After the Reset: AI and the Next Phase for Short-Term Rentals

Welcome to the STR data lab. Hello and welcome to another edition of the STR data lab. I'm Jamie Lane, chief economist at AirDNA and I'm joined today by a really special guest. We have Brian Egan, the co-founder and CEO of Evolve as our guest today. Brian, welcome to the show.

Jamie, thanks for having me. Great to be here.

Yeah. So, uh I feel like Evolve is one of the OG companies in our space. I'm out uh and started in 2011, which is not only precoid, it's pre-airdna, pre- guesty, pre price, pre a a lot of the companies we all know and love that have been around for for more than a decade. Um so and Evolve has grown and to be one of the and largest operators in the space and you guys uh have done a lot of good things but maybe just wanted to start with and some of that history and you've seen a lot you guys have and maybe even invented like the asset light management model that and is now and coming back into favor and and you guys were doing it a long time ago. Uh but for those that don't know Evolve, do not know that thesis and could you just walk us through and what you do, how you do it, and and what you were sort of betting on when you when you started the company.

Uh sounds great. Again, thanks for having me. Um I'm glad to hear we're coming back into style. Nobody told me we were out of style, so [laughter] but but if that's the update, I'm glad we're already on the other side of it. You know, it Jamie, it's so interesting. I love the framing of we're one of the OG companies. I don't know when we I don't know when that happened, right? It's like [laughter] these things are, as you know, you've been a part of building AirDNA, which you know is an incredible business over many years. And you know, it's just a labor of love. There's a lot of blood, sweat, and tears. It's it's day in day out constant. And uh one day you're kind of the the upstart that is uh you know the little engine that could and the next day uh you know people think you're the OG and kind of the established incumbent and uh somewhere in between there's a whole lot of work. So I I'll actually take that designation and wear that uh kind of proudly.

Uh so so thank you for that. Um and then yeah you know as as far as um the journey itself and maybe the the origin is kind of what you were poking at there. So um you know as you mentioned we launched the business in 2011 um and we came at this with what we now call you refer to it as asset light what we now call the you know either asset lighter or a hybrid management model. We didn't have that name at the time. Um but what we what we saw in the market was and and essentially a three-prong thesis for us was one this market is going to mainstream. Sounds super obvious now, you know, uh but you know, in 2010, 2011, as we're planning out the business, it was still a very nent industry. It was still, you know, uh riddled with inefficiencies. Um you know, at the time, the big site on the internet was VBO and it was a classified ad site, not e-commerce enabled, not even close to it. Uh pretty unreliable when it came to the content on there.

The photos might not be right. The calendars probably aren't updated. The owner may or may not get back to you after you inquire about booking the property. A lot of paper checks. You know, there's plenty of people paying for vacation rentals by leaving a check under the coffee can on the counter when they uh when they checked out of the property, right? So, it was that kind of a wild west world. We believed very strongly in the value proposition of the space that this was an amazing format for travel that families and friends and groups were going to gravitate towards and and that it would mainstream. Right? So that was point one. Point two was with that mainstreaming though, we're going to be bringing all these new consumers into this category and they're not going to be willing to put up with all that stuff, right? they're going to be looking at short-term rental and expecting it to behave the way that the other formats for travel and the other things they buy on the internet are going to do, right?

So, they want to be able to shop and buy and have the protections and the certainty that they would expect from air, hotel, and car. Um, and on the other hand, you know, they're they're not expecting to walk in and have the kind of variances that were happening at the time. Um, and what that's going to lead to is a a more vibrant, a more robust, a much bigger, but also a more complex and competitive market for all of those owners and all those local managers, which were kind of the two things making up the market to operate in, right? And third and ultimately like the business with those two points in place and with that increase in competition and complexity there is going to be an opportunity to build a new kind of management model and to help all of those owners who need that help who you know aren't kind of either willing, able, desiring to do this on their own as you know a part-time or even some cases a full-time job.

Uh, they need that help, but they want more flexibility. They want more flexibility on the things that matter to them most. For some owners, that might be selecting the on-site partners that take care of the home. For some owners, that might be uh having access to specific pricing tools. You know, for other owners, it might be that they want to have an interaction with that guest and greet them at the door or they want nothing to do with that, right? So more flexibility and then ultimately being able to pass through a lower fee structure. So you know that higher performance, more flexibility, lower fees. Uh we believed that that was going to be a winning model and that's what we set out to build and it took us you know a lot longer than maybe we thought but here we are today. Uh we live to tell the story.

