Your Rental’s Life Cycle: The Moment of Truth
Seemingly stable short-term rental markets appear to be affected by the unpredictability of business environments as much as any other businesses. Running rentals successfully for many years is no longer proof of future success. Times when rentals could be successfully managed by our grandmothers seems to be left far behind. The hope that with time it will all go back to normal is in vain. Growing competition between the professional and non-professional hosts is a fierce reality of the post-corona virus era. What worked well in the past for local hosts competing on price might no longer be a solution…
Your short-term rental business may be using archaic practices
Because of its very nature, the relentlessness of change, technology, and the law, short-term rental businesses will eventually fail. Whether you run a holiday home, hotel, apartment or even just a spare room, it is vital that you understand the environment, technology, and regular shifts that happen across this industry. There is equally a need to ask oneself if, and to what extent, our businesses are affected by each of these. This is not just another strategy presentation. To not follow some of the most basic advice could lead to failure of your travel rental business much faster than might otherwise be expected.
“You should be more concerned about the future rather than the present, that soon there will be a better and faster way for guests to engage and achieve their travel aims – one that may not involve your business as it is today.”
Part One: Your rental business may already be archaic, do this to stop the slide
No business can or will last forever; it is a law of industry that all businesses and products will eventually die. It is not so obvious in the travel industry, although some businesses that do not die suffer losses from which they will never recover.
- Advances in technology
- Changes in the law or regulation
- A change of pace that the business is unable to maintain
- Fiercer internal and external competition
- Unpredictability of external environment (with COVID-19 as a best example)
As it is the nature of products to eventually die (and this is no different in the travel industry), we are left with one question. How can we survive and continue making it a profitable business? Businesses can expect trade to be like a rollercoaster, but the key factor is to make it a long and favourable rollercoaster.
Picture 1. Product life circle is a “good roller coaster”
This image is a typical representation of a product life cycle. There are several phases, notably the birth of the product, the growth phase, and then towards the end, the survival phase. This is where the business must focus on how to stay relevant.
To put it another way, businesses must make this stage work, to continue to grow, and then remain relevant with all the changes mentioned above. We do this by providing guests with a reason to continue using our business in the travel industry rather than somebody else’s.
You may have plenty of guests, lots of money coming in, and plenty of capital – millions even. However, remember that even successful businesses eventually fail, and none are so vulnerable today than those operating in the travel industry. After spending such a long time hoping for a business to work, and then when it begins turning a reasonable profit, we wonder what would happen if it failed. It is a large investment, both in terms of time and money, and the idea that it might one day all disappear is a worry.
Most people turn to books on travel marketing, they search the web for advice such as blog posts on how it should all work. It’s easy to then feel that all your problems will soon be in the past. But this is more like going through your start-up phase all over again. You may take the advice “get busy living or get busy dying” but it doesn’t help you understand how to survive. The reality is that very little of this literature helps you understand or identify existential threats.
Andy Grove, founder of Intel once said: “Any degree of success will breed complacency. Any degree of complacency will breed failure. Therefore, only the paranoid survives.”
You may like your business as it is today, but the model you have for today is likely already out of date or likely to be so soon. Documented industry changes, page updates, live news, it’s already history. You should be more concerned about the future rather than the present, that soon there will be a better and faster way for guests to engage and achieve their travel aims – one that may not involve your business as it is today.
There will be a time when you feel on solid ground. You may experience some uncertainty here and there, and the ever-present threat of competition and industry change. You will tell yourself that it’s all in hand, that you’re good at listening and adapting. Then you start to realise that change is coming, and you react to those changes. However, it’s usually already too late. The ground beneath your feet is gone; the worst-case scenario is that you don’t feel or see it. You may feel that when your best month is here – almost universally, this is August – a time when you expect everything to go smoothly, and then oops! Suddenly you have no bookings for that month that you previously relied on. You haven’t noticed the unseen changes going on around you and when you notice and start to react to those changes, it is already too late.
