NYLP: Welcome to the New York Launch Pod, a podcast highlighting new startups, businesses, and openings in the New York City area. This is our first episode, and I’m very pleased to be joined in studio with Evan Hammer, co-founder of Smart Host. When I first read about the idea, it just blew me away. I’m really excited to have him on. Evan, welcome to the podcast.
Evan: Thank you, Hal. Thanks for having me.
NYLP: So in your own words, what is Smart Host?
Evan: We price vacation rentals. So if you are an owner with a single property or if you’re a manager with 100 units, we tell you how much to charge. It’s not about it giving you the right the base rate. It’s about that every night should be a different price, and we should update those prices as market conditions change. So if you were to book a hotel room, you’d expect if you booked on October 4th or October 5th, that there be different rates. As you approach the date, the rates would change. None of that technology exists for the vacation rental industry. The vacation rental industry is $100 billion a year, and it doesn’t have anywhere near the level of sophistication around pricing that the hotel industry has. So that’s what we’re hoping to change.
NYLP: So what are people doing now for pricing?
Evan: Sure. So let’s say you’re an owner that has a place in Panama City Beach or if you’re a manager that has 100 units in Park City, Utah, typically either you’re the owner when you get the place. We’ll, say, “Hey, we rented this out before at this price.” Or you’ll take a look at some of your competitive listings. If you have a two bedroom house in Park City, Utah, you’ll look at other two bedroom houses that are close by, try to evaluate the pictures to see which ones are similar to yours, and then match their price. Often, that happens once a year, once every two years. It’s a pretty static market when it comes to pricing currently.
NYLP: Why do you think it is a static market?
Evan: A lot of the folks who are doing pricing aren’t data scientists. I can think about all the owners. Your average owner is renting out their place but isn’t putting that much time into it. The managers, they typically do know what they’re doing. They have a sense of the market, but their primary responsibilities are finding the guests, managing a place, making sure that some of the operational things are covered, and making sure that guests have a great experience, just really a hospitality layer more than a big data layer on top of their businesses.
NYLP: How much do vacation rentals vary right now?
Evan: We did one study, just in New York. We looked at the difference between this past fall on New York City hotels and New York City short-term rentals, primarily on Airbnb. We found a lot of the cities actually vary more than the vacation rental spots. So this is probably on the higher side. September and October this year, New York City hotel prices vary day to day by 124%, vacation rentals 18%. We’re going to be doing some other studies for other places around, but that’s just the variance in New York City over a 60-day period this past fall.
NYLP: And were you able to tell, at least in New York City, what caused that variance?
Evan: Variance is caused by changes in demand. It’s one of those interesting things with hotels that the supply is fixed, right? So it comes down to there being conferences, certain weekends when people want to come to New York, the New York City Marathon. These things vary hotel prices quite significantly. We found with Airbnb, with HomeAway, with Flip Key, there are folks who know about all these little things, but most folks don’t. Most of the time, hotels make changes, and your vacation rental folks don’t.
NYLP: So how did you come up with this idea? Were you doing a rental yourself and thinking, “I could be paying a lot more for this or I could be paying a lot less for this?”
Evan: No, it’s interesting. When we came with the idea, it was actually part of this mobile hackathon called StartupBus. So StartupBus is a cool competition where you get on a bus. You spend three days on the bus meeting people, building a company. Then you arrive in San Antonio, Texas. There have been six other buses. So we’re on the bus for New York, but there’s a bus coming from Mexico City, Florida, SF. All these buses have in total about 40 teams. You get down there. It’s two days of pitching, and you compete on your ideas. So when you get on the bus, in our case New York, and I think it was Sunday morning, almost a year ago to the day. It was actually yesterday, a year ago to the day. You get on the bus. You say, “Hey, my name is Evan Hammer. I’m a python engineer. I just stopped working on an outsourcing company, and I’m looking to code for a few days.” And somebody else got up and said, “Hey, I was trying to rent out my place on Airbnb while I was on this hackathon, and it was really hard to figure out pricing.” It just so happened that I was planning to leave New York at that point and spend a year, spending every single month in a different location.
And so I went up to him and said, “Hey, I’m actually kind of your target user here in a certain sense, not as in the host side but on the traveler side. This is a really fascinating area to me, especially around the data portion of it.” We got a few other folks involved. We had a team going down to Texas, working on building a pricing algorithm. Got down there, ended up winning the competition, and deciding working on it full time. So it’s a wild, tumultuous start to a company, but we had a really magical team dynamic. We thought we were on to something, of course, we still do.
NYLP: So how many people are on your team?
