the pricing structure of the site. HomeAway allowed homeowners to list their properties on the site without making them bookable online, and while Expedia had expressed interest in making all of its inventory bookable online, it still offers the option at a higher monthly fee.
It moved away from HomeAway’s tier pricing in mid-2016, introducing a simplified pricing structure with two pricing options. The tier pricing allowed homeowners to purchase different tiers of membership, which directly impacted the ranking of the results and the geographic exposure.
For the pricing HomeAway switched to a simpler structure, with just two plans to choose from and cutting down homeowners’ costs. To make up for the lost revenue on the homeowner side, HomeAway rolled out a traveler service fee for the customer.
The pay-per-booking option charges homeowners an 8% fee for each booking, while the annual subscription is an annual fee with no commission taken from bookings from the homeowner. An annual subscription without online booking enabled goes for $549. HomeAway also charges the customer a fee to cover its own expenses and provide its services. The customer fee can range between 5-12% depending on the reservation amount, the higher the total amount the lower the percentage, the fee is capped at a maximum $499. On a 2-5 night booking the percentage usually lies between 9-10%.
The introduction of new fees and changes to the pricing model have been criticized by many property management companies, as they often come unannounced and leave property management companies with no choice but to adapt to it if they want to stay on the platform.
The global exposure that makes listings available to all HomeAway global sites has also been changed to now be included for all listings. With the customer-facing fee, the incentive to increase distribution and book more inventory is higher than before.
One of the steps Expedia is working on is adding some of the HomeAway inventory to its main platform to increase the distribution even more. Currently the inventory listed on Expedia is highly selective inventory and only made up of instantly bookable properties.
After merging inventory between HomeAway and VRBO as well as undertaking changes to its pricing structre, HomeAway has announced that it now has a total of 2 million unique vacation rentals throughout its brands. 1.2 million of which are bookable online, and 1 million are instantly bookable.
TripAdvisor entered the vacation rental marketplace segment in 2008 when it took up a majority stake in FlipKey. “Vacation rentals is the hot emerging category in travel and FlipKey has a great foundation and a smart business approach,” said Steve Kaufer, founder and CEO of TripAdvisor, in the press release about the acquisition. “We believe we can help FlipKey become the leader in the space and, in turn, FlipKey content will satisfy a growing need for TripAdvisor users.”
Over the years TripAdvisor continued expanding its vacation rentals marketplace reach by acquiring the then largest UK vacation rental marketplace HolidayLettings in 2010, Niumba in 2013, Vacation Home Rentals in 2014, and HouseTrip in 2016. Through the latest acquisition of HouseTrip in 2016, TripAdvisor reached a total of 830,000 vacation rental listings.
TripAdvisor has aggregated all vacation rental inventory under their “TripAdvisor Vacation Rentals” platform, while also maintaining the acquired sites running and giving them access to the aggregated inventory.
In regards to pricing, TripAdvisor has also adapted to the splitting-costs model between customers and suppliers. Property managers and homeowners are charged a 3% fee from TripAdvisor and guests will also see a traveler charge ranging between five and 15%. Under the current model, all listings include TripAdvisor’s global exposure and are thereby listed across all its sites.
TripAdvisor entered the market with the advantages of being a well-recognized brand in travel and having an already high volume generated through its platform. Moreover, due to the core product of reviews the company is built on, it has strong capabilities when it comes to big data. Something that could be leveraged to specifically target consumers interested in vacation rentals and combine vacation rentals with other services they offer.
For financial statements, the company divides its revenue into two segments: “Hotel Segment” and “Non-Hotel Segment.” Alongside vacation rentals, the non-hotel segment is also made up of their attractions and restaurants offerings, and has been making up a larger and growing share of TripAdvisor over the past years.
From 2014 to 2015 alone, their non-hotel segment grew by $118 million, amounting to a total of $229 million and roughly 15% of the company’s total revenue. Throughout Q1–Q3 of 2016, the non-hotel segment already generated $225 million and is on track to see another year of solid growth.
The larger uptick in revenue from its non-hotel segment took place in 2014, when the company acquired tours and activities site Viator and restaurant platform La Fourchette.
Airbnb and Vacation Rentals
As the largest platform in the alternative accommodation scene, Airbnb brought popularity to the short-term rental sector and fueled a short-term rental growth particularly in urban markets. Initially, the platform showed no particular interest in catering to the vacation rental industry, focusing on their new concept of P2P rentals. The Airbnb platform was built to cater for individual users rather than companies with hundreds of listings. Therefore, managing multiple properties on the platform provided serious property management limitations as well as significant limitations from a distribution perspective.
These lacking features resulted in custom-built integrations launched by startups such as Guesty. These platforms merged multiple Airbnb accounts onto their platform, allowing property managers to simultaneously be logged in to multiple accounts and handle communication with guests through one unified platform.
It was only in 2015 that Airbnb announced its first partnership with vacation rental software LiveRez, to facilitate property managers to link their listings directly onto the platform. After the integration with LiveRez, Airbnb continued expanding direct integrations for vacation rental companies and today offers its own API. The API is popular among the larger channel managers and some PMSs, however it remains a closed API only accessible by partners selected by Airbnb.
STR, a hotel market data and benchmarking company, estimates that Airbnb’s inventory of “vacation rentals,” i.e. active whole apartment/house listings, make up one million of its total inventory. While originally bringing the vacation rental concept to urban markets, Airbnb has also adopted a strong presence in leisure markets, with companies eager to list inventory on the platform.
Today Airbnb retains its strong positioning particularly in urban markets, not only with more inventory in urban locations but also a higher occupancy in the sample of cities we pulled data on.
Most recently, news emerged that Airbnb is in talks with Luxury Retreats, ‘a full-service vacation rental company’, regarding a potential purchase. Luxury Retreats has more than 4,000 luxury properties around the globe, including Richard Branson’s private island. The platform offers a turnkey booking solution for homeowners and claims to be extremely selective regarding accepted properties, with roughly 5% of homes accepted onto the platform.
The potential purchase could give Airbnb a strong positioning in the luxury segment of alternative accommodations, diversifying its user base and attracting new types of inventory for future growth. The purchase price is estimated to lie between $200 – $300 million. We believe Airbnb will continue to operate the brand separately, if the purchase were to take place, and potentially growth the luxury marketplace by adding selected luxury inventory currently listed on Airbnb. Keeping the marketplaces separate and upholding the controls and requirements Luxury Retreats has in place will allow Airbnb to expand and reach new audiences and new types of properties.
