What accounts for the fragmentation in the vacation rental industry?

In North America, the vacation rental industry was born in locally-owned real estate offices in resort destinations, and the rental division was set up in many cases to enable the selling of real estate. It was not uncommon for the most unsuccessful real estate agents to be assigned to the rental division.

Although residential real estate is a $1+ trillion-dollar industry, it is still a highly fragmented market in North America due to varying state laws and locally controlled multi-listing services (MLS) — hence why vacation rentals have traditionally been highly fragmented.

In a piece for PhocusWire, you said the vacation rental industry has gone from flip-flop-equipped mom and pop operations into ones backed by suit-wearing equity firms. What has the segment lost from this transformation?

The vacation rental industry has lost its “touchy, feely, clubhouse” experience. The core vacation rental market in North America is located in remote resort destinations with high seasonality and high-wage employees.

The harsh reality is that similar to what has happened to local record shops and bookstores, this type of model is not economically sustainable given the transformation of consumer buying behavior.

While an older segment of consumers may enjoy hanging out at a retail location with a latte or chatting on the phone with a local reservation agent, more and more consumers are opting to spend their money online.

And what has it gained?

The vacation rental industry is gaining consumer awareness, access, standardization, and transparency. The new generation of vacation rental firms is utilizing technology to broaden the distribution of inventory.

These firms are spending resources on content to create high-resolution photos, professional copy, and standardized amenity, deposit, and cancelation configurations so consumers have a wider choice of options with better information.

On the operational side, new vacation rental firms are spending resources to enable smart home technology and remote access check-in, professional laundry facilities with uniformly clean linens to significantly improve the cleaning and standardized property ratings, inspections, and reviews.

These are the gains that are essential to allow an “unbranded” category to compete with hotels for consumer spending and trust.

How can smaller property managers compete?

Smaller vacation rental managers will be able to compete in the same way boutique hotels are competing against brand hotels with distinctive marketing, personalized service and unique attributes like luxury, pet-friendly, or alternative lifestyle — alongside leveraging new technology, including yield management.

And what do they stand to gain by investing in advanced technologies?

Smaller companies that invest in technology will be able to improve and personalize their guest experience by offering the guest multiple options for booking, smart home technology, remote check-in, and concierge-level services by tying the entire guest experience into Google Home or Amazon Echo devices.

How are tech upgrades revolutionizing vacation rentals/private accommodation?

Technology is revolutionizing the industry by creating massive disruption for vacation rentals both on the demand/OTA side and the supply/lodging side. With billions of dollars invested in the industry, there will be winners and losers.

Given the dynamics of far more demand than supply, the power in this relationship will shift to larger lodging managers with exclusive inventory who will change the paradigm by leveraging OTAs against each other.

Other winners will include Google, Amazon, Ctrip, Priceline, and perhaps Expedia if they can get their HomeAway division’s act together.

How do you think the sector will shake out over time, both from a consumer-buying perspective and those powering it behind the scenes?

On the consumer demand side, we are in the early stages of a gold rush by venture firms attempting to fund niche OTAs for the vacation rental segment. With the consumer willing to pay a guest traveler fee of 8% to 20% of the transaction due to the scarcity of supply, new OTAs will be springing up in locations all over the globe.

But the real disruption is coming from Google as it enters the vacation rental space full steam ahead. Google will revolutionize how travelers search for vacation rentals as they are prompted to enter their arrival and departure dates and other preferences directly into the search results.

And, instead of being sent directly to HomeAway or Airbnb, travelers will be directed to dynamically tailored landing pages on sites like VTrips.com. VTrips is already initiating plans to participate in several new Google initiatives for desktop/mobile applications and voice-controlled devices.

It makes sense for Google to cut out the OTAs, particularly poor eCommerce listing sites like VRBO, and work directly with the property managers who have exclusive contracts over the supply.

This could happen very fast and will mark a significant reduction in the relevance of booking platforms such as HomeAway and Airbnb.

On the lodging supply side, we predict that the more sophisticated OTAs like Booking.com and Expedia Corporate will partner with larger property managers’ exclusive inventory and bundle it into trips, excursions, and experiences, perhaps even offering white-label branding in exchange for being exclusive to their channel.

The strength of Booking.com and Expedia is that they are brilliant at conversions from mobile and last-minute travelers — vital for the future.

On the operational front, what are the biggest threats posed by the Airbnbs and HomeAways of the world?

The biggest threat is the disintermediation of the communication between the traveler and the vacation rental property manager. Companies like Airbnb and HomeAway that insist on “closed communication” disrupt the guest experience by creating unnecessary barriers, friction, and delays, and this is simply not in the guest’s best interests.

Airbnb’s closed communication policy and insistence on being the merchant of record is one of the main reasons they have struggled to gain market share with larger enterprise companies in the core vacation rental market.

