Airbnb, Booking.com, and other giants in vacation rental bookings aren't providing the branding and technology needed by professional property managers in resort destinations. RedAwning's model points to one of several ways to fill the gap.
RedAwning is doing to branded vacation rentals in North America and Europe something similar to what OYO Rooms is carrying out with branded budget hotels in India — trying to provide a consistent booking experience for travelers.
But Emeryville, California-based RedAwning also is a technology play. Just as hotels use channel manager software to distribute their rooms to online and corporate travel agencies, RedAwning acts as a technological middleman that lets property managers list their properties — up to 100,000, at last count — on Airbnb, HomeAway, Expedia, Booking.com, FlipKey, and other channels.
RedAwning is still tiny. Last year it processed only 50,000 transactions.
But the concept it has hit upon represents a possible path forward for several players in the still-developing vacation rental ecosystem.
First, RedAwning has created a soft brand.
What consumers associate with the RedAwning brand name is a consistent contract no matter where the property is located globally, a damage insurance policy that Red Awning offers (for a fee) as a way to replace the hassle of security deposits, and a 24-hour call service center to help guests in case something goes wrong. (It’s not a franchise, though. RedAwning doesn’t handle housekeeping, for instance.)
Second, while there are hundreds of channel managers for hotels worldwide, there are relatively few thriving ones for vacation rentals. RedAwning sees itself as one.
What property managers get from RedAwning are tools that let them make their inventory meet the criteria of companies like HomeAway (such as for instant bookability and clear calendar displays) and tools to manage their reservations (such as software that helps them set rates optimally). The startup’s model is primarily about the property manager paying commission for the marketing and distribution services.
RedAwning is just a small company. But sometimes small companies can represent market gaps that are interesting. In recent years, Booking.com, for example, picked up tiny revenue management company Pricematch, Trivago picked up property management system Base7Booking, and AccorHotels picked up digital services provider Fastbooking. Each scaled up those B2B solutions and distributed them worldwide.
Without making a judgment about RedAwning’s fitness to be in the same category, the problems the company are trying to solve represent a B2B services gap that bigger players may develop an interest in on their own.
Founded in 2010 and profitable since 2015, RedAwning says it has grown six-fold in revenue in the past year from a small base.
Today it will announce it is acquiring all of the assets of VaycayHero, a booking platform for professionally managed vacation rentals that fizzled out. The companies did not disclose the terms of the deal but said it involved a combination of cash, stock, and incentives for the team.
VaycayHero is a San Francisco-based graduate of the YCombinator incubator. It had raised $4.19 million in funding, and it had tried to stand out by offering dynamic pricing tools to the professional managers of short-term rentals.
But VaycayHero couldn’t escape the high cost of trying to acquire users online. It suspended operations on February 28.
RedAwning, whose model instead focuses on getting income from its distribution partners, plans to maintain the VaycayHero brand name for now while bringing all of the customers over to its contracts and system.
RedAwning works closely with the HomeAways of the world to improve the performance of vacation rentals on their sites. The company has listings for the U.S., Canada, Mexico, and Europe, but states it plans to be “extremely active” in Asia “shortly.” Chief executive Tim Choate says, “We are the largest single supplier to most of the large channels.”
“For instance, we were the data launch partner for HomeAway for online booking when it began,” Choate says. “Today we’re the only company that’s actually approved to distribute properties from HomeAway’s software to HomeAway.com. We also are a data partner with Booking.com, and we’ve been helping Airbnb launch resort destination markets for five years, starting with the Lake Tahoe area.”
Tough industry problem
In addition to the marketing challenges, why has it been so hard for companies like VaycayHero to crack the technical challenge?
When you look at the professional side (meaning, not self-managed) of the vacation rental market, there are two distinct classes of property managers. One class, about a third of the market, uses some kind of property management system based on modern, API-driven technologies that large marketplaces such as HomeAway demand. The other class has homegrown software that isn’t up to snuff.
By acquiring VaycayHero, RedAwning now has a system that can accept inventory from either class of property manager and handle various types of software systems.
That matters because big players such as Airbnb show no interest in building the connectivity to help these owners who lack the relevant software solutions. They are instead focused on their marketplaces, rather than on building out integrations with lots of one-off software tools in a fragmented market.
A case in point: Airbnb only began marketing specifically for vacation rentals in resort areas in late 2016, having only formed an internal group to improve connectivity with property managers about two years before that.
RedAwning is more than a channel manager, which is maybe 10 percent of what it does, but it needs to be a channel manager to make its overall model work — or make its flywheel spin. For instance, for the property manager, RedAwning also handles payments’ processing and declined credit cards. It also has a travel agent platform that enables agencies to get access to rental inventory without having to use sites like FlipKey.
RedAwning says it is profitable and expects to more than double its booking revenue this year, processing $100 million in gross bookings, which is the full amount of the booking and not the amount that flows to RedAwning. It says it has not received any new investment recently. It has 50 employees in the U.S. and 80 in Indonesia.
Choate says he is most interested in VaycayHero for its relationships with about 400 property managers. They have 43,000 properties that RedAwning will try to move onto its system and provide better leads and generate more money. His company has done this before. In May 2015, RedAwning also acquired PerfectPlaces and on-boarded its inventory successfully.
Many Company Closings, With More to Come
It’s a bittersweet moment for the founders of VaycayHero. In early 2013, Amitav Chakravartty and Anirban Bardalaye launched a startup known as Zaranga and later renamed it VaycayHero. By January 2016, it had completed 30,000 transactions, and its gross bookings had reached $900,000 a month, on average.
What would VaycayHero’s co-founder Anirban Bardalaye have done differently if he had to do it all again? “If I did another business-to-consumer startup, the first thing I would figure out before the technology things like platform connectivity and dynamic pricing is, ‘How do I grow my base of paying customers at scale in a way that the unit economics make sense?'”
VaycayHero and PerfectPlaces aren’t the only startups in the sector to have struggled in the past year. Gloveler and Vacasol also closed.
Most spectacularly of all, last summer, LeisureLink, which had raised more than $42 million in venture capital, shut down. That company started with a rep-level model, which sells 50 one-bedroom rooms on behalf of a property manager as one ad listing on a site like HomeAway, for example.
RedAwning is instead selling at a so-called key-level, selling each room as an individual unit. That second model is more popular with consumers, but the technical challenge is considerable. LeisureLink tried to switch to the new model and spent many millions of dollars developing the new system. But it couldn’t make the transition fast enough.
Expedia’s Odd Moves
The last major distribution channel RedAwning hooked up to was Expedia. A year ago, the company began uploading its content for distribution directly under the Expedia flagship brand, even though some of the same inventory was already appearing under Expedia Inc.’s newly acquired HomeAway brand, which RedAwning had been a long-time partner with.
Choate says, “It’s been a slow integration process because they were trying to figure out their tools. When we started with them, they, at one point, said to us, ‘We can do about 300 properties a week,’ and we said, ‘We have 20,000 properties with contract and settings that would let us distribute to you immediately.’ They didn’t actually have the systems in place to be able to suck up high volumes of inventory.”
It has only been a little more than a year since Expedia has released its content API for suppliers and technology providers to connect, with one for richer content for photos of properties only more recently becoming available.
“We do have thousands of properties live on Expedia, with much more to come. But they’re still, on their side, looking through a lot of the challenges of how you deal with these volumes.”
Some industry observers may wonder if Expedia is also still trying to figure out what it will do with its HomeAway brand, given its curiously duplicative efforts.
Photo credit: One of the vacation rentals that property managers distribute via RedAwning's platform to channels like Expedia. Red Awning