Traffic and Metasearch
Traffic is essentially what makes the more successful marketplaces stand out from the vast competition. Homeowners and property management companies are looking for high-volume traffic sites to list their inventory, and consumers look for websites with a vast number of listings to choose from. The value of traffic has been demonstrated by the vast and frequent acquisitions happening in the sector.
Metasearch companies in vacation rentals have gained momentum over the past few years with Tripping.com and HomeToGo raising vast amounts of funding. While metasearch in the hotel and flight industries may often be driven by the cheapest prices, in vacation rentals, the aggregation of listings plays a much more significant part.
Sites such as Tripping.com, Holidu, and HomeToGo are among the larger metasearch sites for vacation rentals, reaching from five to 10 billion listings, according to the respective companies’ own numbers.
The sites have also been working on making listings instantly bookable through their own sites, attempting to build a one-stop shop for vacation rental guests. Looking to grow exposure globally, the metasearch sites are betting on gaining a large share of traffic and being able to drive the traffic into revenue-generating channels.
Rise of Property Management Giants
The popularity and technological advances in the industry have reshaped traditional property management companies. With a higher number of customers looking for a vacation rental, and management companies having the capability of growing inventory, competition in the industry has increased.
While the traditional property management companies have been able to facilitate their processes through technology, new competitors are looking to use technology to its full potential, attempting to tap into a larger inventory by offering very competitive pricing structures.
Pricing Models and Distribution
One differentiator among the variety of property management companies is their fee. Traditionally, property management fees lie between 30 and 50% of bookings, and depending on company and contract, could see additional fees added on top, such as distribution fees, marketing fees, and other fees. The new tech-enabled companies are looking to enter the market by significantly undercutting their competition. Unable to offer homeowners better prices, they use technology to its full potential and build most technology in-house.
Property managers handle the whole rental process for the homeowners. Once the contracts are signed, the owner gives the property managers access to the property and thereafter receives a regular income flow, depending on the pricing style used. The pricing options are usually two:
- Percentage of Revenue
- Guaranteed Monthly Income
The most common pricing option among property management companies is the revenue percentage, being the option with less risk for them. Guaranteed pricing is usually only offered to owners who have already been working with the company for a certain period of time, and who give their property’s availability to the company almost entirely.
The pricing percentage can vary from company to company, depending on the services offered and add-on services the owners opt into. The usual range lies between 30 and 50%. One property management that stands out on pricing is Pillow Homes. Compared to its competitors, its fee is 15%, which they achieve through a very concise tech focus. Depending on the company, homeowners could also be charged the distribution fee that various platforms charge. Vacasa will also take a cleaning and booking fee from the customer booking through their proprietary platform.
Guaranteed income is tailored to individual properties, usually based on performance over the past years, which is why the scheme is generally offered to existing customers or on properties that have performed historically well under different management. Guaranteed income can be a preferred option by owners, giving them more stability in return on investment.
Having higher inventory, they stand in a stronger position to distribute it online and sometimes even attempt to take distribution in their own hands. The largest property management companies are Wyndham Vacation Rentals and Vacasa.
One of the key phases in the growth of the vacation rental industry is the acquisition of new properties by property management companies. Most large property management companies actively take applications for new properties. Depending on the property manager, the applications must fulfill certain criteria and often be in a certain geographical area. Property managers who operate in a niche will have a vaster number of criteria and be more selective in the process. Other than taking applications from homeowners, the companies also source inventory by employing staff on the ground that actively approach homeowners about the opportunity of vacation rentals; more recently estate agencies are also an acquisition channel.
Rented.com, a marketplace for property managers, is looking to fill a gap in the acquisition phase of properties, facilitating the process for the homeowners. The platform allows owners to list their property on the site and have property managers bid on it in the form of a guaranteed income or commission fee they are looking to take, giving the homeowner more transparency. It’s “a transparent marketplace,” said Andrew McConnell, CEO of Rented.com. “Making property managers bid on properties allows for an efficient and competitive market; it gets the homeowners the best deals.”
Building a Brand
The larger property management companies are building a strong enough inventory to raise some brand awareness. Even smaller companies are targeting a niche that gives them hope to build loyalty among its customers.
Similar to the hotels’ “book direct” campaigns, the vacation rental companies are trying to improve their margin with many now having their own platforms. However, it still seems unrealistic to completely abandon the large volume of distribution that the major platforms receive. Even the largely funded property management companies like onefinestay, which originally only distributed through its website, have taken on the partnership path for distribution.
Wyndham Vacation Rentals is by far the largest property management company with more than 100,000 listings on its platform. However, Wyndham’s rentals business also benefits from being part of a larger hospitality brand, which has afforded it an opportunity to make many of its vacation rental properties available through Wyndham’s loyalty program.
Beyond pushing direct bookings and having customers know they’re staying at a certain brand, the industry is not in a position to control a true brand experience like that of hotels. Since the property management companies have no control over the furniture, location, and amenities in the properties, building a true brand experience presents significant limitations.
Servicing the Properties
The property management companies will take care of the housekeeping and basic maintenance issues that arise. One of the key differences to hotels is obviously the staffing and location of the properties. While hotels can hire hourly staff and clean the rooms daily, in vacation rentals, the housekeeping aspect itself is managed differently.
Depending on the approach that the property management companies take, the housekeeping can take place multiple times during a stay and be done by the property management company itself with its own hired staff. Other property management companies outsource the process to housekeeping and cleaning companies. The cleaning fee is usually paid by the customer during the booking phase — thereby not only do the companies not charge homeowners for it, but they also manage to turn a profit by often charging the customer fees higher than the actual cost of cleaning or outsourcing the cleaning.
Tech-enabled companies are also looking to cut costs and homeowner commissions by optimizing the cleaning process. Pillow uses a platform similar to Uber, where it posts tasks and has “PillowPros” who can claim the tasks and are paid depending on the tasks they fulfill.
Wyndham Destination Network
With 112,000 properties in their inventory, Wyndham is by far the largest property management company in the industry, working with 64,000 homeowners directly. Wyndham Destination Network, the vacation rental and vacation exchange segment of the company, represents roughly a third of the overall company’s revenues.
The three segments of the company are:
- The Hotel Group, made up of franchises, management contracts, and owned hotels.
- The Destination Network comprises Wyndham’s vacation rental segment, although it also includes two timeshare exchange programs, RCI and The Registry Collection.
- Wyndham’s Vacation Ownership segment, which makes up almost half of total revenues, develops and acquires resorts throughout the Americas. “Wyndham Vacation Ownership develops, markets, and sells vacation ownership interests and provides consumer financing to owners.”
Wyndham has been constantly growing their inventory through acquisitions around the globe. In 2016 they acquired Friendly Rentals, Dayz Resorts, and German Airbnb rival Wimdu, which was approved in early 2017 by the German Cartel Office.
