The Disruption and Product Life Cycle of the Vacation Rental Management Market in Sunriver, : A Microcosm into the Changing Industry

by Harley Coldiron

A THESIS

submitted to

Oregon State University

Honors College

in partial fulfillment of the requirements for the degree of

Honors Baccalaureate of Science in Hospitality Management Honors Associate

Presented June 4th, 2020 Commencement June, 2020

AN ABSTRACT OF THE THESIS OF

Harley Coldiron for the degree of Honors Baccalaureate of Science in Hospitality Management presented on June 4, 2020. Title: The Disruption and Product Life Cycle of the Vacation Rental

Management Industry in Sunriver, Oregon: A Microcosm into the Changing Industry"

Todd Montgomery

This research project dives deep into the life cycle and multiple disruptions of the vacation rental management industry as whole, and specifically in Sunriver, Oregon. It uses primary research through interviews of dozens of professionals in the industry along with secondary research to outline the markets life cycle and disruption. It examines not only the life cycle but the various effects the different phases have on the industry. It closely looks at the disruption of the industry in its growth phase and how this caused an emergence of competitors that are now centralizing the market in its maturity phase. Close inspection into Sunriver, Oregon’s maturity phase shows that the majority of companies being bought out and going out of business are small, family-owned companies. Though this is unfortunate by looking at a regular industry’s lifecycle, these companies are usually the first to be consolidated during its maturity phase.

Key Words: Disruption, lifecycle, consolidation, competitors, technology, automation.

Corresponding email address: [email protected]

© Copyright Harley Coldiron June 4th, 2020

The Disruption and Product Life Cycle of the Vacation Rental Management Market in Sunriver, Oregon: A Microcosm into the Changing Industry

by Harley Coldiron

A THESIS

submitted to

Oregon State University

Honors College

in partial fulfillment of the requirements for the degree of

Honors Baccalaureate of Science in Hospitality Management Honors Associate

Presented June 4th, 2020 Commencement June, 2020

Honors Baccalaureate of Science in Hospitality Management Honors Associate a project of Harley Coldiron presented on June 4th, 2020

APPROVED:

______Todd Montgomery, Mentor, representing the College of Business-Hospitality and Business

______Pat Ball, Committee Member, representing College of Science-Microbiology and Oregon State Cascades Honors College

______Griffin Priebe, Committee Member, representing Property Management

______Toni Doolen, Dean, Oregon State University Honors College

I understand that my project will become part of the permanent collection of Oregon State University, Honors College. My signature below authorizes release of my project to any reader upon request.

______Harley Coldiron, Author

Acknowledgements

I would like to first thank Todd Montgomery, my mentor for guiding me through this process and providing countless support and feedback. Todd was with me from the beginning and always took time out of his busy schedule to assist me with anything I needed. He is a true professional, an excellent teacher and mentor, and an overall great man.

Secondly, I would like to thank the many professionals that gave up their time to allow me to interview them for this project. They always allowed me to bug them for any information or guidance that I needed and provided me with countless tools and resources to research my thesis Their time, perspective, and experience are what made this thesis possible. This includes David Madden, Griffin Priebe, and Rob Bennington.

Lastly, I would like to thank Pat Ball the Honors College liaison for the Oregon State Cascades Campus. He is the true embodiment of Bendite, and Cascades community, and the perfect man to head the Honors College here at Cascades.

Table of Contents

Definitions...... 1

Introduction...... 2

Background and the Introduction Phase...... 3

The Industry as a Whole...... 3

Sunriver, Oregon...... 5

Cause of Disruption and the Beginning of the Growth Phase...... 6

The Industry as a Whole...... 6

Sunriver, Oregon...... 8

The Effect of Disruption- The Growth Phase...... 8

The Industry as a Whole...... 8

The Arrival of Vacation Rental Software...... 8

Emergence of Acquisition, Technology-Based Vacation Rental Companies...... 9

Closer Look at the Disruptors...... 10

Table 1...... 11

Sunriver, Oregon...... 13

Table 2...... 14

Table 3...... 17

Beginning of the Maturity Phase- Consolidation of the Market...... 18

The Industry as a Whole...... 18

Sunriver, Oregon...... 19

Companies Adapting to Competition and Surviving the Maturity Phase...... 21

The Future of the Industry...... 23

Overview of the Product Life Cycle...... 25

Graph 1...... 25

Table 4...... 26

Table 5...... 26

Recommendations and Takeaways...... 27

Conclusion...... 28

Work Cited...... 30

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE

Definitions

Vacation Property Management Company:

A vacation property management company in this research essay is defined as a company in which the owners of a second home, allow the company to promote and sell their home as a vacation rental during the periods they are not there. The company is responsible for cleaning the home before and after, fixing and maintaining anything affected by the renters, advertising the home, and managing the booking and guest. The company takes a percentage of the money received from customers booking the home. The owners also receive a percentage of the bookings as they have allowed the company to use their property for bookings.

Disruptor:

A disruptor in this research essay is defined as any company that enters the vacation rental management market that has core foundational difference from the businesses already in the market.

These companies change the industry because of their differences and entered the market because of they saw them as an advantages in the industry. Specifically, the differentiation is that they have advanced and new technology and software that allows them to cut overhead, automate processes, appeal to more consumers, and manage their prices. Their owners, founders, or executives have backgrounds in these fields as opposed to traditional technology fields. The last biggest attribute of a disruptor is that they look to expand to any geographic location that they can. They are able to do this through their technology that allows for them to manage properties from anywhere and not needing a physical location in that region.

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VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE

Introduction

In this research project and case study we look at the entirety of the vacation rental management market and then dive deep into a specific geographic area, Sunriver Oregon, to find the similarities and differences of the changing industry. It also helps give a closer look at the life cycle and disruption effects that cannot be seen on a larger scale. This research looks comprehensively at the industry through its disruptions, product life cycle, and the effects they respectively have had. The industry has vastly changed and been disrupted. The first time was due to the start of the internet in the early 1990s which led to the ability to market and find vacation homes. It was more greatly disrupted and impacted by the founding of Air Bnb in 2008. Air Bnb was a Silicon Valley, a technology company that put the vacation management industry into the spotlight for software and technology companies and employees. Hundreds of new companies sprouted up, using their advanced software and technology to make processes more efficient, automated, and close service gaps. Their success rooted in technology combined with millions in Silicon Valley investors allowed for rapid expansion, buyouts of small companies, and consolidation of the market. This is where a huge change in the industry happens as it has moved from small and local, family-owned businesses to large technology- based corporations. The effects, though vast and unfortunate for small family owned companies, are not unusual for the natural product life cycle. This project looks at how the disruptions play into a normal product lifecycle and what possibly is next in store for the industry.

