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    New Vacation Rental Business Models: Next-Gen VRMs


    Note: The blog below comes from the standing-room-only session "Retooling for Survival" presented by George Volsky at the 2015 VRMA Western Seminar in Portland, Oregon. For additional insight on this subject, join us for the 2015 VRMA Eastern Seminar in Norfolk, Virginia, April 27-28. 

    First, the Internet allowed homeowners to market directly to renters, bypassing VRMs.

    Then the 2008 PhocusWright study tagged the vacation rental industry as a high-growth market, luring millions of dollars in new tech-based investment. (I was the industry consultant for that survey.)

    Finally, investors are marrying smart home and mobile communication products to overcome constraints that historically tied VRMs to small geographic regions, unleashing new scale economies.

    Next-Gen VRM Business Models

    Online listing sites whetted consumers’ appetite for mega-sites that show available peer-reviewed rentals, diluting ROI on VRM websites, brands and advertising.

    Vacation Rental Pros created a business model that manages homes across a 400 mile stretch of Florida. It has grown from 3 to 800 units in eight years, raising rents 10% yearly.

    Vacasa, founded in 2009, has grown 16,000% in three years, managing 1,200 homes in seven states. Online research suggests it is well-managed and an expert in innovative tech-based services.

    Wyndham seeks to expand its excellent hotel brand into vacation rentals. It brings state-of-the art data management, reservation systems and marketing to VRM acquisitions in key markets. 

    TurnKey is a startup with 400 rental homes in nine featured cities and 16 listed markets. It leverages mobile technology and leading-edge technology to claim better rate making and service at lower fees.

    Natural Retreats, which provides luxury accommodations and guest service internationally, has 150 U.S. homes in 14 locations and is believed to target 5,000 U.S. homes over five years.

    AirBnB allows homeowners in any city (or anywhere) to rent out a single room, or to rent their residence for a week or two. It helps homeowners apply technology to improve the experience.

    These Next-Gen VRMs (and others like them) are growth-motivated, impatient to perfect their models and move into traditional markets. They are eliminating expenses associated with home visits and marrying smart home and mobile technology to reduce cost and stress for cleaners, inspectors, dispatch, and check-ins. They are also investing heavily in rate making and marketing strategies.

    The new business models are breaking through old boundaries, extending the geographic coverage of rental programs and eliminating expenses associated with check-in offices and regional service buildings. 

    Next-Gen VRMs reduce costs by:
    • Eliminating brick and mortar, key handling and boots on the ground;
    • Centralizing front- and back-end administration;
    • Growing by extending maintenance and housekeeping over broader geographical areas; 
    • Reducing homeowner energy costs and complaints (HVAC, pool/hot tub heat);
    • Reducing legal exposure through improved key management and security;
    Next-Gen VRMs will be positioned to increase market share by:
    • Passing savings back to homeowners, giving them more revenue;
    • Applying the savings to buy more services (increasing value proposition); or
    • Lowering rents, to generate more bookings than competitors.

    Smart Home Technology at the Epicenter

    Smart Home technology is at the core of Next-Gen revolution that may render old-school VRM business models outdated, inefficient and geographically constrained.

    Hotels are embracing smart home technology, though they can benefit less from this than VRMs.

    Three Categories of Smart Home Technology

    Smart home technology falls into three buckets:
    1. Algorithmic locks that do not embody real-time communications with the VRM;
    2. Do-it-yourself (DIY) systems that have been upgraded to communicate with the VRM; 
    3. Enterprise systems designed from the ground up as a hospitality tech platform.

    Which is Right for Legacy VRMs? 

    This depends on your preference.

    Non-communicating locks improve key management and security. But these are just two of many functions that will streamline new-generation VRMs.

    DIY systems are designed for individual homeowners. A few vendors have hotrodded DIY systems to report and respond to a manager, creating rudimentary Enterprise solutions. These offer expanded but limited functionality. They are more temperamental and operationally less flexible but cheap.

    Enterprise systems are designed specifically to allow a single manager to manage an ever growing number of products. They offer dashboards that track and summarize the status of home devices, flexibility to add or delete new products, professional quality and reliability required for a next-gen business model. 

    There are thus two categories of Enterprise systems:
    1. Those built over DIY technology that offer low-cost functionality and low- to mid-range functionality, and
    2. Those originally designed as enterprise platforms to generate the reliability, flexibility and convenience required for streamlined operations.

    Which is better? 

    Think of the difference between Enterprise systems in terms of the differences between professional vs. consumer grade products: power tools, drink blenders, lawn mowers, cameras. Consumer grade is fine for limited use. Pro-grade is critical for businesses whose business depends on the product.

    A Footrace between Homeowners and VRMs

    It is certain that homeowners will deploy Smart Home products if VRMs do not lead the charge. 

    Almost half of consumers think the smart home will be main stream in five years. 

    They will use smart phones to shut down HVAC and pool heat when renters depart, keep pipes from freezing, install low-cost real-time security systems, check for open windows, and control entertainment systems or  mood lighting. 

    Homeowners will be lured to DIY products by business giants Google, Apple, Lowes and Home Depot, who know that smart home products are projected to generate $50 million in annual spending by 2020. For context, the live music industry (pianos, organs, DJ equipment, PA systems) generates $6 billion.

    VRMs will need to get on the smart home bandwagon before their homeowners do. If homeowners get there first, at least some homeowners--outraged about renter energy usage--will monitor and manipulate thermostats while the guest is there. Not good.

    Plus homeowners will push back when VRMs later try to jettison homeowner systems (and homeowner investments) to install systems that enable VRMs to compete with Next-Gen VRMs.

    Food for Thought

    Until recently, vacation rentals was one of the few industries where size does not matter. ResortQuest demonstrated that there were few economies of scale.

    But technology is creating lower cost business models. When an industry evolves, profits and market share shift from slow-responding incumbent to early adaptors. 


    Legacy VRMs face a dilemma in two conflicting needs: risk management and survival.

    In a stable competitive environment, no business wants to change the systems that made it successful. Changing a business models pulls staff away from their normal jobs and is both expensive and risky.

    But no mainstream manager can ignore investor-backed next-gen companies whose sole mandate is to grow, and who can outspend smaller competitors for paid search marketing or data harvesting/analysis.

    Smart-home technology offers a defensive starting point.  As a platform for more efficient business models it offers managers an opportunity to break through old geographic boundaries.

    VRMs who embrace smart home technology will have to decide whether to go low-cost or invest in enterprise caliber solutions.

    Those who do buy smart home technology should look beyond price and vendor assurances to look more carefully at differences in features, flexibility and dependability. They should only invest in enterprise technology systems that are robust, expandable and feature-rich.

    It is important to keep pace here because Next-Gen VRMs will also focus on expensive yield management processes.  

    This is a critical time. We all need more information. My next goal is to visit VRMs to do an in-depth review of how smart-home technology has fared in various VRM operations and how this technology is being (and can be) leveraged to create lower cost, centralized management of rental homes.

    I’ll keep you posted.
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