{audio:0:00:01} Can you start by sharing a bit about your experience in the vacation rental business?

{audio:0:00:07} My experience in the vacation rental business is quite wide, long and profound. I’ve been in the industry for 15 years; I started as a CEO of one of the largest property management companies in the world, which was actually single branded with 25,000 units when we started. I stayed there for 10 years and then I had the great opportunity to be also part of the board of HomeAway, before it was sold to Expedia and taken from the stock market, which was obviously a very interesting time. At the same time, I have a number of angel investments in different start-ups, across the value chain of vacation rental.

{audio:0:00:42} I have been in the industry now for 15 years and for two and a half years I’ve been running my own consulting firm called AJL Atelier. We’re now a team of seven people, focusing on strategic growth consulting for any stakeholder within the industry, from private equity all the way to property managers. We’re helping on M&As, especially sell side mandates, and we are also producing our own pricing algorithm; I’m talking about AJL Pricing Solutions.

{audio:0:1:16} Let’s split the different types of vacation rental inventory in the market. How would you define those?

{audio:0:01:24} That’s always a great discussion because I speak to a lot of financial analysts of the industry and I want to quickly start with a small anecdote. It’s always interesting to see, when Booking.com announces its unit counts, within 24 hours, Brian Chesky tweets how many Airbnb has and for people who are not in the industry, they’re comparing potatoes with carrots. It has absolutely nothing to do with each other and the financial industry is always comparing unit counts, but that’s irrelevant. Unit counts on an OTA are irrelevant.

{audio:0:02:03} First of all, what are we looking at? We need to start at what is the vacation rental/short term rental industry doing? We are connecting guests with owners; that’s all we do, so it’s not very complex. Number two, the vast amount of the supply in this industry is individually privately owned. So we assume, according to the numbers we have, that more than 98% of total supply is privately owned and only about 2% of these assets are institutionally owned. With what happened to these operators during COVID, I think institutional ownership of short-term rental has even declined further, because nobody owns 500 hotel and vacation villas and rents them out. These are individually, privately owned, so this is something we need to be very clear about; our industry is not based on assets. Our industry is based on trust; owners who trust a property manager.

{audio:0:03:05} Total market that we’re tracking online, right now, on all the largest OTA platforms is around 27 million units in the world, that are currently tracked and digitally bookable, on the large OTAs. Roughly 50% of that is professionally managed and the rest is individually managed, like RBOs – rent by owners – which are mainly on Airbnb but you can also do it on other platforms. If you are rent by owner and you want to do distribution and manage the unit yourself, that’s how we differentiate the market.

{audio:0:03:45} We clearly differentiate between the managed – professional property manager who managers the unit, cleaning and maintenance – and then we separate the RBOs which are individual owners who manage it themselves and use the platforms as demand generators.

{audio:0:04:03} When we look at the property management side of it, then we have different categories as well. On the property management side, we have people who do full service. That means they exclusively manage the unit on behalf of an individual owner which includes cleaning, check-in, check out, maintenance – the whole works – so the owner has nothing to do apart from banking his monthly rental check. That’s exclusive.

{audio:0:04:30} Then you have an agency model which means the PM takes units from individual owners, but also from property managers and just redistributes them. They do not have exclusivity on the inventory but is a channel, is a redistributor and we call them agencies. They have inventory where some of that is exclusive and some of that is not exclusive; it’s a hybrid.

{audio:0:04:53} Then you have the third model, which is distribution only, which means you actually do nothing; you don’t even do the cleaning, you don’t even do the maintenance. In a lot of cases, owners living close by to the property, they don’t want the property manager cleaning it and checking in and checking out people; they can do that themselves. They want somebody to take care of the booking, the payment, guest enquiries and all that. The best example in the UK is Sykes Cottages. If you look at Sykes Cottages, as a property manager, they do not manage their entire inventory. They only manage about 10% of the inventory which, predominantly, is in the Cotswolds where people have houses from London and they are not there, so they let somebody else manage it. All the other 90%, in the different regions of the UK, the owner lives close by so they need distribution services, but they don’t need cleaning and maintenance and property management services.

{audio:0:05:49} What really matters when you look at this inventory?

{audio:0:05:53} Availability. This is the key point that I said earlier, when you’re comparing unit count. Airbnb says how many millions of units they have, Booking.com says how many individual units they have. The relevance in driving value is the overall total availability of a unit. One unit on Airbnb can be available for one week a year because the owner is going on holiday, so he rents his own house or apartment out for a week or two. That’s one week a year this unit is available, so that already counts as one listing.