Evan: There’s three of us right now as co-founders. On the StartupBus, there were five of us. But as you can imagine, not everybody is ready to quit their jobs and start working on a company the next week.
NYLP: So you spent three days on this bus. How far, at least in terms of development, did you get?
Evan: By the finals, which we started on a Sunday, I think the finals were Thursday morning. By the finals, we had built an Android App that was live in the Google Play store. We had scraped Airbnb just in New York. If you are in New York, you can put in an address and you could put in the number of bedrooms, how many guests you had, if you’re renting out the entire place or just a shared room, see the property type. From there, we could give a price or recommendation. We could cast it onto a calendar to show you how that would change over time. Also, at that point, you could click “update” and it would actually update your Airbnb listing live. So that’s what we built on the bus in three days.
NYLP: Were you on the bus the entire time? Did the bus stop? Tell me more about that.
Evan: Every night, it did stop at a hotel. The first leg was down to Atlanta, Georgia. So it was New York to Atlanta. The next leg was to Little Rock, Arkansas. It was crazy because there was a freak ice storm that night and we got stuck on the highway for like five hours. People were knocking on the door because we were on a bus, you know, to use the restroom. We didn’t get to the hotel until three or four in the morning, I don’t think. Then the next leg brought us in to San Antonio, where we stayed in a hotel the night before the first pitches. We all stayed up straight through the night. You know, coding, working on the pitch, just getting ready to go the next morning.
NYLP: And then what made you think, this is something I should continue with?
Evan: The prime thing was the team dynamic coming out of the bus. There were five of us on the bus. We talked about if we wanted to go forward. Three of us were interested in working on it. I think we felt that it was a really magical chemistry. I know it sounds kind of hokey. I’m a software engineer, really interested in broad design. One of my partners, named Dave Redding, he’s also a software engineer. Had worked in a company called Touch Lab, as an Android developer. When we were on the bus, it was a kind of thing where we’d say, “Hey, how long is it going to take to build this feature? Like what, four or five hours?” He’d be like, “20 minutes,” and then he’d just get it done. So he really has this incredible, not just work ethic but almost supernatural ability to get things done. Then there’s Nick Persico. He’s the other part of this trio. He also codes, actually. He very much comes off the software engineering background, but as a sales person. So he had joined a company called Elastic, that was a sales force on demand. That meant he would go into companies that didn’t know how to sell. He’d set up their lead gen channel, make sure the cost of that segment worked, make sure the whole funnel converted well, hired their first few sales people, and handed it off to them. So he has this very tactical sales experience with building sales teams. So I think we all felt when you’re on the bus, the nice thing is it’s super high pressure, everyone just has to get stuff done.
The fact that we could all just work ahead and then reconvene two or three hours later, and we’d all have helped each other out as opposed to have stepped on each other’s toes, I think we all felt there was this real natural chemistry. That really drove the desire to work forward.
NYLP: So you get off the bus. You’ve developed the App and then how long until everyone says, “I’m going to quit my job and go with this full time”?
Evan: The day we met was March 2nd. That’s when we got on the bus. March 18 was the day we decided to start the company.
NYLP: And everyone quit their jobs?
Evan: Three of the five of us were like, “We’re in. Let’s do this.” The other two folks still have their jobs. They’ve been very supportive. We didn’t quit that day. We kind of planned it out. I know we all had projects we were working on. I just started doing some consulting work where I was the only engineer, so I needed to find a replacement team. Nick was the VP of operations at a company. So he needed to wind that down. Dave Redding was working on projects as well, here in New York. The game plan was basically beginning to middle of June was when we were going to come on full time. And in the interim, we ended up getting Techstars in Austin. So we headed down to Austin and we were there for the whole summer.
NYLP: Did the other two still have a stake in a company at all?
Evan: We decided when we got off the bus that we’d take 3% of company and split it between the five of us. The other 97% would be split to whoever decided to actually work on the company. So they still have that bit of equity.
NYLP: Where are you based out of now?
Evan: So we’re here in New York. I’ve been still moving around to different apartments every month in Brooklyn. Dave is actually in Jersey City. Nick lives in Brooklyn, too. Our company address is in Brooklyn, but we’ve been working out of a couple of co-working spaces like here in Manhattan the last few months.
NYLP: So you all meet every day and co-work together or you work from your home?
Evan: It really varies. We had this mindset that people can work in different places, but being together is really important. So for example, January and February, we were at this co-working space called District, which is up near the Ace Hotel at 29th and Broadway. Every day we went in. I would say probably once every two weeks, each person would work from home. It kind of depends on your need to get into that alone zone and just buckle down. In March, we’re all traveling a bit. So we actually don’t have an office space for March.
