STR Pulse: Guesty acquires Rentals United

Holiday Cottage Handbook is delighted to welcome industry expert Richard Vaughton from Yes Consulting as our first columnist. Starting today, Richard will be contributing a bi-monthly column titled ‘STR Pulse’. He will be assessing major industry news and trends – giving his own take on developments and predicting how the sector is likely to evolve. In his first column, Richard assesses Guesty’s acquisition of Rentals United.

By Richard Vaughton

Guesty’s acquisition of Rentals United is concrete proof of the immense potential for growth and consolidation in the STR industry. It heralds a new inflexion point – and depending on where you sit in this ecosystem, it signals exciting times ahead.

Our industry is growing rapidly and affecting everyone: from hosts to property managers, and tech suppliers to government agencies. Subjects including legislation, payment routing, health and safety compliance, tax, reporting, data management, equality, and sustainability are proof of our sector’s development. The STR space is booming—and it is professionalising as much by force as by guest demands.

Why is this acquisition important?

First of all, congratulations to the Rentals United founders – James Burrows, Emil Majkowski, Anette Törsleff, and Vanessa de Souza Lage – and Guesty for putting a deal like this together. Both companies and their leaders are extremely well-known and highly respected in the industry, and it must have been an exciting meeting of minds.

This deal shows STR is no longer a cottage industry. The market is now estimated to reach $200 billion (though this remains a complex number to estimate). At the time of writing, Airbnb’s market cap is $104 billion – so these are some fanciful numbers – but they have fund eyeballs on them.

The Guesty-Rentals United deal is the latest technology-related investment and follows Hostaway, numerous small tech investments and acquisitions, and marketplace IPOs. Airbnb’s growth and IPO undoubtedly accelerated interest in the overall market, as did Expedia's previous acquisition of HomeAway, plus Booking.com’s continued attention to the sector.

The growth of massive commercial behemoths like Meta, Amazon, Microsoft, Apple, and Alphabet shows that significant companies do not happen by accident. Most of their previous competitors are now long forgotten – because it is the nature of fragmented and distributed markets to coalesce, as it provides many benefits but often inhibits small enterprise growth companies. All those huge companies I mentioned were powered by investment.

This is no different in the STR market, and this deal indicates an acceleration of the industry's fusion. We have a surplus of tech suppliers – often hyperlocal with small numbers of customers across many territories. Achieving a significant market share and sustainable growth takes continued investment, consolidation, and a clear strategy across multiple markets. 

Guesty CEO, Amiad Soto.

"We believe in consolidation,” Guesty CEO Amiad Soto told Skift before the announcement. “I think this industry is too fragmented and still needs to be consolidated so we can all make the best products. If you look at more mature industries, you can see that there are more consolidated players and that allows for a much better customer experience, much better customer support, and a much better product eventually to our customers.”

This deal may set the cats running, but it is an obvious direction of travel. It is competitive and distributive, enhances data knowledge on competition and markets, and opens multiple client acquisition channels. It also tells small companies that this industry is professionalising at a technology level. Technology does not stand still; all businesses are in flux and require flexibility and reach, and this deal leans in that direction. Tech evolves, requiring substantial generative income foundations to develop and achieve market penetration.

The Guesty-Rentals United combination sees a greater dynamic reach across the small, medium, and larger management inventory spectrum. It is probably some way off from a proper enterprise solution, but it is undoubtedly in its eye-line. This reach, however, especially as Airbnb hits hard at the bottom of the management spectrum, puts this combination in a great position to support the mid-to-large management market for distribution, PMS, and connected services.

Source of truth – booking data firewalls

Dependence on the “source of truth data” is an industry problem and a risky long-term bet for any tech company needing booking information from OTAs and websites. Those who control this flow and the actual pricing and occupancy data (not scraped) have substantial power. With data scraping from OTAs becoming increasingly complex, source data is even more critical in dynamic pricing and revenue management. On this level alone it must be a red flag to some companies.

The PMS companies are the taps in a desert of booking information. Marketplaces (now there’s an idea) hold sway globally, and the bigger the connectivity partner, the easier it is to manage. There is a natural affinity between large corporations as they evolve and swallow the minnows.

Indeed, there is space for new tech, but this will need access to source-of-truth systems (PMS providers and channel pipelines). It is hard to see these tools – which managers and owners crave to give them an edge – continue as isolated platforms in the future. We are more likely to see a composite full-system approach. However, the danger is that this gatekeeper mentality reduces innovation and increases costs. 

