In this article, Richard Vaughton, co-founder of Yes Consulting, a network of industry consultants and experts that specialize in the short term rental industry, mulls over some of the changes that we have seen in the industry since COVID and addresses what the next outcomes might be.
It has become very apparent over the last few months that there are global changes afoot which will affect everyone in the short-term rental industry to some degree.
This has been discussed in countless Zoom webinars, meetings, conversations and press coverage. There is, without doubt, an opportunity for a radical change in business thinking by owners, managers, agencies and marketplaces.
It’s clear that carrying on as if nothing has changed is not a possibility. No one wants to be that first lemming over the cliff again.
In order to clarify some thinking around the future of the industry, some of the most prominent industry shifts that we are seeing are highlighted below including #Bookdirect and niche, enterprise property management, masterlease models, the role of DMO’s, Google Travel, the importance of data, hospitality verticals and the topic of hygiene, safety and trust.
#BOOKDIRECT & NICHE: Combining these two topics makes so much sense. Hotels have been driving in this direction for years, with no end of offers, loyalty programs and benefits to entice direct bookings. Hotels have also developed their own version of niche based on quality, locations and formats.
Rentals are harder to aggregate individually for all manner of reasons plus most of the #bookdirect campaigns are focussed on individual owners and small managers. Large agencies are more likely to have resources to develop their own strategy, tools and focus. But all can benefit from increasing margins with a longer term direct booking strategy, with the benefit of rentals being well placed to have a niche focus.
Outcome: Individual owners now know the importance of understanding the business in more detail including the metrics, the tips and tricks and a clearer focus on a niche will improve #BookDirect. However, it may not be possible for all, as a book direct strategy takes time and work. Research and focus on a topic, a language, a guest sector, a local attraction etc, with targeted marketing will help.
ENTERPRISE PROPERTY MANAGERS: For example, Sykes Cottages, a UK company with circa 20,000 properties, and Vacasa in the US, experienced some negative press during the pandemic, but so did many smaller operators.
Outcome: The big companies will get bigger as they have funded reserves and the smaller more generic businesses and even the small profitable niche ones, may just throw in the towel. These equity funded VR businesses are also probably rethinking margin and value vs risk, but the trend will continue. The real upside for them is they are not in urban spaces.
The T&C’s and guest and owner relationships will also be reimagined and reorganised over the next year. Insurance and new holiday cover fees will be offered to guests to mitigate future disasters. De-risking and working a lean operation is now the biggest consideration.
MASTER LEASE COMPANIES: Some have hit the wall (Stay Alfred and Lyric), others have had their war chests replenished to survive and feed off the chum. No doubt there will be a name change to Prime or Person Lease Companies in the not too distant future to match the real estate market!
In 2020, the lower margin lease model is now not viable at scale and has been compressed due to competition for the prime and subprime inventory.
Outcome: These businesses need to head towards a #bookdirect direction as the OTAs are one of the biggest cash drains (who also saw big refunds from Airbnb). Lease terms will be reworked to a combination of shared and fixed lease.
This is more risky for landlords than for investors. The focus will now be on profitability rather than scaling and some landlords will pick up the reins and do it themselves using no end of available tech.
DESTINATION IS THE BUZZWORD: Unsurprisingly, and we have all seen the data, staycations and vacation rentals are more popular than hotels in urban areas. Local seasonal destinations know that time is running out to get those few visitors to their particular destinations.
With thousands of destinations, a couple of months left and funds and activities at an all time low, this is a real problem.
The destination question and focus/trend is also pre-COVID with sustainable travel and ecotourism being promoted for destinations. In addition, we see local destination operators beginning to identify with power in local numbers.
Outcome: Airbnb for one spotted this and started promoting destinations. Great for the local DMOs and many have partnered with them, but in reality, the loss of local income through non local booking still sits like a thorn in their side. This has committees questioning the way forward after COVID on how to support their subscribers who pay for results on local platforms.
DESTINATION MARKETING ORGANISATIONS: Many are left paralysed by layers of bureaucracy, lack of industry knowledge of global trends and stagnant digital marketing. DMOs support destinations and often this is a dysfunctional relationship at a rental promotion level. DMOs may not be networked at a national level with any semblance of technology, funding or agreements, and OTAs divide and conquer the booking streams.
Outcome: We are witnessing green shoots of local private listing and even national government level organisations challenging OTAs or organisations who are focussed on destinations, rich information, slick and frictionless transactions, real time data and trust building.
As an example, it remains to be seen if France can achieve its ambitions to rival the OTAs, but who knows – a national real time inventory might cascade down to their own DMO platforms.
EXTENDING REACH: This may be counter intuitive to #bookdirect, but the smart businesses use all the tools in their armoury to attract custom, fill the gaps, acquire new guests and inventory. There are new platforms online daily and their objective is to win eyeballs and focus.
Outcome: A rich mixed marketing model has less risk and more opportunity. The compression wave to a few OTAs of the last 10 years, now seems to be fracturing as new niche platforms arise which can be focussed on anything with specialist intent or with other income business models.
This means channel connections and PMS compliance, but more and more managers and owners are demanding these marketing opportunities and attempting to de-risk and extend.
