Kigo Blog

What Does The ‘Sharing Economy’ Mean to You?

How This Catch-All Term Could Be Damaging Your Business

It’s a term that gets used a lot these days. Newspapers love it, politicians are discussing it, and as a vacation rental owner some people consider you a part of it. But do you consider yourself as part of the ‘Sharing Economy’? Or is yours just another business that simply sells space to the public at a profit? Could describing all vacation rentals as part of this sharing economy, be not just inaccurate, but damaging to the future development of the industry of dedicated hosts?

Calculating Taxes Up And Down
The problem is that there is still a suspicion that the sharing economy is a fad, unlikely to escape from the ‘small time’ mentality. The businesses themselves have attracted huge investment and valuations, but the people providing the service are doing this on an amateur level. This is still a sense that by using services in the sharing economy you are taking a chance. You are entrusting a service to a person with no formal training, qualifications or requirements. This is not the case with vacation rentals. Professional owners and managers need to be dedicated and professional in order to survive.  Negative implications of being part of the sharing economy stem from the businesses being viewed by some as a cottage industry – less legitimate and regulated than established businesses. There is an implicit suggestion of being ‘small-time’.

 Is the sharing economy part of the problem that vacation rentals are having in the battle to emerge as a permanent business force? Should professional, full-time hosts be distancing themselves from the idea of the sharing economy and focusing on doing more to establish professional hosts as a sector of their own?

 Airbnb is one of the biggest businesses in the sharing economy and an important part of many hosts’ revenue. Whilst many hosts may use Airbnb to host their properties, more full-time vacation rental managers may not consider themselves to be part of the peer-to-peer economy. To many, sharing sites are just a good platform to host their properties and reach their guests. Their business models operate in a more traditional way, and whilst they can be similar, they are not just a newer version of existing sites like Airbnb that people may consider them to be.

 Speaking in a Fortune interview the CEO of HomeAway describes how vacation rentals do not necessarily fit into the sharing economy.

 To hear Sharples explain it, HomeAway [couldn’t be more different from sharing economy businesses]. His company caters to people wealthy enough to own a second home. The other guys are catering to scrappers who are so hard up they offer a room in their home to strangers.

HomeAway are also backing this up with a $100 million marketing budget that aims to define the difference between apartments that are part of the sharing economy and the exact service that HomeAway provide. And this is not a small site, HomeAway is a giant in the industry and it still feels the need to be even clearer about how their business operates.

But as well as having certain negative connotations, such as being unregulated and inconsistent, being considered part of this movement does have some advantages. There’s plenty of information about how the sharing economy benefits the people nearest the bottom of the economy and has less of an impact on the environment than traditional holiday accommodation. There is a sense that the sharing economy is the opposite of corporate big business and are more ethical in the way that they do business and how their business distributes money around the community.The paper titled: The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry explains further:

Clearly, there exist beneficial transactions enabled through the sharing economy… that provide positive utility, have no negative externalities, and thus manifest themselves as a net gain in social welfare.

Airbnb have also commissioned reports into their economic impact in nine cities and it is almost impossible to overstate the positive effect they have had on bringing vacation rentals into the public eye. They are one of the true success stories of the sharing economy and a vital portal for many full time vacation rental businesses, but is covering all vacation rentals with this term damaging the public image of some businesses that do not fit in it? As we have seen from HomeAway’s PR and new marketing campaign there are businesses that are separating themselves from the idea of the sharing economy.

And whilst there may be signs of division growing, all of this is good news. As the industry expands, businesses are now defining themselves in clear ways and not all of them fit in the popular example of the sharing economy. This is a sign that vacation rentals are becoming established as a permanent force, as different branches and brands separate from each other and are still strong enough to survive. Vacation rentals do not have to operate in the same way and businesses are starting to separate themselves from images that don’t describe them correctly.

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Part 2: Is Reviewing Your Guests a Recipe For Disaster?

