1st of the Month Bonus Episode: The Costs and Benefits of Multi-Channel Distribution in Vacation Rentals with Simon Lehmann

Alex Husner  0:00  
Welcome to Alex & Annie the real women of vacation rentals. I'm Alex.

Annie Holcombe  0:03  
And I'm Annie.

Alex Husner  0:04  
And we are back today for the August 1 first of the month, the bonus episode and joined by the one and only Simon Lehman, co founder and CEO of ajl. Atelier Simon is so good to see you again.

Simon Lehmann  0:17  
Yeah. Likewise, Alex and that and it's so funny that we're doing this for the first of August, because first of August is Swiss National Day. So that's amazing. Wow, how

Annie Holcombe  0:25  
do we celebrate Swiss National Day? Is that like our Fourth of July? Yeah, you

Simon Lehmann  0:29  
have fireworks and, you know, put some sausages on the grill. And we have big bonfires and kids walk around with lamp yawns, and we have fireworks. And so yes, we

Alex Husner  0:41  
didn't even come prepared. So now.

Annie Holcombe  0:45  
Well, Simon, it's been actually a year since we had you on we had you on this time last year. And we talked about the market and what was going on the Airbnb bust. So that was the big conversation that was going on last year, but thought that this year, we're looking at some challenges with some other channels, specifically VRBO has been the one that surprised some people and wanted to get your take on that. Yeah, absolutely.

Simon Lehmann  1:08  
I mean, let's start to last year, we talked about the Airbnb bubble will burst. Well, it's a question of definition as a person, is it not? But we've seen significant changes. And I think, before I go directly to your question, we need to think about how it's all market behaved in the last 12 months as well. And you know, we always said, you know, put the umbrella out to rainy days will come and we definitely see compression, we see compression ADR, we see compression or occupancy, we see a tougher market environment, which immediately affects the channels as well, right. So it definitely has a direct impact. And, you know, comparing an Airbnb with the full service, property management industry is always difficult, because at the end of the day, the vast majority of their listings is still rvos versus professionally managed listings. So we need to sort of separate that and the way we look at this at this market overall. But we've definitely seen some incredible challenge. And I think at the same time, the channels themselves, including verbo, are, you know, struggling to address these changes within the markets and put their efforts into the right markets where the demand is there. And also supply I mean, when we look at the overall supply levels, especially here in Europe, as well, supply has grown significantly. And as soon as the demand only shrinks a little bit, we have compression on ADRs and occupancy. In the end, I think 24 has clearly shown that in England, the market has softened considerably Croatia, other markets, it has become super hot as well. So I think companies like VRBO are definitely struggling to address these changing demand patterns. And also supply models. Number one. Secondly, I think VRBO Expedia is really still struggling with its own technology integration and making that work for their own best interest. And third, I think it's lack of focus, if you ask me.

Alex Husner  3:07  
Yeah, and I think I mean, the cost per acquisition to get a booking now is so much higher than it used to be years ago. And competition is fierce. And I think, you know, love it or hate it. Airbnb has done, definitely the best job of defining their brand that I mean, they're still spending a ton of money on advertising. But people just naturally seek out Airbnb. And that never happened with verbo. So I think it's just it's, it's very tough for these OTAs to still be able to maintain the level that they once were when now you've just got this behemoth and on top of that made in Google, it's your organic listings have been pushed down so far, because Google wants you to answer everything right there and be able to get everything without having to, you know, be able to click out. So it's a challenging thing for marketers of all sizes at this point. Well, I

Simon Lehmann  3:53  
also believe that verbos still suffers from its own legacy. I mean, let's face it all the way. And all the brands that it had, right, and then I'm talking about Europe, in every markets being in favor direct in Germany are brutal in France, and whatever and you know, that takes ages to have that traffic sort of tucked into your own core brand and, and make that work for your own benefit. Also, in relation to what you said, Alex in relation to Airbnb, and also for booking.com. It has been easier. It's one brand and that's what they market it over years. And, and I would see this same force of booking here in Europe. I mean, they're going exceptionally strong. That's where people broke. And that's what people sort of, are used to another way slash verbo at old brands in all the different countries and integrating those and bringing the customers along with you on that journey, I think is also very challenging. I think it's definitely a number of reasons why verbo is not performing to the level that the professional property managers are expecting or working with them.

