This article first appeared in the June 2014 issue of the Venture Atlanta Newsletter.
As travelers prepare to trade in their office cubes for golf clubs and deck chairs, the travel and tourism industry is no doubt gearing up for yet another busy season. Last year, domestic and international travelers spent a staggering $621 billion on leisure travel in this country alone according to the U.S. Travel Association.
Perhaps no industry has benefited more from this demand for travel services than the lodging industry. According to the Bureau of Economic Analysis, real spending on traveler accommodations accelerated by 14.5 percent in the fourth quarter of 2013, making it one of the leading contributors of increased travel and tourism spending overall.
“The thing is that travel is outpacing GDP growth by 3-4x because if you think about it, as Africa, South America, Asia all get richer, they’re traveling more,” says Andrew McConnell, founder of VacationFutures. “And when they’re not staying at home, they’re paying dollars to stay somewhere else.”
As the success of vacation rental booking sites like Airbnb, VRBO and HomeAway have shown, “somewhere else” isn’t always a hotel room. An emerging competitor in the traditional lodging industry is that of vacation rentals, in which guests can rent out fully furnished houses or condos, many of which offer more room and better privacy than traditional hotel rooms.
“Let’s stop thinking about it as ‘vacation rental’ and ‘hotel;’ now, it’s ‘lodging,’” says Andrew Bate, founder of SafelyStay. “We’re unlocking this inventory that previously has been available but in a very difficult way; and it becomes instantly bookable and about as safe as a hotel,” he said. “And now all the big travel players are getting excited about that.”
Ecosystem Yet to Emerge
As home to the world’s busiest airport, one might expect Atlanta to be a hotspot for travel-related startups, but despite the advantages that spurred growth in other industries, it appears that a true travel startup ecosystem has yet to take root here.
“Pretty much in the travel space you have to almost be global; some maybe not entirely, but there is a global component,” says Andrew Bate, founder and CEO of SafelyStay. “The thing that surprises me about Atlanta though is that we should be the hub for travel startups and I have not seen a whole lot here at all.”
SafelyStay, which originally launched as a travel marketplace under a different name, says guest acquisition is a major barrier for anyone launching a customer-facing business in the travel space. Despite its size, the travel industry tends to be very consolidated, with a majority of bookings happening on one of only a handful of sites. Bate estimates that the largest booking sites account for approximately five percent of Google’s total advertising revenue.
“And that’s a big reason we switched to B2B, because we know we can’t outspend them,” he said. “It’s $30 billion just to build a travel brand, and that’s challenging.”
Bate also says that the travel industry is one where having some degree of insider knowledge ahead of time can be useful, noting that being a consumer of travel doesn’t always translate well to being able to successfully build a travel startup.
“One interesting thing about travel is that the whole distribution system and reservation economics and guest acquisition is actually a lot more complicated than people see, so it really does help to be in the travel industry for a few years at least to just understand how that all works,” he explained.
Vacation Rentals on the Rise
Andrew McConnell, founder and CEO of VacationFutures, has been able to take advantage of the shifting interest in vacation rentals. While noting the success of consumer-facing rental marketplaces like Airbnb, HomeAway and others, McConnell saw that there were few services catering to the interests of homeowners and property managers nationally and least of all in Atlanta. VacationFutures, a B2B marketplace for wholesale transactions between property managers and homeowners, attempts to bridge that gap.
“We looked at that and thought, ‘well this is interesting: everyone’s trying to do the same thing,’” he said. “But what about the people who own those homes? What do they actually want here? Because 20 years ago there was only one option available to them if they wanted to rent out their home, and that was to work with a local property management company.”
That has changed in recent years as demand for hotel alternatives has increased. Vacation rentals not only offer more space, but also a better experience, McConnell says. And with auxiliary services like Zifty, Lyft and Uber becoming mainstream, the advantages to staying at a hotel just aren’t as apparent when you could just as easily get a different kind of experience for approximately the same price.
The future of vacation rental could be very similar to the hotel landscape that exists today as guests begin to see a higher degree of professionalism from homeowners, platforms and property managers.
“Now, instead of millions and millions of boarding homes, you have 10 big global brands and a few boutiques in each local market,” he said. “And I think that’s what you’re going to see in vacation rentals: the growth of national and global brands in that space.”
Consolidated, But Not Shut Out
On a national scale, the dominance of large consumer-facing sites may make it difficult for new players to enter the market, but niche sites can exist and even thrive. Peter Askew, of DudeRanch.com and Guestbook Archive, says he has had no trouble with guest acquisition and balancing supply and demand for his adventure travel marketplace. Rather, it’s all about site traffic, SEO optimization and great customer service.
DudeRanch.com, which serves a very specific niche of travelers – those interested in visiting dude or guest ranches – was founded less out of passion for adventure travel and more out of opportunity. Askew, whose background is in SEO, paid search and analytics, also happened to be in the business of buying and selling domain names at the time and saw a chance to work on a fun side-project.
“And so this domain popped up and I thought that this would be a blast to do,” he said. “And being here in Atlanta, I’ve got nonstop flights everywhere, so I could be at a ranch in three or four hours.”
Askew credits the airport as a major advantage to running his site out of Atlanta, as opposed to further west where one might expect to find a majority of America’s dude ranches. Interestingly, Askew says that there is a larger than expected demand for East Coast travelers, who are seen as attractive prospects due to the exotic nature of the dude ranch experience. And, he adds, for those who can’t or don’t want to travel far, there are plenty of ranches throughout the Southeast as well.
Askew shares Bate’s perspective on the lack of a full travel ecosystem here in Atlanta, but suggested that the reason could just be that it is an industry with limited room for growth.
“Atlanta is really becoming known for healthcare, advertising management platforms, advertising agencies and security,” he said. “I’m surprised there aren’t more travel companies, but there are really only so many interesting travel niches you can get into other than advertising products that you build.”
