2019 VR IS DEAD LONG LIVE STR (or Airbnb)
Although the world still has thousands of cottage industries (literally), the avalanche of tech, money and changing consumer habits is killing the traditional approach to the VR (self-catering, holiday rental) business.
Guests expect better and faster with consistency. This historical business rarely disturbed the local economies and was welcomed by local traders, but now it is clear that there is big money to be made and the local authorities have woken up to this fact, through both neighborhood complaints and inspection of tax revenues!
All the expectations printed below will reinforce this slide to a marketing led industrial transformation over the next couple of years. Airbnb, UR’s and STR’s (see our article on name changes) terms are used more and more, taxes are applied at the source, IPOs are on the horizon, guests are paying more, Google has entered the rental game and the demands for a truly professional approach to all elements of this business are needed.
A sure sign the end is near for the traditional cottage industry. It just needs Amazon to acquire a lean mean marketing business and feed its client base to really upset the proverbial apple cart! However, this is unlikely with a business based on the speed of delivery, reviews, and very competitive pricing. Stranger things have happened though!
AIRBNB ~ IPO
AI and Blockchain are still coming, but as predicted, slowly, and will see more peripheral use in 2019, but the big changes are already happening. In the last couple of months Airbnb purchased an actual management company, Luckey Homes. There have been endless speculations why, (see below) but one thing is for certain, they are interested in this space pre-IPO, which is the expected 2019 news for Airbnb.
Overall Airbnb has slowed in several areas, not coming anywhere near the predicted “Plus” number of properties, ceased group payments, focused the site on experiences, been heard to talk of being a full travel service business, and more. Maybe the IPO may leave investors confused, but the IM may tell all.
SHARING IS DEAD!
Just to follow up on the Airbnb. The sharing economy enthusiasm of 2008, the rise of the Uber and Airbnb style businesses, with peer to peer rental of underutilized assets is dying.
This brave new world has been hijacked by major corporations who live and die by profit margin and shareholder value. This is the complete antithesis of the sharing economy as discussed in this excellent article. Airbnb, as we know, is less about living like a local and more about IPO. IPO’s rest on profit and growth potential. It’s not a gig anymore! The outcome for rentals is that guests will pay more as the big companies squeeze more margin. Fewer properties as % of the total will be “shared” and more that are listed will be professionally managed. In the Western world at least!
BCOM ~ RAMPING UP
We have noticed a much more Airbnb approach to the supply chain with a more reasoned approach. Anecdotally they have made significant inroads to the VR market and also AirBnB’s position as the Airbnb superhosts and hosts appear to become less dependent and are increasingly concerned on the corporate approach.
BCOM will continue to build inventory but will need to address the guest accommodation expectations and hotel cancellation habits. Those who have slick full-service operations can expect better rankings.
GUEST SERVICE FEES DISAPPEARING
We are all expecting it and behind the scenes, the testing is happening and the consultations in progress. Airbnb was successful with its low supply commission fee and facilitated fast manager onboarding and growth. With BCOM and Airbnb in hot competition, the removal of the obvious (to some anyway) guest fee may well be on the cards in the next 6 months for Airbnb and may start regionally, perhaps Asia where a commission is more acceptable and margins often higher or very competitive price markets where guests are more discerning.
HomeAway may follow, but HomeAway is a more regional focused and has a true rental history. After a couple of years of hiatus and Expedia integrations, it is getting back on course as a marketing business, so we expect HomeAway to gain ground in 2019 in regional destinations and as Airbnb and BCOM battle for center urban ground, we may well start to see a lot more interest by HomeAway as a city player too.
GUESTS WILL PAY MORE
Why would this be? PMS systems are increasingly allowing rate management to OTAs, covering the commission margin by adding this on to the published price. Guests are currently unaware of the price disparities but managers are aware “Price Parity” is seeing legal challenges and is hard to enforce and check. AI and improved scanning methodologies may see OTAs being smarter about this, which will be reflected in listing priorities. Owners and managers will then seek new competitive advantages.
This will continue to see leakage to direct bookings and when supermanagers are involved, who can also offer better rates than OTAs, they too will also have the marketing power to promote this. The supermanagers are also in the game to make money, however, so expect higher owner commissions and OTA/supermanager rates to be different to OTAs but not by too much!
METASEARCH FOR RENTALS ~ OTAs BY ANY OTHER NAME!
With the predicted demise of Tripping and its acquisition by HometoGo, we are seeing a new force in the market. With a traditional feed from OTAs, where the booking margin envy has been one-sided, the meta marketplaces are heading to commission sales rather than a CPC model. The numbers would be interesting to see, but why allow an OTA to make more money than you, when you feed them leads. Why not make the same margins yourself? This means more marketing and spend on advertising. Google wins again!
A great idea of course and easier as more channel managers and PMS systems feed the meta sites directly, who currently show service fees, so when the meta site shows the direct booking channels are cheaper, they gain.
Looks like a win-win for meta and manager! Alas not as the commissions the meta sites will want to make is the same as the OTAs, so expect meta rates to be slightly lower but similar to OTAs. If service fees disappear too, it will become another game of who has the biggest stick or the smartest business (think tech and guest service).
GOOGLE VR COMES OF AGE (OR NOT)
All the speculation on Google VR and Hotels appears to be bearing fruit. Has Google lost its advertising edge and seeing a future drop in advertising income from the major corporations? Or does Google feel it can help accommodation owners get a better deal?
Google search is currently a page of high paying corporations all of whom separate supplier from the guest. The first page now often has organic results below the fold on laptops, tablets etc. Always a good idea to recommend ad blocker to guests if you seek direct traction.