This research project will talk about the disruptions and product lifecycle phases of the industry as a whole, followed by the same analysis for specifically Sunriver, Oregon. The idea is to see specifically how these disruptions and lifecycle affect an individual area, rather than just as a whole.

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The Industry as a Whole: Background and the Introduction Phase

The first recorded vacation rental was a Hunting Lodge called Palais de Versailles built by

Louis the XIII in 1624 (Lacaille, 2012). Throughout the 1600 and 1700s it became increasingly popular for wealthy citizens to build vacation homes that they would then rent to wealthy friends, politicians, and religious authorities. These respective people would contact the owners of these vacation rentals through “snail mail” and would often have to wait weeks to hear a response back on if they could rent their home. During the 1800s rich families in Europe and the built large vacation homes in which they would split the time each member could spend in them every year, also known as a timeshare. It should be noted that this term was not coined until the 1960’s in Switzerland by Alexander Nette and his partner Dr. Guido Renggli and in France by Paul Doumier, who owned a development company (Timeshare Consumer Association, 2014) (Schreier, 2005). There is some debate about who invented the term and official idea first (Schreier, 2005). Nevertheless, having a vacation home that was shared periodically by family members and friends became popular in the

1800s which can be attributed to the invention of the telegram in 1837, which made it easier for family and friends to communicate. The popularity of newspapers in the 1950’s brought an increase in homeowners and companies advertising their vacation rentals (Key Café Team, 2019).

The period of 1950 to mid-1980’s, the vacation rental industry was becoming increasingly popular, especially with timeshares. People had larger disposable incomes due to economic growth and manufacturing which led to more people traveling. Also, timeshare homes were sprouting all across

Florida, Hawaii, and - primarily in the Lake Tahoe area (Canadian Vacation Ownership

Association, 2017) (Timeshare Consumer Association, 2018). There is a lot of information and statistics on timeshares during this time because the industry as a whole was not professionalized and thus information on the market size, revenue, and other statistics is impossible to verify. This is seen as the introduction phase of the industry’s product life cycle. While the industry was growing it was still

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VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE very much in its introduction phase with low sales and very few competitors. It was mostly dominated by one or two local, family-owned companies, that faced a thin profit margin.

In 1985, the Vacation Rental Market Association was created and several years later came the first disruption and game-changer for the industry, the internet. Companies like Expedia,

Booking.com, and VRBO sprouted up using the internet to market, expand, and improve. These companies utilized the accessibility of the internet to make it easier for consumers to find hotels and vacation homes to book. They were immensely popular because of their easy booking capability and their ability to market to all different consumer segments. In addition, the internet and these subsequent companies were largely responsible for the growth phase of the industry’s lifecycle. The internet allowed for more competitors to enter the market, higher sales, and less cost per customer due to automation, technology, and software. With the ability to reach more audiences for less money and labor, the overall mount of customers skyrocketed which is a big attribute of the growth stage of a product’s lifecycle. Many of these companies are still successful today like Vacation Rental By Owner

(VRBO) which was first created with just one listing for a vacation rental home in Breckenridge,

Colorado (Vacation Rental Market Association, 2017). In 2020, twenty-five years later, the website lists over two million vacation rentals properties (Vacation Rental By Owner, 2019).

In 2018, the vacation rental industry in the United States was compromised of 23,000 companies and 115,000 worldwide (Hostfully Market Study, 2018). The United States vacation rental industry produced nearly 18 million dollars USD in revenue and 84 million dollars worldwide. The industry today is largely revolved around technology to assist with pricing, revenue, distribution, and workforce management (Shaulova & Biagi, 2020). In 2018, the market for software in the industry was

15.5 billion, about half of the actual industry as a whole, whose size is about 36 billion USD (Hostfully

Market Study, 2018) (Quinby et al., 2017). Today the industry is in the maturity phase and for some segments of companies, in decline. The rest of this research paper will go in-depth about this.

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VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE

Sunriver, Oregon: Background and Introduction Phase

Sunriver, Oregon is a planned residential and resort community in Deschutes County, approximately nine square miles and nestled between the towns of La Pine and Bend.

It has a year-round population of 1,393 but during the busy summer seasons of the area, populations are estimated to be anywhere from 6,000-10,000 according (U.S Census Bureau, 2010). It was inhabited by indigenous tribes for 7,000 years, until settlers in the 1800’s began establishing a community they’re because of the areas bountiful resources and vast areas to let their cattle graze

(Sunriver Chamber of Commerce, 2016). In World War 2 the government used Sunriver, Oregon as an

Army combat training facility called Camp Abbot because the climate and topography of the area closely paralleled that of Northern Europe. It trained nearly 90,000 solders until the end of the war was imminent. In June 1944, most of the Camp’s structures were destroyed except for the officer’s mess hall which is now a part of Sunriver Resort and is called the Great Hall (State of Oregon Government,

2018).

In 1965 John Gray and Donald McCallum of Omark Industries started on their three-year plan to create a luxurious resort that revolved around beautiful amenities and outdoor recreation called

Sunriver Resort. Today, the resort boasts over 300 hotel-style rooms, manages 300 vacation rentals, has numerous food outlets, amenities, and activities based on the season and is an accredited, AAA four-diamond property (Sunriver Resort, 2019) (American Automobile Association, 2019).

