By definition, an application programming interface (API) is a set of routines, protocols, and tools for connecting software applications.
Simply put, in the vacation rental industry, an API is the communication protocol that allows your technology systems to connect and interact with each other. For example, think about your software system, website, and keyless lock system. Information in your property management software/system (PMS) is pushed out to your website and keyless lock system, and information from your website and keyless lock system is pushed back into your PMS.
This connectivity is accomplished via APIs, and each PMS has a different API specification. Your PMS company provides this API documentation to your other tech providers, and each of your other technology providers “writes to” this API to connect with your PMS.
Examples of third-party technology companies that use APIs to connect with your PMS include the providers of your website, customer relationship management (CRM) system, keyless locks, smart home platform, property care/housekeeping/maintenance scheduling, comparative data, revenue management, channel management, third-party booking websites, document signing, SMS messaging, travel insurance, and credit card processing.
We reached out to 25 technology executives to learn more about API usage and where the industry is heading in 2020 regarding connectivity between systems.
APIs Create a Significant Barrier to Entry for Third-Party Tech Companies
Because APIs are not standardized, the complexity, learning curve, and expense of implementing and maintaining API-driven connections with software systems create a significant barrier to entry for emerging third-party technology companies.
For example, Brandon Sauls, founder and CEO of InterCoastal Net Designs (ICND), told us that ICND is currently connected to 20 software companies through APIs, and, as mentioned above, each one is different.
As a VRM, how many times have you ventured through a conference exhibit area exploring new technology offerings and asked a vendor, “Do you connect to (or integrate with) my software/PMS?”
This is the first question VRMs ask because they know that—if the answer is no—they cannot use the new solution; any technology purchased that doesn’t have an integration with their software requires prohibitive manual and duplicate entry of the data that would otherwise be pushed/pulled via an API.
“Most PMSs have their own structure for how they consume and provide data in their API,” said Anurag Verma, founder and CEO of PriceLabs, “This is very understandable, since each PMS was designed differently in how they store data and how they develop their API; but [it] creates connection and maintenance challenges.”
In the absence of standardization, there are three key reasons that APIs create a barrier for new technology companies that want to enter the vacation rental industry.
1. API integration requires clients, and clients require API integration.
API connectivity requires time and resources from both the PMS provider and the new technology provider. The PMS company doesn’t want to invest valuable development resources into connecting with a new technology provider unless they have mutual clients who want the solution, and clients don’t want to buy a solution that isn’t connected to the PMS. Without client demand for the new solution, the process is slow because there is no urgency for the PMS provider.
2. “Writing to” APIs requires in-depth, working knowledge of the vacation rental industry.
Dozens of new technology solutions for VRMs are being introduced each year, and most of these new tech company founders are coming into the sector from an outside industry. Vacation rental PMS intricacies and eccentricities can trip up the savviest of developers. While the idea of connecting to 10 to 20 PMSs can seem simple at the surface level, the reality of building these integrations requires more than just talent and coding knowledge. Fully understanding how data is entered into and utilized in each PMS requires time, effort, and a certain level of humility that many new third-party developers do not immediately embrace.
One technology startup founder lamented, “The fact that the APIs differ isn’t the issue. The issue is that not all of them agree on the basics, like what a booking actually means—is the booking tied to a property, a person or a group of people? What is a room? What is a property? The basics of the English language don’t match.”
3. Connecting a new solution to a PMS via an API can be costly.
Budgeting and planning for the costs associated with API integrations are often ignored or miscalculated by new third-party tech startups. In the same way that each PMS has its own API documentation, each PMS also has its own fee structure. Although some software companies do not charge new vendors for API connectivity, most report having a mix of fee structures, including flat up-front connectivity fees, revenue-sharing agreements, transactional fees, or per-unit fees. Dozens of new technology companies have failed by not understanding the costs associated with API integrations with software systems.
Who Pays for API Access and Usage?
Creating and maintaining seamless integrations requires valuable development resources. Consequently, software companies have different policies for API access and usage fees.
When deciding how to charge vendors, PMS providers consider the demand from VRMs for the third-party solution, revenue models, and the potential that an integration with the third-party solution will help sell more software.
PMS companies typically implement an API fee structure that includes one or more of the following:
- Flat up-front fee
- Revenue share
- Transactional fee
- Per-unit fee
- Tiered monthly fee
According to HomeAway Software general manager, Ryan Hutchings, “We have various types of integrations and connections with third-party companies and Escapia. We do not have a standard ‘API fee’ for connecting to our APIs. Instead, we have individual commercial contracts depending on how the partner is using our API and services, and we have an initial fee to get an account set up. In some cases, it’s a revenue-share agreement; in others, it is a block plan based on properties accessed. Most of the programs have tiered pricing structures with larger volumes being discounted.”
