@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.
