Branding Challenges at onefinestay: Managing a Two-Sided Marketplace
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Added on 2019-09-16
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This article discusses the challenges faced by onefinestay, an online vacation home alternative to fine hotels. It covers the company's branding challenges, managing a two-sided marketplace, and the rise of the sharing economy. The article also provides insights into the company's founding and growth strategy.
Branding Challenges at onefinestay: Managing a Two-Sided Marketplace
Added on 2019-09-16
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JILL AVERY ANAT KEINAN LIZ KIND onefinestay Miranda Cresswell was delighted to be helping Greg Marsh (HBS MBA ‘06), founder and CEO of onefinestay, a vacation home alternative to fine hotels, with branding work for the company. onefinestay was founded in September 2009 in London, and offered high-end home rentals to travelers who sought a more authentic and local experience than a typical upscale hotel might provide. The company equipped its rental properties with luxury amenities such as fine linens and towels, prestige brand toiletries such as Kiehl’s, and an iPhone loaded with local maps and restaurant recommendations. By the fall of 2014, onefinestay had approximately 250 full-time employees, and an additional 250 contract staff. The company operated in four cities in Europe and the U.S. According to Marsh, onefinestay's brand had been "hacked" together quickly during the company's early years. After five years of rapid growth, Marsh brought Cresswell on board to do a comprehensive analysis of the company's brand and its positioning in the marketplace.Cresswell had spent several months gathering data and insights, and was starting to experiment with use case scenarios that took a crack atsegmenting the company’s customers. The preliminary results were interesting, but raised more questions than they answered, and Cresswell wondered if this was the best way to segment the market. While segmenting in this way was intriguing, it led to a branding challenge – as a start-up, it was difficult for onefinestay to have the resources to support multiple brand messages in the marketplace and different segments wanted different things from their travel experience. She pondered whether there were other ways to group customers that would allow for a more universal positioning for the brand or whether the company needed to focus on one or two segments to serve. Positioning the fledgling brand was a challenge. Who was the companycompeting against and how could it carve out a unique value proposition that would appeal to travelers and be differentiated from
what was offered by other hospitality options? Was its current moniker “the unhotel” working for or against it? As a two-sided marketplace, onefinestay also struggled to find the balance between meeting the needs of two customers: the homeownerhosts who supplied the company's unique inventory of properties and the guests who paid to stay there. At times, their interests were at odds with one another. As Marsh and Creswell considered refinements to their product strategy, they had toEducational consider how their product and service offering differentially impacted the host and guest experience. The competitive landscape was heating up and Marsh was eager to allocate marketing resources in a way that would generate substantial returns and help scale the company. He had big ambitions for the company, but wondered what the right growth strategy was. Should hefocus on increasing the breadth of onefinestay’s global reach by expanding into more cities around the world or should he focus on building depth by increasing market penetration in the cities in which he was already operating? The Founding of onefinestay Marsh was born and raised in London, England. Following his graduation Christ’s College, he worked for GF-X, a logistics marketplace startup, in a variety of operations and marketing roles. Following the completion of his MBA program at Harvard Business School, he joined Index Ventures, a leading London-based venture capital firm, as an associate on the IT investment team. Marsh had just returned from a 2009 trip to Pisa, Italy when the idea for onefinestay occurred to him. He had a “dreadful stay” in a “dreary airport hotel,” but thoroughly enjoyed an out-of-the-way restaurant recommended by a friend who had grown up in the area. Without the friend's advice, Marsh recognized he would have missed out on a local experience in lieu of the typical tourist attractions. At the same time, after coming back to London and making his nightly walks home from work, he couldn’t help but notice the many luxury residential properties in the area that appeared empty for vast portions of the
year. Marsh wondered, "Why are these places empty? Why are the places where I would most want to stay if I was visiting a city the ones where you can't get to stay?"1 He called it a “no light bulb moment,” noting “the lights aren’t on because nobody is home.” Marsh conducted research to see if anyone else was doing something similar, and ran the idea by a colleague who encouraged him to start the company. Marsh’s concept was to provide discerning travelers withupscale home rental options that would be more authentic than hotels and more reliable than other vacation rental choices. At the same time,homeowners would earn extra income from their properties when they otherwise would have stood vacant.2 Marsh elaborated further: Our mission is not to destroy the hotel industry. However, a proportion of travel— certainly the majority of leisure travel—is just infinitely better and far more enriching to stay in a home than in a building that is soulless and has been designed for transient occupancy.... What we’re bringing to that rental sector is generally a curation and quality and service control that you take for granted in some industries including hotels and chain restaurants, but that you don’t find in this much more informal sector of the economy or that you haven’t found until now.3 In September 2009, Marsh left Index Ventures to co-found onefinestay with Demetrios Zoppos and Tim Davey. Zoppos and Marsh had worked together at GF-X, and Marsh knew Davey through his work as co-founder and chief technology officer at one of Index Venture’s portfoliocompanies. (See Exhibit 1 for management bios.) Marsh commented, “With this business, I wouldn’t even have attempted something so ambitious and complex without Demetrios and his operations expertiseand similarly with Tim and his experience: we simply couldn’t have done this without our technology.”4 Together they raised approximately €200,000 from friends and family, and launched onefinestay in May 2010. Marsh reflected, “We really did have to beg, borrow, and steal to get the first half dozen homes on the Web site to start the ball rolling. Another adage, fake it till you make it,well, we faked it a bit—of the first half dozen homes, one was mine, one was Demetrios’s, and one belonged to a friend who has never rented it out and insisted that he was never going to—it’s long since come off the site, may I say—but we needed calling cards.”5
