Exclusivity, focused marketing and yield management, localisation and the perfect API is what is driving growth, says Vacasa
When Eric Breon, the CEO and co-founder of Portland based property management firm Vacasa, inherited a home on the Washington State coast in 2010, he hadn’t fully clocked how difficult it would be to find somebody to manage it.
“There just weren’t many good options. Either the management options didn’t guage our rental's earning potential accurately or they didn't offer a quality level of service; there were a lot of gaps," he says.
After being quoted $3,400 by one property manager for a year’s service, Breon decided to manage the home himself. It was a decision that paid off. By the end of the first year, he’d earned $24,000 in rental income, and had spotted what he felt was a “huge opportunity”. Realising that it was hard work, and he couldn’t do it alone, Breon placed an advertisement on the classifieds website Craigslist. Cliff Johnson, a former tax attorney, responded, and would become his co-founder. Today Vacasa manages 5,100 properties, making it the second biggest in the US after Wyndham Vacation rentals which has 9,000.
Initially the idea was to offer a straightforward booking service, as many other property management services do. But within two weeks of operation, it had become clear that full service management was the way to go.
When you are just managing bookings, and you don’t have exclusivity, you quickly run into problems…
“When you are just managing bookings, and you don’t have exclusivity, you quickly run into problems such as coordinating calendars, or cumbersome rules set by home owners or other managers,” Johnson says.
In his view, going down the full service management road, was the “best decision we ever made”, as it enables Vacasa to deliver a better service for both owners and guests. In essence then, the owner hands over the keys and in return Vacasa does everything from photography to marketing, housekeeping and more. “We control the entire process which removes all the burden from the home owner,’ he says.
It’s a strategy that seems to be working.
Bootstrapped until 2016, the firm grew organically until last year when Breon and Johnson decided the timing was right to move to the next level. With the $40m raised in an initial funding round, the group has now acquired over 50 smaller management companies, and in doing so has forayed into Italy and Spain in Europe.
An important aspect of the company’s growth trajectory was its strong focused marketing (SEO and paid advertising) and yield management techniques.
The yield management piece was particularly important for income generation because it allowed Vacasa to adjust rates based on demand. “As the dates got closer, if the property wasn’t likely to book, we’d keep dropping the price so the property was filled, whereas most of our competitors would stay flat,” says Johnson. [That is, of course, changing with the rise of firms like GuestReady and Hostmaker].
Very soon, they were able to offer owners a guarantee that even after the management fee, they would make at least the same as they had the previous year by handing over the property exclusively to Vacasa. “But,” he stresses, “the only way we could control these income results was with exclusive control of the home.”
Having exclusivity, argues Johnson, is what helped Vacasa grow from managing just one property to 5,000 in just seven years.
Open API partnerships are crucial
When it comes to conquering the world, however, Vacasa is not naïve. “We’re doing everything we can to drive organic traffic,” says Johnson, “be we also understand that we are always going to be working strategically with major channels like Airbnb, Expedia and booking.com.”
For example, Vacasa won’t get into a bidding war in places where it only two properties, but will be strategic where it has more density. Not only will the nature of the partnerships vary from market-to-market, so too will the technology integration required for each platform. On this score, it seems long-standing established players are still easier to work with.
“With Homeaway [owned by Expedia] we have a perfect API. Everything moves automatically on their site as we update it,” Johnson says, “but Airbnb isn’t as far along with the integration of managers. We can’t push all data directly to Airbnb right now and that can be a bit confusing.”
Airbnb isn’t as far along with the integration of managers
Johnson is clear that wherever and whenever people are looking for a property the data should be correct. However, while the industry, including Airbnb, is moving in the right direction, there is still work to do.
So, although Airbnb, HomeAway and the like are seen largely as “partners, not competitors”, Vacasa believes it has an edge in certain areas.
Admittedly, it might be harder to compete with the brand clout of Airbnb and Expedia on consumer side, but when it comes to building relationships with owners, it’s a different story.
“A lot of companies don’t communicate well with the owners of the properties and they are the lifeblood of their business. It’s a bit of a wild west and often they aren’t paid on time, or the properties are not properly maintained. This can impact the guest experience and the owner’s reputation which in turn impacts income.”
What Vacasa is aiming for is what it describes as a “locally driven global model” with the aim of delivering a consistent online experience for guests while also adapting to the local market.
To this end, the firm has a total of 1400 employees; 300 of those run operations centrally from the Portland headquarters, and the balance work from remote office or field locations. There is a strong focus, says Johnson, on hiring locally and working with local communities so that everybody wins.
As a former tax attorney, Johnson “loves to be opportunistic and aggressive”.
But he also likes to be smart about it too. “We want to work with cities and embrace the communities, and do it legally, rather than being combative. We want to be part of the community and promote tourism in the right way,” he says, adding that this is a more sustainable model.
We want to work with cities and embrace the communities, and do it legally, rather than being combative
In Europe, where the firm recently launched in Spain and Italy, he admits that it has been a learning curve to understand the different nuances at play. For example, the exclusive full service model isn’t the norm in Europe, with most people placing their home with numerous different agencies; so it’s a case of first-come first-served. “The problem with this approach is that you can’t apply yield management techniques. There is no rate parity, no calendar parity and this undermines optimal performance of the home,” says Johnson.
In Europe then, some education about the validity of handing over exclusive control has been necessary. It seems to be working and Vacasa now has its sights on other markets including Croatia, Greece, Malta, and the fast-growing market of the Czech Republic.
Going forward, Johnson foresees rapid sophistication and consolidation of the vacation rentals market. Well-documented is the fact that most customers today want to book online, they want real times results, they want pricing to make sense and they want better imagery. “If you look at why people book hotels rather than vacation rentals, it’s usually because of security and transparency. They know what they are getting an the process is easy, ” Johnson says.
“That’s where vacation rentals need to catch up a bit. And companies that are not willing to adapt won’t last,” he concludes.