Wyndham Vacation Rentals UK includes the following brands:
- Hoseasons, acquired in 2010, with a total inventory of 20,000 listings
- James Villas, acquired in 2010, with a total inventory of 2,500 villas
- Blue Chip Holidays, acquired in 2016, with a total of 1,100 properties
Wyndham Vacation Rentals North America includes the following brands:
- Resort Quest
- Local brands such as: The Resort Company, Caribe Cove, Bahama Bay, Smoky Mountain Property Management, Oceana Resorts, Vacation Palm Springs, and Kaiser Realty
Novasol was acquired in 2002. Today it has a total of 43,000 listings for rent and includes:
Landal GreenParks was acquired in 2004 and has a total of 12,000 listings for rent.
On the distribution front, Wyndham manages to leverage its numbers and different types of brands to maintain a high percentage of bookings coming through proprietary channels. “We’ve been consistently able to generate about 85% of our revenue through our proprietary distribution channels,” said Gail Mandel, president and CEO of Wyndham Destination Network, on a percentage it’s looking to increase with the recent acquisition of Wimdu. “What we saw with Wimdu, when it became available for purchase, was an opportunity for us to enhance our internal distribution.” While the remaining 15% of revenue comes from third-party platforms, the channel management is handled internally by Wyndham. “We work with the distribution partners to make sure that our inventory is properly showing. We have the destinations if they want to work with us, then we find a way to make sure the vacation rental inventory is being properly displayed.”
With around 3.5 million monthly visitors, the major traffic drivers for Wyndham are its European companies, Novasol, Landal GreenParks, and Hoseasons being the three largest traffic drivers.
The company claims to already source 85% of total bookings through proprietary channels, and the acquisition of Wimdu will considerably boost the total traffic Wyndham receives through proprietary channels. With around 1.5 million monthly users, Wimdu will increase Wyndham’s proprietary traffic by 40%.
While Wimdu will continue to serve as a distribution platform, rather than a property management company, Wyndham sees an opportunity to increase their proprietary distribution share. With Wimdu’s main traffic coming from Europe, it will allow Wyndham to expand their proprietary distribution and thereby cut their distribution costs.
The next step in terms of distribution, which Wyndham is now approaching, is the capability of cross-selling inventory. The company has already been working on integrating a company-wide yield management system, which is integrated into every new company it acquires. Cross-selling is the next step for the company to make use of its vast number of listings and distribution reach.
“These are definitely the early stages of the cross-selling of the inventory, but now that we have the yield management capabilities in many of our brands, we now have the opportunity to say, okay, this is our inventory that we believe is going to be available, and that could be sold in other markets,” said Mandel.
When it comes to pricing, the fee varies per market and company in the Wyndham network. “Every market is a little different and it also depends on the seasonality. There’s a lot of factors, but the range will go from 20 to 40% of the gross bookings.”
The average vacation rental booking amounted to $495 in 2015. Q3 is the strongest quarter for vacation rentals — in Q3 2016 Wyndham reported an average vacation rental booking amount of $599.
The company’s revenue has been growing over the past years, partly due to the new acquisition of companies and larger overall inventory. While the company saw a decline of revenue in 2015 compared to 2014, the percentage of EBITDA grew by three percentage points.
Wyndham is looking to consolidate the market and maintain its position as the largest property management company through the acquisition of new properties. Aiming to cross-sell inventory among its platforms is a logical step toward increasing its distributing reach, as it doesn’t currently aggregate all its listings on one platform like Vacasa does. Although the company is growing rapidly, when looking at the supply of vacation rentals across the U.S. and Europe, it still only has a market penetration around 2%.
The most recent acquisition of Wimdu also demonstrates a strong interest in owning more of the distribution. Due to the Wimdu acquisition being of recent nature, we do not yet know what approach Wyndham will take to turn the platform into a distribution driver for the company.
As the second largest property management company, Vacasa raised a total of $40 million in funding. While the majority of their properties are within the U.S., Vacasa has also shown interest in the European market, where it already has properties in Italy and Spain, as well as Central and South America. Its total portfolio includes around 5,000 properties.
Similar to Wyndham, Vacasa also actively acquires vacation rental properties to grow its business and total property portfolio. Looking to increase their inventory, Vacasa also offers a guarantee for homeowners looking for a new property manager that they will make $5,000 more than they did in their previous year.
Vacasa also distributes through their proprietary customer-facing platform. “About half of our bookings come through our own website and about half come through third-party channels. HomeAway and VRBO are the most significant third-party channels for us, but we also work with TripAdvisor and with Airbnb,” said Eric Breon, CEO of Vacasa.
Vacasa takes a “boots on the ground” approach to vacation rentals, with employees located in every area it operates in. Currently it employs a total of 1,400 employees. “Our general approach in each of those markets is that we’ll have a local operations center that oversees roughly 30 homes. Then we’ll also in many cases employ our housekeepers directly, too, so all those staff are always in the field for us.”
From a technological standpoint, Vacasa has built their own technology suite, including their own property management system. “When we initially started, we were on Escapia, which is now HomeAway’s software, but it didn’t do a lot of the things we wanted it to do, especially for a company like ourselves with operations in a lot of different markets and where we wanted to automate as many things as possible. I think it’s probably been about four or five years ago that we left Escapia and built our own software. It covers pretty much all the standard functions plus it has a lot more intelligence built into it than a typical property management system. When you look at the offerings out there it’s more about a platform to let you do what you want to do, whereas our system is more about guiding you to what we found to be the best way of doing things.”
Vacasa charges homeowners 35% and takes various fees such as booking and cleaning fees from the guest.
Vacasa’s underlying approach to acquisition and inventory growth is like that of Wyndham. However, unlike Wyndham, all inventory is unified under one platform. Vacasa manages to have a high take rate by promising more sales and revenue for the homeowner. While clearly attractive, Vacasa does charge rates in the higher bracket and will have to see how the low-commission competition affects their business.
Vacasa’s proprietary technology also allows the company to cut costs and tailor it to their specific needs; the company already drives half of total bookings through its proprietary platform.
Coming to market with a curated approach, onefinestay is looking to cater to the luxury segment of the industry. Currently operating in six cities across the U.S. and Europe, it has a total of 2,500 properties in its portfolio.
Founded in 2008, onefinestay launched its online platform in 2010, after which it accrued a total of $80.9 million in funding and was acquired by French hotel chain Accor S.A. for $168 million in April 2016. The latest annual filings from 2015 show onefinestay’s geographic revenue share was predominantly European, roughly 70% Europe and 30% U.S., and the company closed 2015 with a £16.5 million loss ($20 million).
