Vacation Rentals, Airbnb, VRBO, or something more?

Question

Vacation Rentals have been around for decades now. It has just been since 2008 that they have really started to gain media exposure because of Airbnb. My colleagues and I have seen a shift that is already happening in the vacation rental space that happened in the in the online retail space.

Everyone is jumping on the Airbnb/Homeaway bandwagon, which is awesome, minus the fact that 70% of the worldwide inventory is illegal. However, there is even a bigger problem. . .

I'm sure everyone remembers good old Ebay which boomed in the late 90s to early 2000s. They were all the rage when sellers could market products everywhere.

Then you had little only amazon who was growing step by step. . .

Until now, where you have Amazon with revenue over $100B and Ebay with revenue a little over $8B

What was the difference??  - Guaranteed Quality Customer Experience -

And now you have Airbnb and Homeaway that allow individuals to post their properties, without any real guarantee of service or home quality from a brand, like Ebay. . .

It is only a matter of time before an Amazon takes over the nightly rental market.

I'd love to hear your thoughts or arguments!

Ally H. · Answer

I agree with @James Carlson that AirBnB is the disruptor or trendsetter at this time. I've been on the platform as a guest and a host. Yes, I am a millennial, and I think that their UI is easy to work with, not clunky, and at the top when compared to others within the vacation rental, home sharing, and sharing economy platforms.

From my personal experience, their quality of customer service is pretty good, and it seems that the company gives their representatives adequate power to go beyond each user's expectations when the opportunity arises, whether that involves providing extra credit to use during cancellations, replacing items that were damaged or taken during a stay, etc. I think that they have an emergency system/teams in place to help with immediate resolutions, similar to how concierge services work. As a host, I've been personally called by AirBnB to host guests who had their original reservations cancelled in the surrounding area, so that's been reassuring to know that they would go those lengths to help guests out of unfortunate situations, particularly important if it's in a foreign country (I've never had this happen to me personally when I was abroad though as I was lucky with great hosts). However, I've heard that one of their growing pains is the longer and longer wait times on their phone lines. I rarely encounter any situation where I need to speak with them on the phone (their response rate by email is OK), but I do hope that when I need to speak with someone, I don't have to wait more than 5 minutes to do so.

The appeal of AirBnB, as opposed to the standardized consistent hotel experience, is the opportunity to find the type of vacation or stay that each person wants, whether that is living with/like locals in neighborhoods where hotels don't exist or can't offer, getting more space with the facilities you want (i.e. kitchen, backyard, personal jacuzzi, theatre room, etc.) perhaps at a more affordable price, or sharing a home with others where you can share a home-cooked meal or exchange stories around a fire pit at night. From a consumer point of view, it comes down to having a wide range of CHOICES. Sometimes, I do want to stay in a hotel and other times, I want another experience that may be available on AirBnB. On the flip side, as a host, I have complete control over what I offer and I feel that the fees that AirBnB charges are worth the platform and service that they provide. That can always change as the industry adapts. And perhaps, there will be another competitor that comes along and if they have a smoother platform, faster/better customer service, better support tools for both guests and hosts, lower fees, and equal or more choices, then they can overtake AirBnB.

Jonathan Safa · Answer

That doesn't seem to resemble the market of another company so different in nature, like Amazon. What I could see is variation. It's rare for an industry giant to be replaced by someone competing with the exact same function. I can think of the Uber/Lyft battle. Very much the same product, yet very rare to see that.

I could see another company stepping in to a variation of the Vacation Rental market, but not something that offers the identical product... hence why we see the deterioration of HomeAway, Flipkey, etc.

Andrew McConnell · Answer

@Blake Brose  Interesting Amazon perspective.  Here's my take:

Without question, the vacation rental industry is poised for a historic shift.

How can that be said so authoritatively? Yes, it is true that HomeAway is now a full decade into the revolution of lodging, with its global consolidation of the peer-to-peer rental space, and Airbnb’s latest valuation is believed to be $20B. Given these facts, most people can be forgiven for believing that the tectonic shifts set to transform the hospitality industry have already occurred in recent years and there is no more room for change.

However, HomeAway and Airbnb’s development and growth merely set the stage for more momentous changes soon to come, including the transformation of the vacation rental industry from a $100B cottage industry to one that is more than double that size and dominated by massive, internationally scaled entities. Lessons from the evolution and consolidation of the hotel industry in the 1950s and 60s are informative in understanding the potential for this seismic growth impacting the lodging industry decades later.