In the 1970s, property construction in the Sunriver area took off with 1,089 properties built and continued into the 1980s with another 1,494 properties constructed. It slowed down a little bit in the

1990’s with 1,407 properties being assembled. Of the 4,622 homes, condos, and townhouses in

Sunriver, 86.33% of them were built from 1970-1999 (American Community Survey & U.S Census

Bureau, 2018). With so many homes being built in a vacation destination area in the late 1970s and early 1980s the vacation rental management industry began in Sunriver, Oregon. The 1970s and early

1980s were seen as the introduction lifecycle phase of the local industry. Though there were lots of 5

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE second homes being built, the market and business concept was new and still small. Homeowners were wary of allowing someone else to manage their new home and allow strangers to vacation their

(Barrett, 2019). In addition, due to advertising that relied on word of mouth, high costs for labor, and the amount of time put into the business, the few family business owners saw little profit and had a hard time expanding.

As previously stated, the majority of these second homes in Sunriver were built in the 1980’s and 1990’s (American Community Survey & U.S Census Bureau, 2018). The entrance of the internet during this time allowed Sunriver Resort and Sunriver as a town to become a widely known, premier travel destination. Before, Sunriver was mainly a destination for people in the . Due to the combination of these factors, Sunriver’s vacation management industry entered its growth phase.

The influx of people visiting the area convinced more people to turn their second home into a vacation rental home. As a result, vacation rental management companies proliferated, though still small and family-owned. The access of the internet and new software allowed for cheaper, widespread marketing and more automated business procedures. Profitability and sales increased during this time, the amount of labor and money put into an individual consumer decreased. As Sunriver Resort became increasingly popular so did vacation rentals and the local industry continued to thrive during the growth lifecycle phase (Bennington, 2019) (Barrett, 2019).

The Industry as a Whole: Cause of Disruption and the Beginning of the Growth Phase

The huge shifting point and disruption for the vacation rental industry were in 2008 when Brian

Chesky, Joe Gebbia, and Nathan Blecharczyk started a company called Air Bnb, based out of San

Francisco (Air Bnb Newsroom, 2019). Air Bnb is slightly different than a vacation rental management company and can be closely compared to VRBO. While both of these companies feature vacation properties rentals that are owned by the individual owners, Air Bnb and VRBO do not manage the properties. They are a merely a distribution and marketing platform for these owners. The founding of 6

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE this company is collectively agreed upon as the starting point for another disruption of the vacation rental industry. The factors attributed to this are that Air Bnb was a company based in new technology and software. For example, Air BnB allows users to search through a wide variety of features including ease of travel to the location and reviews of the actual property. Though it should be noted that VRBO, now Homeaway, has largely adapted to this competition and offers similar features, it took many years to do so. Lastly, though the basic ideas behind Air Bnb and VRBO were the same, Air Bnb utilized a more user-friendly, comprehensive, and efficient platform than VRBO, which included the ability to do things like rent spare rooms, guest houses, even a treehouse, and spare bedrooms. Whereas VRBO specifically rented whole properties (Franklin, 2019) (Lodgify, 2020). This has resulted in Air Bnb having vastly more listings and from more countries and regions (Air BnB Newsroom, 2019).

Air Bnb was based out of San Francisco, an area associated with the tech-boom and Silicon

Valley. The company was based on its advanced and comprehensive technology and software. Air Bnb created an awareness of the vacation rental management industry in Silicon Valley and the tech industry as a whole (Penn, 2017). Though Silicon Valley was affected by the Great Recession like every other industry, it was still fueled by lots of money, investors. It saw a 13-15% increase in tech jobs added during 2007-2011, in a time where most industries were rapidly losing jobs. The tech industry and its investors, thanks to Air Bnb, saw the vacation rental management industry as a market untapped and one that could be greatly enhanced by tech and software. It essentially put the industry on the map for Silicon Valley and the whole tech market. Investors saw the market filled with various business gaps in distribution, marketing, pricing, and revenue management that could be vastly improved through technology and software.

The resulting disruption led to two main huge emergences; vacation rental software and vacation rental companies based on their own software and technology. The difference between them is that the vacation rental software companies are third party companies that license their software to

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VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE individual companies that manage vacation rentals. Vacation rental companies that emerged, relied on their own new and innovative software and technology.

Sunriver, Oregon: Cause of Disruption and the Beginning of the Growth Phase

As we look into this case study of a small destination town, filled with vacation rentals I have found the disruptions cause and effects are very similar to the larger industry. As noted in the previous section, we see that the founding of Air Bnb brought the vacation rental industry to the light of tech companies. They saw an untapped industry with gaps in the marketplace that technology could help with. Talking to professionals and managers in the industry in Sunriver, they also stated the cause of the disruption of their market was the start of Air Bnb. When asked about what he thought was the biggest cause of the disruptors and the overall change in the industry, Rob Bennington, Owner of

Bennington Properties, said, “Airbnb of course has had the overall biggest impact to the industry in my opinion (Bennington, R, 2019).” Other managers and professionals in the area also concluded that Air

Bnb showed the tech industry how big the industry was and is the main cause of companies like

Vacasa and TurnKey finding their way to the Sunriver. (Priebe, G, 2019 (Madden, D, 2019).

Industry as a Whole: The Effect of Disruption- The Growth Phase

The Arrival of Vacation Rental Software

After Air Bnb the tech industry saw not only an untapped market but one that could be greatly strengthened by software that included price and revenue management, distribution, marketing, and an overall platform for the company’s employees and their clients. This industry began to boom with thousands of software and platforms emerging from the tech industry, primarily Silicon Valley. The industries disruptions had created an industry half as large as the one it serves. In 2018 the market for property management software was about 15.5 billion dollars USD, about half of the market size of the whole industry which in 2018 was about 36 billion dollars USD. In fact, conservative averages estimate that more than 5% of vacation rental management companies revenue is spent on this 8

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE software (Hostfully, 2018). Though some of today’s biggest software’s like Escapia, Booking.com, started before Air Bnb and the disruption of the industry, thousands more sprung up since then whose sole focus is on the vacation rental industry. Some of the biggest software’s pre-disruption era, marketed vacation rentals, hotels, and resorts, whereas most of the new software’s focus solely on vacation rentals. Looking at reviews of 2020’s top-rated vacation rental software, an average of 68% of these companies started after 2008, which was when the industry saw Air Bnb (Capterra, 2020) (G2,

2020) (Software Advice, 2020). One of the biggest effects of the disruption was the arrival of a completely new industry based around software and platforms for vacation rental industries.