Annie Holcombe  4:56  
So what is your thought on the diversification of distribution? So Alex and I talked to a lot of people about it. And I think there's different approaches in Europe, it's the people are more inclined to have a lot of channels and understand that you really want eggs in multiple baskets. And in the US, a lot of people have been very gun shy to, to go about trying more channels. It's like they've had their direct, they've had Airbnb or VRBO. And then they added another one. And they're really, really hesitant to add some of these, like tier two channels that are coming on. So do you think there's too many channels? Or do you think that like, perhaps just specifically to the US, that people need to be more open minded to be adding channels? Open

Simon Lehmann  5:32  
minded? Annie? It's an awesome question. And my answer basically goes back 20 years, when I had the honor to enter this industry, becoming the CEO of inter home, we had two channels at the time, right, we had travel agencies, the direct channel, that's it. And we do 1007, we started to build relationships and started to integrate with OTAs. And we were the first large PMC that started during the Great with booking.com, and then followed by HomeAway, and then TripAdvisor in 2008. And my credo, or my strategy was always and I will say that to the commercial guys, we need to make sure we're putting our eggs in as many baskets as we possibly can, right. In terms of distribution, we don't want to sit on the drip of a large OTA and back then, obviously, we could not even imagine the power that they had. I mean, booking was already very strong at that time, obviously in HomeAway, was just about to take off 2006 Seven was just posted the verbal acquisition. So we could clearly see that the OTAs are an incredible opportunity for vacation rental, because before you could not book a rental or an OTA, I mean, you could book flights and you can book hotels, and rental cars. And that's it right? So we we brought this vertical to the online travel world. And I always said, Hey, we need to make sure we're using as many channels as we can and balance that next to our own direct distribution strategy. And we need to be very mindful about our customer acquisition costs and balance those equally 20 years forward, I will give you exactly the same answer. And I'm actually quite surprised. And still today, because we obviously do quite a bit of work in the US as well. I've done a lot of research on the markets and looked at the market in a broader aspect in relation to distribution. And I'm amazed that, you know, we've seen some additional market entries go to go with us all they do others have tried to come to the market. booking.com still doesn't have more than 2% market share. It's doubling its share, but it's still small numbers. And that is incredible for me to think about. Why are people not more open to multi channel distribution in Europe, this is totally common. I when we talk to property managers on the consulting side in Europe, we always say you can't work with enough channels. Yes, they need to be managed either through the PMS or the channel manager they need to work you need to be thinking about okay, who is my clientele? What is the persona of the customers, I want to attract families, golfers, fishers, people with beds, you name it. And I think that's an incredible opportunity to serve as many channels as you can. And I say a booking is a booking, right. And obviously you don't need to put equal time into it. Sometimes it's even more commercially viable to use a certain channel versus others. So number one, yes, folk continue focusing on direct booking, but use as many channels as I can. And I'm still surprised how significantly different the US market is where people are more reluctant to drive a multi channel strategy. Whereas in Europe, this is totally common,

Alex Husner  8:53  
I think it really comes down to resources and time of the company. And now just being on the property management side, you know, for many years at condo world and now the clients that I represent is you can get burned really quickly when you know an OTA comes to you. And it sounds like this is gonna be great, and they promise you the world and then you really don't get any sort of production from them. And working with the channel manager. Of course, that simplifies the process to some extent, but it's still a lot of time on your staff to get these things set up. And if you're only getting a handful of bookings a year from a channel, it becomes a challenge of if you have a marketing team or distribution manager and that's their job, I think, you know, go out and do it. Because from my perspective, it's also a big part of homeowner acquisition to be able to say that you're on all these channels and even if you don't get bookings from them that is still inherently very valuable because these individual owners, they can't go out and do that they can put their property on, you know, maybe one or two channels but they're not going to be on homes and villas and booking.com and all these other ones that you know there's a level of sophistication with those but I think it comes down to time I think that's the main thing that I've seen. And what I've heard from other people is just the value of versus the time to onboard and the stress of it. I