Yeah. And maybe digging in a little bit to that story because and you guys were able to re and ride the sort of adoption and sort of growth of short-term rentals moving in the mainstream from I 2011 to maybe 2019 and you then dealt with COVID and the impact that that directly had. And if you're a management fee business uh and management fees go revenues for the industry go to zero that and obviously has to impact you. Uh and then and the wild ride that we've been on since co uh with supply growth and moderating supply and years of growing occupancy declining occupancy. So how have you seen the broader macro changes to the industry uh or and happening within the industry impact uh evolve specifically?

Yeah. So I'm going to I'll tell the story in maybe two parts. The first is going to be that runup to 2019 and 2020 in which ca in which I would say the macro is um the mainstreaming that I was just mentioning but also a as we thought might happen the industry itself then moves to enable and and accelerate that mainstreaming. Um, sure we played our small part in that by creating a new management format, but I'm thinking about other things much bigger like the marketplaces maturing and evolving. Uh, Airbnb coming on the scene and setting, you know, a new bar for what user experience could look like on those sites. Every marketplace had to move to be e-commerce enable enabled. Every listing had to become bookable essentially in real time.

um you know uh revenue management something close to your uh your business obviously you know you fuel a lot of revenue management teams including ours right when we started the business VBO had I think six lines in a rate table and you could go in and enter a spring rate and a winter rate and a holiday rate and you better not come up with four more because there's only three more lines right and so it was that kind of world we now are living in a world where you know we've got our smart rates a proprietary, you know, revenue management and pricing algorithm. We call it smart rates. Our 30 to 35,000 properties. We're making about 850 million rate changes a year against those properties as we're able to repric every one of the next 395 nights every single night based on the shifts in supply and demand. Right? So, that is like unthinkable back then. We didn't even have the API connectivity and the bandwidth.

we could barely get photos across, you know, and listing descriptions, let alone nightly uploads of, you know, uh, you know, millions and millions of rate changes, right? So, um, you just sort of step back and realize like it took the entire industry. Um, and then, by the way, the big the big guys came in, right? Expedia came in by buying Home Away uh, and and and ultimately Verbbo uh, underneath there. uh Booking.com enters the space after declaring at times that they wanted nothing to do with it because it was not you know as standardized as hotels. Uh and then of course Airbnb rises up. So you know there's just been so much that happened that brought the industry into that mainstream and allowed all of it to work. And so there's just like foundational plumbing level things that needed to happen. So that's the first part of the story. Then we get to COVID and to your exact point Jamie this is where everything you know yes travel bans are really bad for travel businesses uh you know going to a you know essentially 90% cancellation rate was absolutely brutal.

The bounce back was very sudden and that was unexpected in you know later in that year and that created its own operational challenges because everybody had to kind of flex down and kind of turtle up to not to get through what we didn't know how long it could be. Uh and then suddenly it bursts forward and we're not ready for all of it. um you know and and if you sort of even just sort put that behind you for a second you then you survive that year and that's the only verb I can think of is survive and then you get to 21 and in 2021 you've got this year in which there is essentially two years of pentup travel demand forced into one year. Nobody wants to go cross border. Nobody wants to be in cities. Nobody wants to be in hotels with shared amenities and lobbies where you could cluster together with other people. They want to get out of their houses, but they want and they don't want to fly, right?

They want to drive. They want to go to a standalone home that they can get away to and have it just be their people. And that is our business, right? So, we saw, you know, the the I think the best measurement for this in the industry that we what we rely on is what most people call revenue per available night or rev pan, right? This is the uh you know total transaction volume uh divided by the total number of available nights that you had uh to offer. And refpan from the precoid baseline of 2019 in 2021 it was up 80%. 80%. It's absolutely insane. And it's on occupancy, it's on ADR, it's on both. The combination was just through the roof. And you know, look, I think we did a good job. So, I'm not sure everybody was up 80%. But I think we were we had our signal, you know, we we were reading the signals, right? And we, you know, we took full advantage. And what I can now tell you is uh that was a fun party.

The hangover really sucked and cleaning up all the confetti for four years and dealing with the aftermath ultimately wasn't worth it because what we saw was a draw down from 21 down. every year it was like 15 16 17%. You fast forward all the way to 2025 and early six 26 and we're down 40% from that peak, right? And so it's just been this like absolute roller coaster. And to your point, what happened was, yeah, you had this story of pent-up travel demand and, you know, essentially market forces directing that demand into the domestic short-term rental category. You also then had a natural market reaction, which was supply rushes in. Oh my gosh, there's gold in those hills. We all better get in there. Who doesn't Oh, and oh, let's not forget interest rates are zero and mortgage rates are two and a half% or whatever, right? So, like, let's go get in there, buy that home. I want to get some of that money.