NYLP: Are you guys earning money at this point? What’s the revenue look like?
Evan: I don’t think I want to say our revenue numbers quite yet. We have quite a few vacation rental managers on board. What it looks like for them, is they sign up with a handful of their properties to start. It’s $10 to $20 per property per month. We give them dynamic pricing. They sign in, check out the pricing calendar. Our current product is very much focused around highs and lows. So on a specific month, we’ll say, “Hey, these are three nights. They’re in high demand. Do you want to raise your price? Or “These are three nights that are in low demand. You want to lower your price if you’re going to get booked.” Some folks price nightly. Some folks price weekly. But having those nights, allows them to see what we’re recommending, why we’re recommending it, and still make intelligent decisions. These are managers who do know what they’ve booked out previously.
NYLP: So what’s the feedback been from the property owners and managers?
Evan: Yeah. We really have been focusing on the manager segment. The feedback has been pretty incredible. Folks have said, “Hey, there’s a few nights I was having trouble getting booked. You showed me those were actually low demand nights.” We’ve had folks say, “Hey, I’ve come on and just highlighting these few nights that are in high demand has made a difference. I’ve been able to change my pricing and gotten booked at a faster rate.” We’re trying to put together a report over the next couple of months, that lays out exactly what that lift has been for our managers. So right now it’s pretty anecdotal. The folks have also been critical, which I think is super interesting. This is back little bit, we first on boarded our first customers in November. For our pricing to work well, we have to build a comp set of similar properties, to analyze those properties and how they’re booking. That’s one of our key mechanics. So we built a comp set based on the number of bedrooms, occupancy, and location. We showed them to our first customers and said, “Hey, I know we’re not totally live yet, but take a look at this. What do you think?” Folks said, “Hey, 70% of these are good but 30% of them kind of suck.” We got really nervous. We’re like, “Well, if we can’t automatically build these comp sets, how are we going to have a company?” It was one of those moments. One customer said, “Why aren’t you letting me remove all the properties that are good?”
We realize that on one hand we can aggregate some of the quantifiable data. On the other hand, we needed to have our local market experts, our customers, as a vital input into that thought process. We said, “Oh, let’s just have them thumbs down all the properties that are bad. That way, we could make sure that humans who know the market are part of this, and are making sure that our comp sets are high quality.
NYLP: The comp set is computer generated. It’s all based off of an algorithm?
Evan: You got it.
NYLP: What are the inputs? How do you factor what the price should be?
Evan: We take a look at your booking history. We build a competitive set of properties near you that are similar to yours. We look at quantitative stuff like, number of bedrooms and location, but also qualitative stuff like how do the photos look? Does this room look cozy or claustrophobic? We build this comp set with you as the local market expert. Once we understand your competition, we can look at availability. We can look at what price they’re getting booked for on specific dates, nearby events, nearby hotel rates. Eventually, we’d like to even look at demand side of stuff, like how many searches on Google are happening for that location on those dates on Expedia.
NYLP: When you develop this comp set, where are you getting the data from? Is it from other sites?
Evan: It’s really two components to the comp sets. We’re scraping sites all over the web to get listings. We also look to our customers. I think our customers, primarily right now vacation rental managers, have the most important data. So it’s not just the comp set, but it’s knowing when these properties are actually getting booked.
NYLP: So how has the algorithm changed over time? What have you really learned based off of your experience?
Evan: So the biggest change is going from taking a look at your comp set and trying to average what you’re similar to, which is very supply side oriented. It’s saying folks are listening at it for this to trying to predict what the outcomes are going to be and saying, “At this price, we think this is the chance you’ll booked.” That’s probably the biggest change in the algorithm.
NYLP: Are you a separate stand alone app? What are you exactly? You provide recommendations, how does the user get?
Evan: I would say we are a data analytics tool for residential rentals. Right now, focusing on vacation rental pricing. Let’s say you have 20 properties in the Fort Lauderdale area in Florida. Sign up for Smart Host. We give you a pricing calendar. Right now, you take those price recommendations and you put them into your property management system. So all bunch of them. From there, they go back to your website that the price you see when somebody calls in and asks. It also gets pushed out usually to marketplaces.
NYLP: So people sign up through your website?
Evan: Yeah. So if you go to smarthost.me – that’s our URL – you can sign up if you’re an owner, or you’re a manager, or you’re just a host on Airbnb. We can ingest your property and use our price recommendations.
NYLP: So I read recently that Airbnb is getting a $20 billion valuation by investors.
