Hospitality, Short Term Rentals, and The Value of Consistency

Last week, Skift published an article (Marriott Drives Deeper Into Luxury Short-Term Rentals as a Loyalty Play) that outlined Marriott’s goals for its “Homes & Villas” division, which was based on a pilot it ran in Europe last year. The platform was launched in partnership with various property and hospitality management companies, including TurnKey Vacation Rentals, LaCure, Loyd & Townsend Rose, Veeve, London Residents Club, Mainsail Lodging, and Reserva Conchal.

The article states:

“The company on Monday reemphasized that it has limited goals for Homes & Villas by Marriott International, a small set of professionally managed luxury properties. It mainly intends to use the rental bookings as a way to juice the rewards for the members of its loyalty program, Bonvoy, that have amassed enormous numbers of points.”

Something that stood about to me is the use of the phrases “professionally managed” and “loyalty program” – I think each is an important indicator of how Marriott thinks about its business and customers, and has interesting implications for the overall short-term rental market.

Starting with “professionally managed”, it’s clear that Marriott wants to maintain a high level of quality, consistency, and experience that it doesn’t trust a standard Airbnb-like host to deliver. Although Marriott doesn’t go into specifics about how homes and villas ultimately are chosen for the platform, Skift talked to property managers familiar with the process who emphasized that there are software requirements, inventory prioritizations, and privacy and security thresholds. It seems reasonable that Marriott would demand these to protect its brand and ultimately its customers.

Jennifer Hsieh, global leader for Homes & Villas, articulated that Marriott’s ideal customer is a business traveler that wants to use loyalty points when they’re on a leisure trip, potentially for large groups or family reunions. Same Marriott customer, different travel needs, different property type. This phrasing indicates that at a high level, Marriott is recognizing the demand for alternative accommodations and the unmet needs that current Marriott customers have outside of existing offerings. Loyalty points – a cottage industry unto itself – are a hook to keeping existing Marriott customers under the Marriott umbrella and not Airbnb’s for a similar product.

Hilton, on the other hand, doesn’t necessarily see eye-to-eye with Marriott. On an earnings call in May, Hilton’s CEO commented:

“What we think we’re in the business of is providing high-quality, consistent, branded experiences. That means taking products at all these various price points that have exactly the functionality that customers want, the amenities they want. We wrap it in incredible service. We also connect it all by loyalty. And as a result, we get a big premium because of the consistent high-quality nature of all these price points…Our belief is that home sharing is just something different. It’s not that it’s a bad business. We just think it’s a different staycation, a higher beta experience, and not the premium value proposition.”

It’s an interesting framing – Marriott focusing on capturing more of a customer’s hospitality needs vs Hilton satisfying a traveler’s need by value. The common thread between the two is seemingly an emphasis on consistency. If a traveler’s expectations for quality aren’t met, it’s bad news. Inconsistency = lost customers.

From the short-term rental point of view, the positions that Marriott, Hilton, and other hospitality brands are taking with regards to home-sharing, consistency, and demand, indicate that professionally managed short-term rental companies could be on to something. I’m not surprised that hospitality brands haven’t made significant acquisitions in the space yet, because if Marriott and Hilton, for example, both require highly consistent experiences, along with operations that must meet quality and experience thresholds, it’s probably too early for hospitality brands to be comfortable writing a huge check to assume the risks that earlier-stage companies carry. Aside from the purely customer-facing elements hospitality brands know well, it’s challenging to understand economics and specific property challenges that a scattered short-term rental portfolio represents. Hotels are single chunk, centralized operators vs short-term rentals that have a more decentralized model, yet require similar challenging operational throughput (cleaning, check-in/outs, security, access, customer service, etc.).  Execution for short term rentals is hard, and we’re now seeing several operators focus on buying entire buildings to operate and optimize service delivery (see OpCo / PropCo article here).

I’m interested to watch as the hospitality and short-term rental spaces evolve. It’s clear that Airbnb began tipping an ‘unbundling of real estate’, and that things have not slowed down. New brands are operating space differently, and unearthing new customer segments along the way. The software and platforms that power the inherently localized, capital intensive, labor-driven real estate operations are going to receive more emphasis and attention, and we hope to see excited companies emerge alongside these evolving trends.

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