Simon Lehmann  10:07  
totally agree with you, Alex. But I think we need to be mindful about both of the things that each channel addresses different types of personas in terms of clients, and guests. And that's also like also booking behaviors, what is the booking window of an Airbnb customer to a verbal customer or to a booking.com customer? So I think you can leverage that in your own interests when you understand what are the different personas are who uses different channels. But I'm totally agree with you that you don't want to burden yourself with additional complexity because you work with a multi channel distribution strategy. But at the end of the day, you either use a cable channel manager on one side, or you have the PMS is with integrations and I mean, a PMS is in Europe, they have all more than just the four channels integrated. They also have additional direct channels integrated and I believe there is still opportunities out there is a smaller child going to compete with an OTA The answer is clearly no, right. So they can have the same spend on performance marketing, online marketing, Google, etc, etc. But they can potentially address certain niches, languages, cultures, whatever it might be, that will maybe allow you to get a booking at a lower cost than what you pay as a commission to a larger channel as well. I'm

Alex Husner  11:24  
glad you brought up travel agencies too, because we've talked to quite a few people recently that I've felt like the travel agency boom is coming back, that there's more ways for travel agencies to access vacation rental inventory, which is an exciting thing. I mean, I know Annie and I were going and Utusan. We're all going to scale Italia in October and in Florence. And I went back to my old travel agent that I use probably 10 years ago to help book our flights and start planning that trip. There's definitely value in still having those connections. But do you see overseas or? Or a lot of the property management companies? Do they have those relationships with travel agencies?

Simon Lehmann  12:02  
Well, I don't know why you asked this question, because I'm sitting in a travel agency today, right? The answers. Were just for the audience. When we started the call, I had to choose a background.

Alex Husner  12:18  
And that's the big announcement. So I've been starting a travel agency.

Simon Lehmann  12:22  
I would do many things, Alex, but I will not open a travel agency. I mean, I've been a digital guy for a long time. But it's an interesting question. It's definitely a very interesting question. So I learned with interhome How distributions for travel agencies work. And you could ask why did that not fly over time? I can make it my observation was always it was easier for travel agency to sell a packaged trip to Spain for two weeks holidays in the flight than selling a single home to an owner and get maybe even less commission. Right. That was 20 years ago. So it was clear that we were you know, we were still printing catalogs like crazy advertising costs were massive. So we pulled that out of the travel agency business very quickly. The second piece or reason at the time was how do you make the inventory available through the GDS? Right? So GDS is who provide flight content, hotel content, vacation rental was sort of never able to make its content available through GDS is like Amadeus and Travelport and other of the large pdss. And this is where the travel agency could not find the inventory to actually make it easy for them to sell. But what you said I also believe so in a certain vertical in our industry, I see massive opportunity that vacation rental will come back as well, but more in the luxury and upper market segments. If that inventory is well aggregated and made technological available through like a type of GDS. I think this could be significant and make it attractive for travel agencies because they now are here and they have customers who demand vacation rental but they don't know where to start to look for it. And if that inventory is made available technology, I totally believe that vacation rental within travel agency can have a travel advisors and travel consultants, can you work offline online, will will definitely have come back. It's no question for me.

Annie Holcombe  14:31  
I'm actually really excited because it's one of the things that next packs that we're doing is an integration to get to GDS. And that was the very first question I asked because when I was in property management, it was how do we get to GDS? Because there's meeting planners or group planners that that's where they go to they have a travel agent that does group travel for them and like for companies and those type of things. So for the urban markets, like GDS is going to open a whole new world of business travel to them that has been fairly to this point locked up by the hotel segment. So not that the hotels aren't seeing losses over to short term rentals, it's just going to make it more readily available for somebody who's booking a convention into a city to be able to offer some of these accommodations. So I think to your point, you know, being able to list short term rentals on GDS is going to give another option out there, and the travel agencies do speak to an elevated type of traveler, one who's staying longer spending, more buying, you know, higher value accommodation. So it'll be good for the industry to kind of get out into that world and, and Alex and I have talked to quite a few people lately that the travel agents are starting to sort of come back up, and I think they want to be part of it. I mean, we always joke about, you know, we're short term rentals is where all the cool kids are. And the travel agents have kind of been the last ones to enter the cool kids space. So we're happy to have them, I think, and I

Alex Husner  15:52  
think one of the more interesting things that we've heard just recently, owner point, and rentals has done a pretty cool program where they've basically made it so that travel agents or companies, if you want to be able to book, other inventory, they have a white label system, that's all tied into the properties that distribute to rentals. And I guess they're having a lot of luck with that with travel agencies that they want that availability to that inventory, which I thought that was a unique way of driving more business through their whole process there of the rentals group when we look at these OTAs and the ones that just they're not really producing a whole lot. I think that's a an interesting strategy to be able to drive, you know, additional business through those relationships.

