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January 09, 2019
Hotels Finally Embrace Homesharing: Now What?
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One of the earliest adopters, AccorHotels, has struggled to turn a profit from its $169 million acquisition of luxury home rental platform Onefinestay. Two years after buying it in 2016, AccorHotels most recently wrote off its investments in the business, but remains determined to keep it as a part of its portfolio. In August 2017, Hyatt Hotels & Resorts, which had previously invested in Onefinestay, tried its luck with another Òhome meets hotelÓ platform called Oasis, which AccorHotels had also invested in previously. But by October, 14 months after its initial investment, Hyatt found itself abandoning Oasis, and Oasis found itself a new home with Vacasa, a vacation rental property management company. Earlier this year, Marriott International embarked on its first foray into private accommodations, partnering with Hostmaker for a pilot in London. That initial experiment is now being expanded to three other cities to encompass a total of more than 340 listings, but thatÕs still very small in comparison to MarriottÕs traditional hotel inventory of more than 6,700 hotels. ÒThe expertise of major hotel companies doesnÕt lend itself to the vacation rental and homesharing segment,Ó said Eric Breon, CEO of Vacasa. ÒHotel companies are great at building brands, yet vacation rentals are inherently boutique. Hotels are great with business travelers, but vacation rentals are predominantly leisure. Hotels excel at operations in a single facility, whereas vacation rentals are dispersed throughout the community.Ó And, not surprisingly, even private accommodations pioneers like Airbnb are realizing the importance of having more quality product to offer to consumers, which is why it launched its own hotel-like home listings earlier this year, called Airbnb Plus. If AccorHotels, Hyatt, Marriott and, presumably, other hotel companies eventually want to find success in homesharing, itÕs clear that not all strategies are created equal. Essentially, those different paths boil down to three different options: to buy, to partner, and to build. But which one is best for hotel companies looking to expand into homesharing? Moreover, can hotel companies successfully enter this market, or will they inevitably stumble? THE CASE FOR/AGAINST BUYING Ownership has its benefits, but is owning a private accommodation brand a wise business decision? ThatÕs something AccorHotels is currently exploring. When AccorHotels initially decided to purchase Onefinestay, it was an outlier among hotel companies, many of whom felt that homesharing and hotels were two very separate businesses. At the time, CEO Sebastien Bazin told Skift he and the company were motivated to make the purchase because this is where the industry is headed. ÒIt would be absolutely foolish and irresponsible to fight against any new concept, offer, or services like this, let alone fighting against the sharing economy,Ó Bazin said. ÒThis is where the world is leading us. All of those new services are very powerful and very well implemented and executed. You need to embrace it.Ó Approximately one year after buying Onefinestay, AccorHotels then purchased two other rental brands Ñ Travel Keys and Squarebreak Ñ and brought them under the Onefinestay brand name, boosting the total number of global rental listings to more than 10,000. In April, speaking at Skift Forum Europe in Berlin, Bazin didnÕt expressly allude to AccorÕs financial difficulties with Onefinestay and concierge service John Paul Ñ details of the $288 million write off were revealed three months later Ñ but he did seem to suggest there was a learning curve to AccorÕs new investments and acquisitions. On investing in new business units and startups, Bazin stressed the importance of making sure those units Òremain autonomous,Ó and he added, ÒWeÕve made 12 to 17 investments [as of April 2018], and I really believe that 20 percent of them will not work. Wrong equilibrium team, or idea, or maybe itÕs too late. Twenty to 50 percent will be remarkable. A third will be average. But this is the name of the game when you enter into unknown territories.Ó In addition to not meeting its profitability goals, Onefinestay has struggled to hold onto senior management. The company has had a total of four different chief executives since 2016: Co-founder and CEO Greg Marsh left in September 2016, months after Accor bought Onefinestay. MarshÕs successor, co-founder Evan Frank, left in September 2017. Javier Cedillo-Espin, who succeeded Frank, left this summer to become CEO of a competing serviced apartment platform. In October, AccorHotels deputy CEO and CFO Jean-Jacques Morin said of Onefinestay and John Paul: ÒIt is the usual story about how a new business is being integrated in the company and as probably being too greedy and what we try to do with that company and integrating them too fastly, and pushing them into too many geographies and too many directions.Õ Did AccorHotels make a mistake in by going all in on homesharing? Or can it still benefit from its first mover advantage and eventually succeed where others have struggled? Those are two questions many in the private accommodations space are currently mulling. ÒThey havenÕt been very successful,Ó said Simon Lehmann, CEO and co-founder of AJL Consulting and former CEO of Interhome, a Swiss home rental platform thatÕs been in business since 1965, on AccorHotelsÕ acquisition of Onefinestay. Lehmann likened the buy to that of a conventional car company buying a maker of electric vehicles: ÒItÕs very hard for them to adapt.