Going after a niche in the fragmented industry is at the core of onefinestay’s strategy. “We see it as a way to differentiate ourselves,” said Evan Frank, CEO of onefinestay. Commenting on the approach of growing the portfolio of properties, he stated: “It is a lot of relationships. In the early days it was old-fashioned hustle. Organic referral is a major channel, another major channel for us, recently, has been traditional real estate brokers.”
Homeowners who partner with onefinestay can expect to pay between 30 to 50% for its services, which include full property management and distribution.
Regarding the distribution, Evan Frank said: “The approach that we’ve taken is to focus on the things that we are uniquely good at and also things we can leverage from our new relationship with Accor. We focus on direct sales with travel agents, we are selling directly to corporate and other intermediaries. […] HomeAway has been a great channel.” In late 2015 it also announced a partnership with BridgeStreet, a serviced apartment company, to increase distribution outreach.
Going after a niche in the vacation rental industry, onefinestay has built up a strong inventory in the luxury segment and has expansion plans in the pipeline. While the major player in the luxury vacation rental space, the 2016 acquisition by Accor came as a surprise to many as onefinestay has been far from profitable in previous years.
Accor’s acquisition will likely attempt to push onefinestay into profitability and expand the distribution capabilities of the company.
Founded in 2014, Pillow is looking to use technology to drastically cut the property management operation costs and pass the savings on to their guests in the form of reduced fees. Contrary to the larger companies that charge in the range of 30 to 50%, Pillow charges 15%.
Instead of hiring full-time staff on the ground, Pillow has built a marketplace, similar to Uber. “We brought an on-demand system to property management, which has allowed us to enable a lot of cost savings and pass that onto the owner, and therefore the guest We use a task-based system, so when we have a cleaning, a guest requires sheets, or the plumbing goes out, those tasks are distributed to the Pillow Pros and they can claim them,” said Sean Conway, CEO of Pillow.
“Instead of hiring all the full-time employees like the cleaners, the plumbers, the electricians, and have them on staff, we make it more of a marketplace atmosphere. That allows us to keep the cost low at 15% or even lower, while still making margins.”
Another way Pillow is looking to save costs is by using smart locks, which are “strongly encouraged” for new homeowners signing up with Pillow. Installing a smart lock not only saves staff from welcoming the guest at arrival, but they also cut costs due to having fewer key losses and the costs associated with the loss.
Pillow uses its own channel manager. “It allows us to keep that cost saving with the owners, so we don’t have to pay the one to 5% fee.” For revenue management, they outsource to Everbooked. The various distribution platform fees are not included in the 15%.
Pillow’s business model revolves around being the cheapest option for homeowners. To do so, it leverages technology to cut costs where possible, and for ground operations users, a marketplace model similar in principle to Uber, thereby having virtually no full-time employees in the markets it operates. As in all businesses operating on tight margins, the economics have to work out for the company to strive in the long term.
For homeowners, paying less is clearly attractive, and even if the low-cost tech-enabled property management companies might prove not to be sustainable in the long-term, they will increase competition and could drive down fees for homeowners.
Regulations in the Vacation Rental Scene
While Airbnb brought popularity to the short-term rental sector, it also raised awareness among regulators concerned about the potential impact on housing and unfair competition with hotels. While vacation destinations are more friendly toward short-term rentals, urban destinations have seen regulators introduce, or attempt to introduce, legislation to curtail and regulate the sector.
From New York and San Francisco to Berlin and Paris, regulation has been a topic of debate in many urban cities around the globe. With some cities taking the extreme approach of an all-out ban on short-term rentals, the debate of regulation has heated up and sees more cities approaching the topic. Taxation and a minimum stay has been the approach some regulators have been looking to pass, mainly targeting whole apartments, which would be subtracted to the housing market, rather than spare rooms. While mostly targeted at the P2P distribution platforms, the approach taken with regulation could impact the professionally managed rentals most.
With the growth of the sector, the VRMA has pivoted toward educating policymakers about the vacation rental industry. “The focus of our association has changed from seven years ago, where we focused on public relations campaigns and public awareness, making people aware of vacation rentals and alternative accommodations. Now they’re so prevalent and common that we don’t have to do a lot of that work on the public awareness side, it’s there. […] We need to focus and pivot our attention towards educating the policymakers about what we do and what differentiates professionally managed vacation rentals from home-shares who might not be adhering to the regulations or collecting taxes,” said Mike Copps, Executive Director of VRMA.
Gail Mandel, President CEO of Wyndham Destination Network
Skift: Could you give us a brief overview of the full Wyndham Destination Network across the different brands and how Wyndham Vacation Rentals kind of bundles into that?
Gail Mandel: With Wyndham Vacation Rentals, as a component of Wyndham Destination Network, we have about 110,000 vacation rental properties in about 600 unique destinations. We are working with about 64,000 independent owners to manage and market their vacation property. Each year we are sending more than 10 million people on the vacations of their dreams. That’s our mission. Our mission is to send people on the vacations of their dreams.
To find those unique vacation properties that can create the experience that they’re looking for. You all know that vacations are a very personal experience, and that’s why we’re so excited about what we’ve been able to build over the last 15 years, through not only the 20 acquisitions that we’ve done over the years, whether you go back out to the early 2000s where we purchased English Country Cottages, or Novasol, or the Landal brand in Holland, to some of our most recent acquisitions just this past year with Blue Chip Holidays, which is your traditional type cottage experience in the UK, we’ve also had significant organic growth.
That was evident when our chairman gave some highlights in our third-quarter earnings. Third quarter is obviously the biggest quarter for vacations, so it’s our biggest earnings quarter for Wyndham Destination Network. For Wyndham Destination Network, we had 8% organic adjusted earnings growth, in EBITDA growth, excluding any currency. We’re super proud about that 8% organic adjusted EBITDA growth in our biggest quarter. In that quarter, one of our brands, Hoseasons, which started back in 1944, so it’s been around for over 70 years in the UK, had about 25% revenue growth.
It’s not that we have these brands that have been around and then we bring a new brand, and the old brands just kind of are stagnant. We’re continuing to evolve each and every one of these brands, because we want to continue to evolve to match the needs that customers are looking for from an experience standpoint. That’s why we’re excited about the 110,000 properties we have in the portfolio, we have a houseboat if you want, if you want a villa, if you want a timeshare resort, if you want a condo, if you want a helicopter we have a refurbished helicopter in our Hoseasons portfolio. We have a windmill. We have a treehouse. I really believe that when we say we want to send some people on a vacation of their dreams, if you want to go to a windmill and stay in Denmark, we’ve got it.