The Emergence of Acquisition, Technology-Based Vacation Rental Companies

One of the biggest characteristics in the growth phase of a product lifecycle is the materialization of more competitors and is exactly what we see at this point in the industry. Tons of new companies started as a result of Air Bnb allowing the technology industry to see the service gaps that could be remedied through software and automation. These companies have a vastly different business model than the companies in the introduction phase of the industry’s lifecycle. The industry had largely been dominated by local and family-owned companies. The types of businesses were based locally, did not venture out to vacation rentals outside of their immediate area, and relied on word of mouth and reputation. Their owners and managers usually have some sort of hospitality background and the company focuses on customer service, close relationship with owners of the properties, and usually have deep roots within the area. Though this seems antiquated, one must remember that before the disruption, the vacation rental industry was relatively small, unnoticed by other companies, and therefore untapped and non-competitive.

Vacation rental companies that started post have a background and business model much different from pre-disruption era companies. These companies focused less on customer service and their close relationships with owners and instead on distribution, marketing, revenue and pricing management, and acquisition of vacation rentals regardless of location. In addition, the owners, 9

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE founders of these companies usually have a software, technology, or financial background, as opposed to traditional hospitality experience. These disruptors use their own, or partner with other companies, to offer innovative software to consolidate the different aspects of vacation rental management such as marketing/distribution platform, owner and customer interface, and revenue management software.

(Table 1).

Closer Look at the Disruptors

The 6 biggest North American Vacation Rental Management Companies are all disruptors of the industry. They are based on technology, acquisition, and have founders from a technology and data background. Only one of the top 6 biggest North American Vacation Rental Management companies were founded after 2008 and is still defined as a disruptor because of its founder’s experience, the reason for starting the company, and its business model. The below chart lists in order the largest vacation property management companies in the United States. It demonstrates that the biggest companies today were founded because of a lack of technology in the industry and based on acquisition, data, technology, and its founder’s experience in these fields.

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Table 1 Looking Closer at the Industry’s Disruptors Business Model, Foundation, and Background

Company Year Founded Mission Statement/ Business Founders Why Company Was Started and Number of Model Background Vacation Rentals Managed Evolve -2011 “Unlike other traditional (and Brian Egan- Lawyer “... Brian Egan and Adam Sherry founded Evolve Vacation -Over 10,000 often inflexible) management for Silicon Valley Vacation Rental in 2011, creating a tech-enabled Rentals companies, we make vacation Startups management solution...” rental easy for everyone -Evolve Company Website involved.” Adam Sherry- Sales and Marketing, Revenue Management for Startups Vacasa -2009 “Our AI-driven tools make it Eric Breon-Venture “...found that the management companies on the -8,000 in North possible to deliver this consistent Capitalist and Data market lacked the marketing technology needed to America over experience in unique vacation Analytics make renting a financial success. So, we decided to 25,000 homes around the world, from manage the home ourselves.”- Eric Breon worldwide pricing our homes to scheduling post-stay cleans.” TurnKey -2012 “TurnKey provides guests with John Banczak- “My co-founder, John Banczak, and I felt like there Vacation -4,100 the consistency and quality of a Revenue was a tremendous opportunity to develop a supplier Rentals fine hotel experience, while Management brand in the vacation rental space that addressed optimizing the management, this need for consistency, reliability and quality, just marketing, and return on T.J Clark- like we’ve seen in the hotel space.”- T.J Clark investment for vacation rental Technology and homeowners.” software for e- commerce companies iTrips Vacation -2008 “iTrip Vacations property Steve Presley- Real “The whole idea was to bring technology to a very Property -2,500 management covers the entire Estate Developer fragmented industry that needed help” Steve Management rental process to ensure Presley consistent customer experiences, Todd Morrison- web which results in new and repeat developer and visitors.” consultant

Thomas Bissmeyer- Finance, Real Estate Developer VTrips -2006 “The Internet dominates Steve Milo- Internet “I got into this business because I was dissatisfied Property -2,000 consumers' search for rental marketing with the way my own rental property was being Management properties, and we are experts at managed. With my background in internet search engine optimization and marketing, I knew I could do a better job of it”- social media. “ Steve Milo

Pillow Property -2013 “We leverage technology & big Sean Conway and “We experienced first-hand the need for a way to Management -2,000 data to build the worlds #1 Justin Miller- Angel automate marketing, guest management, key hospitality platform for short- Investor for exchange, and turnover.” term rentals.” technology and -Sean Conway & Justin Miller software startups

Note. Information for Pillow Property Management from Pillow Homes Inc (2020). Information from Vtrips Property Management from VTrips (2020). Information for iTrips Vacation Property Management from iTrip LLC (2020) and iTrip® Your Vacation Destination (2017). Information for Turnkey Vacation Rentals from Turnkey Vacation Rentals Inc (2020). Information for Vacasa from Vacasa LLC (2020). Information for Evolve Vacation Rental from Evolve Vacation Rental (2020) and Egan, B and Sherry, A (2019). 11

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE

From the above table, we can see that these 6 biggest companies in the industry, all of which are disruptors, were started because they saw tech and software seeing as an opportunity to fill the gaps in the market. We can conclude this through their mission statements and business models, owners quoted reasons for starting the business, and the founder’s backgrounds. It’s incredible to see that the 6 biggest companies in this industry are all disruptors. In addition, only one of the top six biggest vacation property managers, Vtrips, started before the disruption era in 2008. Though it should be noted that Vtrips is defined as a disruptor because of its business model of technology, its owner having a background in web development and quoted as starting Vtrips because of this experience and his perceived need for it in the industry. In 2020, the 6 biggest companies, all of which are disruptors manage more than 25,600 vacation rentals in North America, most of which were formerly managed by pre-disruption companies. The simple fact that the six biggest companies in the industry can be categorized as disruptors, shows the magnitude of how much the industry has changed due to being noticed in the technology industry because of Air Bnb.

Though the disruption had been vast, this is not unusual for an industry’s lifecycle. During the growth phase a large number of competitors enter the market because they see an opportunity to improve the industry. These new competitors/disruptors enter the market and have lower costs associated with consumers and ultimately higher profit margins. The same cycle happened in this case, as the disruptors above had the technology, software, and expertise to cut costs, automate, and thus improve the efficiency of the industry. More consumers entered the market and more profit combined with low overhead, led to rapid expansion and the beginning of the industry’s maturity phase.

