The Future of Distribution & Channel Management

Terry

Inner Circle
Accelerator
Ambassadors
Channel management might be the single biggest confusing and misunderstood topic I come across. Here are a number of the falsehoods I hear often:

“A PMS is not a channel manager”
“Channel Manager integration is superior to a PMS integration”
“You only need one Channel Manager to be successful”
“All Channel Managers are the same”
“The imminent demise of the Channel Manager”

I believe there is only one way to explain and clear up the confusion.

The reason for the confusion is the misunderstanding between the role a property management software (PMS) and a dedicated Channel Manager play in distribution.

The very first thing to understand is, not only can a PMS itself behave like a Channel Manager: it should always be your best and most important Channel Manager.

I am the single biggest proponent of a PMS connecting directly to the actual channel (without the need for an intermediary channel manager) whenever possible (with one exception, which I will cover later). However, in research for our upcoming Keystone Awards, I am starting to see a different actuality form on the horizon.

A PMS Is A Channel Manager In and Of Itself​

There is no better way to illustrate that a PMS is a Channel Manager than looking at the two photos below from one of my favourite PMS’s. This PMS behaves as the Channel Manager and not one of these integrations requires a third party Channel Manager.


EXHIBIT A
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EXHIBIT B
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It might be easier to understand this concept by looking at EXHIBIT C and EXHIBIT D further down with the red indicator arrows.

As much as I love the distribution in the above two photos, I do not believe this is the distribution of the future.

Why? Because the world of distribution is too deep and nuanced for even the biggest PMS’s to embrace the cost-benefit of developing. After all, Channel Management companies are specialists – like Limited Edition vacation rentals – who do that one thing better than anyone else!

Rather, I believe the distribution of the future will be a blend/hybrid of distribution with both the PMS and multiple Channel Manager(s).

Further, having only one Channel Manager will put you at a competitive disadvantage. What I expect to see is most PMS’s will connect directly to the big prominent channels such as Airbnb, Vrbo, Booking.com, (there will be a few PMS’s with an integration with Google).

These PMS’s will ALSO integrate with selected niche and regional channels, all other distribution will go through Channel Managers.

(I did not include Expedia in this list because I expect the future of Expedia’s distribution (as it relates to vacation rentals) will go through the Vrbo platform.)

The photos below from one of the best PMS platforms illustrates what I think the future of distribution will look like. Notice the red arrows pointing to direct channel integration and external Channel Managers.

It might be easier to understand this concept by looking at EXHIBIT C and EXHIBIT D further down with the red indicator arrows.

EXHIBIT C
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EXHIBIT D
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To say this another way, PMS’s of the future will have BOTH direct connections to channels AND connections to multiple Channel Managers – a category which will boom based on industry tailwinds and the corresponding growth of niches.

When Not To Use A PMS Integration​

Sometimes, it’s actually better to utilize a Channel Manager over a direct integration between your PMS and the channel of choice.

Just because there is a direct connection between a PMS and a channel does not assure a good and stable connection.

I have been a victim of this scenario with a previous PMS when the connection with Airbnb was very unstable but the connection with Vrbo was outstanding. There are no absolutes here. I was part of that PMS’ Facebook group where one member posted that when they switched their integration from a Channel Manager to a direct integration between their PMS and Booking.com reservations dropped 100%.

That is public knowledge.

Another example would be Vrbo’s rate rule that will allow new listings to publish special offers. When contemplating when it’s better to choose Channel Manager over direct integration, I encourage my consulting clients to ask “Can the PMS push our rate rule to the channel?”

Since channels are constantly updating their platforms, oftentimes a Channel Manager (the specialists in this craft) can react to a new API requirements much faster than a PMS. Whereas oftentimes with a PMS you have to wait for the next software release to update their API.

The Competitive Disadvantage​

Now let’s talk about why a PMS integration with a single Channel Manager will put you at a competitive disadvantage.

(You guessed it, you want a PMS with integrations to multiple Channel Managers.)

What we are seeing now is massive distribution opportunities and ever-exclusive agreements with airline partners, hotel partners and soon to be announced a major credit card company.

Another very good reason to have several Channel Manager integrations is certain Channel Managers are more successful with some channels but not all channels.

Some will do better with Booking.com, some will do better with Expedia, some will do better with Agoda and more.

Remember: Not all Channel Managers have integrations with all available relevant channels. There can be huge opportunities lost without diversification.

