Alex Nigg, Properly
By Alex Nigg and Drew Patterson
Industry conferences like the VRMA National Conference, which was held in October in Orlando, offer a natural milestone to mark the progress and direction of the industry. This year’s conference highlighted the pace of change.
Remember where the industry stood just three years ago? In 2014, Airbnb was a darling of the “sharing economy”, but did not yet partner with PMs. HomeAway charged subscriptions and generated leads. And “big” PMs managed maybe a thousand listings. My, how quickly things change.
To quote Bill Gates, ”We always overestimate the change that will occur in the next year and underestimate the change that will occur in the next ten.” With that in mind, let’s have a bit of fun and allow me to predict a few highlights that will come from the VRMA National Conference 2020.
1.Tech giants will fight over short-term rentals as key battleground to drive their connected home products
Connected home products are rapidly emerging as a new battleground for the tech giants. Amazon started a category within the connected home with its Alexa product, but in 2020 Google and Apple are now chasing at Alexa’s heels. These products serve as a hub to control IoT (Internet of Things)-based home devices, such as keyless locks, lighting and heat controls, and entertainment systems.
They also control substantial consumer spend thanks to the ease of voice-based ordering in the home (and offer the side benefit of collecting reams of consumer data). Short -term rentals are an ideal launch pad for the tech giants to push connected home adoption.
Millions of consumers move through listings every day, giving them an opportunity to experience these tools first-hand. As Steve Milo argued, IoT-enabled locks and HVAC systems can deliver real costs savings for PMs. And for our own purposes, connected home devices present an opportunity for PMs to build direct guest relationships for future stays.
By 2020, expect to see large booths at conferences with Amazon, Apple and Google written all over them.
2. Regulatory debates will shift from legality to privacy
The industry will be mainstream and everyone will pay taxes, with current battles over industry legality resulting in a settlement based on 90-day night caps. Instead, the expansion of smart home devices will trigger debates over privacy, with millions of devices watching our
every move and listening to our conversations, we’ll have to acknowledge that boundaries in our home are quite different than in a rented home.
By 2020, a national regulator will have formulated policy around data collection and retention in short term rentals, and you could see global hotel brands like Accor, Hyatt, Marriott, Hilton become VRMA gold sponsors. As public companies, the global hotel brands must deliver earnings growth, and short-term rentals are the fastest growing part of the lodging industry.
Simon Lehmann cited PhoCusWright’s eight to 10 percent growth prediction for short-term rentals. By contrast, STR forecasts hotel demand will grow at two percent. These companies must chase growth. Moreover, the OTAs are testing one of the final pillars of the hotel brand business model: The ability to secure financing for new real estate development. Not long ago, a hotel licensing agreement was key to development financing. Today, Airbnb is working with real estate developers to create new supply, and undoubtedly Airbnb’s support lowered Newgard’s cost of capital.
Accor has already embarked on an ambitious strategy to enter the industry, buying OneFineStay and Squarebreak. By 2020, they will not be alone, and the hotel brands will be major players in the short term rental game.
3. A PM will go public
In 2017, PMs have raised over $175 million in equity capital, including raises by StayAlfred, RedAwning, Evolve and Vacasa’s $103 million monster round of financing. Institutional investors see value in the promise of this category and are voting with their checkbooks. Given the size of these rounds, investors must also believe these businesses can be viable public companies.
Of course, the business must execute and demonstrate that they can maintain both margins and quality in a larger, more complex industry. But by 2020, we’ll see whether a PM’s keynote address moves their stock price.
4. A move to integration
For critical functions like housekeeping/operations and revenue management, independent software providers will displace integrated PMS solutions. Mainstream consumer demand drives scale and complexity in the industry, and this is particularly apparent in functions like housekeeping/operations and revenue management.
The shift from lead generation to instant booking makes pricing a more critical, more complex task (and offers the promise of dramatically increasing PM margins). And the combination of shorter, more frequent guest stays and larger, more geographically dispersed portfolios makes housekeeping and operations more demanding.
Growing complexity require greater sophistication in revenue management and housekeeping/operations tools. Specialists focused on these problems can innovate more quickly and develop the tools needed by the market. PMS-based tools struggle to keep pace with the product innovation of functional specialists. Instead, partnerships between PMS and best-of-breed software companies will provide the solutions to the most demanding PMs.
By 2020, I predict Properly and Beyond Pricing will each be used by over 500,000 listings and that the leading PMS will be owned by Oracle or SAP. As our industry matures, its software layer will become an attractive opportunity for global enterprise software companies. And for global enterprise software companies, they’ll develop sophisticated vertical solutions as their own industry matures. Oracle has already taken a step in this direction with the purchase of Micros, the leading hotel PMS.
By 2020, some PMS will enjoy a nice exit; any guesses on who cashes in? I predict Amazon will be the leading VR supply company. They won’t just deliver groceries, entertainment and restaurant meals, but also Experiences -via their Airbnb subsidiary.
Urban PMs will comprise half of conference attendees. Some of the fastest-growing, most innovative PMs are urban-focused PMs that emerged out of the Airbnb community. These players have grown quickly, amassing hundreds or even thousands of listings in just a few years. These PMs are building businesses on thinner margins and face more challenging regulations; their growth in spite of these challenges shows the promise of this segment.
Looking Forward
It was exciting to see players like BnbBuddy (Edinburgh) and Air Agents (London) engage at VRMA National 2017. By 2020, urban PMs like them will coprise half the conference. The Annual VRMA conference could be in a location like Paris, to be followed by Shanghai the following year.
And it could be that the Regional VRMA conferences will no longer be Western and Eastern, but rather the Americas, Europe and Asia/Pacific.
As the industry matures and consolidates, the organizations representing the industry will follow suit. Europe is by far the biggest VR market today, with Asia Pacific poised to be next. Pulled by the OTAs, where two out of three of the current contenders already generate the vast majority of their revenue outside the US, the industry will become global in its outlook.
VRMA has been better than any other industry organization at expanding beyond its own shores, and there’s a big gap in the rest of the world. By 2020, better pack your passport to join the party!
These are the thoughts and opinions of Alex Nigg and Drew Patterson with Properly, and are not endorsed by VRMA.