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Sunriver, Oregon-The Growth Phase

Just like the industry as a whole, Sunriver’s vacation rental management industrys largest effect of the disruption was the entrance of technology, acquisition-based vacation rental management businesses. Here we see the growth phase take off in Sunriver, as the amount of vacation rental management companies doubled. Sunriver went from having around 6-8 small family owned companies to more than 14. These companies, just like the ones that have disrupted the entire industry, saw a gap in the marketplace that could be closed with technology that its owners and founders have experience in. In fact, three of the five disruptors of Sunriver; TurnKey, Vacasa and Evolve, are in the top 6 biggest vacation rental management companies in North America. They are talked about in the previous section “Closer Look at the Disruptors.” This demonstrates how immensely widespread and effective these disruptors have been in acquiring properties from all markets.

While the other three disruptors are not one of the six biggest vacation rental management companies and disruptors, they are in fact major disruptors of Sunriver’s market. These companies are defined and can be shown exactly like the other disruptors due to why they were founded, who they were founded by, and their business model.

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Table 2 Looking Closer at Sunriver’s Disruptors Business, Model, Foundation and Background

Company Year Founded Mission Statement/ Business Model Founders/ Executives and Number of Background Vacation Rentals Vacasa -2009 “Our AI-driven tools make it possible to Eric Breon (Founder)- -228 in deliver this consistent experience in unique Venture Capitalist and Sunriver vacation homes around the world, from Data Analytics -25,000 pricing our homes to scheduling post-stay worldwide and cleans.” 8,000 in North America

Arrived LLC. -2004 “Our state-of-the-art rental management Rich Marine (CEO)- -55 in Sunriver software means you’ll always get complete Information Technology -193 Total and accurate information about your and Services property.” Turnkey -42 in Sunriver “TurnKey provides guests with the John Banczak (Founder)- Vacation -4,100 in Total consistency and quality of a fine hotel Revenue Management Rentals experience, while optimizing the management, marketing, and return on T.J Clark (Founder)- investment for vacation rental Technology and software homeowners.” for e-commerce companies Meredith -32 in Sunriver “Meredith Lodging is an industry leader in Jon Oksenholt (Founder): Lodging -680 Total its adoption of advanced reservation Real estate investor and software, search engine optimization, development advanced rate algorithms and 3-D technology to make homes and vacation opportunities easy for customers to find.” Evolve -9 in Sunriver “Unlike other traditional (and often Brian Egan (Founder)- Vacation -Over 10,000 inflexible) management companies, we Lawyer for Silicon Rentals Total make vacation rental easy for everyone Valley Startups involved.” Adam Sherry (Founder)- Sales and Marketing, Revenue Management for Startups

Note. Information for Evolve Vacation Rentals from Information for Evolve Vacation Rental from Evolve Vacation Rental (2020) and Egan, B and Sherry, A (2019). Information for Meredith Lodging from Meredith Loding (2020) and Oregon Business (2019) and Oksenholt Companies (2020). Information for Turnkey Vacation Rentals from Turnkey Vacation Rentals Inc (2020). Information for Arrived LLC from Arrived LLC (2018) and Marine, R (2019). Information for Vacasa from Vacasa LLC (2020).

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As we can see from this table all five of these disruptors’ founders have a background unrelated to hospitality. Four out of five of the disruptors founders or CEO’s have a background related to data, analytics, and or technology. This table shows these disruptors foundations don’t have a hospitality background and are rooted in the technology and analytics that they use for their revenue management, pricing, marketing, and owner/user platforms. From this information, we can conclude that these disruptors revolve their business around their innovative use of technology, software, data, and the combination of all three. (Table 1 and 2).

The purpose of examining the industry as a whole and then specifically Sunriver is to be able to examine and analyze aspects of the industry’s lifecycle that cannot be found just by looking at the whole industry. We can see that both Sunriver and the whole industry entered the growth phase at this time and saw an emergence of new competitors. Yet, we cannot closely compare and contrast them to the original, introduction companies unless we look at specific market like Sunriver. Below is table that shows the non-disruptor companies in Sunriver. The year founded, mission statement/ business model, and founder/ executive background demonstrates the reasons why they are not disruptors and the difference between them. All, except Sunriver Resort are family-owned, and all companies’ executives/ founders have backgrounds in property management, hospitality, or a combination of both.

Another distinguishing factor from the disruptors and non-disruptors is locality. We can also see from their mission statements and business model, they focus on older more core aspects of hospitality and property management such as customer service, close relationships, and community. The disruptors on the other hand have mission statements and business models rooted in their technology through revenue management, distribution, and marketing platforms (Table 1 and 2).

Lastly, all of these companies have offices in Sunriver, Oregon and all are managing vacation rentals solely in Deschutes County area and are not looking to expand. This is vastly different than the disruptors, all of whom manage properties in other areas. In fact, all five of the disruptors manage

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VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE properties not only over the state of Oregon but all-over North America, with Vacasa managing properties internationally as well. (Table 1).

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Table 3 Looking Closer at Sunriver’s Introduction Phase Vacation Rental Management Companies

Company Year Mission Statement/ Business Model Founders/ Executives Founded and Background Number of Vacation Rentals Sunriver -300 vacation THE MARKET LEADER: More owners Griffin Priebe (Property Resort rentals have chosen us to manage their vacation Management Director)- managed rental property than any other company Property Management, -Founded in in Sunriver! Vacation Rentals, Hotel 1998 Operations Bennington -200 vacation “To build and deepen our co-worker, Robert Bennington (CEO Properties rentals customer, and community relationship; and Owner)- Vacation managed serving them with Bennington Rental Management, -1998 Ho’okipa.” Professional -Family -Mission Statement Housekeeper Owned Cascara -95 vacation “Cascara Vacation Rentals is a vacation Ed Willard- Vacation Vacation rentals home management company located in rentals, property Rentals managed beautiful Sunriver, Oregon. Our staff has management -Founded in been in the vacation management 1983 business for decades and is always ready Sandy Willard- -Family to help both owners and guests make Housekeeping business Owned the best decision.” owner, reservations and -Mission Statement bookkeeping Sunset -90 vacation “We strive to provide a legendary Scott Pence (Owner)- Lodging rentals service and a quality product. Our goal is Property Management, managed to exceed customer’s expectations.” - Housekeeping, -Founded in Mission Statement Reservations, 1985 Maintenance -Family Owned Village -84 vacation “To provide a quality lodging and real Mark Halvorsen Properties rentals estate experience using sophisticated (Owner)- Long term managed procedures, executed by local property management, -Founded in employees and family, with honesty, Real Estate 1985 integrity and a sense of community.” -Family -Mission Statement Owned

