How this business is evolving, with new businesses arising, old ones dying away and the landscape changing dramatically in front of our eyes.
2016 will be a very important year for all of us.
We thought on the eve on a New Year, a few thoughts on the year past, the one ahead and lessons learnt from generations past that influence the new generation.
“Those who don’t know history are destined to repeat it.” – Edmund Burke
Around the globe we have seen the development of monopolies and powerful marketing organisations for millennia. Historically there are countless examples of this type of control that penalises a significant proportion of an industry: Invariably the suppliers who do not have sufficient critical mass to warrant brand awareness and attract direct custom.
A single case from history may give more reason to reflect and address your actions in 2016.
The Canadian Pacific Railway, in 1897, (the only line in Canada at this time) granted exclusive licenses to grain operators to encourage them to build grain elevators for storage of the mountains of grain harvested across the plains on Canada. They also stipulated that no grain would be carried unless stored in these licensed elevators. These were and still are expensive storage facilities and beyond the average farmer.
By the early 1900’s 5 companies controlled the entire flow of grain compounded by the creation of a grain association by these companies. The control of consumer price, grain price and distribution was complete.
This destructive assembly created huge resentment amongst the farmers and economic strain. There always needs to be stimulus above a certain threshhold for action and in 1901 this happened. The combination of a major economic crisis in W Europe and a massive grain harvest meant that the railroad was unable to cope. Their obligation was the licensed elevators and this particular crop filled all the railroad cars. Half the huge crop was lost. The rest is history and very turbulent, but the dam of tolerance had broken and Associations were formed, legal challenges were made, public elevators were agreed and reformed several times until the early 1930’s.
I think it’s wrong that only one company makes the game Monopoly.
No Dispute – it’s part of the marketing mix
The creation of services that support, process and distribute products or services is never in question. These accretion businesses reduce expense and increases efficiencies. The fundamental problem is that the product exposure, price and availability is can be manipulated by distribution, not as easily by manufacture, assembly or primary supply, especially in a volume market.
In turn this manipulation is controlled by the investors or shareholders, with these businesses attracting consumers with value propositions, so squeezing the supply chain to achieve the necessary EPS values.
Large corporations, of course, are blinded by greed. The laws under which they operate require it – their shareholders would revolt at anything less.
We must not forget that any consumer generally has little or no knowledge of how any product arrives on their table, or these days, on the screen in front of their eyes.
The over-riding message is that in the modern world there is more than one railroad, more than one elevator, but still powerful gatekeepers to the market. Supporting those smaller enterprises which have parallel ethics to your own and can grow accordingly is worth considering.
So how does this snowball of corporation control affect vacation rentals in 2016? If you are a manager or owner the rapid market changes will affect everything you do, to varying degrees.
Up until now we (the farmers) were selling directly from our own shops or using the equivalent of local markets. These have long since been pulled into the larger market models (or grain silos) with powerful online distribution and exposure which continues to evolve with increasing speed.
2015 was a busy year with many CEO’s stating that the accommodation industries were converging and amalgamating. The biggest and latest news was the acquisition of HomeAway by Expedia a company that owns many other brands: Orbitz, Trivago, Venere, Hotels.com, Travelocity, Wotif, etc. As an industry the airwaves or netwaves have been alive with speculation and concern about this acquisition, but with Booking.com (Priceline) increasing inventory, Airbnb entering the managed inventory market, the old style vacation rental business has changed forever.
The rules of engagement are often embodied within these corporations Vision and Mission Statements. These are a few of Expedia’s as an example and is clear where their values lie and is a clear statement of intent.
We want to own and power the best travel brands in the world.
We want our brands relentlessly focused on what drives value for their customers.
We are aggressive. We will grow and take share from our competitors.
This is the booking.com Vision Statement:
Booking.com is an informative, user-friendly website that guarantees the best available prices. Our goal is to provide business and leisure travellers with the most accessible and cost-effective way of discovering and booking the broadest selection of accommodation, in every corner of the world.
You will notice that these companies seldom mention the supply chain.
Guests will pay more
Squeezing more margin from an increasingly smaller pot has become harder for these marketplaces. To increase profit and develop the business means more income, lower costs, more inventory, faster processing, increased traffic, data retention and brand awareness.
Managers and owners will raise their prices via channel managers to negate commission charges and to improve the direct opportunity based on best price.
Price parity sites will lower the ranking or listing positions of non compliant businesses in response. Suppliers will game the sites, use sophisticated re-marketing and customer acquisition tools themselves.
Governments will continue to challenge any price “management” or cartels and monopolies.