We are continuing to analyze the market, and continuing to get feedback from our customers, and continuing to make sure that we have those experiences available. On the flip side, for the homeowners, because the far majority of our product is independently owned by these individual homeowners, the 64,000 that I mentioned. For those homeowners, we are doing the peer-to-peer plus. We’ll have the relationship with the homeowner, but we’re also providing them with housekeeping and maintenance. It’s a hassle-free experience for the homeowner. That’s why I’m so excited, when I was given this opportunity three years ago to lead this segment of Wyndham, I’m so excited because I feel like our product offering has a competitive advantage, because not only are we doing an amazing job of sending these customers on the vacations of their dreams, but we’re also providing that hassle-free experience for the homeowners.
Skift: Can you give us a sense of how these individual brands interact? Do they have their own loyal followings that tends to drive traffic, or what’s kind of the consumer-facing strategy that you have, to orchestrate the full network?
Gail Mandel: You’re right. Each one of these brands have their own personality, and slightly different product offering. Dependent upon what the consumer is looking for. For example, Landal is a bungalow holiday product predominantly in the Netherlands, Germany, and now also in Denmark. There are the bungalows, and there’s essential facilities, and then if you take another brand, like Novasol with almost 44,000 properties, mostly throughout the continent of Europe, you would go to Croatia, and you could get an individual pool house. You’re not going to have the central facilities. You would go to Denmark, and you might have a cottage overlooking the North Sea, but the way we look at it is all of those brands are backed by the trusted hospitality of Wyndham.
What we’ve been able to do for those brands, and what I’ve been most excited about, is really leveraging the strength of what Wyndham Destination Network has to offer. For example, from our RCI brand, we have years and years of experience of matching inventories for timeshare exchange. That was all done by these group of Ph.D.s who are doing the analytics, and creating the algorithms to do that supply demand matching. We have now taken that, over the last three to four years, and we’ve been leveraging it. We implemented that kind of yield management system at Landal. Then we went and we implemented it at Cottages.com, and then this past year 2016, most recently, we’ve implemented at Hoseasons.
Every time we’ve leveraged that tool, and we customized it, because every brand does have their own personality. Every time we’ve seen a lift in our earnings, a lift and customer satisfaction, because our goal is to put the right customer in the right inventory at the right time. We, once again, have this great resource in this group that’s centralized here in the U.S., many of them who are Ph.D.s, and then we have local management, so we have the boots on the ground to understand the local market, and when you marry that kind of intellectual capital together, we’ve been having fantastic results. Although most of the time the brands do operate independently, they also do help in the background to try and cross-sell each other’s inventory, which is in the early stages.
Skift: What’s the state of your cross-selling capacity?
Gail Mandel: These are definitely the early stages of the cross-selling of the inventory, but now that we have the yield management capabilities in many of our brands, we now have the opportunity to say, okay, this is our inventory that we believe is going to be available, and that could be sold in other markets.
Skift: Right. You know, recently, there’s news to acquisitions, or purchase a stake at Wimdu, and Veeve. Why do those brands not show up under the Wyndham Destination Network site? Is that just a matter of updating that, or is it just there’s something different about these brands that isn’t the same across the other ones?
Gail Mandel: Veeve was an investment. We don’t have full ownership of you. That’s the reason why it’s not our brand. Right now what it is, is a partnership to get us started, because as we continue to evaluate and grow our urban strategy, and grow the urban destination for customers, the way we handled Veeve, the best option for that transaction was a partnership. That’s why that doesn’t show up.
When it comes to Wimdu, I know there was a lot of press, but we were all waiting for the German regulatory authorities to approve the deal, and that actually came through in early January. Wimdu actually is different, because I will tell you that we’re looking at Wimdu very differently, because we’re looking at Wimdu as a tool in our toolkit to enhance our distribution.
We are very proud of the fact that we’ve been consistently able to generate about 85% of our revenue through our proprietary distribution channel. That is a very high percentage when you look at some of the other areas of hospitality, hotel, et cetera. About 85% of our revenue is coming through our proprietary distribution channel, and what we saw with Wimdu when it became available for purchase, was an opportunity for us to enhance our internal distribution with the acquisition of that product.
Skift: Just in terms of the traffic that the website gets, is that how you’re leveraging?
Gail Mandel: That’s our plan. It’s literally… The transaction just closed within the last two weeks, but our plan and our vision is to be able to leverage that technology, to leverage the traffic, and be able to then continue to use that. When I talk about the fact that we now have the more sophisticated management, and we’re looking to be able to have greater cross-selling, Wimdu will be part of that strategy.
Skift: Just because the technology that’s built into it, or because of the traffic?
Gail Mandel: Well, it’s both, but the technology is that kind of storefront technology that’s different, maybe, than some of the other technologies that we have today. It’s additive. I think that’s probably the best way to say it. It’s additive to what we have today.
Skift: You’re starting to cross-sell across the different platforms. Do you see a time down the road where all of this gets rolled into one brand, or do you see an advantage of working across these different identities?
Gail Mandel: I see the advantage of working across the identities. At this point, the majority of the brands, when you go onto the website have the endorser, Wyndham Vacation Rentals, so there is a tie-in. When you think about the brand equity… For example, Hoseasons, I mentioned, 70 years old. We’ve gotten Novasol, which is about almost 50 years old. You’ve got a lot of brand equity. You have a lot of trust that’s been built up over the years, and I feel confident that we can maximize the value for all of the interested parties with the branding strategy that we currently have.
Skift: Can you talk a little bit about how the property management component of that works in terms of tech, and the platform that you use? Is every brand using their own platform, PMS, or is there an initiative to work across the brands to streamline the management portion of it?
Gail Mandel: If they are at the point where they’re end-of-life for technology, then we’ve been moving them to Streamline. We’re not forcing a short-term integration of all the PMS. Based upon the way technology works now, we’ve been able to find different ways to connect without having to actually be so disruptive to redo all of the underlying technology, and I’m sure you know from your experiences, to basically take out a whole PMS and to retrain all of the front desk people, it’s quite disruptive.
For example, when Cottages.com got to end-of-life, we moved them on to the common technology with Hoseasons. That continues to be the way that we’re looking, try every time we look at what’s the right technology for a brand, we’re then making sure that it would have future application, or could be leveraged for another brand, but with all of the APIs out there, and the ability to connect systems, we haven’t seen that as a mission critical in order to be able to deliver our globe strategy.
Skift: Is it an internal proprietary system that most of your brands run on, or do you have any kind of platform providers that you are using?