Ó He added, ÒI donÕt think [AccorHotels] realized the sheer complexity of such a business, and they had to write off some of these acquisition prices while trying to build a business at scale.Ó However, there are signs that AccorHotels is looking for synergies and ways to turn its Onefinestay business around. Morin said during a third quarter earnings call, ÒOur strategy has not changed. We want to do that with private rental. We want to move ahead with John Paul. And at this stage, itÕs too early to tell you what our solution is, but thatÕs what they would say at that point. The other thing that I would like to highlight, as you know, is that despite being small numbers, this is important for us.Ó Part of that strategy, as far as we can tell, potentially involves partnering with, and investing in companies that include Properly, a San Francisco-based company that provides cleaning and operational services for short-term rentals. In late October, AccorHotels was part of a Series A investment of $8.5 million in Properly, led by Asset Management Ventures. When Skift interviewed Bazin in April, he also alluded to opportunities for more synergies between Onefinestay and AccorHotelsÕ traditional hotel business. ÒThe sharing economy is labor intensive,Ó Bazin said. ÒYou need people on the ground to provide all the service. Airbnb has been doing it in the commodity space Ñ they have been outsourcing all those services. I have the existing labor force and network, so I am providing all the synergies that exist. Anyone who does not have labor on the ground, it will cost them a lot.Ó Most recently, it appears Airbnb has taken note, too. On December 11, the company acquired French rental services provider Luckey Homes for an undisclosed sum, signaling the importance of having on-the-ground service providers to manage home listings and the possibility that it may enter the property management space more directly than ever before. Whether an accommodations provider or platform, be it AccorHotels or Airbnb, needs to buy a property management company, however, is yet another question for brands in this space to consider. For now, it seems Airbnb is testing out how that might work, and AccorHotels is considering working with multiple management companies to implement brand standards and maintain quality. ÒThe smarter approach is to figure out something scalable, keep the brand identity, and deliver on the brand promise, but do it across many different property managers,Ó said Alex Nigg, founder and CEO of Properly, suggesting that while owning a brand is one thing, owning the services that support the operation and maintenance of rentals is best left to partners and third parties. THE CASE FOR/AGAINST PARTNERING The partnership route is one that was most recently piloted by Hyatt and Marriott, but both companies have seen different results from their respective experiments. Generally speaking, however, partnering with a private accommodations brand poses the least amount of risk for hotel companies wanting to get into the space. ÒA partnership model like the one that Marriott has with Hostmaker makes sense for Marriott in terms of the economics of distribution,Ó said Makarand Mody, assistant professor of hospitality marketing for the Boston University School of Hospitality Administration. ÒFrom a pure management standpoint, itÕs very hands off actually. Hostmaker does the operations side of things and Marriott has agreed on certain brand standards in terms of Tribute Portfolio Homes that they will execute.Ó In ModyÕs opinion, as well as LehmannÕs, ÒMarriottÕs model has the highest chance of success.Ó And the fact that Marriott was instantly able to link these private accommodations listings to its loyalty programs was also a plus, at least for Marriott Rewards and Starwood Preferred Guest members. For Marriott, the pilot continues to be a Òlearning experience,Ó said Adam Malamut, MarriottÕs chief customer experience officer. ÒThe key thing weÕre learning here is that we have a unique customer experience and base thatÕs complementary to our hotels, and we donÕtÕ see this as direct completion to our hotels in those markets.Ó The primary focus for Marriott, in terms of this pilot, is to Òfine tune what our product is and how we might execute it before we make a very large type of investment,Ó Malamut added. ÒThe approach is to be customer centric first, and to create a unique and distinct brand experience thatÕs synergistic and accretive to our brand portfolio.Ó Lehmann said that MarriottÕs pilot seems like a Òclear trial-and-error modelÓ thatÕs both Òscalable and a smart move.Ó Hyatt, too, has experimented with homesharing at least twice before by adopting a partnership route. Once it was with Onefinestay, and most recently with Oasis. In the former case, Onefinestay was later purchased by AccorHotels and in the latter, Oasis was bought by Vacasa, a property management company. In August, Hyatt revealed it had to take a $22 million impairment charge for its minority investment in Oasis, and three months later, Oasis was sold to Vacasa, where, presumably, it will help Vacasa increase its inventory. During HyattÕs second quarter earnings call, then CFO Patrick Grismer attributed the problems to Òthe scalability of that business and the synergies to be realized through the alliance with HyattÓ as well as Òshortfalls in operating cash flow.