Printed in VRMA Arrival Blog on November 14, 2017.
Industry conferences like VRMA National offer a natural milestone to mark the progress and direction of the short term rental industry, and 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. We can’t help but be struck by the pace of change we are witnessing.
Bill Gates has said, ”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, allow us to predict a few highlights from the VRMA of the future, VRMA 2020:
Tech giants – Google, Amazon and Apple – will fight over short-term rentals as a key battleground to drive their connected home products.
“Connected home” products, kicked off by Amazon’s Echo devices featuring Alexa’s AI Assistant, are rapidly emerging as a new battleground for the tech giants. Amazon jump-started the category, but Google and Apple are now chasing at Amazon’s heels. These products serve as a hub to control IOT home devices, such as keyless locks, lighting and heat, and entertainment systems. They can also drive substantial consumer spend thanks to the ease of voice-based ordering in the home (and offer the side benefit of amassing reams of consumer data).
Short term rentals are an ideal launchpad for the tech giants to push connected home adoption. Millions of consumers move through our listings every day, giving them an opportunity to experience these tools first-hand. As Steve Milo argued, IOT-enabled locks and HVAC can deliver real cost 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 with Amazon, Apple and Google written all over them.
Regulatory debates will shift from legality to privacy.
The industry will be mainstream – everyone will pay taxes and current battles over industry legality will mostly be resolved. In urban markets, 90 day caps will be the norm and vacation markets will continue to welcome tourism. Instead, the expansion of smart home devices will trigger debates over privacy. With millions of Alexas and Google Assistants 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 short term rental.
By 2020, a regulator (likely the EU) will have formulated policy around data collection and retention in short term rentals.
The global hotel brands (Accor, Hyatt, Marriott and Hilton) will be 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. In his keynote, Simon Lehmann cited Phocuswright’s 8-10% growth prediction for short term rentals. By contrast, STR forecasts hotel demand will grow at 2%. These companies must chase growth, and short term rentals are an attractive outlet for their skills.
Moreover, the OTAs are testing one of the final pillars of the hotel brand’s 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.
A PM will go public.
In 2017, PMs have raised over $175M in equity capital, including capital raises by StayAlfred, Sonder, Evolve and Vacasa’s recent $103M monster round. Institutional investors see 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 its stock price.
The core approach to Property Management Software (PMS) will shift from a monolithic, one-size-fits-all system to a PMS core with modular, best-of-breed add-ons.
Sophisticated property managers will use a PMS as the core, and extend its functionality with modular add-ons that connect to industry-wide data (e.g. pricing data for revenue management, or service provider performance data), devices (e.g. home automation) or platforms (e.g. global networks of service providers). This model has dominated the larger and more mature hotel technology market.
These modular add-ons will be driven by network economics, and will require much greater scale than the PMS itself. In a global industry of 10m units growing at a million a year, scale will mean connecting at least 500,000 units. This is likely out of range for both property managers and PMS providers; so PMS add-on modules will become key demand and supply aggregators.
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?
Amazon will be the leading VR supply company.
They won’t just deliver groceries, entertainment and restaurant meals to your guests, but also Experiences and Trips – 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 onerous regulations; their growth in spite of these challenges shows the promise of this segment.
The Annual VRMA conference will be in Paris, to be followed by Shanghai the following year.
The Regional VRMA conferences will no longer be Western and Eastern, but rather 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; Asia/Pacific will 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!
The Steve Milo Show will be the Platinum sponsor.
Produced by Amazon Studios, and available in 170 countries, Steve Milo will no longer be chasing Vacasa, but rather have his sights set on Oprah. Our money is on Steve.
Three years from now is long enough for the industry to change. What do you think we’ll see at VRMA 2020?