By late 2010, onefinestay was able to raise $3.7 million in a Series A round led by Index Ventures, PROfounders Capital, and a number of angel investors with experience in the travel and hospitality industries.The company grew rapidly, signing 100 homeowners and increasing revenue tenfold in 2011. Spurred by its success in London, in May 2012, onefinestay launched operations in New York City. One month later, the company announced it raised $12.2 million in a Series B round, led by the U.S. venture capital firm Canaan Partners, along with participation from Index Ventures and PROfounders Capital. (See Exhibit 2 for board member biographies.) (According to Marsh, onefinestay had raised additional capital since 2012, but had not disclosed its more recent funding events publicly.) Boosted by tourism during the summer London Olympics, by the end of2012, onefinestay had 1,000 member homes in New York and London, and employed a team of more than 100 people. The company continued to expand and refine its operations, and in September 2013,launched in Los Angeles and Paris. onefinestay also began developing partnerships with travel agents and corporate travel organizations. By the fall of 2014, onefinestay had operations in four cities, with plans forcontinued rapid expansion. The company had over 2,000 houses or apartments to rent, with more than 5,000 rooms. In total, onefinestay had a property portfolio worth over $5 billion. The Rise of the Sharing Economy The sharing economy (also known as “the peer-to-peer rental market” or “collaborative consumption,” among other names) generally referred to the exchange of assets or services among individuals, aidedby the Internet and smart phones. Since the mid- to late-2000s, the use of technology and online market platforms was enabling individuals to become part-time entrepreneurs, blurring the distinction between consuming and producing. The best-known examples of sharing economy companies included Uber and Lyft, the taxi-like ride-sharing services; Airbnb, an accommodations rental platform; and TaskRabbit, a marketplace for outsourcing small jobs and household errands. Forbes estimated the revenue flowing through the sharing economy would exceed $3.5 billion for 2013, with year-over-year growth of more than 25%.6 Investors had taken notice and were aggressively funding sharing economy companies. By October 2014,
Uber had raised $1.5 billion, and had an implied valuation of $17 billion, more than rental car market leaders Hertz and Avis combined. Airbnb had raised $795 million, and had an implied valuation of $10 billion, more than the market value of Hyatt Hotels, a leading hospitality company with 549 properties around the world. Shervin Pishevar, a Silicon Valley venture capitalist argued, “This is a movement as important as when the Web browser came out.”7 Nonetheless, observers recognized the challenges faced by sharing economy companies, including establishing trust, providing demonstrated value, and addressing the “chicken-and-egg” problem ofensuring enough supply and demand. Investor and entrepreneur Raj Kapoor also pointed out the need for consistency of service in the offline experience, particularly during a sharing economy company's early days.8 Perhaps the biggest hurdles for sharing economy companies were the legal and regulatory issues, since most existing laws had been established for traditional large-scale organizations, andwere primarily set at state and city, rather than national, levels. Some locales such as San Francisco, Washington DC, and the United Kingdom were developing regulations to support the sharing economy and encourage economic growth, while other regions were moving more cautiously. By the fall of 2014, Airbnb remained in a contentious battle with New York state regulators, and many other cities and countries were grappling with the tax, legal, insurance and policy issues raised by sharing economy companies. Managing a Two-Sided Marketplace While people often described onefinestay as a “high-end Airbnb,” Marsh disagreed with the comparison. He noted, “We don’t think we compete with Airbnb any more than Marriott competes with Expedia.” Marsh pointed to onefinestay’s collection of carefully curated homes and apartments, its attention to detail—similar to that of a high-end hotel—and the fact that guests never interacted with hosts as distinguishing characteristics. In addition, Marsh saw onefinestay as “a vertically- integrated service-enabled market, providing a variety of value-add on top of a brokerage piece. What we’re doing behind the scenes to create that market and then service and support it, is actually almost more important than the market itself. We’re not a distribution business, we’re a manufacturing business.” He further