{audio:0:06:36} Whereas on Booking.com, it’s instantly bookable so that already has higher value than its on request, without a doubt, because for a consumer, it’s better to book something that is instantly available. On request properties do not convert as well; you need to send an enquiry to the owner, he needs to see if he wants you or not, so that’s availability, that’s bookability. The third key driver is then exclusivity; is this unit on several platforms or is it only on one? If you extract double countings, an average unit in today’s vacation rental world is listed on an average of 2.6 platforms globally, so you have a lot of double countings. These are the three aspects you need to take into consideration when people talk about unit count: average availability of the unit, how many platforms is it bookable on and is it instantly bookable?

{audio:0:07:40} How do you look at the difference in availability in Airbnb versus HomeAway or Vrbo?

{audio:0:07:50} You could say that HomeAway started with a listings business so that was not even bookable to start off with. Only later, in 2014 to 2015, they started to go into a transactional business. Before then, it was a listings business where you paid a fee depending on your label: gold, platinum or silver listing. You paid an advertising fee and, depending on the fee, you got a higher or lower listing. Later, they went into a transactional model because they realized the consumer wants to transact and they shifted that into a commission model. Airbnb is hybrid; they are not forcing anybody to do anything. If you want to do listing and you don’t want to have it bookable, you can do that.

{audio:0:08:38} Whereas on Booking.com, they are not hybrid at all, that’s why it’s called Booking.com. Obviously, they only take instantly bookable inventory. The more availability you provide, the higher ranked you are. The more you suppress your calendar, the more you go down on the search results. So having high availability and being instantly bookable is the key driver for Booking.com. Whereas, for HomeAway and Airbnb, it is still more a hybrid model where it’s a simple marketplace for an owner or a PM who can choose how he wants to make his units available.

{audio:0:09:17} Does that make it difficult for Booking.com to move into the more vacation rental space if they have to have that bookable inventory available?

{audio:0:09:26} No, I wouldn’t say so at all. Bookability, we’re talking about the Amazon generation in today’s world. They want to have instant results, instantly book and instantly receive product. This is clearly driven by consumer behavior where, for somebody who is willing to book a vacation rental, they want to have instant booking. All the owners have understood that and the ones who want to do it on request, they will continue to do it on request.

{audio:0:09:57} At the end of the day, it always depends what is the purpose for an owner to rent out his property. Is it because he needs to make cash? Is it because he needs to pay his mortgage? Is it because he doesn’t use it himself so he might as well make some money out of it, but has no pressure? There’s different reasons why people rent out property, so for Booking.com it’s actually not more difficult at all. The only area where Booking.com needs to think about where they’re losing market share and opportunity is in the luxury high end market.

{audio:0:10:30} It’s common in high end luxury markets that the units are not instantly bookable, for obvious reasons. You want to know who the guests are. You’re talking about ADR of $5,000 plus. You’re talking about $60,000 a week. The owner needs to see who it is. That’s on request and, therefore, Booking.com is entirely missing out on the luxury segment of this industry because you can’t list your property on Booking if it’s on request. When you think about where they came from and what their brand values are, Airbnb is still one of the biggest demand generators for the luxury rental market, where you would think people would not, but you can’t look elsewhere. Airbnb made an acquisition of Luxury Retreats. They said, we want the luxury market with us as well and the luxury market will remain on request and Booking.com is losing out on that.

{audio:0:11:34} Let’s take Airbnb. Chesky mentions five to six million listings. How would you split those between cities versus rural and then professionally managed versus secondary homes versus primary homes?

{audio:0:12:05} If you would have asked me six months ago, I could have given you a clearer view because, with COVID, it’s getting extremely blurry. First of all, it was definitely far higher on urban than leisure, without a doubt. Rough guestimate, probably two thirds urban, one third leisure. The leisure market is still dominated by HomeAway, by Vrbo, as well as Booking.com especially in Europe but also the United States, except for Vrbo and Expedia. They never had massive focus on leisure; their growth came from urban. Traditionally, primary homes, secondary homes, people bought units and threw it on Airbnb so urban STR has grown as much as two thirds.

{audio:0:12:53} Then there is one third leisure market. In terms of managed versus unmanaged, we all know that, when you have an Airbnb account, you are limited to the number of listings you can have from one Airbnb account. This is obviously not very property management friendly because a property manager, with several hundred units, needs to have several different Airbnb accounts to manage them, so Airbnb, strategically, has never really addressed the managed market. They were more RBO friendly while Booking.com was totally the opposite.