Google search is now a poor service for the millions of users, despite their mission statements. (This is a rant that went viral from this editor in 2014, nothing has changed). Google mints money from its advertisers such as BCOM and can ill afford to lose this, but at the same time has realized the years of payments have allowed them to build solid brands and this is where guests often heads directly. PPC may well be less lucrative as these brands reinforce their customer base messages directly and through less expensive media.
People head to Expedia, BCOM and Airbnb websites and search less further and wider.
We can expect Google to ramp up the accommodation booking business, but it’s not going to be the panacea that so many people hoped for. Expect the same commission rules that the OTAs apply long-term and Google doesn’t have to pay itself for PPC. Google will be a significant player in this sector and we can all expect to see rental wars with the OTAs.
DATA IS DRIVING EVERYTHING
There is no doubt the increase in data exchange, and without granular control of this, few managers will survive. We have seen a flurry of new channel managers, and PMS systems in recent years. Now we are witnessing smart home technology and the need to connect booking and guest information to this and the provision of concierge services as VR becomes a full-service business by necessity.
2019 will see more and more companies connecting to a myriad of different systems for guest books (e.g. GuestBook or Hello Here), physical management (such as Properly or Propierge), smart home techs such as Alexa or Google Home and their downstream tech connections.
The smart home tech world, however, will see its own manor winners or losers in years to come. The global market is huge but like rentals fragmented. No doubt one or two significant brands will dominate the IOE and smart home hardware. Will this be Nest (acquired by Google) or Ring (acquired by Amazon)? Connecting to hundreds of systems may simply serve to create excess support issues whereas connecting to a handful of the major market makers may be the best strategy. Prices are relatively high right now but will decrease no doubt as volume increases.
ACQUISITIONS WILL INCREASE IN SIZE
No surprises here! This will happen across the globe. We will see the increase of “supermanagers” who can contest the OTAs. Cottages.com in the UK (ex Wyndham) was acquired early last year, as part of $1bn+ deal. Imagine an acquisition of further 10-20,000 properties pushing inventory upward excess of 40,000 properties in a single country, which may represent 30% of the entire market. TripAdvisor’s HolidayLettings business only has 65,000 listed and this no doubt has many thousands from these managers themselves. These supermanagers have full control at pricing and availability level! Challenging to say the least for the less invested!
These growing mega-companies increasingly need technology to run them and using third-party hybrid and often legacy systems will need to change and we will see tech company acquisitions to parallel manager growth and improve their margins and control. (see the 2018 report linked above for information on this).
These big companies will segment their inventories and create niche sub-brands, based on accommodation types and locations. They will hunt associated commercial and residential real estate partners to increase inventory and control the acquisitions flow. Conversely, expect real estate brands to develop their own models to create defensive businesses to the e-comm companies such as Purple Bricks and the lower commission rates being used these days.
MAKING UP THE SHORTFALL ON BOOKING INCOME
Expect a flurry of “accessory & service” sales by the booking companies. Airbnb and the big boys already make rev share or direct booking incomes from this. Smaller API serviced businesses will grow: Guestbooks, travel insurances, concierge services, product sales, luggage storage, food delivery, and experiences booking will come to the many smaller businesses! The guest will generally carry the financial burden but expect to see a maelstrom of poor connectivity issues for years.
THE YEAR OF THE PHYSICAL MANAGER
What or who is the most important link in the rental chain? Is it the marketing, the decor, the credit card company, the location? With such a significant increase, especially in urban areas, the need to have reliable and professional management on hand 24/7 is increasing. Without cleaning and guest access to services, the rest is irrelevant. Expect to see an increase in management businesses and hence software focus by PMS businesses as they struggle to learn new processes. This article from 2018 was one of our most read.
This was always going to happen and will continue. With over 200 systems that profess an ability to manage bookings, the bigger companies need to get bigger as has happened in 2018.
The decision is the focus: large managers or small owner accounts? The need for channel management is increasing as the marketplaces all add financial pressure to their suppliers and the need to reduce single marketing site dependencies increases.
There may well be channel management acquisition or significant share purchases to access data and clients in 2019 and start to hold inventory to ransom.
TECH COMES OF AGE – BUT BIG CHALLENGES HAVE YET TO BE FACED
There is some much noise about tech and its use in rentals. Remote entry, Amazon Alexa and Google Home, noise detection devices, apps for information, API data connections for services and deliveries are all based on small modifications of the existing home or hotel tech.
Little is revolutionary, but those who can drive bookings through social media, direct traction and have smart site algorithms, designs, messaging, that create impulse buying will be swept up!
FRACTIONAL OWNERSHIP ON THE BLOCKCHAIN
This industry has a high net worth infrastructure and all combatants make more money than leaving the cash in the bank! Homeowners often have an appreciating asset and booking sites take healthy commissions.
In the middle, there are increasing numbers of businesses sniping away at the margins. The man in the street has invariably heard about Airbnb, the “Hoover” of rentals (but who buys a Hoover these days) and sees the multi-billion dollar valuations being quoted daily. Most people cannot enter the real estate business, however, due to the large capital outlays and their incapacity to borrow. They miss out on the better returns enjoyed by others.
Regulations and bureaucracy on property ownership and financial regulations and investment hinder this potentially explosive opportunity. Blockchain can facilitate this change. The use of a security token and smart tech to pay a rental income share, govern the property ownership and create a global brand under collective ownership will happen, this year or next.
Have a great 2019! Please send us articles on the rental world and any personal thoughts, we may publish (keep it clean!).
Richard @ Rentivo!