Gail Mandel: It’s a combination. I’m trying to think off the top of my head. At this point, I’m thinking we’re probably like 50-50 as far as some of them are platform providers, and some of them have been homegrown.
Skift: When it comes to the commissions I assume it differs across brands, or do you have a unified method you apply to all your companies? What’s your average range?
Gail Mandel: You are correct. Every market is a little different, and it also depends on the seasonality. There’s a lot of factors, but the range would go from 20 to 40% of the gross booking.
Skift: Does Wyndham Vacation Rentals own any of the properties?
Gail Mandel: It’s a very minor amount of properties. That’s why the far majority comes from the 64,000 homeowners.
Skift: How do you go through the process of acquiring new properties, outside of company acquisitions?
Gail Mandel: We have a significant network of recruiters who are out there every day talking to homeowners, who aren’t part of our network yet. We have our lead generation, and our customer acquisition process. That’s what it is. That’s why we want to talk about boots on the ground, we truly have boots on the ground in all of the countries where we do business, and where we have inventory.
Skift: With the recent investments and acquisitions, particularly in Europe, we’ve seen a bit more of an interest in the urban cities as well. Are urban destinations becoming more popular and in-demand for your customers?
Gail Mandel: What we see more and more is customers who are actually including city trips or urban rentals within the resort vacation. If you think about our history, we’ve been a very resort destination-focused group of companies, and now that’s part of the reason in the impetus for us acquiring last year Friendly Rentals, which is headquartered in Spain. Then for us also looking into using the Wimdu tool to attract more of the urban located destinations.
Skift: You mentioned that 85% of your bookings come through proprietary channels, where does the remaining 15% come from? Do you use platforms such as HomeAway and Airbnb?
Gail Mandel: We do. That 15% is coming from other distribution partners, whether it be booking.com, or Home Away, or even from time to time, Airbnb. We are using those distribution channels to augment, and once again, I go back to basically the right inventory for the right customer at the right time. We’re making sure that we’re bringing those people in.
Skift: How does the lack of standardization affect you on the distribution front? Do you work with a distribution partner such as an outsourced channel manager?
Gail Mandel: No. It’s internal. Then we work with the distribution partners. We have the destinations, and if they want to work with us, then we find a way to make sure that the vacation rental is properly being displayed. That has been a challenge for the industry, because of the fact that there isn’t the uniformity that you have in the hotel industry of the product.
Skift: A lot of these brands have been around for many years, if not decades. I assume you have quite a strong following in terms of loyalty, but what about new customer acquisition? The millennial, and how you’re appealing to the younger demographic.
Gail Mandel: I look at Hoseasons, and I go back to that again, because of the fact that it is the oldest brand. You’d say, “Oh my gosh. It’s so old.” 70 years old. Hoseasons, for example the way that we continue to keep that fresh is we’ve actually created the subcategories. For example, Go Active is one of our subcategories. If you want an active vacation, we have parks within the Hoseasons family that are specifically geared to having these interesting activities.
Those kind of things that they continue to bring in, and they partner with local companies that will bring in these activities so that if that’s what you’re looking for, if you’re looking for a Go Active, you want that kind of vacation, that’s one of the subcategories that we’ve created. That would be one example, but that’s what we’re continuing to do as far as expanding the experiences for our customers.
Skift: On the advertising side of it is a lot of it coming direct, is it Google, is it Facebook? Could you shed a little bit of light on that whole part of the equation?
Gail Mandel: Sure. It’s all of the above. We’re definitely always working to improve our PPC, our pay per click. Are we using social media? Absolutely. We’re using social media, whether it’s Facebook or Instagram. The teams are constantly looking at what the emerging trends are. That’s definitely happening. Is it direct, because we have the brand equity? Sure. In Germany, for whatever reason, travel agents are still alive and well. I know that’s not the way it is here in the US. We do have a strong travel agent network that is there, helping us to require our customers in that country. It is all of the above.
Skift: Very interesting. Maybe just thinking about the landscape overall. Clearly Airbnb isn’t in the business of property management, and HomeAway is also not in the business of property management. Is this apples and oranges? Do you have an economic side of it? Do you see this as a very… Is this something that you’re moving towards? Alternately, the property management component of the business is always going to be integral to your business strategy, right?
Gail Mandel: Yes. I would say I think those other models are the listing’s models. They’re making introductions to customers into homeowners. We do look at them, as I said earlier, as distribution platforms. We’re providing the full-service experience from before you book, to while you’re on holiday, to when it’s over. If you think about it, the property management as a consumer, when something…
You want your vacation experience to be perfect, but is it possible that you’re staying at a villa, and the air conditioning breaks in the middle of the night? We’ve got the boots on the ground, we’ve got the 24-hour customer service that’s going to be there. Our model is very different, but their model is helpful to us, because once again, it’s another tool in our toolkit, in order to be able to reach customers who want to use that distribution channel.
Skift: In terms of consolidation, Wyndham Destination Network is clearly the frontrunner here. How do you think things will play out, or what’s your appetite in terms of further growing the business, by acquisition?
Gail Mandel: Sure. I definitely have a strong appetite for growth, and we’re going to continue to be targeted in our acquisitions, because there are certain areas where I believe strongly, we can grow organically. I will give you the example of Croatia. It was probably about 10 years ago, maybe slightly more, that that market, we had just gone into. Today we sit here with 10,000 homes, all organic. There are certain markets that are right for organic growth, and then there’s other markets. When I look at why did we acquire Blue Chip in the UK? Blue Chip has those, what the Brits call, the honey pot locations. Those really high, fine destination locations. Organically, we just weren’t moving as fast as I wanted us to. We have this opportunity to quickly get into those markets with the inorganic acquisitions. I think it’s going to continue to be a combination of both, and we’re going to be targeted, and we’re going to be strategic, because that’s what we’ve proven to be a successful model for us as we continue to grow.
Skift: The vacation rental space has been around for a long time. Is there still plenty of room to grow just looking at the landscape overall, whether it be organically, or through acquisition? Is it just an increase in second home ownership? Where is the growth coming from?
Gail Mandel: The vacation rental industry is highly fragmented, and you’re dealing with the fact that, for us, we’re dealing with individual property owners of generally second homes. At this point there’s a belief that there’s probably about 5.6 million, maybe even, at this point, closer to six million, properties between just the U.S. and Europe. That doesn’t even talk about our future as to looking into other markets. Having that kind of fragmented inventory available, to me, it’s right for us, it’s just making sure that we do it in a targeted way, so that we can ensure that were successful. You know you never get a second chance to make a first impression. When we go into a market, we like to set ourselves up for success. If you’ve got over five million pieces of inventory between the U.S. and Europe, and at this point we have 110,000, there’s a lot of room for growth.