{audio:0:13:34} Airbnb is now going through this turmoil with regulation and legislation on one side. Secondly, it’s losing a lot of inventory because it has paid back guests instead of owners on a lot of bookings that have happened. They’ve cancelled the bookings on hosts and given the money back to travelers, which was not very well received by the hosts, and a lot of hosts are now forced, since the slowdown of demand, to rent out a short-term rental as long term again. A lot of inventory has now converted from short term to long term rental, which means they were either able to find long term rentals on Airbnb as they have changed the booking rules because you could not book more than 30 days on the platform. That has now changed and it’s the same on Booking.com. A lot of people have also left Airbnb entirely and converted their unit into a long-term rental.

{audio:0:14:33} That has then created more demand on the leisure side, and now people who were not on Airbnb in the leisure industry are putting their inventory on leisure. What we’re saying is that, first of all, the unit count in the cities are coming down. The unit count run by individual homeowners is also reducing and the leisure industry and the PM inventory is increasing.

{audio:0:14:58} Is that RBO in leisure areas is still listing on Airbnb?

{audio:0:15:03} Absolutely. One thing that is happening in the industry as well is, we will see more RBO inventory being converted into managed inventory because it’s becoming harder and harder to run a professional and profitable business that is small. We’ve seen hundreds of mushrooms popping up, with businesses as big as 20 units. They could make money, but now margin compression from the OTAs, distribution costs, fixed commission from Airbnb with 14%, Booking.com with 15% to 17%, at the end of the day, as an RBO or PM, you need to get a gross margin of 30% in order to actually be profitable. A lot of people with small unit counts are now being squeezed out of the market because it’s becoming competitive; the tech environment is becoming challenging. You need quite a bit of tech to create efficiencies and that’s expensive.

{audio:0:15:58} Before it was easy for you to become an Airbnb host. You needed a unit, you became an entrepreneur, you started to rent it out. You can make a reasonable business out of it, but now guest expectations have become higher. The regulatory issues are becoming tougher. The cleaning standards are becoming more of an issue. There’s a lot of pressure on these RBOs and on these small PMs to be professional and, at the same time, they’re facing margin compression. Our thesis is clearly that more RBO inventory will move into property managed inventory.

{audio:0:16:33} Airbnb is not set up to deal with more managed properties?

{audio:0:16:39} Exactly and we are reading that they are going back to their roots, in a way, saying we want to be more focused on RBOs again. These were our initial hosts that provided us with the marketplace. One thing we should remember here, when we talk about numbers, is that the vacation rental industry to date in the US, for example, has only addressed 30% of the travelers and it has not increased. Let us not forget that there is 70% of travelers out there choosing a hotel or vacation rental and have not yet rented. We still have massive growth potential that we’re addressing with our industry and product. But we believe, very strongly, this product and industry needs to professionalize to address this other 70% of customers because they’re expecting hotel-like services with different amenities and safety, security, cleanliness and we need to lift the game. The RBOs, as individual owners, will not be able to lift their game in a certain period of time versus a professional property manager.

{audio:0:17:54} Let’s say that I’ve got a second holiday home. I choose both Airbnb and HomeAway or I have to choose between Vacasa for a professionally managed service. How do I make the decision?

{audio:0:18:13} First of all, the main question is what you have that unit for and how much are you leveraged financially, in terms of the loan that you’ve taken out to finance it. Is it an investment property? Is it a property that you have inherited and have no costs on, you just want to rent it out and then somebody uses it, so you have different purposes. A lot of people, obviously, want to make money and want to have their running costs paid with it and want to have maximum occupancy.

{audio:0:18:43} So loyalty by owners is driven by occupancy. So the key KPI for any property manager or RBO is, what is my occupancy? In the luxury high end market it’s not like that. That’s very unusual.

{audio:0:18:59} Occupancy is a derivative of demand and scale, right?

{audio:0:19:04} Correct. It’s all about location. So do you buy a property for vacation rental purposes, then you obviously look at where is the biggest demand driver is and what is my biggest return on invested capital. This is why I want to have a vacation rental in Destin, Florida because that’s the hotspot in terms of demand and then I know what I can get. What is my cap rate on a long-term rental? 3% to 5%. On a short-term rental it’s 7% to 8%.

{audio:0:19:33} You can derive your cap rates. You can understand, based on demand, what your cap rate is going to be and the cap rate, in most cases, is going to be higher invested capital for short term rental than long term rental, without a doubt. Obviously, there are other markets where this is not the case, but in most cases it is, even in European cities.

