AI is rapidly becoming a ubiquitous force across nearly all industries. It is now making its mark in the vacation rental sector, and its potential to enhance and support human activity in this market is increasingly being realised.
The AI Hype: A Double-Edged Sword
Unsurprisingly, however, the consensus is that AI still needs to be more reliable to be left entirely to its own devices. Many companies using dynamic pricing will know the challenge of letting tech rule! However, we are only at the beginning of the growth and insertion of AI into all but the manual labour elements of our business.
Legacy Digital Businesses at a Crossroads
The rise of AI presents a pressing challenge for what will soon be known as legacy digital businesses. Their ability to adapt to the future, incorporating AI across the entire spectrum of their business architecture, will determine their survival in this rapidly evolving landscape.
Why the Vacation Rental Industry Has Lagged Behind
The vacation rental industry has blossomed in this century, worth billions of dollars, with millions of properties and hundreds of thousands of agencies and managers. Millions of staff support it. Yet we only see a few large companies that market properties in volume (Airbnb, Booking, Expedia). Still, unlike in the consumer industry, no global tech players are of any real note. Why is this, and why might it change due to AI?
This industry is one of the oldest; people have stayed in other people’s homes since “time immemorial,” since caveman times. Over the last twenty years, the industry has flourished as travel has accelerated, and the opportunity to monetise underutilised assets has increased, along with the subliminal messaging from the likes of Airbnb that a new world of exploration is only a flight away.
Efficiency Through Competition: The Role of Technology
With competition comes the need for efficiency and technology, primarily delivered through the Internet and e-commerce. Short-term rentals are no exception.
Software is an easy-entry business. Market knowledge certainly helps, and the speed of the industry’s development and opportunity has witnessed a lot of investment across marketplaces, real estate, and technology. Easy entry means sizeable competition; however, in short-term rentals, there is often a misunderstanding or ignorance of its complexities and fragmentation.
AI as the Binding Agent in a Fragmented Market
Technology has become the binding agent of professional rental management, and we have seen an exponential growth of businesses offering their services to hosts and managers alike. With over 600 tech brands now visible and undoubtedly many more, the industry is awash with individual product offerings that cover 20 to 30 categories, such as guest apps, payment solutions, channel management, insurance provision, dynamic pricing, operational management, etc. More appear daily, expecting frictionless growth, investment interest and easy partnerships!
Vacation rentals are complex, highly fragmented, and hyperlocalised, and they have many primary challenges: owners, guests, real estate, staff, marketing, finance, and legislation, all within a now 24/7/365 industry. Technology is supposed to ease many of these challenges, and many do. However, AI has highlighted an underlying issue and will continue challenging small or legacy tech businesses.
The Need to Unravel
The evolution of technology has followed, or instead, has been adapting to, the significant changes in marketing, guest expectations, payments, and processes. First, we had spreadsheets, then databases, and then the need to connect information across platforms via APIs in a non-standardised industry. From a helicopter perspective, this is a spaghetti moment or, in fisherman’s terms, a bird’s nest that is hard to unravel.
Patchwork Systems: The Struggle for Cohesion in a Complex Market
As small tech businesses grew, many inevitably required access to the booking data sourced via OTAs, their client’s websites, and phone/email bookings. Any primary gateway with control in any industry is seen as an opportunity, hence the incredible number of PMS systems that have developed over the last 20 years, some with eye-watering investments. These gateways monetise connections and control the opportunity of hundreds of connected businesses, some more ruthlessly than others.
If we look at the hundreds of non-PMS businesses and their products, they were developed to be connected and work as independent products but reliant on a data feed from source information. They were never designed with an AI management layer across all data or even in the conception of the initial architecture, as AI is so recent for most companies. Many of these companies have bled in AI via ChatGpt into each product. Still, only limited data is available, so the opportunity to use AI as a serious business intelligence across the full management spectrum is minimal.
The Frankenstein Effect: When Technology Isn’t in Sync
It’s probably an unfair analogy, but remember Frankenstein movies (most won’t)? He was not well coordinated, almost like his limbs were working independently; his movements and gait were clumsy, and his understanding of the world was problematic.
Does this sound familiar? This situation has developed with multiple API-connected technologies that were not built to work together seamlessly, and increasing hardware and software developments will continue to cause these disconnects. These systems have been designed to work in isolation except for a data feed. They can work independently, but problems arise when a company needs to act like an orchestra where the collective creates music, and issues occur.
