Renting vacation homes – Seminar (Part 2)

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Let’s talk a little bit about rental platforms.

In summary, rental platforms are companies who own websites or gates or travel portals made for the purpose to allow travelers to make bookings in homes and hotels online. On the plus side, they make the entire booking process incredibly easy, where anyone can book in a matter of minutes, either for all kinds of accommodation or air / ferry tickets, possibly cars or all of them together. This can take place via computer tablet and mobile phone.

So one side of the platform is this. And it concerns travelers.

The other side is the one that concerns the owners of the accommodation, i.e. the hoteliers and the owners of houses and other properties. Who, after agreeing to a contract with the company that has the platform, can upload the property for publication in order to get reservations. For each reservation, the platform holds a percentage of the sale price. And there are specific rules for canceling a reservation, transferring it to another accommodation, etc. the rules are different depending on the platform.

There are many such remarkable platforms – you can see a list here . There are several different types of such platforms, for example, people usually know the Booking.com platform that actually belong to the category of Online agencies. And it has a significant piece of the pie of the global market of online travel agencies. However, there are other types, such as e.g. wholesale platforms – you can see a list here.   

So all these platforms work tirelessly, 24 hours a day to serve travelers and send reservations to the owners of the accommodation.

There is a less bright side to platforms focusing mainly on three points that can take a lot of discussion and have always been the recipients of analysis and friction. I think the following are views that reflect reality, but they are certainly always the subject of constant discussion:

First: how to charge for a rental service

For example, Airbnb and others are “innovating,” creating a virtual distribution in their commission payment.

Let’s take Airbnb, which increased its total commission from 10% in 2017 to 16% for each booking, from 2018.

It is assumed that the owner pays 3% for each rent, after the tenant, who pays first , 14% commission on rent. The entire platform has been set up in such a way as to support this type of commission sharing fee, i.e. the tenant sees only his own part of the charge, and the owner sees his own.

All of this is a clever accounting trick. In fact, if one is a realist, one understands that there is no commission distribution or sharing of the commission: because let us not forget that 100% of the rent is paid by one, the tenant. One wallet pays: that of the tenant. So the tenant pays: both the part of the commission share of the renter and also the part of the commission that is shared by the owner.

In addition, and most importantly, the owner is not only charged 3% (which is essentially 3% plus VAT ) but in fact, the final nightly price on his property (which he does not know what it is, as it is not visible, he only sees only his gross earnings) is affected by a total of 17% plus. If the owner only pays 3%, then why not reap the rest and sell at a price that is 14% less than what he sells? The amount of the commission part from the side of the renter is therefore very important in the final earnings of the owner. 

Example: if you wanted to withdraw € 100 for each night of renting your property on Airbnb, you will need, in order to get € 100, to raise the price on Airbnb to € 105, where the final price will be around € 120. The tenant pays all 120 € . You only ‘see’ € 105 as gross earnings, and you are deducted 3% plus VAT, which eventually brings it around € 100. So: the tenant pays everything, all of the € 120, and you get € 100. The remaining € 20 is the actual loss you will incur as a loss from Airbnb for its services.      

This virtual 3% + of Airbnb and others was created and adopted because unlike booking platforms , which already had a large global and immovable database of registered accommodation to work with, Airbnb did not have registered accommodation and they had to acquire real estate at a rapid pace. That’s why there is the 3% accounting trick, which worked magically and has made them global players.

Worst of all, many homeowners believe that they only pay a 3% commission, and then when booking.com tells them that they charge anything from 16.4-25%, it seems outrageous to them.

More accurate and fair are the large booking.com platforms that say something different: “put the price you want, and when the customer books, we will get our commission from that price, and the rest is yours.”

This is the fairest and most correct. The market has always worked that way. All the rest are logistical tricks. Of course these are opinions and there are many. Personally, I tend to take this as an opinion.

Second: the ranking of the accommodation in the search results

You will notice that when searching on Booking.com or other platforms using geographical names, such as e.g. ‘London’, or something else, what you see next, is a page with search results, i.e. accommodation where you are asked to choose one of your choice. Usually, search results don’t just fit on one page, and there are other pages, sometimes there are dozens of pages of results and you have to turn the page.