{audio:0:19:52} In order for you to make a decision it really depends how much you can do yourself and how much do you want to have done? You have the entire opportunity to do anything. You can go on Airbnb and do everything yourself: taking photos, creating content, the listing, the prices and everything else and manage it entirely yourself. You need to find a cleaner, somebody to hand over the keys, handle enquiries. Being a property manager is a lot of work and people underestimate that.

{audio:0:20:32} If you’re an owner, I think it really depends how important your return in invested capital is, in terms of what you’re getting from the revenue of renting out your unit. People do a miscalculation on what the total work of renting out a place is. When a full-service property manager comes to you and you’ll get 1,000 a week for your unit, I will pay you 700 and the 300 I keep. Then you will turn around and say, that’s crazy because if I do it on Airbnb, I pay 5% commission and that’s it. Then the PM will start telling you all the other stuff that he needs to do for you, to manage this unit.

{audio:0:21:13} I think a lot of owners underestimate the overall work. A lot of owners start themselves and then give it to a property manager because they realize how challenging that really is. I think, first of all, it depends on what situation you’re in. It depends what kind of unit this is. Is it leisure or urban? Are you living close-by or not? Do you have a day job or not? Then you can choose from a full service from a Vacasa, all the way to an Airbnb and then, obviously, you make different amounts of money at the end of the month, in terms of your revenue.

{audio:0:21:46} You were saying that the returns to RBOs are declining and being pressured. Can you break down the typical cost structure of how that return is made up?

{audio:0:22:00} At the end of the day, we haven’t even talked about revenue management yet and how prices are being set. But in simple terms, when you look at your prices, you use pricing recommendation tools by OTAs which provide you market data and, in most cases, these prices are lower because the OTAs are interested in transactions and they do not necessarily give you the right price. That’s a key point here, as well. OTAs, on average, give lower price recommendations than what the market will be capable of providing because they want transactions.

{audio:0:22:41} The price that you set is driven by your comp set; in your area, what is your competitive set? This is how you set your price; you’re looking at supply and demand. The first portion that is going out is commission on distribution to an OTA. Is it a direct booking where you’ve already spent money for Google or is it an OTA? Customer acquisition cost is anything between 10% to 15% on gross revenue, so that goes out if you’re an individual owner.

{audio:0:23:16} Then you have the cleaning costs. In most cases, cleaning is priced into the unit. Then you have obviously taxes, amenities, electricity, running costs, interest rates of your mortgage and local taxes. You might have some tourist taxes as well, then you might have some IT costs depending on how big your operation is. If it’s one unit you don’t. Then it’s just pure labor costs that you spend, how much time you spend on guest engagement, taking bookings and answering booking questions? If you’re honest to yourself, these are all costs that you actually need to take into consideration when making that calculation.

{audio:0:24:03} You mentioned the pricing, so the OTAs, like Airbnb, say if I list my house at 1,000 bucks a week and you’re saying that if I set that as the competitive price, the pricing algorithms will end up driving the price down, to drive transactions on the platform?

{audio:0:24:23} Yes. This is obvious. I know quite a number of customers of ours that we consult with who use different pricing recommendation tools. They can basically prove that the market prices were, in most cases, always below what they could get just to drive conversion. The key driver for an OTA is driving conversion but not necessarily driving the maximum gross booking revenue for you, as an owner, because it might not convert as easily as it does when you lower your prices. OTAs are normally recommending lower prices than higher prices.

{audio:0:24:59} But, like we said, all I care about, as an RBO, is occupancy. So I’m going to list on Airbnb because supposedly they have unique traffic versus a HomeAway or Vrbo, so I’d probably list on all of them and see how I can drive the most occupancy?

{audio:0:25:21} Absolutely and this is interesting here now and this is where we see, as a market or an industry, a lot of change. One thing that is very questionable for us, as industry thought leaders, is how can you build a business on a single demand generator? We find that risky, regardless if you’re an RBO or a PM. At the end of last year, beginning of this year, we were counting more than 500 property managers who solely demand on Airbnb’s demand. For me, that’s not a solid business case.

{audio:0:25:58} On the RBO you could say okay, marketplace was great; Airbnb’s a great place to list your own property and you’ve created enough demand. That trend is changing because, as the industry becomes more educated, as owners, RBOs and PMs become more educated, they realize hey, there’s other channels, so I need to spread my risk to have higher demand.
{audio:0:26:18} Now there’s platforms – we call them RBO platforms – which are like small channel managers for individual owners and they can list your property on any channel you would like them to list on. So you have a listing on Expedia, Airbnb, Booking, HomeAway and other platforms and it’s a small PMS, property management system, for you as an owner that you can distribute with.