Well, of course, that has its own impact in drawing down. You know, supply goes up, demand stays constant. That's going to draw down rev pan right there. And then demand doesn't stay constant. It came down a bit. It didn't crash or crater, but it certainly waned. Supply keeps going up. And then that's when you start to really get into this, you know, this cycle where rev pan keeps coming down. So that that became super super challenging. Um not only did it make supply acquisition difficult, it also meant that you know we had to work really hard to ensure that we were communicating with our owners understandably. You know they're not looking at 35,000 properties. They're not looking at all the market data that you see. They're thinking about this essentially as N equals one, right? I've got this property. I'm the one who has to pay the mortgage and the taxes and the maintenance and the upkeep and the utilities.

And if I'm making 15 or 20% less this year than last year, you know, I'm I'm feeling that and I want to understand the why behind it. I want to understand how that relates to evolves performance, etc. So, there was an awful lot we had to learn, uh muscles that we had to build, a certain amount of just difficulty that we had to endure. But I'm also really proud to say that at the end of this story, you know, I think we've touched bottom here. You know, we're looking at 25 was down maybe four or five% year-over-year off the top of my head. Uh 26 year to date. There's a little, you know, it's very market by market because the western ski market just got hammered in the, you know, with the lack of snow in the spring and there was some economic uncertainty, but I can tell you already summer is summer is off to a great start. Uh July and August already look great. Uh we're really confident that you know essentially we're gonna you know at worst be flat year-over-year on this rev uh you know rev per available night.

And uh and I'm really also excited to say like I think there's some really good signs we could be up a bit. Um, and so maybe to bring that part of the story to a close, interestingly, where that will leave us is let's call it flat to up a bit this year, uh, for the first time in a while, which I think would be like us declaring bottom. And then going all the way back to 2019, we're we would be up somewhere between five and 10%. And so it's like, man, if you had told me in 2019, hey, you' be operating in 2026 and RevPan will be up, you know, 10%, I would have said, that sounds great. But what I didn't know was everything in between and just the uh you know the roller coaster ride and and sort of the the challenges that that that lay in between there. So, I love that you use Rev Pan as your sort of metric because it it does take a very owner centric view, right, of like what what are you taking home at a at a property level and maybe less so what I is the overall revenue for Evolve because I assume your inventory under management changed a lot during those periods.

So I mean as you think about evolve as a business less and the on and what your owners are collecting like how was like inventory like were the macro and forces of and increasing supply in 2021 and 2022 leading to a lot of additional clients for evolve in the low envir supply environment we're in today. Is that making it a challenge challenging environment more a challenging environment or I mean somewhere in between? How has that played out for you guys? Yeah. So, you know, it's interesting because I've come to learn over enough, you know, laps around the block in this business that in some ways property acquisition, uh, you know, supply acquisition can be counteryclical to the demand because when demand is great, a lot of people say, "Oh, I can just sort of put my sale up in this,

this is easy,

strong, strong breeze and I can make some money, too." Certainly, it's good. It's good times then too. But when people are really challenged actually that can be very you know that can stimulate them to think oh I might need to pursue a different solution and rather than trying to for example do this on my own um or rather than sticking with you know the local prop the full service local property manager I've been using for the last five or six years I want to try something new especially with respect to how I'm driving you know rental income and and again both on the top and the bottom line, right? Like you got owners only care about the, you know, the the income net of management fees, right? And so

what's showing up in my bank account?

That's right. What money hits the bank account is is the story. And so, you know, I think certainly we had a a pretty nice run in 21 and 22. I think there were a lot of challenging years in between just because the market did figure out how volatile it was. There's a lot of word of mouth out there in this market too, right? So, some people saying, "Oh, I got into the market. I had a good year and now I've had two bad years and so that dissuades people, right? Like there's plenty of that." Um, and I'd say right now it's a pretty kind of natural market. Um, the one thing that we would love is to see uh the real estate market unstick. You know, there it's been pretty frozen. Um, and I think what that's meant is, you know, uh, that a number of people who would love to buy into these destinations, and by the way, like increasingly over time, over the 15 years we've been in this business, the percentage of new buyers who are buying with an intent to short-term rent keeps going up.

So, we're really confident that the next wave of buyers brings, you know, more supply in and we'll win our fair share. Um, but you know, they're kind of on the sidelines right now as that market's still, you know, a bit frozen. But I would say at this point, we feel like it's a fairly normalized uh uh supply uh supply market, which I'll take. You know, just no more roller coasters and just let us go do our job would be uh fine by me.