The history of hoteling – from grand hotel to international brand:

According to a December 2013 article in The Economist entitled “A Short History of Hotels: Be My Guest,” the age of the grand hotel lasted from 1860-1960. Empress Eugenie opened the original in 1862 and Le Grand Hotel opened as a palatial 800 rooms that she designed “like a home” that celebrated French science and art. As one would imagine, such large one-off lodging were unique and rich experiences, as they were run individually and without modern day economies of scale.

It took almost a century for the hotel industry to change, and the 1950s and 60s began the second age of the hotel. At this time, Conrad Hilton began the internationalization of hotel brands, and in doing so had to muzzle the grand hotel model to conform to growth in other territories. At the same time – in 1952 – Kemmons Wilson unveiled the Holiday Inn after being disappointed by poor quality and inconsistent lodging on a family trip. Promising consistency from San Francisco to St. Louis to St. Augustine, Holiday Inn’s sign told travelers to have confidence that the price and quality would be consistent no matter where they traveled – with the certainty that the sheets would always be clean and the service friendly.

And now, a few short decades later, Holiday Inn and Hilton are not the only immediately recognizable international brands that provide travelers with a consistent place to rest their heads. International travelers easily recognize Hyatt, Marriott and Starwood – to name a few – sometimes even based solely on interior design. And, many people seek out a particular brand for lodging to replicate favorite hotel experiences no matter where they are in the world.

As we review the emergence of hotel conglomerates from one-off hotels, patterns show similar potential for the vacation rental industry and landscape is poised for parallel consolidation.

What many think of today as the big “brands” of the vacation rental space are in reality actually listing sites that are similar to online travel agents like Priceline or Expedia, for instance.

Such online marketplaces allow consumers to find anything and everything easily from the comfort of their own computers, from a spare couch to a castle to a country as Airbnb has highlighted in the past. (For the record, I’m referring here to when Airbnb formed a partnership with the Principality of Liechtenstein in 2011 alongside several German and Austrian villages, and one could literally rent a country or village).

However, while these online marketplaces exist, they are not brands of inventory or even experiences, but instead are sources of it aggregated on technology platforms. In the vacation rental market, the true brands of inventory that do exist tend to be very localized vacation rental managers, who almost define a cottage industry. When we look at whom these local brands of vacation rental managers are we see that they tend to have 50 or fewer properties and all of these properties are generally located in one specific geographical region. They are, in essence, small companies with local economies of scale who could be far more efficient if they partnered with the right parties in other geographies.

Such local managers with large inventory of rental properties often know and can serve their specific market very well, but their work is not transferable easily to other geographies because of marketing and geographic coverage. For instance, take a homeowner who uses a vacation rental manager to rent her home in Destin, Florida, a beach vacation hotspot, but then buys a house in Aspen, Colorado, a ski resort area. That homeowner may have a wonderful relationship with their Florida vacation manager, but that relationship will not be transferrable to Aspen primarily given geography. Now, she must start her research all over again to find a management company that she trusts in a geography that is new to her and go through onboarding as a homeowner with that company.

On the renter side of the equation, the same is true. A vacationer who loved his rental experience via a manager in Cape Cod must find a new manager to rent from for his next trip to La Jolla. Both homeowners and renters will benefit from the growth and consistency of the vacation rental management space, just as guests benefitted from the consistent hotel experience started by Conrad Hilton and Kemmons Wilson.

The stage is set for consolidation, but what will it look like and why will it undoubtedly emerge? Historically, there has been a handful of larger vacation rental management players, such as Interhome in Europe and Wyndham in the United States. However, when it comes to the vacation rental inventory and experience they are not consistent in the same way large hotel chains like Holiday Inn or Ritz-Carlton are.

But, that is all changing as we speak.

Vacation rental managers are beginning to scale more than was previously imaginable. Vacasa, a vacation rental management company, was the 9th fastest growing company in the United States according to Inc. magazine. At the same time, millions of dollars of venture capital money is being infused into the space to fuel rapid growth through companies such as Pillow, Guesty, TurnKey, and InvitedHome. And, at the top end of the market, onefinestay is often mentioned in the same breath as Airbnb.

In the interest of full disclosure, I am the co-founder and CEO of a company that works to fuel vacation rental managers’ growth. My company, Rented.com, helps managers acquire new inventory rapidly through our online marketplace that connects them directly with homeowners looking to rent. Rented.com receives constant feedback that we are one avenue to power a manager’s portfolio growth.

That said, however the vacation rental managers do it, as management companies find new ways to scale they are finding greater benefits of that scale. One massive benefit is that as they become a more recognizable brand. Such identification and publicity creates organic growth that in turn helps them scale even more. On the other side of the equation, as more homeowners know the brand and sign up with them, more guests know them and want to stay at one of their homes for a vetted, branded, and consistent experience.