The adage about selling shovels and not panning for gold comes to mind. But no one had excavators in those days, and this is a new world of Internet-facilitated tech businesses. Those still using spades and miners' pans should take note, find serious investment opportunities, or develop IP-protected, in-great-demand products. Are there any out there?

We are not saying any of these companies have perfect products – they don’t – but the direction of travel and the way new management businesses work, which are often very OTA-dependent, using a range of API-connected tools, is accelerating. However, once a tool is proven, it can be emulated and replaced. There are only several core functions that control a STR business: two-way OTA “full” connections, payment solutions, API-powered and templated websites, insurance and waiver upsell, guest and owner communication and reviews, operational management tools, and varying levels of financial management.

Growth by acquisition

We are heading to a smaller cohort of more prominent companies fighting in geographical regions for a share of a growing market. We have also seen a previous roll-up by InhabitIQ, which was possibly premature, lacked global reach, and was based on some legacy systems. Their acquisitions include Streamline, LiveRez, LMPM, SuperControl, Rental Guardian, ResMan, Bluetent, Lynnbrook, and LSI. While the newer hosts and managers often choose new platforms, the older incumbents on legacy software usually do not wish to change – which can put their businesses in a difficult situation, so churn is lower for these businesses.

Guesty is, apparently, losing money, has 750 staff, and has acquired a profitable channel manager, which has seen the writing on the wall as these PMS companies battle for the front line. With over $400m in funding to date, Guesty has grown with some of its acquisitions: Kigo, HiRUM, StaySense, MyVR, Your Porter, and now a bigger bite of the apple with Rentals United. Expect more!

Tech overload

However, there is an issue across the industry: tech overload and cost-prohibitive adoption. STRs are not high-margin businesses (think biomedical products). There are increasing legislative and administrative costs as well as staff and sustainability costs. The use of AI can enjoy some efficiencies. Still, operational management and market forces mean that cost per property for tech use or that percentage of a booking may see keen pricing take market share despite being far from perfect as a PMS and channel.

Regardless of the costs to run such enterprises, the market is not large compared to the consumer or hotel industries. Tools such as G Suite are cheap, and users expect all software to have a comparable price ceiling. Specialist software explanations do not seem to hold much sway! 

Therefore, we can expect competitive marketing based on price and localised integrations, an upswing in other channel manager offerings, and other PMS systems upscaling marketplace integrations plus channel offers to those with self-developed PMSs. We can also expect hotel software businesses to add STR modules and extend their revenue at a low per-property cost.

Technically, the danger zone comes when supporting mid-size and larger managers, who increasingly require more sophisticated and automated systems. The market is accelerating and morphing regarding accommodation styles, hardware use, experiences, upsell opportunities, new marketplaces, and environmental needs. If you add unified AI to compound the issues, there will still be headwinds for large and well-funded tech businesses, regardless of the private investment size. Increased investment will be needed to get across the line, and an IPO is the obvious route for this more recent acquisition, with Guesty perhaps becoming the HubSpot of the PMS space.

Which types of tech companies should be worried? Certainly, those largely dependent on the biggest companies with the largest reach, servicing professional managers, as a source of truth: in which Guesty-Rentals United, Hostaway (funded), the Inhabit Group, Avantio (acquired), Kross (acquired), and others are sitting. 

Examples are dynamic pricing tools, insurance businesses, guest apps, operational software, small PMS companies, and web builders. The sceptical side of this conversation says that charging more for access is on the immediate horizon, and once a product category becomes valuable, acquire or replace it.

The other approach is to create a core PMS model and bolt in hundreds of separate services from third parties. This is the current approach used by most major PMS companies and suits independent developers. This sounds great until you speak to a manager frustrated at talking to 10 different suppliers, especially when there is a problem. Support is also recognised as an Achilles heel in the industry. Add a non-unified AI model; again, we see the complete one-stop-shop solution as more acceptable. 

One thing is for sure: not all tech businesses will survive the next few years. There will be de-risking and acquisitive internal conversations.

Richard Vaughton from Yes Consulting is a Holiday Cottage Handbook Columnist.

Richard founded rental technology business Rentivo, which was recently acquired by Situ. He also recently exited two property management companies with close to 1,000 rentals. Richard currently works as an advisor for a host of businesses in the short-term rentals world, helping them focus on expansion, mergers and acquisitions, and technology efficiencies. 

Now based in the UK, Richard has worked in the Middle East, Italy, and Switzerland during his career, encompassing several industries. He was previously the CEO of a Finnish biotech, service, and diagnostic supply company. 

Contact Richard via email: richard@yes.consulting.