This is part 2 of this post, click here to read part 1!
If we look at the criteria or established and successful guides to hotels and restaurants such as Zagats or the Michelin board, they are uniform and measurable. The rating scale for Zagat is made up of 30 points and hundreds of reviews are used to create an average score that also comes with carefully curated and edited, insightful comments. The Michelin guide is the zenith of reviews and its system has an unparalleled focus on quality over quantity. A New Yorker article sheds some light on their clandestine process:

 Michelin has gone to extraordinary lengths to maintain the anonymity of its inspectors. Many of the company’s top executives have never met an inspector; inspectors themselves are advised not to disclose their line of work, even to their parents (who might be tempted to boast about it); and, in all the years that it has been putting out the guide, Michelin has refused to allow its inspectors to speak to journalists. The inspectors write reports that are distilled, in annual “stars meetings” at the guide’s various national offices, into the ranking of three stars, two stars, or one star—or no stars. (Establishments that Michelin deems unworthy of a visit are not included in the guide)

As mentioned earlier, 70% of us trust Internet reviews, but when you understand the process of how the most trusted reviewing industry go about creating their reviews it seems untoward that every single guest has that much control over your reputation. Could the vacation rental industry benefit from the type of review analysis that these guides undertake before publishing?

 The other problem is that a 100% review rate means that the focal point shifts to pleasing everybody, as opposed to creating a product or service that is the best you can make it, but may not be to everyone’s taste. A blander, more universal palatable experience eventually emerges.Leading to the acceptance of everyone, but to the delight of nobody.

Is an abundance of reviews causing hotels or holiday accommodation to establish a culture of mediocrity that is rewarded by top reviews? This is not just a hark back to the ‘good old days’, there are real and measurable negative effects of implementing a two-way review system. A recent white paper called A First Look at Online Reputation on Airbnb, Where Every Stay is Above Average has elucidated the impact of a two-way reviewing system. One of the first points they mention is that,

Nearly 95% of Airbnb properties boast an average user-generated rating of either 4.5 or 5 stars (the maximum); virtually none have less than a 3.5 star rating. We contrast this with the ratings of approximately half a million hotels worldwide that we collected on TripAdvisor, where there is a much lower average rating of 3.8 stars

 The system of 2-way reviewing means that people are more disposed to reviewing favorably because all reviewers are subject to the same scrutiny. Reviews are also subject to more factors that distort the truth of them. There are 4 factors outlined in the review that demonstrate how online reviews can be altered by the nature of how the information is collected.
  • Herding behavior, whereby prior ratings subtly bias the evaluations of subsequent reviewers
  • Under-reporting of negative reviews, where reviewers fear retaliatory negative reviews on platforms that allow and encourage two-sided reviewing
  • Self-selection, where consumers who are a priori more likely to be satisfied with a product are also more likely to purchase and review it
  • Strategic manipulation of reviews, typically undertaken by firms who seek to artificially inflate their online reputations
  Despite these concerns, over 70% of consumers report that they trust online reviews.

 So, not only does a reciprocal review system skew the results, even the traditional mode of reviewing vacation rentals provides results that cannot be entirely trusted. We have created a system whereby reviews are unevenly weighted towards the positive. We encourage every guest to review but have not set uniform parameters for what exactly these reviews mean.

 Having face to face interactions, such as guests and hosts meeting, leaves us disposed to leave a positive review. Airbnb are implementing natural language processing software in order to filter out the true meaning from these ‘rose-tinted’ reviews. What this shows us is that not only are there issues with the way we are currently reviewing properties, but that a major site such as Airbnb consider it serious enough to be trying to tackle it.

 Would a system of 2-way reviews give you confidence in who you are renting to, or would make each party overly suspicious of anyone that falls under 4 or 5 stars for whatever reason? Surely any manager would like to know if a potential guest has been violent at a property before or caused damage? Increasing the safety would certainly be a positive effect, but would it not just constrain guest and host into a false bonhomie? Rictus grins never slipping, until it leads to a pleasantness attrition where both sides have the same capabilities to destroy each other via review rather than mentioning any issues either party may have at the time?

