Technology-enabled Property Management Lodging Platforms

The vacation rental industry is undergoing a rapid transformation in terms of both market growth and in the operational and lodging side. With the fast-paced changes, the market is ripe for disruption and for a new breed of technology-enabled property management lodging platforms to bridge the gap between online rental marketplaces and traditional vacation rental management companies.

 

The real cost of working with OTAs

In the light of the significant changes taking place, the greatest challenge for property managers has been the lack of standardization in the industry for dealing with third-party booking sites, and that challenge creates issues for when property managers attempt to distribute their inventory. The difficulties predominantly lie in the rules and configurations required to list properties, which vary from channel to channel.

In many cases, those challenges have been compounded by the employees working for OTAs who aren’t experienced in dealing with the vacation rental product or the requirements to properly deploy them on their sites.

When it comes to the real cost for property managers working with OTAs, there are two areas to consider.

First is the amount managers need to outlay for distribution, which varies depending on the OTA third-party booking site, but it is typically a percentage of the booking to the OTA, a cost that is fairly well quantified.

Second is the additional layer of outlay involved and the resources it takes to create the connection with the OTA as well as monitoring the bookings to make certain they don’t violate booking rules, length of stay, or pet fees, and that they match your approved rates. Additionally, there are channels like Airbnb that are pro-guest and whose company’s Terms of Service supersede any agreed to House Rules or Guest Contracts. Here are some examples:

• Guests can use “extenuating” circumstances to cancel up to the last minute without penalty. That means you lose all revenue and all cancellation fees.
• Guests can ask for a refund up to sixty days after their departure. That is long after the property manager has dispersed funds to the owner of the property.
• Airbnb is not collecting Sales Tax and Bed Tax uniformly, and Airbnb does not support “other” fees, except cleaning.

In the case of HomeAway, additional complexity results from its obsession to “match back” offline bookings. That attempt to monetize offline leakage is flawed because it lacks the tools to properly and fairly track true leakage, and it arbitrarily creates capricious rules to match back offline revenue, even if it was your own repeat guest or the guest booked on another channel like Airbnb or Booking.com. HomeAway also created disparate treatment for its best HomeAway Software customers in the form of automated offline attribution of revenue.

Match back is neither new nor unusual in the travel industry; there are plenty of examples of it, but the percentages are typically much lower than HomeAway’s published attempt of 10 percent of the gross. In addition, there is usually a mutually agreed upon hold-out percentage with fees capped and both parties sharing in the making of the rules and qualifications. For match back to work, the first end dates are usually taken into consideration. Repeat guests are often taken out of the equation, and if a guest books on another channel, they are also excluded.

But HomeAway’s recent match back policy created terms that were unacceptable to the vast majority of professional managers. Only after a huge protest by property managers who threatened to delist their exclusive inventory over match backs did HomeAway retreat from its policy. In late January, HomeAway published a memo saying that offline match backs would be made by property managers on the honor system. It is unlikely that other OTAs will be following HomeAway in that fiasco because their roots have never been in the subscription model, and their monetization was never about offline bookings.

The other online travel booking platforms that are entering the vacation rental space such as Airbnb, Booking.com, Ctrips, Expedia, and mega sites like Tripping.com, are pure play online transactional models. That is the direction of travel that these leading OTAs excel at. It’s all about instant booking—especially with mobile—and HomeAway is still trapped in the past due to its legacy system and customer base built on a classified listing model.

 

The opportunity of technical disruption

In today’s vacation rental property management space we have what is considered classic disruption. We have new technology that has entered on the distribution side in the form of transactional third-party sites. That technology is a dramatically different model from the old classified listing sites such as VRBO and HomeAway of three years ago when guests could use phone numbers and email addresses to communicate with the property managers and their reservation staffs.

That technical disruption of instant bookings on the distribution side has effectively changed the paradigm of how property management companies need to market themselves and the level of expertise required within companies to succeed in the marketplace.

 

Bridging the gap between OTAs and traditional management companies

For many smaller property management companies, it is simply not viable to attempt to work with all the different OTA systems. From a transactional standpoint, a lack of standardization means that the property management company needs to spend a large amount of resources to configure the database and build an application program interface (API) that can port to transactional players. That simply isn’t a viable option for smaller companies with limited resources and nontechnical skill sets.

With that in mind, smaller property management companies have no choice but to work with their property management system (PMS) or with an OTA middleman. But the problem with that approach as a model is that it is inherently inefficient, expensive and, in many cases we’ve seen, causes more trouble. For example, Airbnb and HomeAway do not play well together, so it is no surprise that there is no direct API connection between HomeAway Software (HASP) and Airbnb. And several other PMS systems have severely limited their API options to third-party sites.