Eric Breon, CEO of Vacasa
Skift: Could you give us an overview of Vacasa, where you have been, where you’re at, and in your eyes where you’re going?
Eric Breon: At our core we’re a vacation rental management company, just like the mom-and-pops that mostly dominate the industry. Our special ingredient to that is our technology. We have technology on two fronts.
The first front is for the operations. We currently manage about 5,000 units across 150 sub-markets. That’s full service management with people on the ground so there’s quite a bit that goes into managing the logistics of that, making sure every home’s clean when it needs to be, making sure every home’s ready when it needs to be and really managing the operational efficiencies across all those locations and doing as much of the back ops in a consolidated manner as possible. Stuff like payroll, stuff like lodging taxes are all things that our system takes care of for us.
It goes into stuff like housekeeping where our system automatically picks the right housekeeper for every job based on the importance of a clean, the size of the clean, how much that housekeeper’s worked that week, that day, stuff like that. It really pulls a lot of the burden off our local employees so they can really focus on delivering a great experience to the homeowners and to the guests.
The other side of our business is also based on making more money for our homeowners and then in turn for ourselves. A big part of that is our yield management. We’re far better than anyone else in the industry right now on the yield management side of vacation rental. We’re also good at managing different marketing channels and things like that to really drive higher bookings per unit than anyone else in the industry. That’s been how we’ve driven our growth is by being able to out… We offer great service but we’re also able to out-compete anyone else out there in terms of the bottom line for the homeowner. As opposed to turnkey where they’ve grown by being a low-cost model, we win on a net basis. We’ll make more money for that homeowner than anyone else.
Skift: What’s your footprint in the various markets you operate in?
Eric Breon: Our general approach in each of those markets we’ll have a local operations center that oversees roughly 30 homes. Then we’ll also in many cases employ our housekeepers directly, too, so all those staff are always in the field for us.
Skift: What type of properties do you deal with, is it mostly investment properties, second homes, or do you also do primary residences?
Eric Breon: It’s all secondary or investments. We don’t do primary. We look for full-year or near full-year availability for our homes. We put a lot into each of our homes in terms of marketing, photography, and the like, so if the home’s only available intermittently, that doesn’t really work for our model, and we’re also pretty focused on providing that professional experience. We don’t want somebody else’s toothbrush on the counter in our homes. It’s either the second homes or it’s investor-owned.
The majority of our homes are second homes. They’re vacation homes, but there are some investors that we work with that frequently buy homes for us to manage as we do open up new niches where we’re able to effectively manage homes; there’s investments that wouldn’t have otherwise made sense. If you think that oceanfront triplex on the Oregon coast is suddenly an incredible investment from a cap rate whereas before it was just kind of a random property. We definitely have some investors focused on home working on us but the bulk is second home owners.
Skift: Can you walk us through a little bit of the economics of the business model of the company? Is it mostly collecting fees, collecting management fees, collecting booking fees?
Eric Breon: Yes, there’s a management fee charged on the rental amount to the homeowner, and then we do charge various guest fees like the booking fee, cleaning fee, pet fee, things of that nature.
We have pretty healthy economics on that front so our take rate is generally over 50%, but we’re still able to offer more to the homeowner in the end as we are able to book the home for more in the first place.
Our revenue per unit is actually about 30 times that of Airbnb, so it’s a bigger market opportunity for us.
Skift: Are your properties exclusive to you, or do you also have non-exclusive business?
Eric Breon: 100% exclusive. We don’t do any non-exclusive business in part because we’re very focused on our yield management and yield management doesn’t work well with non-exclusive. A lot of yield management is about holding the high rates for those peak periods to meet the demand, so if somebody else has access to the same inventory, they probably undercut us at sub-optimal prices. We got a little of that in our early days; we are 100% exclusive now.
Skift: If a guest is staying at one of your properties, how does the branding work on that? Does the traveler know they’re staying with Vacasa even if they don’t book with you?
Eric Breon: Yeah, we do have in-home signage, branding and mobile tools for the guest experience so they’ll generally know they are staying at a Vacasa home. At the same time we do see ourselves as marketplace fulfillment. We do represent a very, very wide range of properties. There’s a wide range of budgets and things that people are looking for in a home, and so it’s not like we’re a flag like the JW or something like that. It’s more a marketplace like Amazon where you know what you’re getting. We make sure you know what you’re getting, and we make sure we do a better job of our part and make it as easy as possible to book.
Skift: You’re in Europe. You’re South America. How does the split work out? Are you mostly U.S. and some in Europe?
Eric Breon: Yeah, we’re mostly U.S. I think we have about 250 homes in Europe at this point and probably about 100 in South America. Those numbers might be a little dated, but that’s ballpark. The vast majority of our homes are still in the U.S. We’re very heavy on the western U.S. because that’s where we started, but we’re continuing to expand to new markets. We launch new markets every month so the long-term plan is to be everywhere, to be just the ubiquitous option. If you’re looking to stay in a professionally managed home or if you’re looking for a manager, we’ll be there.
Skift: What’s your experience at Vacasa in terms of percentage growth a year on your inventory? What kind of growth rates are you seeing there?
Eric Breon: Growth rates have averaged around 100% annually.
Skift: Do you think there’s still potential for growth out there?
Eric Breon: There’s pretty ridiculous potential out there for our business model because the space we’re playing is people management, so it’s a $25 billion U.S. market alone and growing rapidly. Roughly half of that is professionally managed. That’s, what, 12 billion in current revenues that are being professionally managed, and probably more than that because the top line on professionally managed is probably higher so maybe 15, 20 billion is being professionally managed in the U.S.
Yet we’re second only to Wyndham, and we’re catching them quickly, but yet we still have less than one percent market share. There’s just pretty unlimited potential to grow on our side. I think that’s a different story for the channels like Airbnb and HomeAway where most people are advertising online now so there’s not that much incremental inventory out there. It’s more trading who gets the reservations as opposed to purely doing inventory for them. I think they’re more… I think the bulk of people have already gone online now so they may increase their take rate or the percent of the reservations that they get and how can they increase the overall market.
Skift: In terms of the types of destinations that you focus on, is your exposure mostly in vacation or urban destinations? It seems like the urban markets are probably the more difficult to penetrate.
Eric Breon: Yeah, we’re very dominant in a traditional vacation destination, so like Tahoe’s a huge market for us, the Oregon coast, places like that. Ski resorts and beaches. We do love urban markets. We have a small presence in Portland and a larger presence in Seattle. We do love urban. It’s got great seasonality characteristics to it, although we’ve made the choice as a company to always comply with zoning regulations. Whereas New York City has quite a few listings in New York City that’s not between our approach for the exclusive and our compliance with regulation we are limited in urban market expansion based on what the local regulations are.