Yeah, I I've got one more question on on the past and then we'll get into and yeah, and what's going on today. And actually, Jamie, if I if I can just maybe add one thing to that answer, I do think this one is helpful, too, is

we had to learn how to calibrate our supply acquisition much more precisely. One of the things that happens in these frothy markets is that a lot of people rush it and the economics because of like you know again rev pan goes up 80%. Suddenly the cost to acquire that owner versus the lifetime value etc. All of those equations can get tilted and it can be easy to just open up the floodgates and you know ultimately this a tougher market and that draw down of revpan has forced us to be much more calibrated in how we're bringing owners how we're marketing engaging converting and ultimately onboarding and retaining owners. And I think we're the better for it and I think our owners are the better for it. you know, we've gotten better at setting expectations and we've gotten better at coming to a mutual understanding of what success looks like and this partnership that we're going to form and that has been, you know, I think better for Evolve and better for our owners.

And so maybe, you know, one of those things that uh necessity is the mother of invention as they say.

Yeah, that's actually a great leadin for the question I want to ask is very few companies sort of get and write product market fit at the beginning. So and you guys have been in the market for 15 years. So how has the product of evolve changed over that time from maybe what you were offering at the beginning to what you found like actually resonates most with owners and what you're offering today?

Yeah, it's a it's a it's an important and timely question. I would say that in the early days and I'll call that you know again maybe this kind of pre-COVID time period right because it took us a while I mean the first year two three years there were plenty of people asking me you know family friends they'd kind of ask about the so how's it going with evolve right it's kind of that the inflection is uh you know implies concern right u it just took a while to get this flywheel spinning Um and you know the lion's share of the you know the growth that you see uh and the business that you see today you know was really built in the last more like four or five years uh certainly not in the last in in the in the first 10. Um and during that part of the journey I would say we were primarily focused on winning the market with the innovation of the business model itself.

You know, like we just had an offer that nobody else could make that we were going to offer you this kind of performance, this kind of flexibility at a 10% management fee. And you know, everything else sort of was like good enough, including things like the owner app or you know, the ways in which we communicated with our owners and uh in terms of like email versus pushing notifications. And and by the way, it was a different era of technology, a different er you know the expectations were different in terms of what people expected on the internet uh and all the rest. But I would say we were very um we were very business model innovative but also quite kind of like operational and fairly rudimentary on the technical side. jump to the other side of uh of of COVID and that sort of wild you know initial up and down. What we you know strategically decided was we need to pull product and engineering uh and product development into the into the center of the business.

This needs to become the you know the center of and the foundation of the business that we're going to build. Um and so just from a even though the value proposition of performance and flexibility and lower fees is very much still the same and by the way it still resonates right it's pretty strong but the delivery of it is at a completely different level in terms of you know the owner app and the data and the reporting uh the way you can communicate with our team you know all of the things that we've wrapped around that and just being able to want you know after having achieved D a certain amount of scale, you know, you you learn how to operate at that level of scale, right? On the way up, a lot of times it's just bubble gum and duct tape and keep the train on the tracks. Uh you get to that place and you've really got to figure out how to do this well and how to measure the business, instrument the business to ensure that you're really driving at what those owners need when they need it, not more than they need, not less than they need, etc.

And by the way, not claiming that we're done, right? Like we're a work in progress. We get lots of very good, very constructive feedback all the time. We seek it. We think that feedback's a gift. And there's plenty of roadmap to come uh on that front. So that's the first thing I would say is just like bringing product and and and engineering into the middle of the business. What that in turn has allowed us to do is innovate on our offerings in general. So what I mean by that is the first thing we did was we launched a plus offering. So we now at that point we had core which is the legacy business and then plus plus offers you all the great things you get with core but you also have a dedicated advisor. Uh so instead of our our general support team you're able to work with Jamie who's your dedicated adviser who's an expert in your market who's your you know partner and sort of collaborator and strategist on the performance of your business.

Um, you also get things like enhanced uh uh damage uh waiver protection. You get access to a group buying platform so you can furnish the home for a low cost etc. There's other there's other features and benefits. The next thing we launched which was actually just right around the turn of this year is Evolve Pro. This is a really interesting one for us because we're taking the capabilities that we've established over these 15 years serving individual owners. I mean, by the way, we built the business brick by brick, owner by owner. It was a totally organic build, right? Like, we just partnered with all these owners exclusively over and over and over and over and over again and got to, you know, 33 34 35,000 properties, right? What we're doing now is taking and I think the average number of properties per uh owner is like 1.2 at that point, right? So, it's like almost all once. What we're doing now is taking those capabilities and partnering with multi, this is our multi-ro multi-propy offering.

