Marketplaces Spawn Their Own Competitors – The Rise Of The Micro Manager

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Marketplaces Spawn Their Own Competitors

The vacation rental industry is a hot spot right now and as we all know is having a number of effects on both micro-economic and macro-economic scales. Hotels are being affected, housing communities are challenging change of use and the tax authorities are watching closely with eyes of opportunity. Property prices are increasing in many areas again and this may even contribute to the next bubble.

On the smaller scale, the opportunity to monetise the new world of short term rentals is spawning start-ups and seeing existing businesses adapt their models to avoid paying more. It is also opening the eyes of second homes owners to potentially larger rental income and less stress.

Traditional vacation rentals have had well established practices for managing properties, but are seeing a need to become more technology focused; to increase efficiencies, analyse metrics and ease data distribution. It has become a complex world that requires new skills sets. (See 2015 Forecast statements below).

The scale of online rental growth over recent years has been stratospheric. A prime example of a company that has contributed to this growth is Airbnb who has highlighted to owners the challenges of accepting guests into their home and side-tracked into full property rentals very quickly. This business alone has seen property prices increase and even properties being bought just to use the short term rental model (I BOUGHT AN APARTMENT TO RENT OUT ON AIRBNB)

Other marketplaces, such as HomeAway (VRBO, Fewo etc.) & Holiday Lettings, FlipKey, Niumba (TripAdvisor) have been the traditional online channels (last 10 years) for advertising rentals. Through acquisition and marketing they have all raised awareness and made more inventories accessible, but are transitioning their income streams from subscription income to commission bookings. Managers are all aware of these changes and the threats and opportunities it provides. (HomeAway Dec 2014 on Skift).

Booking.com and other hotel channels have been edging into the space and we see a plethora of online properties spread across many channels. These outlets are naturally introducing more extreme rules and financial controls to draw guests, but in so doing are seeing discontent at the inventory level.

The Booking.com Syndrome

PriceLine are pretty much the experts at booking online, controlling suppliers and taking no prisoners. They focus on guest facing market drivers and the supply chain obeys, or used to. Anecdotally we see more and more people saying they search on BCOM for hotels then phone direct to get a better deal, a room not next to the lift and lots of free extras! Why wouldn’t you? Simply because it’s too much hassle, it’s a short business trip, and you don’t care about the capital morality or just don’t know how much the hotel pays to be seen (15-18 %+). Or surprisingly the fact all your credit card details are shipped to front desks all around the world.

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The rental market is being seen as a potentially lucrative addition to the online hospitality trade by the financial community. I personally contest much of the global analysis on the value proposition presented by high commission marketplaces. (HomeAway ROI is always quoted at around x30 for home owners and the analysts. Managers may only see one tenth of this and managers are 50% of the market). Note the emphasis here is managers who provide a full marketing and management service, or variations of this, not individual owners who can enjoy higher returns but carry the loans and mortgages, the utilities and insurances etc.

As shown, managers are approaching 50% of the global listed market on traditional platforms. These are now a focus of attention for the new breed of company where virgin territory has been opened up, namely high density population locations with high traffic: major cities for example.

Airbnb is opening up via channels to the traditional VR market and is looking carefully at the pressure points. It could help their drive to grow or muddy the currently relatively clear waters.

The simple reason for this focus on managers and large data is that they are more likely to be able to afford technology and supply real time data and work 24/7 with in an industry in flux. Managers are also a single contact. One customer with 1000 properties feeding data in real time needs less administration than 1000 single clients, who manually manage in-system and call and email every day! Does this mean the the support staff are at risk of losing jobs as businesses become leaner, with less volume of customers, higher levels of inventory and simple digital controls?

The face of this business has changed and continues to do so, more marketing is portal centric and these are changing guest habits, in so doing are also forcing new terms and pricing structures on owners and managers; HomeAway with its “Book It Now” (BIN) and Airbnb with its less strict cancellation terms are examples. TripAdvisor moved into this space long ago and forced change without consultation. At least the other majors ask questions and TA and its network suffers.

The Guest Experience

Much has been spoken of the “Guest experience”.  The supermarket analogy is an excellent place to start this. Smaller businesses provide a more personal service and are seeing a resurgence across the UK, with 24% of consumers visiting their local stores every day.

The reasons are obvious, people don’t want to see chain after chain any more, they want shops that define an area’s personality, giving their hometown a stamp of individuality and a common sense of place for a community.

“People don’t want to see chain after chain any more, they want shops that define an area’s personality, giving their hometown a stamp of individuality and a common sense of place for a community.”

Vacation rentals aren’t supermarkets, but the similarities are clear and the experience, the personal service, the local approach, the knowledge are all driving change aligning with the oppressive economics of large capital businesses.

The Rise Of The Micro-Managers

A short term holiday rental still has a lot of challenges, responsibilities and liabilities. Airbnb has a lot of information on “hosting” and is a starting point for anybody considering this and typifies what needs considering before entering the game.

If these requirements are split into well-defined skill sets, it opens opportunities for a thousand micro-entrepreneurs to develop local income streams and dream of growing international businesses.