So many previously successful businesses have ceased trading, quite literally asleep at the cash register and unaware of new threats as their businesses failed around them.
- Wimdu.com ceased trading in 2018 without explanation. They were previously worth €90 million
- 9Flats.com ceased trading after Berlin began prohibiting short-term rentals in the city. They were famous for a (then) innovative instant booking system
- In London, Airbnb introduced a three-month cap on all listings for anyone wishing to rent an entire property. Short-let hosts are not permitted to rent out for more than three months per year
- In Japan- a change in the law introduced a similar three-month cap on short-term rentals. This forced many hosts out of the travel accommodation industry
Even when times appear good, it can all change in a moment and a profitable business disappears.It is an old story in how it plays out. “At first you’ll ignore them. Then you’ll laugh at them. Then you’ll fight them, and then they will win.” Most people tend to hold this attitude when they encounter new things. By the time they realise there is a problem, it is almost too late and there is no turning back. Is that familiar to you?
Part Two: Understanding and adapting to changes
The best recent example of what it means for the travel industry is the battle between Airbnb and the hotel sector. Just ten years ago, there was no market for spare rooms and local hosts; nobody cared, least of all hoteliers. Now, Airbnb controls 20% of the holiday rental market and have also expanded into holiday apartments, vacation rentals, and boutique hotels market. It wasn’t obvious at first that this market could be bad for the regular hotel trade, but that is the way it turned out.
An important quote here “No platform is in the centre of the online booking market, but rather a constellation of bodies under the influence of each other”. Put simply, it means that all booking platforms intertwine and that a change to one area creates change in the others. It’s not obvious that the increase in localhost accommodation has had a massive negative impact on the hotel bookings sector. Neither it is clear hotels have changed their policy to channel distribution through platforms that charge lower fees. Thirdly, it’s not obvious that short-term rental would raise long-term rental prices. Finally, it’s not clear that new laws and regulations have disrupted short-term rental properties. The travel industry is used to tectonic shifts; this is a good analogy as the plates shift beneath your feet. Trouble occurs when you are unaware of how they move and interact.
Let’s look back at the product circle. Any successful business in the travel industry didn’t come far just to stop when they become successful. The question to consider is how to carry on and to not end up caught in one wave only to end there. The travel business environment will continue to introduce more and more changes. As a business, you must constantly ask yourself: does your business make it easier, faster, or in any way improve guests’ holidays? If the answer is yes, then the guests will continue to use the service that fulfils their needs. If your business does not, you’ll end up doing something else.
The basic needs of guests don’t alter even when the environment changes around them. What we need to do in our lives rarely actually change. But the ways in which we do it will always change. If for instance, you’re going to Greece, in the old days you’d have to visit many websites to see all the different categories of properties, hotels, hosts or apartments. Then to compare prices, choosing, reading suggestions on what is “best for you”. Today, with Thegoldenmoon.com, you can do all of this from one place. The need doesn’t change but the ways you do it will always change.
Staying relevant in the travel industry means using the OODA loop. This is Observe, Orient, Decide, and Act. If you operate the OODA loop fast enough, you will find it easier to remain relevant in the industry and retain your strong position. Slow down, and trouble may be coming your way.
Picture 2: How to adapt with environmental change
If you use a fast OODA, you will adapt to anything the industry throws something new in your direction. Whether that is a change in law on short-term renting, as a most recent example, then think of a way to adapt to this change. Find new channels, adapt and evolve to new ways of working and offers. The moment a change appears, build a new offering, move fast in the industry, and you will survive. This fast adaptation is vital.
But if you fail to adapt or adapt too slowly to the change in direction, you are looking at game over. You are essentially, as described by Marshall McLuhan, “walking backwards into the future.” Your business will be heading into the future while still looking behind you. Your world is changing but your vision is not and you’re still trying to carry over outdated ideas into the new environment. That is why you should always ask whether you can do better, fast, or easier whenever you encounter change.
