A Chat with Industry Pioneer, Doug Macnaught

By Alex Nigg / Dec 4, 2017

At VRMA National in Orlando, Alex sat down with industry pioneer, Doug Macnaught.
Alex: Thank you for joining us today. You’ve been one of the software pioneers of the industry. What do you think has changed in the last five years and what will the next five years hold?

PMs, Technology & Tools

Doug: In the last five years, the two large OTAs have embraced technology in a new way. Twenty three years ago, Expedia didn’t understand that they were a square peg and we were a round hole.
This industry is complex. In the last five years the two large players built their products for properties, not for hotels. Their understanding of the industry was a very thin perspective – it’s just an owner, and I’m dealing with one owner. What they realized by embracing the property manager is that the real complexity in the industry lies in that space, not in the Airbnb space. HomeAway was quicker in terms of dealing with property managers –it didn’t mean they had the toolset but they did have more of an understanding. I think the acquisition of my company and Escapia gave them more information.
The next 5 years is critical. With the Expedia acquisition of HomeAway we’re back to: I’ve got this square peg and you’ve got this round hole. And what’s happening is Expedia is trying desperately to force HomeAway to force the industry to be a hotel. I don’t think Expedia can change that technology to adapt.
Airbnb seems to be going the other way. They’re seeing if they can bend to embrace the property manager. Airbnb needs inventory and the only place they can get it is the professionally managed space. They have to make concessions in order to get that industry.

Barriers to scale – the “local problem”

Alex: Why isn’t this industry consolidated?
Doug: Because of the travel. The majority of travelers staying in a vacation rental is coming from within this country (USA). This is not one country; from a technology perspective, it’s 50! Not only is it a location specialty, it could also be a regulatory specialty. The guy in California doesn’t have a clue what he has to do to rent a home on the beach in North Carolina, and vice-versa.
Nobody succeeded in having a product they can deploy in each market because you still have to clean it, fix the toilet and look after the guest and it’s all about the relationship. So if I acquire a company, I have to acquire everybody. You bought some contracts, you didn’t buy inventory, but now you don’t have the relationship that sustained those contracts if you can’t keep the people.

Fitting square pegs into round holes

Alex: If I hear you correctly, you’re saying with Expedia, the problem is they’re trying to make alternative accommodation fit into a hotel model; and Airbnb is used to a single owner model and therefore having trouble adapting to the requirements of the property manager.
Doug: I understand exactly why Airbnb is what it is and how it got there. While you are dealing with hosts, who are by definition unprofessional, the trust that Airbnb needs to provide requires them to be a merchant of record and all the things they need to do to stand behind their guarantees and their financial commitments. But that’s what this industry has been doing for the last 30 years. A manager is taking care of most of the things that Airbnb does, because they don’t trust the hosts. If they need the inventory, there has to be a recognition that if they’re dealing with a professional manager, those constraints have to be loosened.
But they have to do it secure in the knowledge that the manager is going to do it as well. So I think, where I see changing is more of a case where you become an Airbnb accredited superhost. Maybe they will allow you to adopt your own accommodation policies. The big one is merchant of record. The guest relationship brand, Airbnb owns it. Within an Airbnb relationship, I don’t see the manager supplanting their brand into the mix with any lasting impact.
There’s potentially more chance with HomeAway, but purely because they’re selling a different product in a different way.  But the Airbnb ecosystem, they own the marketing brand for it. They’ve outperformed everyone else, and they’ve done a great job.
Alex: Steve Milo, who’s the king of controversy, has more or less said in clear terms that the platforms aren’t playing this game right because they’re incompetent. “We’ve told them what to do and they just can’t get it done.” Is that really the problem or is the problem that there’s an underlying fundamental conflict of interest and that the platforms are playing a different game?
Doug: There are two that are built for how property managers do business. Everybody else, without exception, is a hotel booking site that’s trying to embrace vacation rentals. So, if I want to buy a boat, I’ll go to a boat store. If I want to buy a car, I’ll go to a car dealership. I won’t go to a boat store to buy a car! The problem is, the traveler doesn’t care. They’re going to go to a place they think they’re going to get the best deal on experience, accommodation, travel etc. There’s nobody in this industry that’s doing that job well. If PMs want the reservations and the reservations are going to come from the OTAs the industry will be driven to present their product like a hotel and those that can do that, have already for the most part and those that won’t, won’t gain the massive benefit of the rise in the OTA spend for our category. The one I find is the grey area is where HomeAway goes. HomeAway is leading the charge to have managers square off their round hole. They are encouraging them to adopt a thing called HomeAway lodging rates. That to me doesn’t sound anything other than “you got to work this way, in order to fit your product to our technology”. That was never my philosophy, my philosophy was “I’ll bend my technology to fit your product”. If you try and sell a product in a marketplace that wasn’t built for your product, it’s going to be difficult, it’s going to be frustrating. That’s what Steve’s experiencing. He just happens to be very intolerant and quite vocal. But I like him, and he does have no trouble saying what he needs.

