Breaking down the AirBnb management economy. Are these companies actually tech startups?

In late October 2007 two guys living in San Francisco could not afford their apartment so they got an air mattress and rented out their living room. In August 2008 they registered Airbnb and the rest is history.

In the decade that Airbnb has been around it created a lot of opportunities for homeowners with empty rooms, as well as professional landlords by providing them with a platform to find customers to rent out rooms for short stays.

It also helped create a few industries around short term lets including Airbnb Management. Essentially this industry is filled with companies that manage properties on behalf of the owners, most of these are local agencies focusing on local markets, but of course eventually a few tech startups appeared in the market all variations on the same theme:

• Airsorted raised £9M
• Hostmaker raised $29.3M
• Pass the Keys raised £350K
• Guest Ready raised $3.8M

So, the questions I want to focus on today are: Is Airbnb Management companies good business? Are they actually tech startups or just tech enabled companies?

The definition of a technology startup I want to focus on is: a repeatable and scalable business model, that at its core comes down to a technology solution that has the potential to scale exponentially.

Lean Canvas Takedown

Problem

• How can an owner maximise the yield from their property when they are not around to manage it?

This one large problem actually consists of a multitude of smaller problems including tracking all of your listings on airbnb and other platforms; cleaning the apartment between guests, getting keys to quests and 24/7 customer support.

Customer Segments

• Property owners that occasionally travel for long periods of time
• Property owners who have properties to rent out but are time poor — can’t manage the properties themselves
• Family offices and companies that manage property portfolios

The main customer segment is business to consumer (B2C), focusing on people who either own multiple properties or spend enough time not living in their home to justify getting an agency to manage it.

There is also a business to business (B2B) customer segment. This consists of wealth management companies and family offices that manage property portfolios. In many cases the properties under management stand empty most of the year and could potentially let out as temporary AirBnBs. Given that wealth management can be a murky industry and many family offices are hard to come by very few Airbnb Management companies actively target this segment.

Unique Value Proposition (UVP)

The Unique value proposition is that your property is let out more often. This is achieved by a multitude of micro services offered by the Airbnb Management startups.

Solution

• Writing the listing for the apartment
• Making the apartment look welcoming and taking photographs
• Listing the apartment across multiple platforms
• Managing the listings
• Welcoming the guests
• Checking the guests out
• Cleaning after the guests
• 24/7 support of guests
• A dashboard where the owner can track the income of the apartment

Unfair Advantage

As this lean canvas is focusing on an industry rather than a specific company, let’s start with the unfair advantage of the tech powered AirBnB management industry compared to the older non tech solutions.

The new generation of Airbnb management platforms streamlines and offers in house professionals to sort any issue you or your guests might have. They don’t just do the offline stuff, but also the online management of listings and making sure that the property is booked. When compared to older concierge solutions their advantage is that the owner can outsource everything to them.

When different tech powered Airbnb Management platforms are compared to each other it’s very hard to find what differentiates them from one another.

If you are thinking of signing up for the service do consider shopping around as the exact services you receive will vary a bit company to company.

Revenue Streams

• Commission from renting out the property

Each platform makes money by renting out the apartment on behalf of the owner. How much they make depends on what pricing the owner is signed up to. Almost all platforms have two pricing options the flat fee and 12% commission.

The 12% commission is offered by literally everyone and comes with many add on services included in the price. In this case if the flat is not rented out the owner and the Airbnb management company do not get paid.

The flat fee is essentially an agreed upon fee that the property owner will receive no matter how much the property was rented out. For an Airbnb Management company the flat fee is a financial liability for them if they don’t manage to rent out the property. So in many cases they try to discourage clients by offering that pricing tier with fewer services than the 12% commission option.

There are a handful of deviations from this model — Host Maker targets the B2B market and offers custom pricing for its B2B clients, and Guest Ready has a 20% commission premium listing service.

Cost Structure

• Platform development and maintenance
• Sales/account management team
• Online marketing
• Offline marketing
• Cleaning and apartment maintenance
• Office costs

As the business is so heavily focused on the offline world it means it needs more human resources in managing the physical assets and helping clients than a typical tech only business. Let’s face it, an average hotel will have more people on staff than Whatspp did when it was acquired by Facebook (55 employees, valuation 19 billion, 420 million monthly users). With Airbnb management platforms being stuck in the online/offline limbo their staff size is closer to hotel numbers rather than a tech startup.

Also with so many competitors, the AirBnB management sector is essentially a marketing competition, with literally every company promoting their services via google ads as well as offline targeted advertising to property owners in sought after locations, but more on that bellow.

Key Metrics

• # of nights booked
• # of properties managed

Number of nights booked is the metric most directly impacts revenue. Number of properties managed seems to be another key metric as most of the advertising is targeting homeowners.

Channels

• Google ads
• Offline and outdoor ads in areas targeting homeowners
• Referrals

If you google ‘Airbnb management services’ half of Google’s first page is filled with paid ads. A lot of the platforms are aggressively using outdoor advertising in sought after areas (when was the last time you rode a tube/subway without a hostmaker add). Usually the ads target homeowners with messages along the lines of Do you live in Shoreditch? List your flat with us and Jimmy will be able to take those piano lessons.’

Referrals seem to be common as well with Guest Ready offering £400 ($527) per referral.

Final Thoughts

From Jenny

AirBnB management is a good stable business with a lot of overheads but a surprisingly low entry level. Essentially anyone who has access to five airbnb properties can go full time as an Airbnb management service. These businesses are tech enabled but none of them are tech startups, as you do not need the tech part to successfully run the offline operation, a spreadsheet and a word doc will do the trick.

Why is this important?

It means that even if they have a market fit, and even if they have a sales market fit these companies will never reach exponential growth as every new client means that they have to grow their customer support team. You cannot start working or selling in another cities if you don’t have a person on the ground. These companies will always be limited by the offline reality because a technology solution is not at the core of the business. And with so many identical companies popping up it is highly unlikely that anyone of them will corner the market. Essentially the only way of achieving this is to acquire your competition.

Is this important?

Yes it is, we are so quick to call everything a tech startup that we lose track of what is tech enabled and what is actually a technology startup. This said it is also a great example of how an old type of business (managing short term property rentals) can be reignited with a bit of tech.

Also this opens a challenge of can Airbnb management be a technology business? I believe that with the over abundance of Airbnb Management platforms that are all building their in house platform/CRM solutions that are actually the same there is an opportunity for a startup to create a whitelabel platform to sell to airbnb management companies.

From Adrian

One of the biggest challenges with a business like this is its scalability. I have no doubt that airbnb management companies help solve a valuable problem with a clear revenue incentive for their customers. However, because the business mostly relies on providing support for customers using airbnbs, cleaning services, maintenance, repair etc as you grow so does your dependence on scaling these services. This can be challenging when trying to maximise revenue, as cutting corners can result in a bad reputation for your business making your competition more attractive. Not cutting corners however means at some point you will need to find other sources of revenue to keep shareholders happy.