Note. Information for Village Properties from Village Properties at Sunriver (2018). Information for Sunset Lodging from Sunset Loding in Sunriver (2020). Information for Cascara Vacation Rentals from Cascara Vacation Rentals (2020). Information for Bennington Properties from Bennington Properties LLC and Bennington, R (2019). Information for Sunriver Resort from Sunriver Resort (2020) and Priebe, G (2019). Information from Sunriver Resort from Destination Hotels (2020). 17

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From this table, we can see that these pre-disruption companies value customer service, roots in the local area, and have experience in the hospitality industry. They are mostly all small companies, family-owned, looking to expand solely in the local area. This is commonplace during the growth phase of any industry, as the entrance of more competitors in the growth phase is because they see something the industry could use or improve on. The point is that this is not unusual and a natural occurrence in an industry’s life cycle to see an emergence of competitors that are different. (Table 3).

Just like the market as a whole, the effect of vacation rental management industry’s disruption in Sunriver has led to emerging competitors that have a different platform and business model than the rest of the industry. After Air Bnb turned the spotlight on the industry for professionals in the tech and data industry, both Sunriver and the entire industry saw the growth phase of the industry gain steam.

These large amounts of new competitors entered Sunriver’s marketplace using new and effective marketing, data, distribution, and revenue management technology and software to succeed in the industry. This has allowed them to be very successful and profitable in Sunriver as they have been able to cut down on labor and manpower (Madden,2019) (Priebe, 2019) (Bennington, 2019). This is very different than the vacation rental management companies that previously dominated Sunriver’s market during the introduction phase. (Table 1) (Table 2). As more competitors, with different business models entered Sunriver’s market and became more popular and profitable, the beginning of its maturity phase began.

The Industry as a Whole: Beginning of the Maturity Phase- Consolidation of the Market

Due to the disruption effect of companies rooted in technology and backed by big tech money entering the industry, the industry has begun to enter the maturity phase as smaller, traditional, mom and pop companies are being bought out.

The perfect example of this is Vacasa, who is a disruptor, and the biggest vacation rental company in the world and second in North America. Since its founding in 2009, it has acquired 33 18

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE vacation rental companies. Twenty five of the companies they have acquired managed 100 or fewer properties. Of those 25 companies acquired, 11 managed less than 50 properties. These 25 companies can be defined as small and all were locally owned. This means that over 75% of the vacation rental companies Vacasa has acquired are small, locally owned companies. In addition, 30% of them are extremely small, managing less than 50 vacation rentals (Crunchbase Inc., 2020).

Another example is vTrips, the 5th biggest vacation rental management company in North

America and also a disruptor. Of the six companies they have acquired in their tenure, two of them managed less than 100 properties. Though, at lower rate and quantity than Vacasa, one third of these buy outs where from small, locally owned companies. (vTrips About Us, 2020).

These are just a few cases of many that show one of the results of the disruption is the large and consistent acquisitions of small, locally owned vacation rental management companies. Though, unfortunate and sad for these companies, a regular industry’s lifecycle eventually reaches the maturity phase which is defined by the consolidation of the market. At this point in an industry’s lifecycle the new competitors that entered during the growth phase begin to push out the introduction phase businesses that have not adapted. They do this through either through buying them out or letting them go out of business. The disruptors that entered the market in its growth phase like Vacasa, have become more successful with a lot more assets and profit due to their different business model and have subsequently begun consolidating the market.

Sunriver, Oregon: Beginning of the Maturity Phase- Consolidation of the Market

As defined in this case study, disruptors not only have a foundation and background rooted in something other than property management and hospitality but also have business model of acquisition and growth. On a larger scale, we have shown that disruptors business goals are to acquire as many vacation rentals possible through expanding to untapped locations where introduction phase companies still dominate the market (Table 1). The same is true for the disruptors in Sunriver. All five of them 19

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE have properties all over North America and in one case, internationally. Two of the five of, Evolve and

Turnkey, don’t have a physical office in Deschutes county, whereas all five of the pre-disruption companies have offices specifically in Sunriver. Just like the disruptors of the market as a whole, these companies are focused on expanding and acquiring vacation rentals. At the same time, they have also been largely more successful and profitable than the introduction phase companies. As a result,

Sunriver at this time also began to move from its growth phase into the maturity phase. The result of this has led to a lot of small, family owned companies in Sunriver to be bought out and taken over.

Meredith Lodging is one of Sunriver’s five disruptors and since its founding in 2015 has acquired more than 12 companies all over the United States. One of those acquisitions was Vacation

Station, a small family-owned vacation management company in Sunriver, Oregon. In addition,

Vacasa has purchased over 33 companies one of them being Discover Vacation Rentals in Sunriver.

This was a family owned, local business that managed over 100 properties and allowed Vacasa to double its vacation rentals in Sunriver. Lastly, Arrived LLC, a Sunriver Disruptor has acquired three small vacation rental companies since its founding and has expanded to Washington, California, and

Hawaii. From acquisitions in Sunriver alone, these five disruptors have acquired nearly 200 properties.

In total, these five disruptors manage over 400 vacation rentals that normally would be managed by one of the five local, pre-disruption era companies. They control about 37.5% of all vacation managed properties in the Sunriver area. This means that in a matter of 11 years, these disruptors have been able to take nearly 40% of the market share in Sunriver alone. They have been able to do this through their different business model and foundation in automation, technology, and expansion. This shows that the widespread dominance and corresponding consolidation of the market by these disruptors, has not only changed the landscape of the entire market but Sunriver specifically as well. Sunriver as a historic and widely known vacation destination has not been immune to the effects of the maturity phase as disruptors have taken large amounts of the market share.