How to recapture the guest relationship

Alex: We heard from property managers that they have 30 to 60% rebooking rates. I would imagine that having the guest relationship including  an email address and payment method is important so you can remarket to your customers. It’s something that’s quietly slipping away because Airbnb never gave that information away and everyone else follows a transaction model now. So, as a property manager, how do you recapture a direct relationship with the guest even if the guest came to you via an OTA?
Doug: You have two different opportunities. One to keep your repeat guests, and at that point you have far more control over the experience because you get them from when they made the reservation to post departure. If the source of the reservation is coming from an OTA  and you don’t get that contact information from the OTA, technologically can do that. As an example, with checking in, guests have to either get a key or a code. One of the greatest opportunities is that you need an email address to log in the internet. So make every different device that connects need an email address. You also want my local destination app? Guess what? In order to get my app, I need your email. If you’ve got 5 people staying, I want it from all of them. Then it’s your job to do a good job of making sure they want to come back to your destination with post-stay follow-up.
Alex: So I have the Airbnb app, I have the HomeAway app – the platforms would like that to be a be-all for the guests – the app that is going to provide you with your restaurant reservation and other trip information. The way you describe it, which makes a lot of sense, is the way for the property manager to leverage the property is by location-based assets such as wifi.

Back to the future – operations moves center stage again

Alex: If the opportunity for a property manager to differentiate themselves is no longer on the marketing dimension, it’s got to be operations. An argument can be made that there’s a new emerging technology stack focused on operations that’s about getting deep insight to what’s happening in the field in real time – managing housekeeping, maintenance staff, plumbers, and electricians seamlessly on site – and being able to manage processes.
Doug: Back to the future. The technological requirement for our first PMS was 80% operations and 20% marketing.The focus was solely accounting operations. Once the online revolution came about, it became more important to manage the relationships and the financial burden of acquisition of reservations went so much higher than traditional direct marketing or repeat-guest marketing. What got lost in the PMS space was that they didn’t want to do the difficult operations. There’s a clear delineation in the industry between property management systems that don’t manage properties, but they rent them and they market them and control the marketing compartments. Historically it was always the accounting department that made the decision as to what the core PMS was going to be and if you were lucky from a marketing perspective, you got a decent marketing system on it, or you didn’t. And if your housekeeping manager got some functionality they should just be happy.  I don’t think the Airbnb app will ever be the app that will tell somebody to go clean the toilet or fix the roof, or change the light bulb.
(Sidenote: But the Properly app will – and already does!)
Alex:  Operations, as you said, is a cottage industry, it prevents PMS from scaling and that’s why everyone operates on a 50-60 mile radius and never manages to expand around that. The big issue is how do you find the person who cleans the toilet ten thousand miles away.
Doug: Maybe you’re the biggest industry disruptor then, because you may be able to provide that.
(Sidenote: Properly can!)

Technology Hub

Alex: With all the options of technology, I think there’s one hub, the database which is the PMS. Would you agree?
Doug: Right. I believe that it will be best in class for the large property managers, who will want something that enables them to go and simply plug in the best channel manager, the best housekeeping system, the best home automation system. As these guys grow, they can’t always take their systems with them as they go. But funny enough, in a Hub-type scenario, they can. Because if you are a property manager and the most critical thing to you is maintenance, then you may be quite satisfied with core, basic competencies of everything else in your business, but you could get the best maintenance product and plug it in. So if you have to change, you just carry it with you. Then, that comes down to the big deal that is the question in this universe which is data.
Alex: Ah, yes. For another time. That’s a great closing. Doug thank you very much.
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