HOSPITALITY VERTICALS: We saw Mariott enter the vacation rentals space pre-COVID with the Homes & Villas platform. Question – have they pushed it to the back of their project flow in this period?
Apparently not, and the reason why is presumably because rentals are more attractive than hotels, and staycations in rural areas are more attractive than city breaks.
Marriott’s loyalty program is also likely to have a better age demographic for this sector’s seasonal spend. Also note Expedia are highlighting VRBO’s success and profitability and the world of social distancing plays to vacation rental’s advantage.
Outcome: We will start to see more verticals emerge across the travel industry especially from the people movers and product resellers, trains, planes, ferries, big product marketplaces etc. Others have dipped their toes into the pond over the years but data management was inadequate. Even Amazon tested it. Will they again?
Bundling travel and product with real time inventory and good margins does seem to make sense as the industry becomes more professional. There are a few companies that can provide this level of technical integration expertise now in the rental space, so expect this to flourish in the next 2-3 years.
DATA: A huge topic but ignore this at your peril! Data drives this industry. A property and a guest may be real, with bricks, flesh and blood but online they are just bytes.
Data is the lifeblood of the search, book, pay, process. It is also inspected, interrogated, manipulated, analysed and it influences every element of this business.
Not too long ago, all owners had to do was list and wait. As margins have compressed, squeezing more from the pipeline, and the market has been oversupplied, intelligence is badly needed.
This is now a data war, with revenue management, dynamic pricing, yield, ADR, guest segmentation, profiling and more being necessary to keep up with your competitors.
Outcome: More companies and owners will require data analysing tools, but intelligent application is needed. PMS systems with dynamic pricing, revenue management strategies, real time demand data on websites and deeper analytical functions are required alongside joined-up marketing activities.
AI and machine learning will help, as will individual personalisation to assist easy selection. Simple things such as email newsletters and web visits will see deeper analysis to become more laser focussed on targeting and conversions.
Big data will become more available for the smaller players to provide insights and comparisons and will be used as part of a strategy to acquire more inventory.
GOOGLE, THE FRENEMY: Google is always in the news and seems to not only be moving towards OTA status but also changing how organic search may see web rankings radically change through their constantly evolving algorithms.
Google Travel with its hotel pay per stay (a PPC hybrid, where you only pay for a booking/guest arrival) may well signify that validated performance is the way ahead and they are an OTA despite all contrary declarations.
With apps and mobile dominating short-term rentals in urban areas, Google’s PPC income will be under the spotlight as a brand overcomes search need, leaving the questionable meta search companies to pay the way.
If anyone has been reading SEO expert reports and their predictions, there should be some concerns going forward. The latest Google update (Bert) and advice is that it is a very serious business need to review current content strategies and SEO approach.
Changes are afoot as Google mitigates more authority to those businesses who are experts in their field, have adopted and adapted to their rules, their advice, use of their tool sets etc.
Outcome: Keep an eye on Google Travel. Not everyone can connect to Google so channel managers and large PMS systems may be first to the pot.
SEO: Serious businesses will need to understand search, Google’s ever changing SEO approach. It’s important to create relevant content and generate content from recognised authoritative and trusted sources. Managers and owners will need to rethink everything on their websites to focus on mobile first, speed, stability, accessibility, context and guest journey.
Outcome: Tech companies are also becoming super specialists and we are seeing an API powered choice of providers. For example, a PMS company may not have the resources, knowledge and tech to run super fast, stable, guest converting webs and secondary integrations to the many payment solutions. But it will have an API to power this.
HYGIENE, REGISTRATION & TRUST WARS: No 2020 article could miss out on the microscopic elephant in the room, but the global pandemic is drawing attention to other contentious issues. Primarily the legality of particular accommodations and their safety.
As predicted, all the major hotel brands and OTAs have been forced to address the hygiene issue, and have taken the opportunity to start using their published protocols to reassure guests.
Companies that provide monitoring and checking services and accredited products are seeing explosive growth. Like the rental business however, it’s fragmented, with brands, governments and organisations giving a wide range of advice and product referrals.
The real problem affecting hygiene, safety and legal operation is governance. Self accreditation on the issue of hygiene is like marking your own homework or MOTing (vehicle inspection for our North American cousins) your own car. The very least that can happen is correct training and tools with CPD for cleaners, who are now recognised as the lynchpin to every successful rental.
Outcome: Adding in property registration (or licensing depending on destination), recording and checking insurances, plus safety standards will help to professionalise and remove the bad operators. It will also provide marketing opportunities to increase direct bookings through visible certification and add that single most important ingredient: trust.
This all requires tools, training, technology and companies to assist in this standardisation. Non-profit organisations are best placed to help with the hygiene cleaning and disinfection processes as they have little to gain apart from member support.
Commercial companies that can address the inspection models are well placed to help owners and managers implement processes and market trust messages.
There’s much to be excited about in the short-term rental industry right now. The COVID pandemic has had a major impact on what was a particular trajectory. However, today and moving forwards, the new trajectory looks just as dynamic and transformative and will certainly be interesting to see.