 It is the erosion of the human connection that causes concern, and even if this connection is based on dissatisfaction. It allows you to avoid confronting what you consider to be unacceptable, safe in the knowledge that you can exert your power on the situation via review, anonymous and protected. This removes the impetus to change.

 So, is it better that to operate in an industry that could be safer, but is more saccharine and sickly? Where niceties are forced out under the threat of a bad review? Or to operate where there is more chance, more variation? Where you don’t know what to expect from your guests but then there is mystery, discovery and what you experience is real? This is not to say that having a large number of reviews will not help your bookings and help your SEO rankings. You do still need numerous reviews. This is simply a comment on the effect that reviews could have on the industry and the possible problems of implementing a widespread two-way review system.

 Would it bother you if the impetus to forge a civil relationship is based on the fear of a negative review or do think that the derivation and motivation is not a concern when the result is a safer, more accountable and trustworthy industry?

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90 Days and 90 Nights

Vacation Rentals Limited to a Quarter of the Year by Regulation

In Tuesday’s blog, we discussed how London is set to approve short-term rentals, and how hotels were attempting to block this. Today, we’re talking about just what the new law means for owners of vacation rental properties in London. London is to join San Francisco in permitting short-term vacation rentals, but for only 90 days out of the year. Ostensibly, the vacation rental industry just received a big boost. The industry has just been legalised and been given defined regulation. The question is, what will this mean for hosts in the city and what do you do with the other 275 days of the year?

Full-time hosts will be forced to rent their properties to more long term guests like students or business travellers for the rest of the year. Managers will have to choose the time of year when they want to use their properties for their vacation rental businesses. For many owners, 90 days, a quarter of the year is not enough.

It is important to consider that while this regulation has effectively only just legalised short term rentals, the industry was booming before this period. When it was basically illegal the industry still managed to thrive. Is this regulation a way to actually curtail short term rentals? The limits before were poorly defined and people used this to their advantage. The enforcement was sporadic and ineffective. Have governments realised that this might actually be a way to reduce short-term rentals in a real way?

 If you go from renting your property out for the entire year, to be forced to limit this to 90 days, it means that property owners will aim to get more revenue from these 90 days. This means that the high season could become ultra-expensive, with every professional host saving their quota of 90 days for the summer and public holidays. This, combined with part-time hosts renting out their properties whilst they are away over the summer means that there could be dramatic peaks and troughs in pricing of accommodation.

This means that one of the most attractive features of vacation rentals for guests, the low price, is likely to rise as every host has to capitalise on their 90 days of potential revenue. The gap in price between hotels and vacation rentals will be narrowed and the services and trusted brands of hotels mean they will be able to reclaim some guests. As mentioned in our previous blog post, opposition from the hotel industry has cited concerns over standards of safety and cleanliness and the impact of tourism on local residents as well as concern for their customer base.

So, how about a two-tier system? One that allows people to utilise their properties when they are not in them and another that recognises professional hosts. This second tier for professional owners would be more regulated, requiring licences and inspections to ensure quality and measured amounts of hosts in each area with licences being rescinded for violations. Could having well dispersed hosts that meet standards of quality, safety and social responsibility be a way to leaven the problem? Are professional host not going to be more invested in ensuring standards of safety and quality? If you had a set number of ‘host licenses’ in areas you could effectively regulate the industry and standardise quality whilst still allowing the population of the city to utilise their empty properties for the planned 90 days.

By allowing unregulated short-term rentals for 90 days, the London council is tacitly saying that short term rentals by homeowners do not compromise the ‘residential integrity’ of local areas. What it doesn’t limit is the amount permitted in one area, or the times when the properties can be rented. With the upcoming regulation, there is nothing to stop low-quality or unsafe rentals operating in a cluster, either close to residential areas or in established hotel territory. As well as being grouped together in terms of proximity, the 90 day regulation means that these properties are likely to be operating in a concentrated area and during a concentrated time period. This is being coupled with plans to continue adding 2000 extra hotel rooms to the current total every year until 2026.  Is this not a recipe to create effective tourist ‘ghettos’ the centres of cities like London during the most popular months?