described onefinestay as “a hospitality company and also a very complex logistics company behind the scenes.”9 Homeowner Hosts: Managing the Supply Side Most of the properties listed on onefinestay were homeowners’ primaryresidences. Marsh commented, "The homeowners might travel for a month or two, they might have work that takes them overseas, they might have a second home in the south of France or whatever. It’s even more important in those situations that they’re emotionally comfortable with onefinestay and the guests that we introduce to their properties, and [that we] manage them on their behalf as a very, very credible service partner. There’s lots of stuff we’re doing behind the scenes to earn that trust.”10 He elaborated further on a homeowner’s decision to join onefinestay: It’s not only about money. Of course, people wouldn’t be likely to do it if there were no money or emotional benefits involved. The average onefinestay member probably earns a household income of $250,000 ayear and their property is worth ten times that. It’s not like an extra few thousand dollars a year is going to fundamentally transform their lives. But, if it’s free money, and someone else is doing all the work, allyou have to do is overcome the anxieties and the trust issues around affiliating. When you get your home back after your vacation cleaner than you left it, you stop asking yourself, ‘Well, why the heck would I do that?’ and you start thinking ‘Well, why wouldn’t I do that?’ Homeowner members were required to list exclusively through onefinestay and were expected to make their homes available to the company for at least four weeks per year. Two-thirds of onefinestay’s homeowner members came through word-of-mouth referral. Keyvan Nilforoushan, onefinestay’s Paris general manager noted, “I know to expect three calls on a Sunday from people who’ve been out to dinner on Saturday night with one of our hosts. When hosts come back from holiday, that’s when it happens.”11 Marsh reiterated the importance of social validation and noted that most decision makers on the supply side were female, "Often it’s one mom talking to another mom at the school gates. We realized that if we could figure out how to make things sufficiently easy and compelling for folks who would not otherwise do this, we could bring a tier of inventory to the market that’s never previously been available.” (See Exhibit 3 for additional
information on onefinestay’s member hosts.) Marsh explained the process of signing up homeowners: The “take-on” process starts when the owner first joins. It’s not one single interaction, but takes place over a period of a few weeks. Homeowners may have heard about us from a direct mail marketing, through an editorial piece, or increasingly, from a friend or an associate at work. We go to visit them in their home. The visit is basically a sales meeting, in the sense that we are trying to persuade them in a very general and soft way, to join the service. We’re almost discouraging folks from membership unless we’re really convinced it’s going to be valuable for them and for us over the medium- to long- term. Marsh estimated the company listed approximately one in ten of the properties offered to them. He explained, "People get anxious that we're the taste police, but it's rarely a question of taste. Our issues aremuch more likely to be practical, like is it a good location, does everything work properly?”12 A third co-founder and president of the Americas, Evan Frank added, “The homes need to have WiFi, they need to have bathrooms and kitchens in really good condition, and they need to have character. It has to look like somebody lives there and that the owner has a personality. What we don’t want are homes that look like standard hotel rooms or apartments. Whether it’s nice furniture, great views, interesting pictures on the walls, you have to walk into the home and think there's something special about it."13 Once onefinestay and a homeowner decided to move forward, the nextpart of the take-on process was called the registration phase. It took place again, on premises, in order to register the homeowner’s assets. A representative from onefinestay went in with a scanner and created an extensive and detailed inventory of the property—information abouteverything in the home and where it was located, down to the rules and exceptions of the owner. Marsh added, “That might include instructions such as not to use an abrasive surface cleaner on the downstairs table. It might also include information about which bookshelves or wardrobes to seal off, and which spare room should be used for storage.” The meetings typically lasted a few hours, and for a large property, could take significantly longer. As Marsh noted, “Ultimately, we need to
be able to deal with any issues that arise in that home, so we can manage the property as if the owner didn’t exist.” The next step was the photo shoot. onefinestay merchandised the property, wrote copy, and presented images of it on the company’s Web site. Marsh commented, “We’ve actually done a lot of process engineering to get the quality consistently excellent at a sensible cost.” Typically, the firstreservation occurred within just a few weeks since homeowners often signed up with onefinestay in anticipation of an overseas or extended trip. According to Marsh: This is where the fun part starts. Once the homeowner leaves town, the property’s essentially under our control. We go into the home and we stage it. We call that provisioning. We run through the original checklist and it’s almost like an episode of CSI. We bag and tag things, and when needed move stuff around. We do a little bit of de-cluttering and we usually seal off a spare room or some of the wardrobes and cabinetry with little bar-coded, tamper evident seals. They serve as a nudge to remind guests to be considerate during their stay. There’s a deep clean, including fresh hotel- grade thread-count linen sheets on the bed, plush towels in the restrooms, and fancy bathroom products—Kiehl’s in New York, Aesop in London, and L'Occitane in France. The homes included in onefinestay's portfolio were distinctive. Examples included a former sugar warehouse in New York City with views across the Hudson River, a three-story loft in a former rectory in New York’s Murray Hill neighborhood, and a two-bedroom apartment inLondon’s St. Pancras railway station’s clock tower. (See Exhibit 4 for images of sample properties.) Prices ranged 5 Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F278116 from $250 per night for a comfortable one bedroom apartment to well over $2,500 per night for a grand townhouse. Pricing for homeowners was negotiated up front and then marked up by onefinestay before being posted online. As one reporter noted, “The beauty of onefinestay...is that you stay in the kind of place you’d like to live in, but probably can't afford.”14 Attracting Guests: Managing the Demand Side
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