If these requirements are split into well-defined skill sets, it opens opportunities for a thousand micro-entrepreneurs to develop local income streams and dream of growing international businesses. These hard working innovative people are the acorns at the heart of these marketplace’s problems.

These hard working innovative people are the acorns at the heart of these marketplace’s problems.

The Sharing Economy – Check The Numbers

If you look below, you’ll see the some numbers we have pulled out from Airbnb relating to the rentals that they have listed in 5 major cities. Firstly you will note that the “shared space” is not actually shared. The majority (from 53% to 84%) are full property rentals in these cities.

A full property rental as opposed to a shared space or room in your own home is significantly different: There are insurances, cleaning, maintenance, access, contents, safety etc. accounting etc. and needs more attention at every level.

This analysis below of the Airbnb data shows how many listings have 5 or more properties. These could be owners who own one or more properties or are houses in multiple occupations and are part of the focus of this article: micro-managers. In these five cities we identified over 10,000 properties in this group. This is currently only a fraction of the number with multiple listings (2-4).

Compare the Paris numbers to HomeAway.  Airbnb have over 34,000 listings and +80% are “managers”, but with limited volumes each. HomeAway have almost 8,000 and circa 50% under full management.


We anticipate a significant increase as micro-businesses swell and mini-management companies arise especially as Airbnb imports properties from traditional managers and they merge, share and re-distribute. We have added a theoretical line to illustrate a possible trend in red over the coming months.

Many owners are absent and find the toil of rent management inconvenient; this in turn plays to the industrious local entrepreneur who can offer a service from key holding, to management, marketing and more.

Many owners are absent and find the toil of rent management inconvenient; this in turn plays to the industrious local entrepreneur who can offer a service from key holding, to management, marketing and more.

There are many illustrations of this: For instance, there’s Guesty, or Proprly, property management companies, and KeyCafe, a key-exchange company based in Vancouver that turns nearby cafes into key-storage locations. There are countless unbranded businesses across these cities quietly acquiring inventory and using Airbnb as the booking channel and helping owners out.

Growing Pains

The problems arise when the numbers are crunched and the micro business becomes unsustainable as it grows.

For example, a €12,000 income property in London will see 97 nights booked on Airbnb according to the figures above. Let us assume the NewCo offers to take on a property and decides to use only Airbnb as the marketing channel, assume the cost is 5% (new terms on payments are already appearing). Because of the attention to detail and full time service, we can possibly assume more bookings, so let’s say this becomes €15,000 per property. If the manager charges 15% for his services and provides cleaning and maintenance at just over cost (separately) then their income is €2,250 minus the 5% charged by Airbnb on all bookings, so €1500 per property per year.

Airbnb makes almost as much money as the manager who has to deal with the owner, the guest the property and administrate the listings. The scales are not well balanced in many managers eyes.

Airbnb on the other hand may take a lot more than this depending on how much they charge the guest on each booking. Clearly there is a claw back margin on top of the 5% already billed. It’s obvious and published. Airbnb makes almost as much money as the manager who has to deal with the owner, the guest the property and administrate the listings. The scales are not well balanced in many managers eyes.

The Light Bulb Moment

If a manager takes on 10 properties, all on Airbnb, he may realise €15,000 income. However, if he achieved the same bookings without Airbnb he could potentially double this income! This is the “light bulb” moment and they are switching on all over Europe. Like the light pollution maps it’s easy to see where this will take place the fastest. Take a light pollution map and start planning!

Light Bulb Moment
When managers realise they could double income without Airbnb. The “light bulb” moment

Changing Course

The question that then arises is how to achieve this change of strategy? It’s a question of cost vs. reward. But the thought process is essentially the same. How can I take the money directly that these portals currently enjoy. A back of an envelope calculation in these 5 cities shows that there is probably over 160 million euros in Airbnb income that can be tapped.

A back of an envelope calculation in these 5 cities shows that there is probably over 160 million euros in Airbnb income that can be tapped.

The end result is that the greater the volume of managed properties, the greater the need for higher margins and the desire not to be taxed so highly by any channel that is used.

This is this fate of many platforms which mix owner and manager inventories. Managers are a growing problem as portals attempt to increase margins and controls. Platforms need managers as they carry inventory and focus on technology, but managers ROI is substantially less than an owners and the temptations and opportunities for managers are fourfold:

  1. Develop other marketing channels and tools
  2. Increase prices to channels (price parity is now hard to enforce) and let the guest pay more, but offer cheaper prices direct.
  3. Develop new revenue streams to support the business (vreasy.com is a good example of the sharing economy for example that builds brand and contact at the same time).
  4. Provide local personal additional services not available on the marketplace.

This is a conundrum that sees a raft of secondary businesses “hoovering” up these new young managers .They themselves are lean and are helping the new wave of managers to move sideways, re-distribute inventory, build websites, help with payments, create cloud sharing memberships, cooperatives and cross marketing opportunities. Marketplaces demand channel management, another double edged sword. Who controls the inventory, the channel or the marketplace and how else can this be used?

