Nowhere is the need for a more tech-driven, business-oriented model for setting rates more clear than with short-term rental property management companies. Several startups aim to supercharge rate-setting with data-powered insights. But there's probably too many of these young companies for them to all survive long-term.
When Rastegar Property announced earlier this month it would build a 270-unit high-rise in Dallas, the real-estate developer said it planned to hand operations over to Sonder, a rental management company that offers branded, hotel-like lodging for short-term and extended stays.
Rastegar had many reasons to find Sonder appealing, but one is that the startup belongs to a wave of companies promising to leverage a rising prowess in setting rates, a practice the industry calls revenue management. Sonder runs the numbers to learn how much rental inventory any given market can handle and decide what rates to set to earn maximum revenue. The San Francisco-based startup, founded in 2012 and having raised $360 million, has spent a few years analyzing inventory, customer, and sales data. It now optimizes its rates.
Sonder’s not alone. Several startups, such as Beyond Pricing and PriceLabs, offer rate-setting advice. Unlike Sonder, these companies sell software services to property management companies that haven’t built such tech internally.
Last month, the sector attracted the spotlight when Beyond Pricing raised $42 million in Series A funding, led by Bessemer Venture Partners, a firm whose past successful investments include web design platform Wix and image-sharing service Pinterest.
Interest in these startups signals a gradual strategic shift across the short-term rental sector in the role of rate setting. Property managers used to set prices using guesswork and pencil-and-paper calculations in back offices. Technology promises to help them fine-tune their work by extracting the most money from travelers as possible.
Other startups include PriceLabs, Wheelhouse, AirDNA, and OutSwitch. Last year, Evolve, a property management service that has raised $103 million, acquired for an undisclosed price Everbooked, a startup that offered rate setting software.
But some industry professionals are cautious about the rise of revenue management services.
“I’m amazed how many revenue management systems we now have in the rental sector,” said Sascha Hausmann, CEO of hotel tech service Busy Rooms and a principal at investment firm Howzat Partners, when speaking on a panel at last week’s Vacation Rental Management Association conference in New Orleans.
“You have more revenue management startups now serving rental property managers than you have serving hotel companies,” Hausmann said. “I am sure not all will survive.”
Pricing tools and automation can give a boost over rule-of-thumb rate setting. However, to squeeze out more gains, revenue management tech needs to get woven into all parts of data collection at property management companies, experts said. Some startups may be overstating their pricing savvy by downplaying their weaknesses.
As for Sonder, it’s one of several hotel-like companies using so-called master lease arrangements with developers. Sonder and its peers may face a tough trade-off. If their core competency is providing hotel-like services, it’s unclear if it makes sense for them to try to compete on developing technologies like revenue management software. Maybe they should copy the typical hotel companies instead and outsource their pricing needs to specialists.
“It raises the question about how much IT should go into this,” said Katherine Grass, a partner at Thayer Ventures, a venture firm that invests in travel technology companies. Grass was referring to various tech services, not just revenue management ones.
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Photo credit: An illustration of a planned high-rise at 1899 McKinney Avenue in Dallas, Texas, that will be built by Rastegar Property and operated on a short-term and extended-stay basis by Sonder, a rental tech startup. Rastegar Property