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Companies Adapting to Competition and Surviving the Maturity Phase

One of the biggest downsides of a free market and a capitalistic economic system is that when an industry reaches the maturity phase, it almost always means that small, family owned businesses are the ones that are going to go under or be taken over. This is no different with the vacation rental management industry. Yet, something that we cannot see by looking at the industry as a whole and only through the case study of Sunriver, are the introduction phase companies that will survive along with the disruptors.

Two of the introduction phase era companies in Sunriver; Sunriver Resort and Bennington

Properties have had to adapt to the new market and done it successfully. The market during the growth phase saw five companies with different business models, new technology and software, and executives and founders with different experiences enter the market. These five disruptors during the maturity phase have taken up almost 40% of the market share in a matter of a decade, severely hurting the bottom line and number of rentals these companies could have possibly managed. Both Griffin

Priebe, Director of Property Management for Sunriver Resort, and Rob Bennington, CEO and Owner of Bennington Properties, have said that while the disruption has hurt their companies it has been good because it has made them adapt to the changing industry. Both companies have instituted new revenue management software that change rates every day based on competitor pricing, weather, peak season versus slow season, and many other variables. Many of these disruptors were able to emerge and be successful because of revenue management software and tools. This allows them to maximize revenue and occupancy not only for themselves but for their owners, which is a big reason they have been able to expand at such rapid rates. Bennington and Sunriver have done the same to make them more competitive. Both companies expressed that they have expanded their marketing platforms to include websites like Air Bnb and Homeaway, something that disruptors had been doing and gave them an advantage in bringing in more renters. Griffin Priebe acknowledged that Sunriver Resort and fellow introduction era companies were not up to date in terms of technology and this is what allowed these 21

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE companies to come in and take a market share. This happens to any industry during its growth phases, new competitors that enter, enter because they see ways of improving the market. Though, he said that while their large portion of the market in Sunriver is unfortunate, competition is always good and has forced them to be more up to date in terms of the technology, platforms, and software they use.

Something both company executives noted in this new Sunriver market is the need to sustainably differentiate themselves among the disruptors. Sunriver Resort for example has undergone a total transformation and revamp of their brand and marketing. Griffin Priebe discussed how two former Nike Marketing Executives helped them mold their new brand.

Rob Bennington on the other hand has not changed their brand but has focused on a different aspect of the industry, housekeeping. He has expressed willingness to sell his company to one of these disruptors or possibly the model he uses for housekeeping. Rob Bennington himself is a professional housekeeper and has developed a system and procedures that lead to excellent and efficient housekeeping. He has thought about possibly starting a housekeeping company or consultancy that could partner with these disruptors like Vacasa and help them develop housekeeping procedures and systems. (Bennington, 2019).

These two companies have and will be able to survive along with the disruptors because they adapted quickly and had enough assets to help them maintain as they changed. In addition, they had enough assets and funds to be able to acclimate to the new technology and software that gave the disruptors an advantage. This is not true for the three other introduction phase Sunriver companies.

They simply don’t have the money to take on expensive technology and changes. Thus, I think eventually they will go out of business or be bought out as the maturity phase continues. It is a sad reality but commonplace during any industry’s life cycle. In essence, we can see from an examination of Sunriver that the companies that will survive the maturity phase will be the ones that are financially and adequately able to adapt.

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The Future for the Industry’s Maturity Phase

The fact of the matter is for these smaller companies, highlighting your local roots, partnerships with other local businesses and the community will only take them so far in this new marketplace.

These disruptors are attracting owners because of their new technology, software, and marketing that increases revenue for them. While, guests are attracted to the lower prices offered which they can do through excellent pricing management technology and being able to do different aspects of the business remotely, and thus more cost effective. Talking to a lot of these companies in Sunriver many said they simply don’t have the capital to invest in all the technology that these disruptors have. These disruptors come from and have rooted their company in technology and thus are able to raise large amounts of capital that these smaller companies can’t compete with. Vasasa in 2019 only raised 319 million dollars from mostly Silicon Valley and other tech areas. This means they have loads of capital to invest, not only invest in technology that smaller businesses can’t, but offer buyouts to these companies that simply doesn’t make sense to turn down. Even with differentiating themselves from these disruptors, these small, mostly family owned businesses won’t have the assets to invest and compete with disruptors. The growth phase showed that these new business models are popular for consumers and highly profitable. 37% of Sunriver’s market share has already been taken over by companies with these new business models and the industry’s top 6 leaders all emerged in the growth phase. This shows that I don’t think differentiation will elude them from market consolidation and are most likely to go out of business or be taken over.

We have seen two small, local and family owned businesses get bought out in Sunriver by disruptors already. Robert Bennington and Griffin Priebe, of Bennington Properties and Sunriver

Resort respectively agree with this expectation that these buyouts will continue as the market continues to change and consolidate (Bennington, R, 2019) (Priebe, G, 2019). In fact, one disruptor’s owner, Jon

Meredith of Meredith Lodging has actively been looking to buyout another Sunriver vacation rental management companies. 23

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE

Looking at the what disruptors and introduction era vacation rental management companies are, we can assume that this trend of small and local companies is most likely to be bought out at all locations across the country. As long as disruptors continue to enter locations like Sunriver, we can conclude that the family owned companies that we see in Sunriver will most likely be bought out. Just like in Sunriver, it is safe to say these companies won’t have the capital and consequently the ability to adapt and compete and adjust to the disruptor’s competition. Disruptors, just like in Sunriver, will have a competitive advantage and a capital advantage to pursue buyouts of these small, local, and most likely family owned businesses. We can assume that this trend in Sunriver is going to continue in another destination areas like Sunriver.

