Towards a 21st Century Exchange
Part 4: Timeshare-Industrial Complex

By David Skinner, President Holiday Equity

Before we move on, let’s briefly summarize what we’ve discussed in the first three parts of this series.

In Part 1, What the Past Can Teach Us, we saw how the Internet, and Napster in particular, marked the arrival of a new paradigm, a new set of business rules for the timeshare industry. Namely the potential for an owner-empowered future—an exchange network of the people, by the people, and for the people. Is it time for a 21st Century Exchange?

In Part 2, Set My Timeshare Free, we learned that while exchange flexibility plays an important role in the consumer’s decision to purchase timeshare, it comes at a high cost: the freedom of choice. In the end, we discovered, there is no flexibility without freedom of choice. Is it time, as Ronald Reagan said, to “tear down these walls”?

In Part 3, The Tipping Point , we saw how technology is driving change at an ever-increasing rate. In which case our industry—and certainly the exchange companies—is faced with a paradoxical choice between the inevitable and the unknowable; which is to say, a choice between “for profit’s sake,” or “for goodness’ sake.”

Timeshare-Industrial Complex

President Dwight Eisenhower warned during his 1961 farewell address of a disturbing confluence of power between the US military establishment and the armament industry that supplied it. He was deeply troubled that while necessary to protect America, such an alliance, if left unbridled, could lead to the eventual loss of the very liberties it sought to protect. He called it the military-industrial complex.

Any comparison of Eisenhower’s military-industrial complex to timeshare’s exchange systems would seem at first alarmist and absurd, but wait!

Most timeshare owners would be shocked to learn they are not clients of the exchange company to which they belong—at least not the most important client. In a presentation to Wall Street analysts, one exchange company president stated, “We provide value added services to our resort developer clients on the one hand and create an exchange marketplace for our vacation ownership members on the other.” According to this company head, it would seem exchange companies’ loyalties lay first with the resort developer, then, to some lesser extent, the dues-paying members.

The relationship between the major exchange companies and their resort clients is contractually exclusive, mutually symbiotic, and an oligopoly by appearance. Perhaps once necessary to protect the fledgling industry and establish an exchange system, a similar circumstance and alliance as Eisenhower feared has, over time, reduced competition, restricted consumer choice, and limited the very flexibility it sought to provide. Let’s call it the timeshare-industrial complex.

Arguments still rage over Eisenhower’s military-industrial complex and whether his fears were justified. And, too, opinions may differ over the efficacy of the timeshare-industrial complex, but most agree it is largely responsible for the industry’s considerable success. Still, and perhaps for just this author, it does present a quandary. And this is not the end of the story: there is a future yet to consider.

The Status Quo Has Lost Its Status

The premise underlying this series of articles is how change, hastened by technology, is empowering the individual and rewriting the rules of business. Ray Kurzweil, author, engineer, and visionary, calls it “The Law of Accelerating Returns,” which results in constant innovation and disruptive change, both unrelenting and irrefutable, where the status quo is no longer relevant. If you accept the above premise, then nothing is exempt. Not even timeshare.

Thirty-five years ago, the exchange network was born, a marketplace where timeshare owners could trade for other destinations. It solved the major objection to purchase and added immensely to the product’s appeal. The exchange became the “Oh, wow!” must-have “gadget” for timeshare owners and an essential sales tool for developers. It was a technological breakthrough for its day.

But over time, and ever so discreetly, the emphasis and value proposition of the exchange shifted from owners to developers, from exchange transactions to marketing advantages. It moved from the dining room of RCI founder, Christel DeHaan, to the corporate board rooms and trading floors of Wall Street. Thus the seed for an eventual timeshare-industrial complex was sown.

According to Kurzweil, the history of evolution, both human and technological, has been punctuated by episodes of chaotic-disruptive innovation followed by periods of consolidation and stasis, thus setting the stage for renewed disruption. Furthermore, Kurzweil explains this cyclical pattern is itself accelerating at exponential rates, approaching what he calls Singularity, where the status quo is eclipsed by constant change.

Facing the Dilemma of Choice: The Inevitable Versus the Unknowable   

As with other industries facing similar demands, the question we now face is how best to re-invent ourselves. Part 3 of this series highlighted various corporate examples of industries that chose to do nothing (and suffered the inevitable consequences), as well as examples of those that chose to do something, even though the outcome was unknowable.

While there is no certainty to evolution, there is probability, and it can be plotted against current trends. By extending these plot lines we can get a sense of probability—what’s likely and what’s not. This, in turn, narrows down the “unknowable” factor to one of three evolutionary paths: Convergent (propagative and generalizing); Correspondent (sustentative and specializing); and Divergent (depreciative and endangering).