{audio:0:26:43} That’s, for me, Airbnb 2.0. The only difference is you have multiple channel access instead of just one. What’s very interesting is we definitely have different personas who use the different channels, without a doubt. The HomeAway-Vrbo customer is more family, more leisure market, larger groups, reasonable long booking window. Airbnb, younger people, super small booking windows and Booking.com as well. In vacation rental 10 years ago, we have booking windows of nine months or even more. Now it’s down to 60, 30 days and super spontaneous, even lower. It changes distribution, so as a property manager, you want to be on many different platforms, with different personas, to balance your risk in terms of early and late booking windows, different type of customers and different demographics and you want to balance that instead of sitting on one demand channel.

{audio:0:27:57} How is that going to drive pricing structures?

{audio:0:28:04} In terms of OTA commissions you mean? That’s a super interesting point. We see Booking, who have always been extremely clear on what their pricing structure is and so far, for me, it has been the most consistent and solid and, therefore, the most successful as well. They always said, very clearly, we only take commission from supply and not from demand and they will never change that. That’s something Glenn Fogel and his predecessors said, that was always clear: Booking will not take commissions from demand. They will only take from supply, so the supplier will pay commission.

{audio:0:28:43} That has become very transparent; for everybody who plays, you know how much commission you pay if you get a booking on Booking.com and you know the guest doesn’t pay anything in addition. When HomeAway was sold to Expedia, just before that happened, they started to introduce a guest fee so there was a commission on the HomeAway side and then they started to do a guest fee because Airbnb did the same, so they’re splitting the fees. It would not surprise me if Airbnb will also go to a flat commission model just on the supply side and not take money from the guest. This is misleading when it comes to price comparison that a guest pays 8% to 9% for guest fees, when he makes a booking for. Why should he do that? It will be interesting if Airbnb moves to a single commission model only on supply at, let’s say, 14% which they are testing as we speak, then HomeAway-Vrbo will have to follow without a doubt.

{audio:0:29:42} What does that mean on price? I think, at the moment, we do not see a possibility to increase take rates on the commission on OTAs, because the competition is fierce. The market is recovering, cards are being redistributed and shuffled, therefore it needs to be seen what’s happening on the commission side and how much demand can you drive and what role is Google going to play in the whole situation. Google is also pushing very hard on their own vacation rental product, to bring demand directly to the property managers, which could have a play in that as well. So I do not believe that OTA commissions are going to increase in a short period of time.

{audio:0:30:31} Didn’t HomeAway and Vrbo have a subscription fee for certain listings and then they moved to more commission based?

{audio:0:30:40} Correct, but not the entire supply of HomeAway is either/or. So most of the inventory is now commission based, but you still can have a subscription-based model. A lot of property managers love that because, at the end of the day, for them it’s cheaper. If you have a $500 or $700 yearly platinum subscription, you have great listing results, why should you pay a commission because you obviously want to keep it that way, and it doesn’t look like HomeAway is going to force everybody to move into the commission-based model. I think they’ve made too many changes in the way they run their business with the commission structure, how they deal with PMs and with the software businesses, that I think it would be dangerous for HomeAway not to turn around and say, we go commission only. I think they will continue to be hybrid but it’s obviously their intention to drive as much inventory to the commission-based model, because it’s more lucrative in terms of take rate than a subscription model.

{audio:0:31:41} But in terms of search results, they can play with that. At the end of the day, it’s a search algorithm that is the holy grail to drive your commission models.

{audio:0:31:51} What drives pricing in the market for OTAs in terms of commission and take rates?

{audio:0:32:08} If you consider that Expedia-Booking.com spent $11 billion on Google last year, they obviously need to understand their demand driving concept with online marketing and what the relationship is to your total customer acquisition cost, and then it’s market. I think maximizing your conversion rate, by absolutely going crazy understanding your true customer acquisition costs and driving that to the extreme, will have an overall impact on calculations in terms of margins and therefore also commissions that they’re charging. But a lot of that is obviously given by market dynamics.

{audio:0:32:57} I think the elasticity within the market on commission has become a smaller opportunity than it has been in the past. We have seen these commission levels not moving very much in the other direction. I think now, we’re seeing market rates, as I said, of between 12% and 16% and that’s the bandwidth that the market is operating in. We don’t see many differences, so I don’t think there will be a lot of further impact, only depending on what Google is going to do with the direct distribution of the inventory.

{audio:0:33:36} That’s pretty interesting for Airbnb, because if we assume they’ve got some kind of advantage in organic traffic and let’s say they spend less on Google versus Booking or HomeAway, can they keep that fee lower to be more attractive to hosts?