Homeaway’s closed communication system is far worse as they have not invested the money into the technology (or the actual caseworkers like Airbnb) and are literally automating serious guest escalation issues to property managers. HomeAway’s poor performance in this area following other recent strategic blunders like automated offline attribution and disparate treatment of its HomeAway Software customers has caused professional property managers to begin to actively delist properties with them. The loss of both trust and valuable property manager listings at HomeAway also affects Expedia’s ability to own this category.

Bottom line: the problem for both Airbnb and HomeAway is that there is not enough supply in the core vacation rental market to meet the increasing consumer demand, and professional property managers with exclusive inventory have the power to pick and choose where they list their properties.

It will take more seasoned companies like Google, Booking.com, and Expedia Corporate to show Airbnb and HomeAway the best way to manage this category relationship between supplier and OTA for long-term sustainability. Neither Airbnb nor HomeAway can afford to follow in the footsteps of TripAdvisor’s vacation rental division.

My boldest future prediction is Barry Diller will be far less patient than John Malone for allowing a significant business unit to unravel.

How will voice technologies such as Amazon’s Alexa facilitate growth in the sector?

Voice technology favors companies that have core competencies in technology and specialized marketing. Guests who use voice need limited choices, but unique to them. This is where profiling and filters come into play to create a dynamic experience for the guest.

It’s important to note that voice allows you to “browse” anywhere and everywhere, from standing in line at the grocery store to the minutes before the game starts at Wrigley. This is one of the many reasons why VTrips has worked on perfecting our inquiry follow-up system. The ability to turn people with the propensity to purchase into sales is key.

And is there scope for something leftfield to emerge that overhauls the existing ecosystem?

We are in the very early stages of the next wave of vacation rental inventory that will revolutionize the product as we know it and will attempt to fill the overwhelming scarcity of supply.

VTrips is currently working with a large international resort developer on brand-new, purpose-built vacation rentals surrounded by world-class amenities, and we have also partnered with an international OTA to look at actual consumer demand data that can be taken directly to the design board.

It is truly a “win” situation for developers, property managers, and OTAs to partner together and create what the consumer truly demands.

In the next 10 years, we will see a sweeping change as investment capital creates hundreds of thousands of new vacation rentals, overhauling the current ecosystem with a new purpose-built inventory. Instead of everyone competing over the same old orange trees and trying to squeeze more juice out of them, we will start to see groves of new ones being seeded.

VTrips is uniquely positioned at the apex of what will be a transformation of private accommodations as we know them.

As you’ve branched out from Vacation Rental Pros to an umbrella brand as VTrips, how have you seen and how else will you see your portfolio grow?

VTrips has built the engine that will haul the train of an international collection of exclusively managed vacation rental properties. Our goal is not to shotgun dots on the map throughout the world, but to strategically locate optimal resort markets and to gain synergy in them through consolidation and new development growth.

The genius is in the detail of the technology platform we have built which allows us to scale our inventory in a manner that combines growth, synergy, sustainability, and profitability.

As a vacation rental owner yourself, how has that influenced the way you approach business?

I started in the vacation rental industry in 2003 as a rent-by-owner, then slowly evolved into a property manager of 15 units all while moonlighting from my full-time eCommerce job. From being the sole employee for 3 years, I learned every aspect of operations including cleaning, service, and, of course, guest relations.

Even as I grew the company and hired staff, I continued to focus on my relationship with the actual property owner who provided me their properties to rent on an exclusive basis.

Then when I faced rental restrictions in 2006 in Venice, Florida, that almost forced me out of business, I understood how important it was to organize as an industry and fight government regulations, so I became active in the Florida Vacation Rental Manager Association and the Vacation Rental Manager Association on the government side. We were able to pass a preemption bill in Florida to protect the vacation rental industry at the state level, and formed a PAC to grow our political influence.

I believe there is power in working together in the vacation rental, and my commitment to managers’ education and government advocacy has continued to this day. As VTrips grows, we will continue to give back to the industry through education and advocacy, because I believe in the power of “pay it forward.”

What is your proudest professional achievement so far?

Last year, our team handled the acquisition of six vacation rental companies from Tennessee to Hawaii in less than two months, and managed the integration of almost 800 properties from legacy systems to the VTrips platform.

I could not have been prouder of the teamwork involved. We have a great culture at VTrips, and with our small staffing size (as compared to our competitors), one of our biggest strengths is our ability to do more with less.

What gaps would you admit to having in your overall knowledge of the industry?

We are not yet great with languages. The vacation rental industry is a global industry, and the single biggest area of opportunity is Southeast Asia. We’ve started the process but we know we have a lot to do to get our inventory to work in Asia.