Vacasa isn’t reinventing property management.
Vacasa (NASDAQ: VCSA) just had a blockbuster quarter. Q4 financial results were impressive, and the market rewarded its execution with a steep rise in the company’s stock. But Vacasa isn’t reinventing the property management industry—a 47 percent take rate and projected growth of only 30 percent next year, powered by more than 400 salespeople and 29 acquisitions, sound nothing like the scale and flywheel that Airbnb, Booking.com, and Vrbo have generated.
In the end, traditional property management as Vacasa practices is still very much a local business and therefore relies on local density for any economies of scale. But a business relying on local density can’t really scale. The local owner-operators of truly local property management companies are likely a critical component of the traditional model, and Vacasa lacks that key ingredient.
Is Vacasa moving toward a scalable, centralized management model?
Vacasa’s Q4 shareholder letter contains an intriguing claim: Vacasa’s new clean inspection tool allows the company to review photos of recently cleaned areas, “thereby replacing manual inspections.”
Vacasa also reports that since the introduction of its clean inspection tool, the company has “observed a lift in guest scores.” This is an intriguing application of tech—remotely inspecting a property starts centralizing a process that initially was entirely local.
At our company (Properly), we have long believed in the power of remote inspections and visual checklists. This technology enables 100 percent real-time inspections at a fraction of the cost of on-site inspections, and—as Vacasa noted—it is highly effective. But employing a centralized, remote-service management model has much deeper implications. If tech-enabled, centralized, and remote real-time inspections can indeed effectively support, monitor, and manage any housekeeper anywhere at a disruptive price point, then do we really need the local infrastructure that has been a root cause of our industry’s fragmentation?
Furthermore, can well-paid, properly incentivized, and flexible networks of independent service providers be managed and inspected tightly via centralized, tech-enabled remote services, thus allowing property managers (PMs) to truly scale like the listing platforms? Is the main “local” asset—in the absence of a locally rooted owner-operator—then just the more than 400-strong sales force that has been driving Vacasa’s growth but hardly adds value for owners?
What has changed? Technology is driving centralization.
A big part of the reinvention of property management has been the rapid evolution of technology providers over the last decade. Vacasa boasts that its 2021 $50 million spend on tech development exceeds that of the sum of competitive PMs. However, those local PMs can buy cutting-edge, off-the-shelf tech at a much lower cost and are able to choose from an array of highly specialized, best-of-class technology providers. And instead of developing in-house software, they can focus on smart integrations.
Many tech providers have installed bases—and thus scale—of multiple times Vacasa’s installed base, whether they are utlizing data providers like AirDNA, Key Data Dashboard, or Transparent; dynamic pricing providers like Wheelhouse, Beyond, or PriceLabs; property management software like Guesty, Track, Hostaway, or Lodgify; operations software like Breezeway; smart home integrators like Operto; Wi-Fi solutions providers like StayFi; guest communications solutions like Enso Connect; channel managers like Rentals United or BookingPal; guest vetting solutions like SUPERHOG or Safely; noise management providers like NoiseAware or Minut; owner acquisition experts like Vintory; or a myriad of other great tech companies that have developed best-of-breed solutions within their field of expertise or specific geography. So supplying locally rooted PMs with highly competitive, comprehensive technology is not the issue.
Our collective problem is driving supply.
Our industry just experienced a massive increase in demand, partly driven by long-term trends and partly accelerated by pandemic dynamics—and Vacasa’s newly released Q4 financials confirm that. So our collective key problem is to generate more supply to satisfy this demand and to do so in ways that are sustainable. With a need to generate 2 million new properties per year as an industr, we all have our work cut out for us. If this means unleashing millions of poorly prepared amateur hosts onto the next wave of new vacation rental guests, then we’re collectively shooting ourselves in the foot.
Poaching or buying owners from small local managers who tend to do a stellar job of delivering a professional product/service won’t reinvent our industry. It also won’t scale the industry in a meaningful way; Vacasa’s guidance projects year-over-year growth at about 30 percent for next year. Based on Vacasa’s estimated addressable market of 20 million units, this would scale Vacasa’s footprint from 0.19 percent to 0.24 percent only 13 years after its founding. This makes Vacasa highly successful by the yardstick of the property management industry, but hardly relevant compared to the global listing platforms, which have consolidated the majority of bookings among just three platforms.
If the process of incentivizing, acquiring, and professionalizing millions of units of new supply is our industry’s most important goal, then a property management solution with a 47 percent take rate is unlikely to be the disruptive solution that will make a dent or that will reinvent our industry.
In addition to the 2 million new properties we’ll need this year to meet demand, up to 6 million units currently are self-managed. How do we create an appealing, professional solution for them?
Reinventing short-term rental management
Let’s start by asking why there are so many owners who go it alone by self-managing. Three reasons may prevent an owner—either experienced or new—from handing over their property to a professional manager:
- Control: The homeowner isn’t ready to give up control over key aspects of the short-term rental process. This might mean control over how many days per year their home is available for rent; who cleans and maintains their home and how; and, most important, who decides which guests are a good fit for their home.
- Cost: Handing over almost half of the revenue is too much for many owners, so they opt to manage by themselves instead.
- Coverage: Traditional property management is tied to a physical location. As a result, professional short-term rental management service is simply unavailable in many locations. This fact was exacerbated over the past two years as short-term rentals spread rapidly to second- and third-tier cities.
So, to tackle the majority of the market that is not yet professionally managed and entice new supply to come in and succeed, we need a truly reimagined property management model.
What would that look like? First, it would look nothing like the traditional model—not because there’s anything wrong with it but because if that model appealed to rent-by-owner and not-yet-for-rent, then homeowners would have chosen it by now.
A Reimagined Property Management Company
A reimagined PM would give homeowners a meaningful amount of control. For example, after years of Airbnb promoting InstantBook, a significant minority still insists on “Request-to-Book”—so this is clearly important to millions of owners.
Next, a reimagined model would come at a disruptively lower price—certainly not at something approaching 50 percent of booking revenue but more like at 5 percent, plus distribution fees. This would require a fundamentally different business model—and definitely not one with a high-cost local component. And it would need to be able to deliver quality service everywhere; that is, it would need to be unshackled from a local business with limited scale.
Is this a unicorn that simply can’t exist? Perhaps.
It would need to have a drastically lower cost position than the traditional model to be sustainable.
How could this be achieved? For one, it would need to be untethered from costly local operations while delivering quality local service. This may not be as impossible as it sounds; if independent contractor networks can be tightly managed by cost-effective inspection and management services delivered centrally. Vacasa seems to indicate it thinks that’s possible, and after two years of delivering such services, we’d certainly agree.
Next, it would aggregate and integrate best-of-breed, centrally delivered technology. There have never been this many great vacation rental tech companies delivering innovation at such high quality and low cost. Privately, several tech vendor CEOs complain that they are getting fractions of a percent of the gross booking value while their customers take 20 percent to 40 percent.
Last, it would need to scale owner acquisition drastically and lower its cost.
Can this be done? Stay tuned.
About Alex Nigg
Alex Nigg is the founder and CEO of Properly, an operations platform for short-term rentals. Alex is a frequent speaker at industry events in North America and Europe. Prior to finding his passion for the vacation rental industry, Alex was a management consultant at Bain & Company, entrepreneur and venture capital investor in Silicon Valley. Properly provides remote inspection and management services, and has a service provider network spanning North America, Europe and Australasia.