And that might mean multi-propy owners and doing a much better job of serving owners with three, four, five properties, but also local operators who want to partner with us on an exclusive basis. So, very much the same way that owners do. It's an exclusive. It's all marketed and distributed under our brand. all the guest communications and all the things that we do well there under our brand all the same. But what you have now is a local operator which might look like a smaller PM, a 5, 10, 12 unit property manager who's up and coming in a market. It might look like uh an HOA that has, you know, 15 or 20 properties and they're making a a decision on how to source revenue for all of those properties. Sometimes it looks like realtors who have a a kind of a side business uh you know renting uh these properties out. Micro resorts, a really interesting one. You've got a cluster of you know eight or 10 really nice cabins on a beautiful property.

Some people want to rent all 10 uh for a big family reunion and some might want one, you know, that kind of thing. So we're really flexing into this, you know, this multi-propy market um with Evolve Pro and we're we're super excited about that. And then the last one also recently launched is leaning into midterm rental. Um I know that you've had uh my uh my my friend and former partner back in the uh home away and VBO days Jeff Hurst on on your pod uh with Furnishfinder. They're one of the partners that we're launching this with. Um, but this would be, you know, essentially an add-on offering to either our core plus or pro plans where uh the owner or operator could optimize distribution and pricing for the midterm rental market. Uh so additional distribution on places like Furnishfinder, Zillow, Apartments.com, um as well as very specific midterm rental oriented revenue management, which is a different sport, but it again it builds off the same capabilities that we've established over these years.

And we're really excited to be leaning into, you know, these areas of innovation and ultimately, you know, growth. We think that there's a lot of new a lot of new owners and operators we can partner with and and drive value for.

Yeah. So in in in thinking about this interview with you like and the evolution that we've now seen with AI like I couldn't imagine a better sort of combination of tool sets that I'd want to have in ter in terms of that I was running of like you got channel distribution you have guest messaging you have revenue management um you have listing optimization all things that I and we've seen great offerings sort come out being able to leverage and and do those things more efficiently. So, how have you seen AI and AI tools sort of change how evolve works? Yeah, it's been it's been remarkable and I will uh I'll echo your sentiment that you know first of all let me start by just saying I feel so lucky I mean to be to be an entrepreneur and to be you know building a business and to be in this in any market at this time in history is just really cool. It's all it's hard and sometimes it's scary and it's all a lot of change and you know but like you gotta step back and say like that's just it's so exciting right uh and and I think you know myself our team like we're really excited about it and then secondly as you said I just think our business model is is purpose-built for it.

Um, and and look, I won't tell you that was all ahead of like we did not know I'm not that smart. 2011, I'm going to build the, you know, an AI native business 15 years in advance. Not at all. However, I do think we can claim a little credit in saying, "Hey, part of the business model was to understand that these local services, housekeeping, maintenance, snow removal, right, that those were best served, you know, at the local level through local partners. that trying to like aggregate, consolidate, vertically, integrate, all of that was actually like really difficult and and not something where you get a lot of leverage and that we were better off partnering at the local level and taking the more scalable data technologydriven things and building our business around those drivers of the performance and how we can drive value for these owners and including by serving, you know, our mutual guests.

And so I do think that you know we get a little credit for devising a business model that was to your earlier comment asset light right devising a business model that was more operationally and capital efficient and then it turns out that AI becomes this massive turbocharger because I look up and down the P&L I look across you know the org chart I look through workflows in the business and like there's very few places in the business that can't be influenced and positively impacted by AI. So, a couple of examples of of where we're seeing, you know, uh the greatest impact so far, noting that we're so early in the game. I mean, if if if the game has even started, it's the top of the first inning in my opinion. The first would be um owner and uh owner and guest support, as we call it. So, um we this was like the beach head that we picked, right? Like this is something that AI can be very good at and effective at.

It's something we have reams of probably more data than just about anybody, right? Trailing data. Um, and and we've been able to very quickly uh stand up, especially on guest interactions and guest uh you know, inbound um either chats or or or calls. Um you know, we've been able to quickly get to an AI resolution rate of over 60%. Uh which we're, you know, excited about. And again, it's the beginning. That's, you know, that's been sort of the first real beach head and something that we've learned a lot from and something we can start to pull through other parts of our business. Again, where only where it makes sense, only where the return is there. Um, you know, if our owners want to talk to humans, they're going to talk to humans, right?