Simon Lehmann  16:30  
Yeah, I totally agree. I think one additional piece that is now missing in this conversation is what do we do with corporates? And how can we make that inventory also accessible? I mean, Ulta, Vita is one that has said, Okay, we connecting the str with the corporate world, which I thought was an incredible, great initiative. But it's still underserved, because now you will have the opportunity to do midterm rentals for the former so called digital nomads, and people who are traveling more flexible, and that's happening more and more and more, and that market is still not well enough served. That's for me another additional opportunity that people need to wrap their head around. How can we get engaged even in the leisure industry more with the corporate side of the business and longer states for people who travel and are more flexible in terms of where they stay and how long they stay? That's still an opportunity in our industry of the property management business that is still not well served either next to the travel industry. I totally agree.

Alex Husner  17:31  
Yeah. Well, switching gears Simon, we also want to get your take on what is going on with acquisitions and mergers. I think this has been an interesting year that we talked about it last year on this episode that, you know, we started to hear about companies thinking, okay, maybe this is a good time for me to sell. I've certainly heard a lot more of that this year. And I think on the other side of that there's also a lot of appetite from companies that want to buy, and they're looking for companies that might be in that position. But just curious what you're hearing on your side and also on the technology side of the acquisitions. Yeah, absolutely

Simon Lehmann  18:04  
happy to dive in here. So we differentiate two pieces. One is technology. And the other one is the PMC, the short term rental property management side of the business. In terms of tech, we see a significant ramp up of consolidation within the tech landscape. Everybody out there is familiar with the AGL technology landscape. For under 20. Companies. There's probably only four on the left. In the meantime, yes, we see new startups, yes, we do see new technologies. But I think in the core next to the PMs, the consolidation is going to take place. I mean, you know, touch today was one of the transactions that we did, but we have at the moment, we have over more than 1000 Live deals and half of that is tech and the other half is property management business. So let's talk about tech for a second. I think one thing we will see more and more as the all in one solution. End to End PMS are evolving. I think we see more smaller vertical companies looking for an exit for add ons, guest comms operations, whatever it may be. There's so many tiny verticals, that is now very hard for them to first of all spend the money to get customers. Secondly, complexity for property managers are pretty heavy and have become increasingly more difficult dealing with technology. And so I think the smaller type vertical businesses will be out there and being consolidated by the largest ones. We have seen a lot of acquisitions by guests, for example, acquiring channel managers like rentals united, we've seen post away raising an enormous amount of capital, we seem smaller companies are now looking at being taken over and added to a value proposition of a tech space. So I think that is happening. What does that mean on valuation? I think valuation is still a big challenge, but at the same time, a lot of investors like venture capital are not willing to put additional capital into some of their assets. they'd rather look for exit opportunities, versus putting more money in marketing has become challenging. There's endless conferences out there, there's endless money can be spent and everybody runs after the same customers. That's super hard. So consolidation in tech will continue. But valuations are not massively high and rather compressed. But now it's a buyers market, I would say that clearly on the tech side, on the PMC side, it really depends on geography, destination units, quality of properties, etc, etc. There's a lot of buyers, as a lot of midsize companies are looking to add on more portfolio, it's actually the market is more fluid than what I think that what I expected. And also, they're one of the reasons I see behind that is people see some great clouds on the horizon, it's becoming more tougher that the great years 2122 And probably 23 are over. And now we're seeing the market, more softening, leveling up to the 19 levels. And people sort of think, Hey, I don't want to have another COVID year, so I get rid of it. And this is not driven by valuation. This is simply by Hey, I don't want to go through this again. And now maybe it's a good opportunity to sell. And these people who are acquisitive, smaller, you know, in the past, we always talked about the trips and the cost and all these guys. But now we're talking solid regional players who have made good money who are looking to add on more properties. And the same happens in Europe. It's not the big boys essentially, like Sykes or ways who want to make acquisitions. By the way away. Sykes has made an acquisition in 12 months apart from their forest business that they've acquired. And this really shows that also midsize companies who have been able to increase profitability are looking to make transaction so no matter if the market is on a high or low, the m&a activity is always pretty consistent. So