So if you are a homeowner, the most common mistake is for platforms to make you believe that if you rank first on the first page of search results, you will be flooded with bookings. So one of the many pressure points to the owners is to ‘sell’ the ranking as a benefit.

The most recent is the instant booking function.

Because the platforms noticed that they have a much larger number of reservations if the instant boking functionality is active for a property or hotel, they started to force the owners to activate this functionality without affecting the cancellations. The bait here is that the accommodation will go higher in the search results if the instant booking functionality is activated. It is true. Many platform operators have noticed that accommodation with active ‘instant booking’ is benefiting and rising in search results, while the rest are falling. Other platforms ‘sell’ the highest rankings, in exchange for a higher commission. But in reality, ranking in search results doesn’t count as much as they want to make us believe. The dose of truth as to whether or not the accommodation appears high in the search results is limited, and the whole picture is in part, but not entirely, fictitious. Because first of all, at least half of those who are searching, know very well what exactly they are looking for. If I go to booking.com in order to book at the ‘Olympia’ hotel to stay next weekend, the search results will no longer matter. In addition, what benefit do I, the owner of the ‘Rodanthi’ accommodation, have one block away, if I go high in the search results? But the other half who are searching, already have in mind a stable and unchanging image of the accommodation they are looking for. So in case someone has already decided on their vacation and wants to book a villa for eight people for next summer and choose the destination by searching by the geographical name of the area, it doesn’t matter if I come out first and I’m a hotel. And for these very reasons, the platforms may have stressed their efforts in enhancing the specialized search filters, which make it much more accurate to find the desired accommodation by selecting features (such as breakfast, free Wi-Fi , parking, etc.). However this essentially neutralizes the importance of the ranking position in the results, because the results that appear with the exact match filters are much fewer. 



 





Third: the evaluations of the tenants (the reviews) 

The person who came up with the reviews is a pure genius. On the plus side, nowadays they give us a view on ​​the accommodation that didn’t exist 20 years ago, when we used to book hotels knowing only from others, or because of their reputation. It is a fantastic tool, which essentially obliges the owner of the accommodation to be accountable to a global audience at all times, so it is almost impossible to have a hosting business if you do not have a high quality in your services.

On the other hand, the higher the positive ratings, the higher the bookings from that platform, and at some point, the accommodation gets the most bookings and is dependent on the platform where it has the most (positive) ratings. This is not good for those owners who cater for the future of their business: you can’t have a business whose earnings depend solely or to a large extent on a single source. At some point – and as soon as possible – the accommodation should not depend to such an extent on a single source. And basically it should have multiple streams that contribute to bookings, with the minimal number of platforms in the mix.


A little secret

The best solution is to try and book the accommodation yourself, and not so much with platforms, and be as much independent as possible from them. This has many benefits, and here are a few:

First, you get rid of contracts that, if you read them carefully, you will find that the world is made especially for the platforms and no one else, and you will discover that you may be their employee and not knowing it.

Secondly, you will be financially in a better position because now you are not completely in charge of the payments, which are usually deposited to your bank account very late, especially you individuals.

Thirdly, you will be on your own by opening your own path, discovering new opportunities without depending on very competitive places (platforms are such places unfortunately) and you are forced to take actions that you would not otherwise take, e.g. discounts, or higher commission in exchange for better ranking, more flexible cancellations etc.

Fourth you will stop being exposed to changes and improvements that platforms make to improve, all the time, thus constantly changing, which brings you in the uncomfortable position of being in a constant state of learning about how everything works.

Don’t cut off immediately though. Do it gradually, little by little. Take full advantage of the platforms but keep in mind that there is more to it than that, and make sure you drop your weight in moves that will allow you to get only 10-20% of your bookings via platforms. The rest of the bookings will come directly to you, without the mediation of a platform. We’ll talk about that in the last part of the mini-seminar. 

You can contact me directly through the site.  Konstantinos Papachatzis.