Don Tapscott, author of Wikinomics (see Part 3), described the major business trends of our day: “Openness, peering, sharing, and acting globally—increasingly define how twenty-first-century corporations compete. This is very different from the hierarchical, closed, secretive and insular multinational(s) that dominated the previous century.” If Tapscott is correct, timeshare trend lines versus societal ones are divergent and erosive. Doing nothing, then, is not an option.

Buggy Whips

It’s not that the exchange companies haven’t tried to excel at technology, it’s just not in their natures—as with Aesop’s fable, “The Scorpion and the Frog”. Their outmoded systems of closed-end networks and centric controls, as well as their ironclad commitment to the timeshare-industrial complex itself, dooms them to repeated failure. Or, at the very least, their lack of vision and strategic planning does.

As George Steiner wrote in his classic marketing book, Strategic Planning: What Every Manager Must Know, if buggy whip manufacturers in 1910 had envisioned themselves in the “transportation starter business,” they might have been able to make the creative leap necessary to move into automotive manufacturing when technological change demanded it.

Network Efficiencies Need Not Apply

Efficient networks tend to reduce transaction costs. In a competitive environment, these savings are normally passed on to the end user. Take, for example, the telecommunications networks that arose after the breakup of “Ma Bell,” the advent of cell phones, and now IP telephony (such as Skype) driving communications costs to near zero. The Internet also quickly squeezed excess costs out of many industries, such as travel and hospitality, stock brokerage, and insurance—any place where lack of transparency or asymmetric information existed.

More specifically, efficient networks decrease information search costs, reduce infrastructure governance, and encourage innovation. This is solid network theory—which seems not to apply to the exchange companies. You have to wonder why. In the absence of efficiency, entropy can invade a network system, requiring ever greater investments of energy or capital (the latter in our case) to keep things from grinding to a halt. Could this partly explain why the cost of making an exchange has not decreased?

In his famous 1937 essay, “The Nature of the Firm,” Ronald Coase concluded that, “a firm will tend to expand until the costs of organizing an extra transaction within the firm become equal to the costs of carrying out the same transaction by means of an exchange on the open market.” Was Coase, in his seminal work, essentially suggesting a 21st Century Exchange?

Put Owners First

My immediate sense is that we have the whole thing upside down. The owners should be at the top, not the timeshare-industrial complex. In an ideal world, developers would be at the base, providing the products that consumers clamor for, and the exchange companies—well, they’re the soup in-between, connecting, contributing, and creating value.

What if we made the “value proposition” all about the owners? I know; it’s a novel idea! While it’s not likely to break the cabal of the timeshare-industrial complex (and it really doesn’t need to), an emergent 21st Century Exchange Network would do all that needs to be done—put owners first. It could serve as a timeshare public utility. Owners would be free to trade directly with other owners, or choose to exchange or bank through the value-added services of any exchange company they choose to affiliate with.

While the technology exists today (as we saw in Part 1) to support a 21st Century Exchange, its growth to the point of critical mass and greater efficiency could be reached much sooner with early support from the exchange networks and the developers. Their symbiotic relationship could even remain intact in order to preserve a “predetermined outcome,” as opposed to an “unknown eventuality.” Any reduction in transaction revenues would likely be offset by a reduction in costs required to maintain controls and territories.

The “new age exchange” network would be supported by a global Internet system, and available to all owners as well as those public or private companies willing to serve, each profiting to the extent of their contribution, each rewarded (as explained in Part 3) by a desire to serve others for goodness’ sake.

As Churchill Said

This series has called for a transcendent rather than confrontational solution to our dilemma, a 21st Century Exchange consisting of an all-inclusive network built on open source technology with room and a role for all—an exchange system of the people, by the people, and for the people. Anything less, is precisely that.

Who could have imagined years ago the profound effect that technology would have on our daily lives? Or the ubiquitous role of the Internet? Or our reliance on cell phones and “next-thing” expectations? Over the same period, however, the timeshare industry has neglected to take advantage of technology in order to increase the value proposition for the timeshare owner. So, where do we go from here? How do we affect meaningful change in the timeshare industry? How do we overcome the dissonance the product creates in both public awareness and discourse, or change the value proposition exemplified by the current philosophy that “timeshare is sold, not bought” (a view held even by those in the highest positions in our industry)? Time will tell.

As Winston Churchill said to his fellow Englishmen who were facing an unknown future, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” And, too, for this series of articles.

David Skinner is President of Holiday Equity (http://www.meetholiday.com), a division of the Holiday Group, which he founded in 1992.

David has three adult children, is married and resides in Puerto Vallarta, Mexico, from where he commutes to Seattle, Holiday’s home base. He can be emailed at dskinner@holidaygroup.com.

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