Annie Holcombe  21:49  
if you were to look towards 2025, what do you think the landscape is going to be for the same topic mergers and acquisitions? Do you think it's going to continue to grow? Do you think it's going to stall out? I mean, there's a lot of speculation out there that, you know, in the US specifically, a lot of it hinges on how our presidential election goes where things end up happening. But what are your thoughts

Simon Lehmann  22:13  
from where I am at right now together with our customers and our bandwidth? We're not even past the next month yet. And 25 is is for us a super long time to think about it

Alex Husner  22:26  
does feel like a long time.

Simon Lehmann  22:29  
election year, I mean, it's interesting to see what's going on with us to say the least. Yeah, I think we have so many unknowns, you know, me being European, and we probably look a little bit different to the lens in how we view the world, with China, with Russia. With everything else that's going out there being a lot closer also clear in Europe, I think we taking a more cautious approach in terms of what's really going to happen if we can continue to have certain political macro economical stability, that I'm not foreseeing significant changes, definitely not massive growth. I think we're going more horizontal right now, overall within our industry, but I think we have some significant events such as the election, but also others over here in relation to war in Israel, and whatever, they can have a significant impact economically, and we need to be ready for those. So without giving an more defined outlook on 25, I think we just need to remain quite flexible and to be close to our businesses to maneuver to any changes that arise. And an m&a is always going to continue to be there, especially in a highly fragmented industry like ours without a doubt. But is it now a seller's market or a buyers mark for 25? I think for me, this is too early to put it

Annie Holcombe  23:51  
in terms of fragmentation and moving pieces and parts. The conference topic is already fragmented. There's a lot going on there. And Alex and I have been very fortunate and been asked to be part of again, she referenced at the scale Italia in the fall. And so we're getting a deeper dive into what it looks like for conferences in Europe versus the US. And obviously you come to the US a lot and you're doing I think you're doing a conference. And I believe you said Australia is what we talked about or you have done it in Australia. So you have a pretty good lens on conferences globally. What do you think the conferences need to be doing to get more engagement because I feel like that's where everybody's lacking is trying to get more people involved, but it's just from a vendor perspective, a supplier perspective, it's gotten so cost prohibitive that we really have to pick and choose what we're doing but we obviously want to support and be part of it all. But you know, where do you think we go to make the industry diverse without being too diluted?

Simon Lehmann  24:50  
Yeah, great question. We could have podcasts simply. If I wouldn't be a married man and father of five I mean, I would pack my bag probably in two weeks and come back at the end of November. Right. So that's how it feels right now. And I think that's a total overkill. So the way we look at it EGL, we're going to new conferences, and we're supporting new conference emerging markets. So this year, I'm going to Columbia, Missouri in I'm going to moderating Bruce spend for two days as an emcee. In Australia, we're doing Mexico, we're doing the first conference in Germany this year in October I'm supporting. So we are looking for new opportunities at AGL. Also to interact into evolving markets and markets who are getting more involved. Because in a while, and don't get that wrong, ladies, while I love to have a drink with you on the bar in, in somewhere in the US, which is fantastic, but that's not really helping you. It's not helping our side, right. And it's not helping the industry. And, and I think we have seen too many the same, same same. And one thing I had to learn in 23, I don't need to suffer from FOMO. If I'm not there that well doesn't go down. But people still go and still think we need to be mindful of what kind of conferences to how to address new players to the industry, you know, we always come back and say, what's the percentage of the membership of vrma in relation to market, it's still tiny, and that is in other markets the same, I can go to scale all day long. Don't get me wrong. I love Jumbo. And I love Damien. But if you know, at the end of the day, I can have a beer with them anytime. But I don't need to go to a conference. You know, what I'm saying is that we're seeing always the same people. And I think that is the challenge here. And that's why we at AGL are very focused on new formats, or new destinations where we enter new markets where we can get a different perspectives. And I think the conferences to be perfectly honest, they don't need to build on the on the same common network all the time, because you go to these conferences, and you always meet the same people wherever you go, that is not driving value to vendors. And I think that's a massive challenge. So I think conference organizers really need to think, How can I address a large piece of the market that is less familiar with the professional STR industry. And that's why we at AGL are really supporting conferences like this in Australia or in, in Colombia, because they're, they're on the move, and they're bringing these communities together. And that's where we want to be. And