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Overview of the Product Life Cycle

Graph 1 The Product Lifecycle

23

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VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE

Table 4 Overview of the Whole Industries Product Life Cycle Introduction Phase Growth Phase Maturity Phase Product Extension Phase

• Though the industry has • The industry begins • Backed by big • Pre COVID-19 the market been around for thousands to take off due to the Silicon Valley was headed for an extension of years in some capacity, entrance of the investors, companies due to the popularity of the Americans started buying internet, software big buying out small market and younger traveling second vacation homes to and technology in companies all over demographics using rentals the economic prosperity the early 1990’s the nation, instead of hotels post World War 2 • Air Bnb starts in consolidating the • Currently the market is in a • As travel becomes more 2008 shedding a market decline due to economic accessibly throughout the light on the market • Disruptors now conditions caused by 1970’s-1980’s the industry of vacation rental manage over 25,000 COVID-19 grows management to the properties buying • COVID-19 could strengthen technology and hundreds of rentals the products life cycle as software world • The top six biggest people are less likely to use • Companies started rental management hotels by former tech companies are all • The industry after COVID-19 employees sprout up disruptors started is in nowhere near decline, looking to close post Air Bnb-2008 will have a long maturity service gaps through era phase technology software and automation

Table 5 Sunriver, Oregon’s Product Life Cycle Introduction Phase Growth Phase Maturity Phase Product Extension Phase

• Sunriver is developed as • Sunriver becomes a • 5 disruptors enter • Currently the market is in a resort community in premier worldwide the Sunriver market natural decline due to the 1965 destination and the taking about 400 economic climate • During the 1970’s-80’s emergence of the rental properties • Before COVID-19 the industry was 3,000, mostly second internet, the industry and over 37% of the bound for product extension due vacation homes of begins to grow market to growing demographics wealthy families are built • Air Bnb is introduced in • Small, local family tendency to rent homes and • Small, family owned 2008 and sheds new owned businesses condos rather than hotel rooms vacation rental light on the technology are bought out by • Regardless, the market will be companies appear industry which forever disruptors and go extended and possibly disrupts the market out of business due strengthened due to COVID-19 • The tech industry starts to much smaller and be less likely to stay in hotels new vacation rental market share • Possibility of going through management another life cycle and companies by closing consolidation more service gaps through technology, software and automation 26

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE

Recommendations and Takeaways

The main takeaway one can see from this industry is the idea of being proactive versus reactive. Throughout this report one can see that the vacation rental industry was very reactive to the disruption as opposed to proactive. Yet, we must look at the other industries that were bound to be affected by technology. Some industries have inexplicable and indefinitely suffered from technology and software such as video rentals stores. Blockbuster was the largest video rental shop company in the world, at its height having 9,000 stores, 90,000 employees worldwide and worth five billion dollars.

This was an industry that was obviously and considerably going to be disrupted as technology allowed for online video streaming services. Yet, this industry did not adapt and has mostly been decimated, with its largest company Blockbuster, filing for bankruptcy in 2010. This was just 6 years after it was at its peak in terms of stock price, and number of stores and employees. Though, the hospitality and vacation rental management industry were not proactive in adapting and preparing for how technology could disrupt the industry, in comparison it is vastly unscathed compared to an industry like video rentals. Though video rentals stores were clearly going to be more disrupted by technology than vacation rental management, they were unprepared and reactive, eventually leading to their industry being taken over by online streaming technology.

That being said, the industry could learn from this by taking on a more proactive approach to market changes. Talking to owners, CEO’s, and executives in the field in Sunriver, most mentioned three reasons why the industry is so reactive. The first, which was mentioned first by everyone is that the industry has done things the same way for a long time and been successful in doing so. This is because before 2008 and AirBnb putting it on the map for tech companies, the industry had largely been unaffected by technology and generational changes. The industry continued to grow especially in the mid 1980’s as the economy boomed giving more people disposable incomes, leading to more travel. American employed workers also started taking more vacation days, an average of 21 days. The professionals I talked to said this helped fuel the idea that the way things were being done in the 27

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE industry, were the right ones. Secondly, these professionals all talked about the idea of the industry revolving around people through their clientele and employees. It is a service industry that unlike other industries relies heavily on people and labor. This has perpetuated the industry being reactive as people are naturally stringent to change and, in an industry, dominated by people, brings an greater resistant to change.

Changing the industry from being reactive to proactive would not have stopped the disruption, as it was inevitable and fueled by companies with large Silicon Valley investors but could have been contained. It is also natural as we can see from a normal product lifecycle. If these companies had realized the importance of technology and software, they could have incorporated it into their business model. This would not have stopped all buyouts for smaller companies but would increase the price disruptors would have to pay for buyouts. Though this is a hard thing to change, Griffin Priebe,

Director of Property Management at Sunriver Resort, notes that this disruption has made them adapt to the competition and get with the times. He also notes that it has been a wakeup call for him and the industry in terms of seeing where the industry can go and be improved by something like technology.

It has made them more proactive instead of waiting for competition and being reactive.

Conclusion

The vacation rental management industry has gone through many changes throughout its product life cycle. It started out almost seventy years ago as just a couple of homes in travel destinations that were rented out to friends and families. Slowly, as manufacturing and construction thrived in the United States lots of seconds homes were built in these areas. This combined with the accessibility and affordability of travel allowed for increasing popularity in the industry, that at this time was dominated by small, mom and pop companies. The entrance of the internet turned the industry into its growth phase as it became easier to book and new technology and software made these companies more automated. The industry began to thrive but hit its stride during the growth stage when Air Bnb was started in 2008 shedding a light on the market to tech companies. These tech 28

VACATION RENTAL MANAGEMENT PRODUCT LIFE CYCLE companies and employees saw service gaps that could be filled with new software and technology.

Tons of new competitors entered the market and with more automation and lower overhead, these companies flourished. This began the maturity phase as these companies started taking over markets, buying out the original small, mom and pop companies and also putting them out of business.

Currently, the industry is still in its maturity phase and will have a long-life cycle before declining.

Though, the disruptions and buyouts of small businesses is sad, we can see from a normal product life cycle this is normal. The fact is these original, introduction phase companies didn’t adapt enough to technology and also didn’t have enough capital to make a smooth transition, to stay alive during the maturity phase. Many other industries have been decimated by technology and relatively speaking the industry did fairly well during the maturity phase. Though the changes to the industry have been dramatic from top to bottom, starting with its business model all the way to the customer experience, it is not unusual and quite natural for an industry.

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