Ó Most of the industry experts whom Skift spoke to for this story believed that one of the primary reasons why Oasis was struggling had to do with the legal and geographical challenges related to its supply; simply put, Oasis may have expanded too quickly in too many places. There were also issues in terms of guest expectations, as well as the fact that Oasis was not bookable via the global distribution system (GDS) Ñ the system that connects hotels and airlines with online booking sites and travel agents. ÒWhen we found some of our partners were putting guests and travelers into those [Oasis] locations, there were very mixed reviews,Ó said Asad Ahmed, senior vice president of global sales for the Hyatt Sales Force. ÒThis was not necessarily because of the product or the service of Oasis itself, but the experience was still very different from a hotel experience.Ó In addition to the economic problems noted by Grismer, Ahmed said another challenge had to do with differing financial models. ÒWhether itÕs Oasis or itÕs any of the other players in that space, they arenÕt necessarily listed on the GDS,Ó Ahmed said. ÒWhere that model then become different and challenging is in a chain like Hyatt, every one of our hotels lists themselves and pays a GDS fee. When youÕre looking at Oasis, it was 2,000 plus accommodations with individual owners, units, and apartments, and they are not going to list themselves on the GDS. ThereÕs a fee attached to that, and Oasis, or Hyatt, in that model, wouldnÕt necessarily be prepared to take on listing fees for that entire chain, so the transactional flow for a corporate company or travel agency is very different. Ò THE CASE FOR/AGAINST BUILDING A SHORT-TERM RENTAL BUSINESS Madrid-based Room Mate Hotels was way ahead of the curve when it launched Be Mate Apartments in 2014. Room Mate founder and president Kike Sarasola was inspired to launch it when his fellow hoteliers asked him to lead the fight against Airbnb in Spain. Instead, Sarasola had other ideas. ÒI thought, ÔMy God, what a pity I didnÕt think of it.Õ It was a brilliant idea. I thought it was the future,Ó he said, of short-term urban rentals. With Be Mate Apartments, Sarasola wanted to Òdo apartments with hotel services at affordable prices.Ó What Be Mate does is handle full management of leased or contracted apartment buildings and units located in or around existing Room Mate Hotels properties. On-the ground teams handle housekeeping and maintenance, and Be Mate guests can access amenities from nearby hotels. ÒOur hotels are always available, so if the clients ever need any services, we have concierge service that helps them, but our hotels are also like safety nets for the apartments,Ó Sarasola said. Not surprisingly, Sarasola faced touch criticism from his peers when he launched Be Mate. ÒOther hoteliers said I was a traitor, and that I was going with the enemy.Ó But now, some four years later, others Ñ AccorHotels, Hyatt, and Marriott, included Ñ are joining him. And while itÕs been a ÒcomplicatedÓ business to launch, Sarasola said Be Mate is set to break even this year. Some of the hardest challenges, he said, had to do with finding the Òright mix of models between corporate travel and tourismÓ and the Òright sizes of apartments for different cities.Ó Additionally, investing in technology and revenue management has been crucial. Since launching Be Mate in 2014 in Madrid, the concept has expanded to 10 cities worldwide with a total of 10,000 listings, 600 of which are exclusive to Be Mate. Sarasola said he thinks the Be Mate model is Òvery scalableÓ and one that also abides by local regulations. He hasnÕt, however, ruled out working with a larger hotel group to grow the business even further. ÒIn my case, at the time, there wasnÕt anyone I could buy,Ó he said. ÒI had to do it myself.Ó Sarasola also hasnÕt forgotten the larger hotel industryÕs first reaction to homesharing just a few years ago. ÒIÕd tell other hoteliers know that I have a platform and that I would love them to join me,Ó he said. ÒI want to open my platform to them and we could all try to build something, and back then, they all said ÔNo.Õ Even the Marriotts and those who demonized us at the moment: IÕd love to see what explanation they would give now as to why they are going into this industry today.Ó IS THERE A FORMULA FOR SUCCESS? While the hotel industryÕs involvement in homesharing is still relatively new, itÕs clear that if a more traditional hotel company wants to extend into this space, it will contend with many of the same challenges that some of the homesharing pioneers, Airbnb included, are also dealing with, as is the case with Airbnb Plus. They are, as follows: maintaining brand standards and quality control; utilizing existing resources and labor force to operate the units; making sure there are some loyalty tie-ins; and ensuring that corporate clients and travel agencies can easily book these accommodations. At the moment, at least, itÕs clear that everyone Ñ from Airbnb and Marriott to AccorHotels and Hyatt Ñ is in the process of figuring it all out, and they all need to, if they want to continue to be successful five, 10, 15, or 20 years from now, because itÕs what consumers want. ÒWe all know that, in 2012, the readiness for a hotel guest to book private accommodations was only 33 percent,Ó said Lehmann. ÒIn 2018, itÕs close to 70 percent. ItÕs clear that hotels need to get their heads around where people are considering staying when they travel, and itÕs not just hotels anymore.Ó Copyright 2019 Skift. All rights reserved. From https://www.skift.com.
By Deanna Ting, Skift. |
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