But a lot of times what they want is the fastest possible answer to their question, well, that might be AI. And, you know, we'll figure those things out over time. Another good example would be listing builds. So, obviously we deal with a lot of content, a lot of listing descriptions and photos and references to local uh you know um attractions, amenity lists. I mean, it's just that's a huge part of the business. We've been able to cut listing build times, listing update times, keeping content up to date, uh you know, dramatically on a percentage basis, uh which is obviously just, you know, it's great for the business. It allows us to accelerate faster, bring more properties through at higher quality, keep property descriptions and listings updated more.

Um, revenue management again right in your wheelhouse. I mean, what we're able to you just picture, I told you 850 million rate changes a year. Imagine now the 10 and 100x power of viewing all of that through the lens of AI ingesting, you know, data from partners like you all uh along with our own firstparty, you know, platform level data. Um there's so much we can do there. And then maybe the last one I'll name is just uh the product development uh cycle itself. Um it's so exciting to see. I mean the end result the output is is really just velocity. You could you can uh measure that in the number of polar merge requests uh you know to get code into production. You can look at the number of like discrete projects that and initiatives we can ship in a given period of time. measure it in different ways, but like the velocity is just palpable. You can feel it in the company. Everyone's so excited.

We used to go from, hey, this is a good idea. I hope I can get it on the Q4 roadmap to, hey, this is a good idea. I just shipped it, [laughter] you know, and we went from like, hey, here's this like really thoughtful seven or eight page PRD, you know, so that I can convince you all to put it on the Q4 road map to here's a working prototype that gives you everything you could ever need to know and more about how this thing in my head is going to work. And oh, by the way, I'm I the person bringing the prototype to the meeting. I'm not an engineer. I'm a designer, right? But I just created a working prototype that I can now and maybe with a few small modifications we can actually get that thing straight into production. Right. So that's just been wildly exciting to see.

Yeah. No, it it's and we've seen it like it's and the velocity that you're able to develop at and test ideas at get in front of people like it's it's incredible. The the flip side of that though is I mean how worried are you that I mean every PMS property management system out there today is I'm developing agents that and can do guest communication that can do revenue management that can do I and respond to owner emails like what whatever I mean it is like and as much as you guys are able to create it and run your businesses more efficiently and it feels like even just owners in general like, hey, I can spin up a guest communication platform overnight. Like, why do I need to pay someone else and to do it? So, and do you see that as a threat or that ultimately there's going to be enough people that hey, I just want someone to take care of it. I don't want to be managing these tools myself.

Um, that there's enough of them out there that's going to and continue to grow your own acquisition, supply acquisition.

Yeah. So, I mean, I think that the short answer is we see this very much as a positive um net on a net basis. I also think it's a positive sum game. I don't think it's a I don't think it's a zero- sum game where we're all just clutching at each other's pieces of the pie. Um I think that the short-term rental market is is actually, you know, it has gone through a very volatile, rocky period here, but it's so durable. It's still again that revp pan number is actually up over the 2019 baseline right more people want to I mean you have the data the the actually aggregate demand in the category is wildly up over 50% versus the pre-COVID basis right so you know I'm I'm such a big believer uh in the size of of the industry and the fact that it can keep growing and I think we will win our fair share let me click into that though this is not the first time that we have, you know, been faced with the wait a minute, what if the owner tools get better or what if the property management software tools get better?

What if the property managers develop better capabilities? What if the owners have right? it's actually been in place the whole journey and the iterations change and the tools get better and then some number of owners say you know what I'm just not the person who's going to sit on cloud code this weekend and figure out how to build my own personal PMS and my own distribution engine and my own pricing engine and like and you know look people are capable of doing incredible things today but that doesn't mean that they're going to be, you know, that's going to be every owner. And and in fact, I would argue that that is another um it's gas on the fire of that complexity and competition that I that I started with, right? It's like if you thought this is a complex and competitive market in 2011, 2015, 20, 25, imagine the next five years where your competition might be a cla wizard who can do wondrous things.

And if you don't have someone like that, a partner like that, who has that capability on your team, you are going to fall way further behind. So, you know, my version of this is like at the end of the day, it's still going to come down to people who either want to be a micro hotelier take on the accountability and the responsibility of being that sort of do-it-yourself for rent by owner. If they're up for it and they like are passionate about the craft, they're going to succeed wildly, especially if they're AI enabled. And they're going to continue to be an important part of this market uh forever really. And I and I we have so much respect for them. We want them in the market. They make they make the market better. And likewise, if you're a if you're a property manager, you know, yeah, you have a full-ervice business, you do some manual stuff that AI is not going to do anytime soon, like vacuum uh and sweep and clean uh fix gutters.