These professional hosts are not the destructive force that they can be painted as. To use an example of San Francisco, having a similar regulation, the majority of hosts are renting out their only property. Professional hosts make up only a small part of the demographic.

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Actively promoting hotel growth and ignoring the population of full time hosts is not a complete solution. This 90 day regulation is unlikely to be the last amendment to London’s and other city’s rental regulations that we see.

 Would this regulation put you off expanding your business into these cities? Photo Credit 

How Hotels are Fighting A Losing Battle in London

London is one of the world’s most popular destinations and home to numerous vacation rental properties. In 2013, it welcomed 16.8 million visitors from overseas. London is a powerhouse. It sets global precedents in economics and law. The trends in tourism that it sets have huge ramifications both within the city itself and abroad. It has now been the latest city to begin to firmly define its regulations for people offering short term rentals. Previously, anybody renting a property without planning permission was subject to a penalty of up to £20,000 for each violation. Now hosts are now set to be able to rent out their properties, without regulation, for up to 90 days of the year.

But not everybody is happy. In response to legislation regarding the regulation of short term rentals in London we read a quote from a member of the hotel industry, a manager of a 416 room London hotel who is lobbying to block this regulation:

Our concerns are more about the health and safety of the ‘hosts’ as much as the neighbourhoods that these private lets will occur in. As well as unfair advantages that these new ‘entrepreneurs’ have with no business taxes or employment legislation being needed by this new market.

Hotels are a comparable, but different, industry. They offer different services but compete for many of the same guests. They are worried that this regulation will lead to more and more people deciding to start offering short term rentals in the city that will eat into their customer base. They want this blocked, and the existing laws enforced more effectively. It may be cynical to say, but it is hard to imagine that safety is their primary concern. Another quote from the BHA (British Hospitality Association) shows another of their apparent interests:

Ufi Ibrahim, chief executive of the BHA, said that the reputation of Britain as a safe and reliable international hospitality and tourism was heavily compromised by the Clause 33 being passed.

Professional vacation rentals know that their businesses can only enhance the reputation of the hospitality and safety in their area. It has long been a tenant of vacation rentals to provide a more personal, more hospitable service that people have come to expect from holiday accommodation. Another quote from the BHA suggests that they are blocking the regulation in order to ‘retain the residential integrity of local London communities’. It is interesting when short term rentals, mostly owned by local people supplementing their income are considered damaging to ‘residential integrity’ but a 416-bedroom Lancaster London hotel is not.

The response of the hotel industry demonstrates that there is still a certain mistrust and a sense that the two industries cannot work together. But it has not yet been mentioned that the hotel industry dwarves vacation rentals. The global hotel market turned over $480 bn, short term rentals have only just topped $1bn. In London, 72% of rentals are outside the major hotel areas. As a contest, it is not a fair fight. The lobbying from hotel industry smacks of clutching at straws, when they should be looking to see how the two industries can both operate in a city like London, rather than trying to legislate the other out of existence. Even if they managed to block this regulation  there are already 23000 London short term rentals listed. The previous law was not being enforced across the city. Owners were protected by a cloud of confusion and able to rent out their property without too much concern about the ramifications.

The conclusion is that hotels and vacation rentals are going to need to be able to operate in the same city. Vacation rentals are growing rapidly, but they still do not come close to the revenue of the hotel industry, either in London or globally. The statistics show that there is still room for both.Some of Kigo’s portal partners have managed to devise ways to work together by collaborating with local hotels to offer the hotel services to their guests. This is one way that these two industries can work alongside one and other.

As well as the hotel industry, this news in London could be bad news for professional hosts that currently rent their property out all year round.For hosts that rent out their main property for just a few weeks a year, this regulation is perfect. It gives them protection from the law and allows them to continue earning money from their property when it is not in use. But for vacation rental businesses in the area, their potential revenue was just quartered.