“We don’t currently charge vendors for access to our API. We do this to keep costs low for vendors and our software customers,” said TRACK’s Matt Renner. “We are an API-first software—our architecture is built this way. So whether you are using TRACK for all of your business operational needs or you want to connect with a third-party application, we are open.”
Maxxton’s Chris Connar echoed the sentiment: “We do not charge any fees to third parties connecting to our PMS via API. An open API is essential to exceed the increasingly important IT landscape for VRMs.”
However, Barefoot CEO Ed Ulmer pointed out that the client ultimately pays. “We either charge our clients, the partner, or both. In reality, the client is paying one way or the other, but it is typically hidden by most of our competitors,” said Ulmer. “We try to be transparent. As one of the innovators of API and partner programs in this industry, we continue to look at ways to cover our costs and keep it simple and, most importantly, transparent.”
Ulmer also brought up an interesting point that the entire burden of connectivity currently rests on the PMS provider. “I sat in the VRMA session about open APIs, and we were reflecting how best to move forward. One of the questions I put back to the committee is that these third parties should also have an open API so that their info flows back into our system—so will they do that for free? Also, with this flow, how do we protect for GDPR issues, which are expensive to monitor?”
As more new tech startups enter the industry, third-party providers are pushing back on some of the higher API fees being introduced into the market by software providers.
“Some [PMSs] are trying to charge as high as 20 percent—i.e., their businesses seem to be building their product on the backs of their partners rather than building their own products,” said one startup CEO. “I would prefer to move to a referral program and instead focus on improving the integrations for our clients. Drawing off so much revenue makes for stagnation on the product development side. Who wants to grow a shared product that takes so much and gives so little?”
Virtual Concierge Service founder Dana Young added, “We’re not opposed to the monetization of APIs, but moderate ‘pay-per-use’ models are the way they should be done. Look at the way tech industry leaders like Google handle their APIs—pricing is based on monthly usage of requests, with a certain number for free, and volume pricing at high utilization rates. We think that is fair and the way the VR industry players should be structuring their models.”
Challenges Third-Party Tech Companies Face Working with PMS Companies
For emerging third-party technology providers, working with software APIs presents multiple hurdles.
“The challenge starts with the sheer number of integrations, given the fragmentation of the market and number of PMS players,” said Young. “Compound that with no standards in place so every integration is custom. Then throw in the navigation of the policies and approval processes involved before you can even get to the technical work.”
Another technology provider added: “The legacy systems take sometimes three to five times longer to integrate than the newer systems. Their APIs are just rarely, if ever, updated so everything is a workaround.”
There are some security considerations with API connectivity, as well. “Having the ability to make certain API calls has helped tremendously with troubleshooting API-related issues,” said another technology provider. “However, one thing that could improve is accessibility to different API calls and functions. We’ve seen that access to some API developer environments are ‘all or nothing,’ meaning that you either have access to all the tools and info that an API offers or no access at all. Sometimes, certain API calls lead to sensitive information becoming accessible and also the ability to manage reservations. As you might imagine, this access could be risky if someone troubleshooting is not properly trained and tries to use certain API calls, such as accidentally deleting a reservation; especially since there may not be an audit of which specific person [or company] sent the API call.”
Accessing API support from PMS companies can also be a challenge. ICND’s Brandon Sauls explained that while several PMS companies provide his team phone support for API issues, others require them to use a support email that “just lends to a turn in circles trying to resolve issues.”
“You have to think—you’ve got three parties involved: our web development team, the client, and the PMS,” Sauls said. “The client does not care who the problem is—they just want it resolved. We catch the brunt end of it often because we are always available and here to take the call.”
Open API Connectivity Is a Priority, But Software Providers Are Still Looking to Build All-In-One Solutions
Among vacation rental technology providers, there is widespread agreement that the demand for open and accessible APIs will increase in importance for two reasons: 1) VRMs want to use third-party tech solutions to augment their service offerings and streamline their businesses, and 2) much of the current innovation in technology is being driven by emerging third-party providers.
“We look at APIs as a vital part of our strategy moving forward. We do not take the position that we can be everything to everyone,” said HomeAway Software’s Hutchings. “APIs allow third parties to offer alternative solutions for our customers. We also recognize that choice is important to our customers for many services that they use. In many cases, our customers want to choose between multiple options, and we try to offer choice through our API integrations. In order to be flexible for customer needs, we think it’s important to provide API access to your data in order to allow them to customize their business. We want a technology platform that enables growth and innovation. This can come from third parties, too.”
All-In-One Software Platforms
While software providers are enhancing their APIs to provide more choice for VRMs, they are also actively building all-in-one solutions. Their goal is to provide comprehensive functionality that supports the core aspects of the business while still giving clients the ability to work with the third parties of their choice—as long as integration can be accomplished in a way that aligns with their own business objectives.