With HomeAway slated to follow Airbnb and begin charging travelers’ a fee for vacation rentals in the first quarter of 2016, TripAdvisor has expanded its booking fees for travelers when they rent a vacation rental on TripAdvisor through a property manager. SKIFT Dec 8th 2015
Booking data is vital to growth
This has been the holy grail for many subscription companies with OTA ambitions. To achieve this requires margin to invest in change and hard won policies to redirect inventory. However from this booking data comes margin with “extras” (car hire, flights, restaurants) and guest knowledge. Without the booking data, transaction control and margin growth as an OTA cannot succeed.
So expect even more heavy handed demands on real time and instant booking opportunity, off-site and direct on OTA’s.
This quote below and direction is at odds with the declared love of subscription income of course with the likes of HomeAway. Perhaps this is hedge betting?
the company has been moving toward a fully online bookable marketplace and closer to the type of transactional business model with which Expedia has tremendous experience.
Brian Sharples CEO HomeAway Nov. 2015
Perhaps its not:
About half of HomeAway’s listings are online bookable and the goal is to get that figure to 90 to 100 percent by the end of 2016. Vacation rental owners who transact their rentals offline can get away without charging guests a booking fee, but HomeAway is threatening to boot properties that are not online bookable by the end of next year.
Skift Nov. 2015
Their future lies in the hands of 500,000 owners and managers right now!
Brands with dominate
Managers or “brands” who have real time inventory and actual management controls will dominate many major sites. Expect to see more “whole service” operations with investment to appear as these OTA’s drive more traffic and hotel chains brand their own challenges.
These “brands” that have critical mass and can be objectively critiqued and treated as corporations by guests. They can expect more interest from guests who expect brand standards and who have concerns over the more traditional selections.
Ski.com Survey Reveals Fear Associated with Vacation Rentals
Technology will drive the industry
Technology will become increasingly important to work with marketplaces and to manage bookings.
Expect your guests to be bombarded by apps, emails, travel services, from which there is no business gain for an owner or manager. Expect this to drive independent organisations to offer new models that benefit the inventory controllers.
We will see even greater city/regional polarisation amongst the listing sites/OTA’s. City breaks, short stays and merging of business travel has been the main impetus of the emerging companies, but is slowing. These short stay city dwelling are more “hotel apartments”, than true vacation rentals.
Regional destinations pose huge logistical problems for a hotel style model, with a greater need for communication and more stringent booking rules. We will see technology addressing these rules and attempts to accommodate the 50% of the market still not onboard.
The many rules of engagement make this very difficult and will push owners and managers to review other opportunities, where more flexible direct booking is possible and convenient.
We must not forget, that unlike farmers, each property is a different crop and to transition to “elevator control” has not been easy. This narrative from Darren Huston, CEO Booking.com on Skift confirms this:
Huston argues that the Priceline Group strategy is to build or acquire leading brands — specialty stores, he calls them — as opposed to Expedia Inc.’s acquisition-consolidation strategy related to brands that have struggled, including Travelocity and Orbitz Worldwide.
“I like playing up that hand better than going in and buying companies that aren’t doing very well, and stripping out all the workforce and slapping them on to a [common platform],” Huston says.
Many older secondary marketplaces will struggle
The “big few”, HomeAway/Expedia Group, TripAdvisor Group, Priceline Group and Airbnb will harvest the lions share of online bookings. The other few hundred “Book Now” sites will struggle to survive. Search positions are hard to achieve, PPC is frighteningly expensive, many businesses run legacy system and have high staff costs. Expect merging of businesses and failures.
Inventory controllers will be acquired
Expect more acquisitions of inventory controllers/managers, with retention of local offices and brands. The scales of economies work at a marketing and finance level, but local knowledge is being recognised as of paramount importance in regional destinations. The drivers are clear, more margin, more control at inventory level and better guest pricing. It would be easy to imagine a no-contest “Best Price Guaranteed” mission statement for this business.
Wyndham Vacation Rentals Continues Expansion with Rental Management Company Acquisition in Whistler, Canada
PARSIPPANY, N.J. (July 6, 2015)
Lean mean enquiry machines
Now HomeAway has been swallowed up, TripAdvisor and its group have moved to booking management an enquiry vacuum is appearing. Which company will look to replace them and take the $1bn subscription market and provide the tools to manage it all. It needs technology and some serious funding, but the doors are wide open.
Data Sickness: Travel Agent Cure
The net as the first port of call, has an overwhelming and confusing number of websites many providing the same product. To find the correct property in the right place, at the right price and have it validated by a knowledgable, personal human being will become more popular (again). Sure technology will facilitate this but a new wave of agents will arise.
The amount of online data doubles every two years. That means in 2017 the amount of data in the world will be twice what it is today.