 

The importance of exclusivity of contracts—the supply and demand dilemma

It’s worth remembering when discussing OTAs and third-party booking sites that those portals are simply marketplaces; they are not boots on the ground property managers. They don’t clean properties; they don’t service properties; and they don’t provide guest check-ins or the ability to manage large numbers of owners.

The OTAs are simply third-party intermediaries between travelers and the boots on the ground management companies. Unlike the OTAs, tech-enabled property management lodging platforms like VTrips are, at their cores, still traditional property management companies in that they deliver operational services including housekeeping, maintenance, and guest services in labor-challenging resort locations as well as all the managing of owner statements, tax distribution, and income distribution. That operational competency is what creates the stickiness for companies, and that’s what creates exclusivity of contracts with owners. It’s that exclusivity of the inventory that gives the lodging property manager ultimate leverage and power. It gives us the power to leverage the OTAs and, ultimately, the power to pick and choose where the inventory is distributed as well as—to a large extent—leverage OTAs against each other.

There is still plenty of room on the property management side for consolidation, and I believe we are only in the early stages of a pendulum swing toward the lodging side in terms of financial capital and investment pouring in.

Over the past ten years we’ve seen a three-fold increase in category awareness for vacation rentals, thanks, in part, to the OTAs, but at the same time, the supply has not increased. In many cases, the supply is also managed by operators who lack the ability to distribute the inventory to the OTAs and third parties because of the challenges of standardization and API issues that result in even more issues in the supply-demand dilemma.

As a result, there is an opportunity for new players in the vacation rental industry to enter the lodging side. We already have seen that happen in the urban markets, and it will happen in the traditional core resort vacation rental market as well.

 

Is there a future for property managers?

There is always a future for companies that can run their businesses in a cost-efficient manner. When we talk about disruption, we also have to remember that margins—commission rates—are shrinking. When commission rates drop, it means you have less and less margin to operate effectively. For the smaller property manager who is good at controlling costs, including those related to salary, marketing, and IT, there will be a future.

Smaller vacation rental management companies also will be able to compete in a similar way that boutique hotels are competing against large brand hotels. If the smaller vacation rental management companies can embrace distinctive marketing, personalized service, and unique attributes such as luxury, pet friendly, or alternative lifestyle, then they will be able to compete and grow strong businesses. Unfortunately, the majority of the existing smaller firms in the vacation rental industry have not yet made that transformation. Instead, they tend to be offshoots of real estate companies, in house condo association rental agencies, or have principals who developed business models in previous decades. Ironically, the smaller property managers of the future may not be the smaller companies of today.

 

The next 10 years—a wave of new inventory

Currently, we are in the initial stages of the next wave of vacation rental inventory that will revolutionize the product as we know it and will attempt to fill the scarcity of supply.

Over the next ten years we will see a sweeping change as investment capital creates hundreds of thousands of new vacation rental properties, overhauling decades-old and worn vacation rentals with new, purpose-built inventory that will allow the category to sustain its growth.

That situation results in a win for developers, property managers, and OTAs who can partner together to create what the consumer demands. The North American market is wide open for resort development after well over a decade of supply retraction during the housing recession. An even greater opportunity may be Southeast Asia, which is untapped for purpose-built vacation rental development.

VTrips is working with a large international resort developer on new, purpose-built vacation rentals that would be surrounded by world-class amenities. We also have partnered with an international OTA to examine consumer demand data and then take that data to the design board. We will soon be the exclusive property management company for thousands of new vacation rentals—all purpose-built to meet consumer demands.

Partnering with developers for the new creation of inventory requires significant front-end business development and legal contractual resources. Those developers also will expect property managers to assist in the sales cycle and new unit set ups with potential new buyers. Those new development projects can take years before rental income is generated.

The once sleepy vacation rental industry is rapidly transforming. It is an exciting time for firms that can embrace and leverage change. Technology-enabled property management lodging platforms—including VTrips with our centralized resources, operational efficiencies, and core technical competency—are uniquely positioned to transform the supply and demand of private accommodations as we know them.

 

About Steve Milo

Steve Milo is the founder and CEO of VTrips, a growing and innovative property management and rental reservation platform that leverages a proprietary technology system to maximize occupancy, revenue growth, and profitability.

VTrips manages 2,000 exclusive vacation rental properties in traditional resort destinations ranging from Florida to Hawaii. Steve is a recognized thought leader regarding the evolution of the highly fragmented vacation rental industry, and he is a regular keynote speaker at leading conferences in North America and Europe.