Part Three: Change as the main force in removing market limitations
In the last section, we asked if your travel business improves the guest experience – is it faster, better, or otherwise easier for them to take a holiday?
Looking back at the holiday business of the past, it’s easy to find its most difficult times. There were times we had to decide something without the luxury of being able to affect what would happen in the future. Whether we like it or not, such decisions affect many people and have wider consequences.
Let’s go back to what happened between Booking.com and Airbnb.
- Booking.com is an online platform for booking accommodation. It includes hotels, holiday homes, hostels and much more.
- Airbnb then entered the market, offering local hosts offering up spare rooms. Later, they added holiday homes and apartments to their stock, and boutique hotels
The range of property available to each platform is limited by the site’s mission and position, the proposition in their value to the market, and to a lesser extent, to their marketing outreach.
Despite their overlap in some property categories, some categories are considered a core service to the model. Both businesses have cut a piece of the market and are protecting against the other entering that area. The battle between the two companies is far less about market competition, and far more about social class. This would be fine except that guests need to complete their bookings. Now, a customer may use 4 or 5 other platforms in order to complete their booking, including price comparison sites (Agoda.com, Trivago etc.), those offering Apartments-only.com, local hosts, and those with branded hotels to complete their booking. Does that make it faster, easier, or in any way better for your guests to make a booking?
Picture 3: New vs old methods of booking vacation accommodation
This is very much Thegoldnemoon.com-like notion because, when we are talking about how we can explain what The Golden Moon does, this diagram here does a great job. It explained that on the left was the world before us. It shows a slow world with all these different products and the dream was that guests would spend the bulk of their time searching among them for different categories, compare them, de-segmenting and choosing. The rest of the time they will spend looking for a better price on another 4- 5 products like Agoda, TripAdvisor, and Trivago. Of course, that doesn’t happen because they have better things to do. We position Thegoldenmoon.com as the antidote to that method.
- The problem is that there is no booking platform that includes all accommodation categories. Airbnb do not include all hotels just the boutiques; Booking.com does not include those local hosts who rent spare rooms.
- The Golden Moon is not alone in noticing this. Small hotels and hostels have also noticed it. Thus, they abandoned advertising of their whole hotel and start advertising by room on Airbnb.
- This allowed them to overcome the limitations of the current booking platforms such as accommodation categories being over-fragmented across many different platforms.
- The problem led to creating Thegoldenmoon.com that removed the accommodation categories boundaries on its platform, allowed to advertise them all and is all-in-one solution to the problem.
Part Four: What does this mean for you and your rental business?
“Do guests leave your listing and immediately recommence the same search on another platform, for example to compare prices? Is there any additional work involved? If so, there is definitely a platform that reconnects all categories, best prices, and choice. If your listing is not on there- you will be in trouble”.
Well, there are a few questions you need to ask of yourself and of your business:
- Will incorporating different accommodation categories on a single platform improve your guest’s booking experience, making it easier, better or faster?
- Is the ease of using a centralised system better than the benefits of a single purpose platform with fewer categories or price range? If it is, you should really consider the implications
- Do guests leave your listing and immediately recommence the same search on another platform, for example to compare prices? Is there any additional work involved? If so, there is definitely a platform that reconnects all categories, best prices, and choice. If your listing is not on there- you will be in trouble.
- Similarly, do you find that guests tend to jump between platforms to examine all their choices? Will a search of hotels and local hosts typically involve having multiple open tabs, or is there a method to search through all categories to make a booking?
Does Thegoldenmoon.com make it better, faster or easier for your guests to make their bookings? There is a good chance the answer is yes, and you will need to meet them there if your travel business is to survive most current and future changes.
Want to learn more about providing amazing travel business to your guests? We’ve published the second editions of our article: “Inside Thegoldenmoon.com: updated”. It shares what we’ve learned as Thegoldenmoon.com has scaled its efforts and has been updated and expanded with a new section on how your travel business as an extension of the existing IT technologies.