Already many are talking licenses and franchises for the future. It is not an easy task and these businesses will no doubt evolve, consolidate and develop their own controls, but will have been through the external control process and apply this education accordingly in their own businesses.

In addition, any advertising portal that pops up with a keen marketing angle that produces results at lower costs is bound to be adopted immediately as part of the marketing mix. Increasing discontent by shortening cancellation terms, holding money, creating guest communication barriers and smart re-marketing will see more micro-competition.

These managers represent owners and as investors in second homes and they too have base levels of income they cannot drop below. The end result is that marketplaces will see serious challenges, guests will pay more, and the hotel industry will push back at the same time as a new generation of collaborative players is arising.

Just as the marketplaces thought they had a good hold on the markets, dominating search and the airwaves, we see fragmentation, dissatisfaction and an ambitious drive by many who see this opportunity arise as their countries’ economies have stalled and employment levels are low. Contact labour is bountiful in cities, short term contracts no issue with transient populations. The only barrier is the guest facing marketplaces.

Search Is Changing…Again

Now add in Google’s change to their search algorithms and their desire for more “natural phrase” searching which opens up wider organic reach, and not to mention the price of PPC rising even further. These marketplaces fiercely contest positions on bidding rates. This means commission and subscription hikes and an even greater push to avoid these from managers and owners.

The Rise Of Online Tools – It’s A Brave New World

From 2010 onwards the trend toward data management, SaaS systems, analytical metrics and cost effective online tools has blossomed. Once the privilege of the few these tools are now available to the masses. Adoption of these and harnessing a network of user friendly systems brings the micro-manager within reach of their goals.

Its a brave new world.

Richard Vaughton

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References and statements on trends can be found below;

Corner Shops are fighting back http://www.telegraph.co.uk/finance/festival-of-business/11484237/How-corner-shops-are-fighting-back-against-the-supermarkets.html

Airbnb Data taken from http://insideairbnb.com/get-the-data.html

PREDICTION STATEMENTS FROM EARLY 2015.
“I predict there is going to be resurgence in small business formation as Americans (& EU Editor) get back to their entrepreneurial spirit. Millennial, in particular, are going to embrace owning their own business as they realize the freedom it offers and reject the more stringent corporate world [to] create their own wealth.” –Cody Gunn, president, Gunn Capital Management

“In 2015, we’ll continue to see a split between those businesses positioned to take advantage of the major trends and those that aren’t.” – Owen Shapiro, author and market strategist

“We predict an even broader shift towards contract employees and utilization of freelance personnel to fill expertise gaps. The focus towards lean, efficient employment strategies are essential to promote top-line growth” –Jason Snagusky, founder and president, eKoffee.com

“In 2015, more and more companies will go international. Especially, U.S.-based businesses will start their trans-Atlantic journey. Crossing any ocean is a cultural leap that has and will kill many that try.” – Philip Rooke, CEO, Spreadshirt

“I see small businesses with aggressive growth plans getting serious about digital marketing and their customers’ experience. There is a huge talent, technology and strategy gap with small businesses trying to do it all themselves.” – George Schildge, CEO, Matrix Marketing Group

“Marketing is changing fast. Marketing teams will need to be increasingly staffed with more technical personnel rather than just creative types.– Dave Scarola, vice president, The Alternative Board

“Internet marketing technology is turning marketing into a true science, where everything can be measured.
Peter Geisheker, CEO, The Geisheker Group

“I believe technology will have the most impact on small businesses. 2015 will be the year of EMV chip and PIN cards and Apple Pay. Small business owners will be faced with the decision of whether to upgrade their payments equipment or wait until it’s more widely adopted.” – Jim Salmon, vice president of business services, Navy Federal Credit Union

“What is going to have the greatest impact on small businesses in 2015 is the ability to scale very quickly by using technology.” Max Dufour, partner, Harmeda

“Mobile commerce and mobile usage will continue to increase.” – Chris Belew, CEO, Apptive

“I predict small businesses will be most impacted by cloud-based computing as they transition their technology from their own servers and landline phones to cloud contracts and VoIP-based phone systems.” –Jeana L. Goosman, managing partner and CEO, Goosmann Law Firm PLC

“In 2015, small businesses will begin to see operational efficiencies gained from the adoption of cloud and mobile technologies.” – Steve Hebert, CEO, Nimbix

“One of the biggest tech trends I see picking up even more steam in 2015 is increased support of globally distributed teams”– Preeti Upadhyaya, content specialist, WebDAM

“It’s no longer acceptable for a business to have a rubbish basic website, or to say ‘everyone finds us through word of mouth. The truth is, everyone Google’s everything, and it’s become plain weird to not have a website”.– Natasha Courtenay-Smith, owner, Natasha Courtenay-Smith Studios

“In 2015, small and micro businesses will look to websites and complementary online engagement tools as the best way to create better interactions with current and potential customers, driving more direct communication while helping to increasing sales in the process.”– Ran Oelgiesser, chief marketing officer, vCita

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