But on the other hand, if you can, you know, if you can get on the front of this wave, you're going to be able to perform your role better, but you're still going to have to have a much higher fee structure and you're not going to be able to offer the kind of flexibility that we offer at our scale. Uh, and then we're going to own, you know, we believe a very healthy share of everything that lies in between in this hybrid management model, especially with the new innovations I was mentioning that helped to make our market even bigger. So we view this as like it is it is a terribly exciting time and our job is just to work tirelessly and urgently to ensure that we stay right on the front face of this wave. you know, we got we got one big wave uh in the first 10 years of the business in the mainstreaming and I kind of view this as like the second big wave and look it takes a lot of hard work to build a business and to operate one and all the rest but you also got you know you don't have to do it on your own and and you know I think a lot of the best companies when you look back what they were doing was also riding a big wave that they were you know contributing to but was not entirely of their making and we view this as maybe uh the second one we get to surf on.

So when when you think about and measuring success in this next wave like is it and you're rolling out and and covering 60% of guest communications with AI is that like that you're also and increasing and and guest communication scores is it that and through and rolling out AI revenue management is that you're able to outpace the competition in terms of repar index like how are you measuring ing success for evolve in this next phase.

Yeah, we we measure it entirely in through the lens of customer outcomes. But you know, if I think about the why behind AI and the kind of P1 objective of our entire AI transformation, I would say that it is to deliver more customer value faster. And again, that would start with for our owners, including within that and and now for our owners and operators with Evolve Pro, including within that the care that we provide and the consistency that we provide for their guests, right? Um so, uh from that perspective, that's the scoreboard. That's what we have to deliver. Now, of course, we have to deliver that in a way that makes a lot of sense on our P&L. And good news, it does, right? I mean, we're seeing tremendous return. I mean, tremendous return on investment. You have to be smart, right? There's token economics are real. The, you know, you can't just have everybody, you know, checking sports scores on uh, you know, [laughter] Fable 5.

Uh, that's not a great idea. But on the other hand, we've really pushed a broadbased AI acceleration throughout the whole business. I mean, I gave you a few examples. Maybe the one I didn't mention that's worth naming is all the places where there's an analyst who now has 10x skills, right? There's, you know, somebody who spent seven hours a week running different reports and stitching stuff together from different places and now it just happens with a magic wand. I mean, there's just a thousand flowers bloom type of thing is happening where we're seeing value created across the business. Um, and of course, look, this is going to change the way that we all do our jobs. That's going to mean that there's, you know, changes to the way that we think about the organization overall. But, you know, from my point of view, you know, this is not a story of, uh, the P1 objective being cost savings, right?

My my my version is this is about delivering customer value, delivering it better, faster, driving growth in the business. And yeah, great news. the cost structure doesn't have to scale linearly with that growth over time in part because of all of the leverage that AI is is presenting us. And so, you know, there'll be lots of change. There'll certainly be, you know, pockets of disruption, but, you know, overall, I'd say that's the story, you know. And maybe one other thing to add here, Jamie, I guess it's it's interesting for me to step back because you know, I mentioned this motion of making a strategic decision that we really had to pull product and engineering and product development into the center of the business and like completely reset where we believed the bar was and essentially rebuild the business. uh you know from this point of view and that was a lot of hard work and it's a you know it's a scary start and fairly early in that process you know we got to the the the amazing moment of Thanksgiving of 2022 right uh I believe it was when uh chat GPT comes out and like everyone's around the Thanksgiving table and everyone's you know using chat GPT to like write haiku poems about their family or whatever right and just kind of like it was kind of like a cool.

It was like a new game. It was like a parlor trick. And we're looking at it and we're saying, "Oh my gosh, this thing is going to change everything, right?" And you know, six or seven months later, we started to see, okay, there is now a real opportunity in mid23 to start thinking about commercial applications and do like applications within the business. And you know, we made a decision that said we're not just going to go for it at that moment. We're going to start we're going to run a lot of small experiments. We're going to let those thousand flowers bloom, but we're not going to shove all our chips in. We're going to put our heads down and refactor the entire platform, the the four or five major components that make up our tech stack. We're going to completely refactor them, make them, you know, modern and streamlined and scalable and ready for the next wave.