We hear a lot of talk about clustered inventory. Some Channel Managers cannot even accommodate clustered inventory (conversely there are a few PMS’s that can accommodate clustered inventory).

This section of my article ALONE perfectly illustrates the complexity of distribution and the need for agility and putting yourself in a position to go in any direction necessary to succeed.

The Cost Of Distribution​

In a future article I will go into the details of why the costs of distribution need to be carefully calculated. But for the moment, the best advice I can share is to calculate out on average how much you’ll be paying for distribution on top of your baseline PMS costs. I've seen that threshold (too expensive) be different for everyone but the costs can and do mount fast.

When it comes to Channel Management fees there are basically two options. One, PPB (pay per booking) or two, subscription, where you pay a fixed monthly fee regardless of how many or how few bookings are received. A similar way to illustrate this is to look at Vrbo’s rate plan. There are two options, one, subscription, two, pay per booking.

If your PMS has strong channel integration – ask yourself, does it make any sense to pay a Channel Manager a monthly subscription fee? The answer is likely no. This is where Pay Per Booking makes perfect sense.

If you adhere to the distribution rule of diversification through a PMS and multiple Channel Managers, I cannot think of too many scenarios in which subscription makes sense.


The Imminent Demise Of The Channel Manager​

The imminent demise of the Channel Manage that I have been hearing about for years because “WAIT FOR IT” > “WHY DO YOU NEED A CHANNEL MANAGER WHEN YOU HAVE A PMS”

One of the oldest and best PMS companies does not even have a direct integration with Airbnb and never will. The only way for their clients to get to Airbnb is through a Channel Manager.

The best PMS I have ever seen only connects directly with Airbnb and Vrbo, everything else goes through a Channel Manager.

Most present day PMS’s have liked nothing more than plug and play with distribution and the future of Channel Managers will be no exception.

The single most delusional concept I have ever heard since I joined this industry is the demise of the Channel Manager. It will never happen – in fact I believe it could easily happen in the opposite direction: the Channel Managers may become the gatekeepers of the future!

It started with the PMS facilitating clustered inventory, which is basically facilitating hotel-style inventory. The vacation rental sector is so big, so lucrative and there is so much opportunity, big time Channel Managers in the hotel sector will want in. There is a problem with hotel tech, however: it really does not work with vacation rentals.

I believe when hotel Channel Managers like Site Minder and CloudBeds enter our space (acquisitions of channel managers and PMS companies is very much in play) a new landscape will start to emerge.

Until then, ride the wave!

Conclusion by Matt Landau​

Terry didn’t feel like writing an ending so I will aim to conclude: an ever-thought-provoking predictions piece from someone who does an incredible amount of demos and private consulting sessions. If you haven't watched his presentation The Tech Stack That Drives Direct Bookings, it's like having Michael Jordan teach you how to shoot free throws.

My conclusion (thank you Terry Terry for the chance to opine!) is that sniffing out opportunity happens best when we think differently: it rarely happens in the status quo.

Increasingly, we look to technology to make us more efficient and increase margins. And increasingly, we see vacation rental niches as the greatest untapped potential for growth.

If technology and niches had a baby, it would look like Terry’s article: a fresh and sort of weird new vision that connects the core of your business (a property management software) with the pockets of future guests who are using different search platforms depending on their interests and location.

So maybe the answer isn’t one or the other: maybe direct integrations and Channel Management aren’t a zero sum game. As the flow of vacation rental demand splinters into hundreds if not thousands of rivulets, each with their own peculiarities and charm, the best owners and managers stay agile by choosing a PMS with integrations to the big OTAs, but also a PMS who is comfortable with letting the Channel Managers be specialists at that craft.
 

StacyW

Inner Circle
Accelerator
So much here. Need to read again and wrap my mind around all of this. I like simplicity. We have a 8 deep tech stack and I kind of long for the days of one thing we have to watch, and now there are a zillion and your telling me to embrace more! I will go quietly have a pity party and then regroup and look at this from fresh eyes.
 
This is a fascinating topic and provides some foreshadowing to changes I think are almost certain to happen within the VR/STR tech ecosystem.

When we need the leading vacation rental/STR software expert in the industry (in my opinion) to help make sense of what it is that many of these software solutions provider companies do as it relates to DISTRIBUTION ONLY, it may be a good time to take a step back and assess what it is we are trying to do and what it is that our tech stack enables us to do.

I agree with the definitions and framework Terry applies to channel managers and PMS solutions. However, I would pose the question of “what value are PMS platforms offering when you need it to connect to channel managers (that cost money), pricing platforms (that cost money) operations management platforms (that cost money), guest experience platforms (that cost money), and separate accounting systems (that cost money)?”