Check out this great blend of tech and humans. http://lolatravel.com/team/
Collaboration, collaboration and collaboration
The net effect of the 2015 changes will be to add more pressure to inventory holders in several areas but predictably margin, instant availability and shorter stay opportunities.
The forced adoption and too rapid changes have destabilised thousands of owners and managers, to the point where they are all now talking. The CPR was not the first and will not be the last.
Divide and Conquer is easy at a global level, but harder where small activist groups arise and these groups now have motivation to act. Financial constraints will overcome many apathies.
Expect more Associations, or Chapters to form from collaborative groups, with a local focus. Technology is now available and combined with a local focus we will see any number of these arise in 2016 and then network together over the coming years.
This collaboration won’t stop at owners. Managers are already sharing inventory directly and creating their own funded marketplaces. e.g lovecottages.co.uk with guest facing portals soon to be launched.
Closed portals will arise where city managers can cross market behind closed doors sharing in the income. One enquiry can again cascade to more properties, without extra OTA expense.
Even channel managers who take a very small percentage, but have massive inventory will begin to wonder who is winning the game. 05.% or a $ per booking whereas the marketplace can command 15-20%? Perhaps channel managers agglomerates will become marketplaces!
Increased marketing mix
A great percentage of the supply chain is now seeking and involving themselves in mass marketing. No longer can an owner rely on their single advert on VRBO or Holiday Lettings for ever. The rapid rise of channel managers makes life easier, the growing assortment of pms/bms/crm systems can help administrate bookings, but all add to the “tax” burden.
Expect more “direct booking” promotions and gaming of the OTA’s with suggestions such as:
- Block out peak season on OTA’s and use them for off-peak only
- Raise prices on the channels to cover commissions (it’s quite common now)
- Offer discounts direct
- Focus on referrals direct and adjust your website accordingly with local info, name focused, personal approach.
- Add text to the descriptors in the adverts with information on referrals (we have seen it)!
- Use calendars “intelligently”
- Managers using membership discounts and closing the doors on part of their websites.
The rise of VR education
Almost last but by no means least is education. This year we have seen more and more need to increase knowledge on all things vacation rental. This is from the need to improve in technology, the psychology of customers, the booking flow and financial processes, the step up in property quality and guest expectations, the marketplace pressures and much more.
No longer can anyone expect to receive an enquiry, respond tomorrow, make a booking at leisure, receive money by cheque, be lackadaisical about the accommodation the follow up or personal interaction.
Improvements are needed every step of the way and learning the tech, the market drivers, what the competition are doing, how to implement improvements is all part of this.
We have seen another successful VRWS this year and plenty of people contributing from both charitable and commercial reasons. Expect to see more as the market changes.
No more Unicorns
Perhaps the days of the Unicorn are over and we will see some common sense in valuations. HomeAway was acquired as predicted (circa 1m properties) for $3.9bn=$3,900 per property. We make that 32 years profit (EBIT $120m 2014) based on current property income. The price per property is comparable to buying a full inventory control business, that sees 100% of revenue. They must know something we don’t!
At $25.5 billion, Airbnb would be worth more than hotel giants Marriott ($20.90 billion), Starwood ($14 billion), and Wyndham ($10.01 billion). Hilton Worldwide is valued at $27.7 billion.
Airbnb has to go for an IPO at some point, maybe 2016 and then we may see, but with their move to managed VR’s then the timing may be a little premature and hey, why would they not start looking at other accommodation and incremental sales opportunities to whet future investors appetite as a carrot?
Google & mobile
No matter what has been said above, the elephant in the room is always Google.
Certainly brands have made headway and if they have phone based apps they will see more traction, especially with Apple owning a lot of the ecosystem. The booking, the instant wallet payment and confirmations are all coming and are dependent on technology and value propositions. Mobile apps can stand outside Google to some extent, but the publicity, PR and the buzz are often search and social based, where Google has influence still and interests.
We have seen Google hotels, the agreements they have with various corporations, the implementation of local and maps. The big earner, “Adwords” can bleed the common man dry and even large corporations.
We are all at their mercy for new a lot of new business, either direct or via the subscription or performance booking sites. These pay to be highly to be ranked or pay armies of people to ensure good organic search positions. Acquisition reduces cost and increases opportunity, but this opens doors to new competitors.
So as a final thought, there may well be distressing times ahead for OTA’s as well if search really does produce the results a guest is looking for.
Larry Page, our co-founder and CEO, once described the “perfect search engine” as something that “understands exactly what you mean and gives you back exactly what you want.
Search has never been terribly good, unlike the robots in Sci-Fi films, but maybe this is coming. The ability to understand subsequent searches, learn what is required by individuals and how they approach their own search requirements could welcome in new vista’s and make blanket, pre-formatted, repetitive site structures something of the past.
Now where is my website?