“At Guesty, we are working on building an all-in-one platform, and yet we still understand we can’t accommodate all types of requests and use cases,” explained Amiad Soto, cofounder and CEO at Guesty. “We want to offer the best products available for our customers but also allow them to choose [a third-party solution] if they prefer or substitute some functionality with external offerings—including their own. We currently offer tools in our marketplace that compete directly with some of our offerings, and that is okay with us.”
Renner told us that most of their clients solely use their system without a need for third-party solutions. “We have over 20 endpoints and over 70 connections currently, and vendors love working with our team and our technology. However, most of our customers—unlike many other so called ‘all-in-one’ solutions—do just use TRACK. They are not typically using core third-party applications.”
According to Connar, “Maxxton believes in the best-of-breed approach; the PMS should still offer most of the functionality and be the center of the organization to decrease complexity versus working with many third-party solutions.”
PriceLab’s Anurag Verma predicts a more open API landscape moving forward. “We think that more and more PMSs will start providing open APIs (it’s already a lot more prevalent than five years ago). It only makes sense, because even if the software is all-in-one, there are going to be power users who require specific functionality that third-party providers can provide to improve everyone’s experience.”
Technology Predictions: Software Executives Discuss the Future of Connectivity
When researching API policies, we asked PMS company executives, “Looking toward the next decade, what are your predictions on how vacation rental managers will use their software and third-party tech companies?”
Our bet is that property management platforms (PMP, and not PMS) will become the key technological piece of software property managers use, and all third parties will need to be accessible from that platform. Staff won’t like to be trained on—and use—20 different tools on a daily basis, so controlling external products and using them from the PMP is going to save hours at a time and create more efficient and successful management companies.
In the next decade, we envision more integration and more API usage overall. We also envision software being the “hub of the wheel” in their (PMs’) strategy of working with third-party tech companies. More PMs are creating their own solutions and/or hiring developers to create products that meet their needs. It is still a large investment of time and resources to develop solutions, so individual PMs must rely on a PMS or other third-party tech platforms to provide solutions and options.
We are seeing consolidation in the PMS space, and this is a good thing. Many just-OK options are being whittled down to a few good, sustainable ones. I think we will see the same thing for third-party middleware providers. The thing about software is, if you provide a great solution that offers true value to the customer and with great service, you should be able to create a niche, and I think it is important for the PMS providers to allow customers to choose the solution that is best for their business.
We do, however, see the PMS handling most of the core functionality specifically in the short-term vacation rental space, with certain disciplines creating opportunities for larger third-party players, such as pricing/revenue management systems (RMS). We’ve seen this in the hotel industry where the PMS handles the core of the business, and the RMS is not just seen as software but as a functional discipline and nonnegotiable for hotels (i.e., certified revenue management executives [CRMEs]). So I think this is one function that could live outside the PMS due to the complexities and the service-level layer.
Where it gets really interesting is in this convergence of hotel-style inventory and key-level (unit vs. unit type) inventory living in the same system. That is what we’ve been working on in TRACK. What you are going to see is more and more vacation rental companies owning hotel-style inventory and vice versa. These companies are not going to want to have two PMS systems. So you are going to see vacation rental software in the enterprise need to move into the hotel world and that will bring an entirely new set of requirements for connecting systems—including points of sale (POS) and other traditional hotel functions.
At its core, there will be little change. PMs will always need strong trust accounting and a platform. As there is now, there will continue to be innovation generated by new players. Existing players will try to duplicate success and will struggle to be as good as someone who is singularly focused.
Google, Zillow, and Amazon will all move the industry further and radically change the experience—with even more focus on attracting the individual homeowner because there is more money to be made that way. Asset management by the PMs will be necessary to maintain inventory.
There will also be a need for the PM to focus deeper on niche—which is a trend that occurs as any industry matures. A PM who is the local expert both in managing the property and the full vacation (concierge) will be more trusted and successful. Social media is already swinging toward niche connections. A guest review is no longer trusted, but a review from a friend or a friend of a friend is powerful. Those who sit in or control your social circles will become more powerful. For example, a Netflix subscriber who watches Last Kingdom would be more willing to book a vacation to the English countryside if the offer is provided during the viewing. Add a points program to that offer and it becomes strong. Another example is booking your entire vacation out west through your EPIC, IKON, or Mountain Collective Pass. You trust your pass, and thus you trust its partners. PMs will need to look at their niches and connect with mediums that have similar messages.
We expect PMSs to consolidate to a certain extent and the number of third-party technology solutions to increase and slowly be incorporated into PMS solutions.
These third-party technology companies will be an important driver for innovation.