While sure, PMS solutions have their own inhouse modules for an “all in one” solution, I am seeing more and more that PMS companies are just trying to allow integrations with other companies that more adequately solve the core VRM challenges…Dynamic Pricing (Wheelhouse, Beyond, PriceLabs), Operations (Breezeway, Turnoverbnb, Properly), Performance Tracking (Keydata)….I mean the list goes on and on.


Its seems to me that PMS platforms are shifting away from a one stop solution and towards a development platform (as evidenced by the API access you are starting to see become a bigger part of the features marketed). I welcome that change, but I hope leadership in these companies also recognize that pricing needs to shift with it, because at a certain point, I think PMS companies are just providing integrations with OTAs or channel managers which they sell in the form of API access. That data stream (your data stream) shouldn’t be the most expensive thing PMs buy, because they then need to integrate that into a custom ecosystem of integrated apps and services that do the real lifting and solving of problems. I also hope that specialty softwares become more open to integrating directly with large OTAs or have open ended platforms themselves that can be integrated with easily. I see this sort of shift broadly in the tech/small business environment, and am seeing some leadership PMS companies seemingly embracing that future… I am hopeful there will soon be cost reduction and more innovative solutions being developed as less cookie cutter and more dynamic.


This distribution conundrum of a PMS vs. Channel Manager is just the beginning, and I think Terry will have his work cut out for him! I won't get started on where I think distribution strategies are likely headed, but I'll be excited to see it develop!

In closing, distribution has always been treated oddly in this industry from my perspective, mostly because so few seem to think about distribution strategy in the same way as I do (I am not an advocate of playing in lots of distribution channels...I feel the opposite is true in most cases), and regardless of if I am right or wrong on consumer behavior not likely supporting thousands of small sites competing with each other to be the source of bookings, I think the future of VRMs is in an ecosystem of distribution channels, channel managers, operations solutions, workflow solutions, communications solutions, guest experience solutions, ect that can easily talk with one another as reservation data flows from whatever booking platform it is being sourced from to whatever system a business manager builds to manage their business how they want it managed, and that goes especially for direct bookings, which shouldn’t require any PMS platform (and corresponding transaction fees) to integrate, but be truly independent and capable of integrating with other platforms that share their values/expectations.



Exciting times!
 
Thanks for the insights Terry and Matt! It seems to me that our choice of channel manager is constrained (or defined) by our PMS - in terms of which PMS integrate with which channel managers. So, a lot of times we don't have a choice at the channel manager level - just at the PMS level. In this case, should we be wrapping this consideration into the ongoing and ever-changing conundrum of "which PMS should I choose?"
 

Karla

Karla, Owner of Tropical Blessings
Inner Circle
TerryTerry Technophobic person that I am, your article scared me at first but I’ve circled back around and read it enough times that it makes some basic sense to me but more important, I realized that my current PMS does pretty much nothing for me. I definitely need to tweak my Rental Agreement which I’m basically pleased with but a couple of unforeseen “Uh Oh’s” are prompting revisions. On top of I became aware of Superhog last May and will probably choose a PMS that integrates with it.

The PMS prices run quite the gamut. One had my strong interest because it helps booking direct but it’s very expensive and since I only want to book 9 of 12 months the math just doesn’t make sense. Further to that my direct bookings are surprisingly strong. One example is Nov/Dec = 35 days already booked direct. Strengthening direct bookings involves elbow work that I’ve already identified: E-mail marketing, blogging, digital guestbook and video. It looks like FB is dead in the water so I won’t worry about that and whether or not Instagram matters I just don’t know so I’ll figure that one out later.

Here’s my issue: I don’t want to pay for A-Z, I might want just A, B, and C but not X, Y, and Z. Beds24.com seems to fit that bill. The reviews I have read are largely excellent though DIY/complicated set up sound like the major downside. Fortunately, my webmaster is a Certified Apple Pro with his own Apple school so jumping technical problems is doable. What’s your opinion of Beds24.com? No better person to ask than The Software Guy!!
 
Hi Terry: great article! I'd love some opinions on how much lift a channel manager can provide beyond direct bookings and the primary channel. In other words, if my primary channel is say, Airbnb, then how much can I boost my occupancy by adding all other available channels? I know the answer is "it depends", that's why I'd love a wide range of opinions/ experiences...
 

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Terry
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