Alex Husner  27:24  
I think, you know, the regional conferences, there's a lot to be said about their approach and how they're reaching people that aren't necessarily going to vrma International or some of the bigger conferences. And you know, Andy and I were just on a phone call yesterday, we're going to the northwest chapter of favor and a couple of weeks and gonna be speaking with Rebecca Ballard and giving a market update and kind of like a live podcast interview there. But I've been to that event before. And it's typically, you know, it's like 50 to 75 people, there are people that you don't normally see at the bigger events, and you know, it's free. So it's easy to get people to go into that, on the other hand, also favor in September, that's in Orlando, I just registered for that one, that registration was $123. I mean, you can't beat that. And when I went to that one a few years ago, I think there was probably, you know, a couple 100, maybe a little bit more than that. So those events, I think, you know, have have a lot of opportunity to grow regionally for the people that they're not going to fly their entire team and stay in a hotel and expenses and everything else, but you still have to reach the people, I think that's one of the concerns is, okay, if you say we're going to do an event in a big destination where there's still a lot of people that they don't go to the larger events, you still have to reach those property managers, and you have to get in front of them. And I think that kind of takes a little bit of a grassroots effort of just spreading the word, but I think we're gonna see more of those pop up as time goes on.

Simon Lehmann  28:51  
I totally agree. And that's exactly what I meant. So it's like we need to see the more established events really need to think about, you know, how can we differentiate and make it still attractive for people to come? Because I think to be honest, sponsorship, money is under massive pressure next year. That's if I look at 2025 on a supply side outlook in terms of sponsoring conferences than I trust me with all these conferences that are out there right now. I think also tech companies have understood that there is other ways in spending their marketing spending going to conferences that will bring them more leads than what they expected. So I definitely see foresee that as a as a change in 2025 that marketing spend on conferences going to be reduced by vendors.

Annie Holcombe  29:38  
Yeah, I definitely think that the days of you're going just to be seen are not going to be in people's marketing plans anymore. It's really about you know, what is the ROI for it and some shows are great ROI for, you know, some not so much for others. But when you go as a vendor and you're competing against somebody who is congruent tamarind of technology and they have an entire aisle, it's really hard to compete with that you don't have that kind of presence and you get lost in the crowd. So I definitely think that more regionalized offers will be more appealing to

Alex Husner  30:14  
the suppliers. Well, Simon, it is a pleasure as always to have you on the show again today. And we're excited to see where things go the rest of this year. And of course, we always keep in touch to make sure you've got the pulse on what's going on, not just here, but internationally. And we're very excited to see you in Florence in October. So that'll be a fun event for all of us. But in the meantime, any any closing thoughts or anything you want to leave our audience with? Not at

Simon Lehmann  30:40  
all? I mean, first of all, because Swiss National Day, so we're happy to celebrate. Thank you both Alex and Annie, it's always a great honor and pleasure to be with you. And have this conversation time is always running too fast. I think, you know, my thoughts for the last 18 months have been very consistent. While I was sharing an umbrella on stage in Florida, I still keep that up. I mean, we've seen good years, we will see some more challenging year, the industry is still fascinating, and so much going on. And we still have so much work to do a lot of vacation rental and short term rental. We're devoted to that industry. And I think we still have a lot of work to do. And we still have a lot of opportunities. It's a great space to be in. Just keep your eyes open. Yeah.

Annie Holcombe  31:23  
Thank you so much.

Alex Husner  31:25  
If anyone wants to reach out Simon, what's the best way for them to contact you?

Simon Lehmann  31:28  
Simon dot Lehmann le H ma WNAJL affiliate.com. Or find me on LinkedIn and I'm sure you'll find me.

Alex Husner  31:38  
We'll put that in the show notes. That's a hard one as well. If anybody wants to contact me, you know, you can go to Alex and Annie podcast.com And until next time, thanks for tuning in everybody. Happy Suisse day