🏨 4 Insights on vSol Comparing SiteMinder with Mews
Overlooked #154
Hi, it’s Alexandre from Eurazeo. I’m investing in seed & series A European vertical solutions (vSol) which are industry specific solutions aiming to become industry OS and combining dynamics from SaaS, marketplaces and fintechs. Overlooked is a weekly newsletter about venture capital and vSol. Today, I’m sharing insights on vSol gained while comparing Mews and SiteMinder.
To conclude this series on the hotel tech stack, I would like to draw some conclusions on vSol by comparing Mews and SiteMinder. In the previous editions, I discussed the hotel tech stack and I covered both Mews and SiteMinder.
Insight n°1 - Being System of Records and Serving the Mid-market Segment of your Vertical is Necessary to Maximise your Net Dollar Retention (NDR)
On average, public SaaS companies have a 115% NDR. It means that if you make $100 from a customer in Y1, you will make $115 from this customer in Y2, $133 in Y3, $175 in Y5 and $351 in Y10. In SaaS, it’s key to have a good NDR to have a sustainable and strong annual growth rate.
In FY-2022, SiteMinder had a 89% NDR underperforming the vast majority of publicly traded SaaS. It means that if you make $100 from a customer in Y1, you will make $89 from this customer in Y2, $79 in Y3, $63 in Y5 and $35 in Y10. It has customer and revenue churn that is not compensated in a given year by the upsell it drives with its existing customers.
This low NDR can be explained by several factors: (i) SiteMinder is mostly serving a SMBs segment with high customer churn, (ii) the channel manager product is becoming commoditised with a strong competitive intensity on the market driving prices down and churn up, (iii) the channel manager product is not a system of records for hotels which makes it harder to upsell other products on top of it.
On the contrary and even if figures are not public, my guess is that Mews has a healthier NDR because the PMS is a system of record and because it is serving the mid-market and enterprise segments of the hotel industry.
Insight n°2 - Combining Direct & Indirect Monetisation Will Drive Up the ARPU when you’re Serving SMBs
SMBs have a mental threshold around $200-300 per month that they’re willing to pay for a SaaS solution. This threshold varies by industry depending on the average revenue and profitability profiles of the industry. Nonetheless, SMBs tend to behave like consumers which have also mental threshold when they pay for subscriptions (e.g. it’s hard to have them pay for a mobile subscription a price point that is way higher than the $10-15 per month they pay for Netflix and Spotify).
As a vSol, once you reached this mental threshold, you should think about indirect monetisation levers which are mostly financial services and marketplaces revenues. With these levers, the SMB does not feel that it is paying from its pocket for the services you offer. Looking at both Mews and SiteMinder, you see that they have introduced payment products in order to monetise a percentage of the amount spent by consumers in hotels thanks to a payment processing fee.
Indirect monetisation can be massive for vSol. Mews is said to generate 75% of its revenues from financial services. Another example is Squire which is an all-in-one solution for barbershops which claims that it can reach a $25k ARPU ($2.1k per month) with only 10% generated from direct SaaS monetisation ($200 per month).
Insight n°3 - Trade-off Between Disrupting the Existing System of Records and Building a New System of Records
When you start a vSol in an industry that is already equipped with software (which is the case in the hotel industry which has been relying on PMS for decades to manage hotels), there’s a trade-off between replacing the system of records with a 10x better product (Mews approach) or building a different product which has the potential of becoming the new system of records in the mid-term (SiteMinder approach).
The first option means that it takes longer to build a product that has the maturity to be on par with incumbent solutions and will be harder to sell because it’s a replacement play. But once you’re ingrained, you have a stronger stickiness and it’s easier to upsell other products. The second option implies that you can build a shallower product and that sales cycles will be shorter (this is why Mews added only 0.3K properties per year on its platform since inception compared with 2.3k for SiteMinder). But once you’re installed, you need to change the habits of the industry to transition their system of records from what they were used to historically (this is why SiteMinder wants to make the PMS a commodity for its mid-market customers with its multi-property product).
Insight n°4 - An industry is not homogeneous. vSol should seek successive product market fit in different segments in the industry they tackle
Digging into Mews and SiteMinder makes it obvious that the hotel industry is heterogenous. It’s not the same to serve an Airbnb’s property owner and to serve a top hotel chain like Hilton. Most successful vSol are able to start by building and going to market for a precise subsegment of their industry (large hostels for Mews, independent properties for SiteMinder). Once they nailed the product market fit within this initial segment, they will make their product and go to market motion in order to serve other sub-segments (e.g. starting to serve chains for Mews) to continue to grow and to expand their total addressable market.
When you think about this phasing, it’s also interesting to think about how it can fit with your product roadmap. For instance, Mews has always wanted to serve chains but to be on par in terms of features with the incumbent Oracle Opera, it implies a multi-year product roadmap. While building the capabilities of its PMS, it started to serve segments like hostels which were not as interested in super complex features that a large hotel chain could want. While growing its customer base and its product depth, Mews has been able to move upmarket and is acquiring hotel chains that are larger year after year.
Thanks to Julia for the feedback! 🦒 Thanks for reading! See you next week for another issue! 👋