Evan: I read something like that too.
NYLP: What’s to stop a giant like them or another website from entering into your sphere?
Evan: So I think there’s two questions there. What’s to stop one of those marketplaces from doing pricing? And then what’s to stop somebody else from competing to those in the long run? So on the marketplace side, what we say is that Airbnb, Home Away, FlipKey, their primary customer is the traveler, right? They’re trying to compete with hotels, bring more travelers to their sites. Because of that, they’re trying to match travelers and hosts together to create value, to create these transactions. But there are certain situations where the host’s and the traveler’s interests are not aligned. Pricing happens to be one of them. For example, we often recommend to a host that you raise your price above market because you won’t get booked now. You’ll get booked later. I think the maxim is you don’t want to be the first person booked. You want to be the last person booked because you’ll get the highest price. That’s not always true. It depends on the market, but it’s sort of a general curve that we respond to. Now if you imagine Home Away giving a pricing, revenue maximization algorithm to all their hosts at once, all their hosts would start raising their prices above market so they can make more money later. If this was found out by their travelers, I mean, I don’t want to say a scandal but it be terrible for their brand.
So our view is that HomeAway and Airbnb really don’t want to maximize revenue for the host if it’s going to make the travelers suspicious of their intentions. The travelers are the ones who they’re really trying to please. At the same time, they do want their hosts to price well, right? Because it’s more transactions for everybody. So I think that really lends their value or our value here. It says that, “Hey, this is great partnership for them. But if it was their brand doing it, they’d have to answer to their travelers.”
NYLP: But how bad would it be for Airbnb or HomeAway to recommend the dynamic pricing anyway, or have people know about it? Like you said, we accept it for airfare and hotels. Why not accept it for vacation rentals or short-term rentals?
Evan: Right. I think it has to do a little bit with the brand and what the focus is on. So if you think about Airbnb, they’re competing with Hotels. They’re trying to build a brand that a traveler can rely on, and specifically rely on not to be a hotel. People don’t stay at an Airbnb or a vacation rental to have the hotel experience. It’s supposed to be personal. It’s supposed to be somebody’s property. The idea that, “Oh, now it’s just going to be as expensive as the hotel” is something that people have noticed a trend, where these things are getting more expensive, and are concerned. So I think it really comes with how they differentiate themselves from hotels and make themselves a more attractive option. If they were doing revenue maximization for the host, it would really fight against the direction they’re pushing their brand.
NYLP: So what’s the ultimate goal for your company?
Evan: There’s a lot of ultimate goals. Just thinking personally for a second, I think real estate data is so much worse than it should be. If you’re a tenant and you’re looking for an apartment, you have to go to 20 places, 30 places in New York. Even the brokers renting out places, they often don’t know when things have been booked. They’re showing places that have already been rented out. Think about it. When you look around the room we’re in, how can you accurately describe what it would be like to rent this office space, in such detail that you can put it online, and somebody can see that description and they don’t have to visit the place, right? Right now, real estate data is of poor quality. That means you have to physically go to a place to find out what it’s going to be. I think it be amazing if real estate data online was of such good quality that you could make decisions online. You see these short-term rental places with HomeAway and Airbnb, and people are making decisions online. They’re trusting that listing, that virtual listing, as a representation of the property. You can understand why that’s acceptable because they’re only there for three days, or a week, or two weeks.
If you’re actually going to rent out an office space, or live in a home, or buy a home, where you want to be there, but if we can make real estate data of such high quality that all those types of decisions could be made virtually, I think that would transform how real estate works. That’s what’s important to me. I think Smart Host, clearly from the vacation rental side of it, we’re really interested in increasing the quality of the data. We think it’s not just about the description of the individual property, but it’s about understanding how properties are related to each other. That gives you context because if you’re familiar with one property and then you know which properties are similar to it, you can then be familiar with the other ones. That’s the route we’re taking to increase the quality of real estate data, and hopefully, bring forth a whole bunch of applications on that better quality data.
NYLP: And how can people find out more about you?
Evan: They can go to our website. It’s smarthost.me. We don’t have the .com yet. We will. Just search for Smart Host online. We’ll be the first search result. You can follow us on Twitter. It’s @SmartHost. We talk a lot. So if you’re interested in this kind of thing and thinking through these problems, you can find out where our heads are at that way.
NYLP: I think big things are in store for Smart Host. I think it’s an amazing idea. Evan, thanks for being our first guest on the New York Launch Pod and sharing your time with us.
Evan: Thank you for having me. I really do appreciate it. I’m always excited to talk about Smart Host and excited about where we’re going.
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