Monday, 3 June 2013

Digital Keys disruption

There has been a widely publicized, so called ‘war’ going on in the tourist accommodation booking space for quite some time now e.g see here 

So who is winning the war, and who is losing? Well if you are an owner of tourist accommodation, or if you want to stay in a traditional hotel/resort as a guest, then you are probably losing. But as a guest or owner, you don’t have to lose.

Many of the different sides in this ‘war’ are experimenting with different tactics and strategies to try and get the upper hand.  These strategies range from loyalty programs, to allying with other warring parties, to aggressive marketing campaigns. Now there is a new product called ‘Digital Keys’ which has the power to disrupt this war.

Firstly to understand the ‘war’, let’s take an in depth look at what goes in when you make a booking for accommodation from the owner’s perspective. Owners of tourist accommodation can be Chain Hotels, companies, individuals, Ma’s and Pa’s or anyone really.  Let’s look at this hypothetical situation below to get a better understanding.

“You’ve just retired and you’ve used your life’s savings to buy an investment property in a Resort complex on Australia’s Gold Coast. Your 2 bedroom apartment is to be rented out for vacation/holiday rentals”.

So the first decision you have to make is this;

Do I want to use the onsite managers or Real Estate Agents or Vacation Rental Agents or do I want to do it some other way – such as Airbnb?

If you choose onsite manager then this is what you can expect – 'if your property is to be sold for $100 per night tariff, then you are probably only going to get around $10-20 at the end of the day' – here’s why;

The onsite property manager

Using onsite property manager/Real Estate Agents/Vacation Rental Agents.

Commission/fee: These managers will take 10-25% per booking for managing your property (lets say they take 12% – so that leaves you $88 dollars.

More Info:

Example company- Meyer Vacation Rental Management

What do you get for that commission? 
1. These property managers will do whatever they can to get you a booking.

2.They will take a copy of the ID of the guest when they check-in, and vet them to make sure that decent folk are staying in your property.

3. They will distribute a room key, and provide instructions to the guest on how to locate your room(in the case of  a Real Estate Agent/Vacation Rental Agent, the guest will have to go to the respective offices to collect keys and instructions on locating rooms).

4. They will take a security deposit - they take a copy of your credit card details and a security deposit (usually in the form of $200 from the credit card) to cover any incidentals (i.e if the guest trashes or steals anything from your room).

5. Miscellaneous – these managers will answer phone calls, meet guests requests e.g get them new towels, point you to the best restaurant in town etc, etc.

Property Management Software

The Onsite Property Manager will use a Property Management System/Computer Reservation System to manager your property

Commission/fee; There are many different business models for PMS’s, from monthly fee’s to commission models – a common model is a low commission e.g 1-4% - sometimes these costs are absorbed by the property manager to manage your property). In this case the Onsite Manager charges you 3% leaving you $85 from your $100 a night tariff

More Info


What do you get for that commission/fee?
Generally Property Management Software is used to record details of the booking and occupancy; it generates reports; it allows Managers to allocate rooms; and it can allow manager to take and record payment details, and hopefully ensure double bookings don’t occur.

Online Travel Agencies

The property manager will use an Online Travel Agency to get your booking

Commission/fee - The onsite property manager pays a commission of between 10-30% to Online Travel Agencies to get you your booking. Lets say bookings have been down lately, so the onsite property manager has bumped up the commission to 20% on 15 Online Travel sites, so that your property features high on the search engine results. So that now leaves you $65 left from your $100 a night tariff.

More information:


What do you get for that commission?
The OTA will list your property, advertise it, and get you the booking and in many cases take the payment from the guest.

Global Channel Management

The property manager will use a Global Channel Management/Distribution Company to manage the Online Travel Agency listings.

Commission/fee; Lets say there are 20 properties in the Resort complex, and so the monthly fee to use this service for all 20 properties is $100 a month. This is divided up amongst the 20 properties and so the cost passed onto you is $5 a month. If this cost is absorbed into the daily fee, then perhaps it’s only around $1 more dollar per booking which leaves you $64

More info

Example; Siteminder

What does the commission get you?
The Global Channel Management/Distribution System generally enables the bookings to automatically update in real time across a number of Online Travel Agencies. Without this, you would have to log in to the Online Travel Agencies software everytime a booking occurs to update the booking (if you are listed on many sites, this can be a very laborious task.


Other costs

Cleaning fees – although a cleaning fee is not really part of the war that’s going on here, its still a cost – average cost for cleaning a room is usually a minimum of $40 so that leaves you $24
Then there are all the regular fee’s to keep your property operational, such as body corporate fee’s, electricity, water, gas etc.

Lets say these fee’s equate to around $500 a quarter, if we divide that out by the day, then it’s probably about $4 per day.

Whats left for the owner

if you are lucky you are left with the grand total of $20 from your $100 per night booking.

Next week we will explore the “other” option available to the owner, and analyse how Digital Keys can disrupt all of this.

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