Overcomplicating Simple Tasks: Heath Robinson Meets Modern Tech
Perhaps you have heard of Heath Robinson (1872–1944), a prolific cartoonist and illustrator best known for his humorous drawings of overly elaborate inventions that accomplish simple tasks. He was particularly famous for his WW1 drawings related to warfare. One of the hundreds relating to a business situation is shown below.
Without being unfair to the technology suppliers, who do their utmost to develop tools that provide seamless efficiency, the whole tech stack is underperforming unless the tools are connected by sharing data intelligence.
With the advent of AI, it is becoming even more critical for managers to benefit from their software investments: collate data, allow AI to improve efficiencies, and provide business intelligence that assists company management and improves financial performance.
Single System or Hybrid Tech Stack? The Great Debate
This is now becoming a much-debated topic, especially with cost escalation. Each tech company takes a fee, which is invariably at the expense of the guest or the manager. The higher the fee, the smaller the margin available to run a business, and not all systems are connected to all source software. Resource challenges and commercial headwinds exist when arranging a connection with the necessary source data.
Understandably, technology is there to improve business processes, remove drudgery, and reduce staff dependencies. For example, the industry has demanded increasing skill levels in marketing, social media, pricing, and distribution; it requires extended working hours, well-developed digital skills, adherence to legislation and many other expertise. When a business finds that its tech investment takes time to manage, has faults or requires manual data transfers, the initial purpose is lost or diluted.
The Bloodstream of AI: The Future of Software Architecture
This is not an assessment of microservices versus monoliths, where APIs are the data bloodstream, allowing each service to develop and continue to be best in class. The question is more about how good each internal module on a single system is and how closely it is architected to the whole. This is especially true with AI’s capacity to run through it like a bloodstream, deploying antibodies and hormones, managing oxygen capacity, healing wounds and more. Without data and actionable intelligence, future software systems will be blind. This is how vital a pan-AI system is.
It is also impossible to create a single unified system that can accommodate all functionality as a) new markets and functions are continually being developed, and b) some services, such as insurance or payment solutions, are outside the scope of software companies. Acquisitions can facilitate these options and do occur; however, they are rare and generally in the public company space.
The Case for a Unified Core System in Short-Term Rentals
This discussion relates to a single-system approach with self-developed modules that are individually accessible but connected to a central core, which is invariably a PMS in the short-term rental industry. This represents a 90% internal microservice system from a single company with selective non-industry connections and data services to reinforce AI marketing, distribution, and pricing capacity.
Microservices in a Non-AI World: Still Viable, But Complicated
The microservice option is equally viable in a non-AI environment, except it is fraught with cross-commercial relationship challenges, multi-company support-level needs, and financial administration. Not to mention that each company’s product is increasingly “AI-enhanced,” which means an AI-to-AI interpreter is needed to assimilate an actual business and actionable picture.
Learning from Tech Giants: The Google, Amazon, and Apple Approach
We only need to look at the global consumer product leaders, such as Amazon, Microsoft, or Apple. None started with a range of integrated but owned or self-developed systems. Take Google, which began as a search engine but expanded into a Monolith: Today, Alphabet, Google’s parent company, operates a vast range of interconnected services, including Gmail, Google Drive, Google Maps, Android, YouTube, Google Cloud, and more. These services are closely integrated into one massive ecosystem, making their platform highly monolithic but with independent toolsets. This could be described as a microservice business, but all elements are internally generated. We can already see AI permeating their whole architecture.
AI-Centric Systems: The Future for Scaling Managers
Any manager adopting any technology worries about the expense, the onboarding, the challenges, and the potential pitfalls. They want it to work “out of the box”, have easy onboarding, reduce staff pressures, and help generate more margin. A single-system: AI-enhanced multi-module approach, developed internally, will undoubtedly become the software of choice for scaling managers. It will be AI-centric, learning every aspect of the business as it grows and assisting in its growth. Don’t forget AI can also help change commercial systems and manipulate data, speeding up onboarding, and this is another of the industry’s Achilles heels.
Entrepreneurs: Think outside the management box
Any aspiring entrepreneurs in the software industry looking enviously at the “Airbnb” market will always focus on managers as an easy entry, collective inventory opportunity. Take care, as the pitfalls are legion. For opportunity, look to big data and secondary consumer services that feed the guest pipeline with ancillary opportunities.