The managers are also landing more repeat customers that move across markets, as well as referrals in new markets. All of this aids geographic growth on the heels of customer recommendations and requests for expansion into new markets. This consistent demand, and growth of it, in turn enables trusted and known managers to command a price premium in the marketplace.

But the benefits of vacation rental managers’ scaling outweigh basic brand marketing alone. The larger the management company, the more scaled large costs become, which creates more efficiency and lowers costs as a percentage of revenue.

When will this market shift take full effect? Of course, none of this can or will happen overnight. But, if the current 800 pound gorilla of the lodging / accommodation space – the hotel – is any indication, the winners have the potential to reap quite a large reward.

Moshe H. · Answer

@Blake Brose so how can a company that wants to move into this space... I think I've heard of one called Bevy ;-) ... achieve that kind of national name-brand recognition? Literally bottom-up? Or are you thinking about doing partnerships with existing large hospitality chains?

Blake Brose · Answer

@Moshe H. Exactly right. The research is already there

Moshe H. · Answer

@Blake Brose so are you saying what's left is for an Amazon-like company to step in, heavily vet/inspect their providers, and require them to conform to specific standards? As in, the vacation rental owners would be more like franchisees. They own it, but provide everything to corporate standards. This could be under an existing hotel brand or a whole new disruptive company.

Blake Brose · Answer

@Jonathan Safa Let me share some studies done by Phocuswright and Wyndham Vacation Rentals. Because I do believe that it can't really be the identical product. Everyone has their minds so focused on the distribution platform instead of the product and customer experience.

@Ally H. Let me be clear that I think that vacation rentals are the future. I think that there is a time and place for hotels, but I am not saying that I think hotels are amazon.

What I am suggesting is a purpose-built vacation rental, branded, with customer guarantee experience that isn't a random homeowner, much like amazon has individual sellers, but Amazon controls every step of the process. Not just the reservation.

Let me show you a study done by Phocuswright and Wyndham. . .

http://www.wyndhamvacationrentals.com/pdf/WVR_WhitePaper.pdf

Wyndham didn't even really realize what they stubbled upon. . . because they are from the hotel world.

PhoCusWright completed a survey of 2,000 travelers defined as adults (25+) who traveled overnight and stayed in paid accommodations for leisure travel purposes. To qualify, respondents must have:

PhoCusWright required a minimum subset of 1,000 travelers who have stayed in a qualifying vacation rental over the past year.

These are referred to throughout as “vacation rental guests” (VRGs). Travelers who took at least three leisure trips in the past year but did not stay in a vacation rental are “non-vacation rental guests” (non-VRGs).

THE POWER OF BRANDS Brands have an enormous role not only in business, but throughout our daily lives. From cars to coffee shops, from dining to shopping, and certainly when vacation planning – both online and off – each person’s decisions are shaped by their brand histories and interactions. Brands give us confidence in our decision-making. They help us recognize a product we like, or one we do not.

They set expectations: will the coffee be strong enough, will the hotel room be comfortable, clean and have good room service? The lodging industry is home to many renowned brands: names such as Marriott, Hilton, Holiday Inn and Wyndham have become indelibly linked to consumers’ perceptions of hotels.

They establish service-level standards, and create clear expectations about an upcoming travel experience. Whereas branded chain hotels dominate the lodging market in the U.S., the vacation rental industry has few nationally recognizable brands.

This makes competing for awareness and consideration among the 115 million U.S. travelers extremely challenging. A hotel-branded vacation rental offer could address some of the key challenges facing the vacation rental marketplace: awareness and consideration of vacation rentals as an option for leisure travelers relative to otherwise better-known hotel brands.

More than 4 in 10 VRGs said they would find a vacation rental more appealing if it were offered by a hotel brand. While this result demonstrates a significant positive response for hotel branded vacation rental options, the potential impact is even greater among non-VRGs. The vast majority (86percent) of non-VRGs said they would be more likely to consider a hotel-branded vacation rental.

James Carlson · Answer

Hey @Blake Brose. Interesting topic. I disagree with you, though. I think Airbnb is the Amazon of this market. Their interface is super easy to use. Their pitch, while pissing off some established neighborhood groups and affordable housing groups, really appeals to young people.

And I don't think you can have a guaranteed customer service in a sector like this. A giant company would have to start buying up properties and renting them short-term. But there is no uniformity of rules and regs across cities to allow scaling like that. And most cities that pass a law are prohibiting STRs in non-owner occupied homes. So you're left with individual homeowners and individual customer experiences. The review system, while far from perfect, does give the consumer some power to choose a place with established customer service.

I don't see any other way but how it's unfolding now. Bring in the big boys, then that's just a hotel. Thoughts?

Vacation Rentals, Airbnb, VRBO, or something more?

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