In Thursday’s blog, we will be discussing what the impact of this 90-day regulation will be for full-time hosts.

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Is Reviewing Your Guests a Recipe For Disaster?

Would you welcome a system to rate the guests that stay in your property?

 There is a sense that property owners are held hostage by reviews, that any requests from their guests have to be accommodated else they should suffer a poor review. And in the Internet age, 5 stars is the basic score and anything less than that is disaster. But now guests, passengers, and consumers are being reviewed by the providers of the services. The playing field has been leveled.

But if everyone has the power to review everything, will the experience of travel just aim to as acceptable as possible, to as many people as possible? Until we are left with a homogenized experience, that everyone thinks is good but not great? Hosts being unwilling to experiment with services and features in case they are untested and turn out to be unpopular, or guests reticent to voice dissatisfaction in case they are branded as ‘troublesome’? Are we not better off being left with a chance, a sense of excitement that what we are about to experience could be the greatest to some, but equally the worst for others?

Are Reviews Just Forcing Us to Pretend to be nice?

There are currently two problems with the current process of online reviews. The abundance and ubiquity of reviews mean that we forcing ourselves to manufacture opinions on experiences that do not necessarily warrant them. Because of this, we are conditioned to be more polemic when describing them.The expectation of social sharing also means that we lean toward the extreme when describing our experiences that are distributed on social media. Reviews are becoming a less accurate way to gauge the quality of a vacation rental.

 We have the option to record our opinions on everything we do, buy or witness.Every experience is reflected upon and analyzed. Every moment is canonized and rushed through into an undercooked version of nostalgia. If each of our movements are recorded and stored for ludicrous posterity and reference how will we separate the experiences that are truly worthy of review and reflection? Nothing takes up space anymore. We no longer have to assess the worthiness of what we should keep. Where our dads would trudge boxes of old almanacs up to the loft, we compress and zip files and store them in a dusty corner of a hard drive. We don’t have to weigh up the cost of Amazonian rainforest to print reviews of taxi customers or hotel guests. We can do it, so we do.

Technological advancement has progressed faster than we had chance to assess whether it truly benefits us. Reviews are one such area. Is this just part of a collective narcissism that the minutiae of our daily lives somehow requires review and distribution? Is it even beneficial to know the opinions of every guest that has been before you?
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Ubiquitous reviews mean that 5 stars is the standard and you are expected to have a reputation from the outset. We already have the problem of a J-shaped graph when it comes to online reviews, where people are more geared to rating in the extreme, i.e one or 5 stars. There is a sense that if there was no cause to complain about with your stay then it is worthy of a 5-star review. And if we encounter a property or level of service that is truly worthy of a 5 star rating, we are left unable to express this. We have used up all of our superlatives too quickly. If just being acceptable is cause for a top rating, what is the point of having the system?

 Reviewing a property as 5-stars means that as a consumer, you chose well. You picked a property that was the best you could have hoped for. There is an odd satisfaction in having your choices justified, like the satisfaction of ordering a better dinner than your friends at a restaurant. Conversely, rating something as 1-star removes the burden of having to provide justification for your choice. If the property was 1-star, no-one could have enjoyed their stay there. If you didn’t enjoy yourself in a European cultural hub it suggests something about your capacity for fun or relaxation. To shift some of this responsibility onto a restaurant or your accommodation deflects this.

These experiences are then hot-housed under the lights of social sharing, quickly becoming a synthetic and artificial version of nostalgia and reverence. Remember that holiday we had? Yes, it was a week ago, I have barely had enough time to forget it. Should reviews and reflection be reserved for experiences that demand a response? Nothing is guessed at, we depend on experiences that come with a sort of guarantee of enjoyment, and travel is an area where this cannot ever be truly guaranteed. If our own experience does not match the apparent level of enjoyment in the reviews we read, are we likely to feel somehow short-changed?

This is the end of part 1, join us next Friday to read about how online reviews are set to change!

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