{audio:0:33:56} Without a doubt and I think this is exactly what we have seen in COVID, where Airbnb has benefited so strongly on SEO and brand value. It has driven an enormous amount of demand with very, very little marketing efforts in bringing the product forward. Airbnb could leverage their brand with a lot less paid traffic or, basically, none. We hear about markets, like in Mexico, where Airbnb is 90% of the demand generator for the domestic market, so they could leverage their brand exceptionally well. To your point, that totally makes it more interesting in terms of profitability when it comes to customer acquisition costs because, obviously, they are far lower than just paid traffic and having paid demand, which will have a major impact overall.

{audio:0:34:58} I think Booking.com has suffered a lot more during this period because that’s an online marketing machine and I guess Vrbo-HomeAway has also had the opportunity to be stronger in the SEO and brand recognition, paying for less paid traffic and increased profitability.

{audio:0:35:19} Airbnb’s takeaway is split 3% for hosts and then 12%-13% for guests in total?

{audio:0:35:31} Yes. It’s between 3% and 5%, depending on the credit card fee and everything else for hosts, and then it’s anything between 8% and 12% to 13%, for guests.

{audio:0:35:42} They experimented with a fixed fee for more professionally managed properties.

{audio:0:35:48} Correct. With the fixed fee, they’ve had a better version. They tested that in markets, like the UK, where they tested a fixed fee commission of 14%. A lot of property managers have actually taken, because it allows them to do better price comparison and actually have price parity. For the consumer, at the end of the day, the price is not going to change, no matter how you split the commission. But for the PM, it’s a clear way of actually pricing the product because they pay the commission. A lot of PMs have said, I’m going to pay the 14% myself. It’s more transparent towards my owners because I can tell them hey, I pay my Airbnb, I pay 14% and it’s easier to view my pricing calculation. If I pay the commission, it’s not split because the commission that is charged to the guests was not always the same, so it was always very hard to compare.

{audio:0:36:50} It can be perceived, for a consumer, that an Airbnb booking is actually more expensive than a Booking because they see these guest fees as well.

{audio:0:37:02} What competitive advantages do you see for Airbnb, going forward in this market?

{audio:0:37:10} The competitive advantage of Airbnb, at the moment, is definitely the brand, without a doubt. I have to say that I was not entirely impressed by first of all the massive management changes Airbnb went through over the past few years. Secondly, the crisis management during COVID was not very impressive at all. They’ve pivoted many times. There were very conflicting statements and the latest actions are really not giving a lot of comfort to think about not allowing guests below 25 to book; that implied by local governments. It’s not allowing parties in Airbnbs. There’s so much negativity around it that it’s actually making the industry suffer as well. At the moment, Airbnb needs to think carefully about, what are our core values? What is our core strategy? What do we want to be perceived as? What is our role in the market?

{audio:0:38:16} We’re a marketplace. We’re not contributing anything to the guest experience. We’re not contributing anything to the host experience. We’ll just provide a marketplace. What is our role within that marketplace and I think Airbnb wanted to be everybody’s darling in this industry and was seen as the center of attention of this industry.

{audio:0:38:36} Let’s not forget vacation rental is older than the hotel industry. Airbnb’s a marketplace and in a lot of things that they felt they could combine with experiences and all these things, they were not successful. They were not successful at all and if you include a host into an experience to say hey, with Tony Miller you can do a sushi cooking class in his apartment, this is not a good user experience at all. It didn’t fly. Then there was a lot of discussion about, is Airbnb becoming an OTA? Are they going to add a fly booking engine or maybe even a meta search platform?

{audio:0:39:21} I think Airbnb needs to refocus on what their value proposition is. What are they there for? What can they do in order to be super successful? I think there is a lot of space for Airbnb, without a doubt, but they’ve created so many different areas of conflict with local legislation, regulations, taxes and everything that follows, like we saw with Uber; it’s immense, right? That storm, for me, has not weathered yet and I think the others have taken clear roles within the value chain. What’s the role of Booking.com? What’s the role of Vrbo-HomeAway? They’re doing the same thing but they seem to be going clear and straight in creating demand for a property that is listed on their platform.

{audio:0:40:13} Let’s go back, because I think Chesky admitted defeat about these things and returned back to the core of Airbnb. If they do have an advantage in driving organic traffic, which can lead to a lot of customer acquisition costs and consequently lead to lower costs for hosts, could we see Airbnb move into having an advantage in more professionally managed properties that are more bookable and drive higher conversion, as well as having that individual host inventory?