Skift: Does the regulatory climate around short-term rentals impact your business at all?
Eric Breon: Not at all. When you look at most of what goes on with Airbnb they went into markets where it’s always been illegal to have a typical vacation rental. It was always considered commercial use or similar, which I think is a mistake on the legislative side but that’s how the law was written. They went in there anyway, and then when people start talking about enforcement I think sometimes they act like it’s a surprise that it was illegal the entire time.
In some ways we actually see cities opening up. They’re trying to figure out how to take this… How can we actually provide a legal framework to bring it above board? We don’t really see any regulatory pressures on our own companies because we see as much opportunity in our urban markets as we see risk, because we don’t really have much of a presence there. Then in most of our markets they’re pretty dependent on the tourists that vacation rentals bring. You’re never going to see a Tahoe without vacation homes. There wouldn’t be anyone left. People don’t go there to stay in the Best Western.
Skift: How do you stand in terms of distribution? Are traditional travel agents a good channel for you?
Eric Breon: We actually don’t do anything with traditional travel agents. About half of our bookings come through our own website and about half come through third-party channels. HomeAway and VRBO are the most significant third-party channel for us but we also work with TripAdvisor and with Airbnb. We’ll work with other companies as appropriate. We’re pretty neutral on that front. Our customer actual cost to the consumer side is quite low. The models people are headed toward where it’s putting more of the burden on the consumer works great with our business model. We’re pretty unusual on where the consumer demand comes from. We book out our homes pretty well.
Skift: What contract length is a typical contract length for a vacation rental property with Vacasa?
Eric Breon: We don’t have any fixed-term contracts on our properties. It’s that they can discontinue at any point. All we ask is that they honor the existing reservations on the calendar which is primarily for a customer experience perspective.
Skift: Can you tell us a little bit more about the tech platform? Clearly this is a big piece of the puzzle here, and it sounds like you guys have a good handle on it.
Eric Breon: When we initially started, we were on Escapia which is now HomeAway’s software, but it didn’t do a lot of the things we wanted it to do, especially for a company like ourselves with operations in a lot of different markets and where we wanted to automate as many things as possible. I think it’s probably been about four or five years ago that we left Escapia and built our own software. It covers pretty much all the standard functions plus it has a lot more intelligence built into it than a typical property management system. When you look at the offerings out there it’s more about a platform to let you do what you want to do whereas our system is more about guiding you to what we found to be the best way of doing things.
Skift: Is it all proprietary? Are you also positioning towards becoming a B2B player?
Eric Breon: We don’t have any interest in entering the software space. I think the economics of selling software to vacation home management companies is a tough business. They don’t want to pay a lot because the support means can be pretty substantial. Honestly they wouldn’t pay us anywhere near what the value it creates is. When we’re able to apply the functionality like the automating our housekeeping scheduling and yield management and stuff like that adds thousands of dollars a year per unit in value, and not enough people would be able to pay us. We find it instead much more powerful to use it as a our competitive advantage.
Skift: What kind of metrics do you use to benchmark success, relative successes and challenges in tough times in the market, good times in the market? Is it similar to the typical hotel metrics?
Eric Breon: A lot of it’s the equivalent of same store sales where you’re really looking at… because the portfolio can shift over time, so as we enter a market we’ll typically start with more modest properties and then go upmarket as we have more trust from the community. That can create a lot of bias on ADR. It can increase greatly without being that meaningful just because we’re now taking on higher and higher properties. Instead we look more towards individual property characteristics like how is each individual property tracking versus prior years? How are they performing versus expectations just to make sure there’s no outliers there.
Skift: How big is your team now?
Eric Breon: We have about 1,400 employees.
Skift: Do you know the company Rented at all? Have you worked with them?
Eric Breon: We know those guys well. I like them a lot as people. I’m less excited about their business model. I think very few great businesses are built off bidding for something. There’s the winner’s curse where the person who wins is the person who pays too much and so the bidding-based model securing inventory isn’t something that we’re super excited about but kind of respect for those… Those guys really bring a lot to the industry.
Skift: Do you think that that auction model is catching on? Would you say is it driving more competition in the market?
Eric Breon: I don’t think it’s very significant on that front. I think they’ve found success but at the same time I think the number of properties that they work with is an extremely small fraction of a market and I don’t see it going mainstream. When you get in terms of the fixed rent contracts, which is what we refer to their contract style as the guaranteed amount, there are definite advantages for investors, but you do get into some tricky areas where, for example, if it’s a second home it’s really hard to negotiate up front exactly when they want to use it and how much they want to use it. That’s a complexity to the model.
Whereas a lot of people might give the perspective, “Hey, if it’s open this weekend I’ll just go up there and use it, but I don’t want to block any dates off.” That works great on a traditional commission schedule, but it doesn’t work very well at all on a fixed schedule where maybe we’re on the hook for utilities, maybe we’re hoping for that last-minute booking because we already paid for those nights in effect.
The other side of it is it does take away the homeowner’s incentive in many cases to invest in the property, so we have had some issues on that front where we’ve had people who… where we’ve leased the property in effect through a model like that, but then they haven’t made… They’ve continued to let their property deteriorate over time as opposed to investing in needed repairs because they’re already getting the same amount. Your only threat is through renegotiation or at the end of the contract.
Skift: Do you operate under a guaranteed model, revenue model for owners?
Eric Breon: We do. We have a few options on the guaranteed front. Especially for investors we’ll do the guaranteed monthly payment so they’ll know… we call it fixed rent where they know exactly what they’ll be earning. With others we also offer in non-regulated real estate bookings so if somebody’s currently managing a property on their own we’ll guarantee they’ll make as much even after our management fee. If somebody has their property with Airbnb or HomeAway we can beat last year’s numbers even after our management fee by increasing the top line through better marketing and through better yield management. If somebody’s with a different management company we offer to beat that by $5,000 if it’s allowed for by the local real estate regulations.
Endnotes and Further Reading
- Vacation Rental Startups Attract $100 Million in Funding So Far This Year, Skift, May 2016.
- Housing Characteristics: 2010, AU.S. Census, October 2011.
- Global Vacation Rental Market 2015-2019, Research And Markets, December 2015.
- Expedia Hits Pause on Direct Booking Goals for HomeAway Division, Skift, April 2016
- AccorHotels to Buy Private Vacation Rental Platform Travel Keys, Skift, February 2017.