And then we're going to intercept AI, you know, at what we thought might be 18 to 24 months down the road. It's almost exactly how it worked out. It was not an easy call. Everybody wanted to write a headline about, you know, the company adopting AI and, you know, Q3 of 23. Um, and, you know, I'm really grateful, uh, Q3 of 24. I'm really grateful that we, you know, thought that one through. And look, we didn't sit on our hands on AI, but we really put the effort in to make sure that we weren't just slapping it over the top of systems and operations and technology that weren't built properly for that next level of AI scale. Um, and now I'm so confident in the foundation of the business culturally, operationally, technically, process-wise, that we're ready for that transformation. I think it's a really big deal because I don't think AI is just about tech. I think it's got to be about culture and operations and how and the mindset of the business as much as anything.

Um, and so I, you know, like I said, I feel like we've laid that foundation and that's why as we look at, you know, the next three to five years, we just our eyes get real big and then we put our heads back down and go to work as hard and hard and fast and urgent as we can.

Yeah. So maybe final question and maybe and step broader in terms of and the overall industry in maybe the next three to five years like from your purview and how do you feel about the foundation of the industry and you said that you felt that the foundation of evolve is strong and we've got and as you said like a housing market that's still in and very weak in terms of investment. We've got a overall relatively weak consumer on the lower end and top end still doing well and the case shape this economy continues to diverge. Inflation's an issue though we've got and and growing middle class in and all parts of the world India China uh we've got and global travel sort of growing more than ever we see that and now with the World Cup and and all the excitement around that. So as you sit in in your seat like how do you see the next three to five years evolving in terms of the industry?

Yeah. So the answer is and I'm sort of pausing only because I know that this is a predictable answer. I'm really excited about it, right? [laughter] And I recognize I recognize that the audience might be rolling their eyes like yeah, this guy's excited about everything. Um [laughter] and I recognize that that that I have a bias, but let me let me tell you why. Okay.

Because from our point of view, the last like everything that happened starting in about the start of Q222 until today, those four years have been so brutal, so hard. Like you are literally you're swimming against the tide. The draw down of rev per available night 40% and not all at once. It would it would have been hard really hard but like it's hard because it happens every year. It's like 15% 15%. Right. It's And you know, you mentioned like all the supply disruption and there was a big flare up of regulatory activity and there's just been as an operator in the space in the management seat. It has been fighting really hard to swim against that tide to make any progress. And you know uh and by the way I'm really proud of the progress we've made.

We certainly haven't, you know, hit the skyrocketing year-over-year growth numbers that we used to, but we also come out of that process very proudly as a profitable cash generating business, right? Uh, ready to take on this next wave with a whole lot of improvement as I was just describing. And my view is that the industry itself, we're we're we're, you know, we're a big player in the industry. I think we're a bit of um a bellweather. And I think the industry itself went through that. And I think that, you know, look, there's some companies that came into that time period that didn't come out of it. And there's some operators that came into it that didn't come out of it. Some owners the same. I think those who are on the field who are doing things really well today are stronger than ever and are ready to, you know, sort of take on this next uh this next phase. So I think actually in some ways the industry what it's exciting in the salad days and the hype days but actually there's a lot of weakness in there right there's a lot of fluff and and I think we've shed all of that [laughter] I think this industry is kind of lean and mean right now and then as you point out the economy like this is where I just have incredible confidence in the human desire to travel you know and I think that um as much as the K-shaped economy is real, uh as much as there's going to be challenge within that, I think that this category represents incredible value.

And so you're going to see some people who say, you know what, we used to fly to Hawaii, but now we're driving to Colorado, right? We used to, you know, uh go for 10 days and now we're going for five, but we're still gonna go. We're still gonna do this thing. And our business model allows us to, you know, we have the, I think, the the sort of great fortune of being able to work with owners and properties from all across the market, uh, geographically, literally all 50 states, you know, uh, uh, from a value perspective, $100 a night to 2500, $3,000 a night. From an owner profile perspective, super handson to arms length investor, right? we've got this wide surface area and I think that as we look at the industry as a whole and we look at evolve like I think that this is going to be you know actually a very promising time uh and that you know I can't predict the rest of the economy I can't do anything about the K shape but I can tell you that this industry is going to flex to serve a lot of that market um and I and I'm so confident that people are not going to just wake up one day and say you know what we don't want travel anymore or you know what suddenly staying in three connecting hotel rooms is going to be better than being able to eat you know breakfast in the kitchen in our pajamas like none of that's going to happen we've been through so much and it just sort of gives me you know inherent confidence

no I I totally agree and I feel like that's a a great spot to end it if people want to find more about you uh connect with you find more about Evolve what's the best place to do that

yeah best place for Evolve is evolve.com. Best place for me, uh, probably LinkedIn.

Awesome. Well, Brian, thanks so much for joining and we'll see everyone next time.

Sounds great. Thanks for having me, Jamie.