{audio:0:40:55} Yes, I think so. At the end of the day, we are all opportunistic individuals and we know that the OTAs did not leave their partners in good shape during these challenging periods. Now there’s a lot of effort of the industry to drive direct bookings again. Let us not forget we have become lazy as property managers and as a vacation rental industry and we’ve become opportunistic. Interestingly enough, in Europe, the proportion of direct bookings versus indirect bookings for property managers of large sizes is still very high. In the UK, for example, Sykes, Hoseasons or Cottages.com, they’re still doing 60%, 70%, 80% direct bookings. They don’t need an Airbnb or a Booking.com. They just need that to fill the rest. They are doing direct at a good customer acquisition cost which is definitely below 10%, so it’s a lot better.

{audio:0:41:58} They’ve been around for a long time. Their brand is highly recognized. They have high repeat rates and one thing you should not forget, especially in the UK, it’s one domestic market. So supply and demand is in the same place. In the UK, 95% of the cottage rentals are domestic, so you’re not attracting people from Spain, Italy, Germany or the US. The supply and the demand are domestic so you have a different way of playing with that.

{audio:0:42:34} Coming back to your question, a lot of property managers are now saying, we need to find ways of avoiding OTAs; we want to build direct bookings again. So there’s a lot of initiative talking about direct bookings, how can you generate that with social media? What are the efforts you can take and tools you can use? At the end of the day, once the demand from the OTAs comes back, people will start to forget the pains that they had and be opportunistic again and go and list their units back on Airbnb.

{audio:0:43:08} What we are hearing from the market and with the customers we work with is, the highest uplift on OTAs post COVID or when things started to unlock again was definitely coming from Airbnb.

{audio:0:43:25} That’s because they have unique demand or a unique conversion funnel?

{audio:0:43:31} Super high brand recognition.

{audio:0:43:34} That’s where it’s interesting, because how much does the inventory really matter in the long run versus the quality and the scale of the demand?

{audio:0:43:46} I think more and more. Maybe it’s because of what we’re preaching at AJL Atelier, which is that the quality of the supply is going to be important for the reason I’ve mentioned earlier, that we’re still addressing, 70% of non-travelers. I think crap doesn’t have space in our industry anymore and I think driving good quality inventory is definitely in the interest of all the OTAs. That starts at photo quality but also content description, having strong reviews. I think just by pure number of listings, this is not the quantity anymore. It’s actually the quality of the listing and I think that’s where a lot of initiatives are being taken by all the different OTAs. Booking.com has introduced a rating system, based on the algorithm, so they can actually rate units based on reviews and the feedback that they have. It’s quite an interesting algorithm where they can rate properties and property managers and I think Airbnb is equally focused on having good quality inventory.

{audio:0:45:03} While Airbnb has become, unfortunately, an acronym for vacation rental – people will tell you, I did an Airbnb this summer – but it could be that they, first of all, didn’t even book it on Airbnb. They don’t remember where they booked it, but vacation rental has become an Airbnb. We are very interested in the industry to keep the quality as high as possible because it will all resonate to us.

{audio:0:45:31} The same is for Airbnb. Airbnb doesn’t want the guest, ultimately, to have a bad experience, because it’s an Airbnb and it was bad. One thing we should not forget, we did that with Phocuswright on a survey many years ago, 60% to 70% of guests do not remember where they booked their vacation rental.

{audio:0:45:55} How do you look at the opportunities of Airbnb moving into more leisure inventory?

{audio:0:46:03} I think that’s a huge opportunity and where I see the most growth opportunities. For me, the question is more, is it property management friendly or is it RBO friendly? I think that question has not been finally answered and understood, yet. We saw some publications and statements from Chesky and the team saying, we want to go back to our roots, which is obviously more RBO. Let us not forget one thing: saying back to the roots, it’s not about sharing an air mattress on the floor. That is not a good guest experience and sharing rooms is not the core of Airbnb. They have just never admitted to it, but less than 2% of their supply is actually shared units, so it’s not their core. The core is a rent by owner, being able to rent his unit, an individual unit, that somebody stays alone in it; that’s their core.

{audio:0:46:52} I think to grow leisure markets will really depend what kind of strategy they’re going by, in order to increase the quality of the listing. This is where the big difference is with Booking.com. They say the chance or the likelihood for me to have higher quality inventory coming from a PM is a lot higher than it is from an RBO, without a doubt. That’s because the property manager needs to have good quality inventory, as a whole, because he’s seen as a property manager and, therefore, his units need to be all good. Booking.com always said, I want to have curated, well-managed, good quality inventory coming from a PM, with 50, 100, 500 units at a piece, rather than having to manage thousands and thousands of individual homeowners with their units.

{audio:0:47:46} Yes, with their review process you can filter them out, you can penalize them without a doubt, but Booking.com said good quality inventory is not just the unit itself. It’s about the quality of the description, the quality of the photos, the management of the availability, of the calendar. That’s all part and parcel of the quality and Booking always said, I want to source aggregated, good quality inventory which I can just transact with and don’t have to worry about if the description is correct, are the reviews right? Doing that with property managers, you have a higher likelihood to have good quality inventory than you do with RBOs.

{audio:0:48:30} In terms of building the leisure, there is the growth opportunities for Airbnb without a doubt, but it really depends on how they’re addressing that PM versus RBO.

{audio:0:48:41} I guess they’re going to have to go and compete with HomeAway and Vrbo in those areas as well? How do you look at the advantage that Airbnb could have in attracting that inventory?

{audio:0:48:53} Airbnb is still very strongly related to STR, younger generation, urban and short-term rental and less being known for leisure. Is a family with three kids going to book Airbnb more likely than Vrbo and HomeAway? It’s going to be a race on direct marketing, without a doubt. Is the brand flexible enough to cover the leisure industry, as well? When I was on the board of HomeAway, five years ago, and we looked at Airbnb at the time, we always said, hey, we just want to own the leisure part of it because Airbnb is still so far away.

{audio:0:49:32} But now the brand has grown and people who use Airbnb for a city trip, they will also look on that for leisure, without a doubt, going forward. Is it perceived as that? I think it will be a fight on direct marketing and brand positioning, to see if they can own that space as well. It really depends on the markets. In certain markets, they have it harder than in others. In Mexico, it seems they’ve already conquered the leisure market and then, obviously in the US, HomeAway-Vrbo is still extremely strong in the leisure market and Airbnb is less successful. I think it will be a direct marketing competition and how can you stretch your brand to be also recognized for leisure travel as well.

{audio:0:50:21} Which Google ends up wining after all, as always.

{audio:0:50:29} What’s your view on the regulatory risks for Airbnb?

{audio:0:50:34} Again five, six months ago I would have given you a different answer. I think that’s a moving target. One thing that we always said, regulatory issues are a moving target for Airbnb, no matter in which markets they’re operating in. Certain markets will be more stringent, certain markets will be less and now it will be less. Now, it’s all about cleaning and standards and stuff like that. Before, it was more regulatory, in terms of secondary homeownership, primary homeownership, driving rents up in certain urban markets, the business being illegal but still being conducted.

{audio:0:51:08} I think there is no one clear answer on that. The regulatory issue will remain a key point in the discussion about this industry, but it’s a moving target. It depends on who is the leading party within a particular jurisdiction and what the economic situation of a destination is. If the tourists are not there anymore because it’s regulated too heavily, they probably need to open that up again to attract inbound people. We all know that urban areas have suffered dramatically on tourism, so that will then lessen the pressure on Airbnb regulatory issues again to let tourists come in.

{audio:0:51:49} Now we’re seeing this going up and down. It will remain. It will always be there but it will remain a moving target depending on the location and the size and everything else. I always use New York as a small example. New York has more than 70,000 listings on Airbnb and, in New York, Airbnb is supposed to be illegal, so explain that to me.

{audio:0:52:15} Regulatory issues are one thing that we need to talk about, but I think the bigger topic in most cities, and we see that in European cities, it’s about the enforcement. One is the regulatory issue but, on the other hand, is it actually enforced? There we still see massive disconnects. In certain cities it’s enforced extremely heavily, like in Barcelona, where there’s 9,500 touristic licensed apartments and no more and if you do that, you get heavily fined. They will fine you if you rent out an apartment without a touristic license, so it’s capped. It’s a highly regulated market and there are other markets where you have regulatory issues but the enforcement is zero, so it’s not going to go away and it’s not a pain to them.

Airbnb vs HomeAway: Inventory Quality

Why availability and bookability are the most important factors when analyzing OTA inventory

Airbnb vs HomeAway: Inventory Quality

Former CEO at Vacasa Europe and Board Member at HomeAway

inpractise.com/articles/airbnb-inventory-quality

Why is this interview interesting?

Executive Bio

Simon Lehmann

Former CEO at Vacasa Europe and Board Member at HomeAway

Interview Transcript

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Airbnb vs HomeAway: Inventory Quality(August 26, 2020)

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