Twenty years ago a literal “cottage” industry was beginning to boom, the vacation rental business. Prior to then, owners of vacation rentals relied primarily on local rental management agencies to handle renting out their houses to vacationers. Then along came VRBO, and homeowners had a golden opportunity to do it themselves with a more hands on approach, eliminating the rental management agencies and their high commissions.
And Then There Were Three
As time progressed and the industry grew, VRBO was eventually bought up by rival HomeAway, with their biggest competitor, TripAdvisor, chipping away at their heels. Then, in 2008 AirBnB came along, and these three giants ruled over the industry. While their business models differed, they each offered vacation rental owners a platform to rent out their homes. Each had their unique attributes, and each had their drawbacks. HomeAway made their money by charging owners an annual subscription fee, while AirBnB charged renters a fee to book through their platform. Still, there were opportunities, and choices, for the vacation rental owners. Other, less significant sites fell by the wayside, unable to keep up with the big three.
Fast forward to today and these same owners, the ones who's backs this industry was built on, are figuratively being thrown under the bus, and this “cottage” industry is suffering a slow and painful demise. The opportunities vacation rental owners once enjoyed are drying up, and the stakes could not be higher for them. Some owners are going back to using the rental management agencies and others are just giving up and selling their cherished vacation rentals.
The Beginning Of The End
The destruction began in in late 2015 when Expedia purchased HomeAway for the exorbitant price of $3.9 Billion. This was a huge sum of money and Expedia CEO Dara Khosrowshahi had to figure a way to recoup their investment, and do it quickly. Thus began a series of changes that have negatively affected both vacation rental owners and travelers.
In February 2016 HomeAway rolled out a new service fee, charging travelers who book through their websites. While this was not a new concept (AirBnB already was already charging a 6% to 12% service fee to travelers on their site), it was a major draw for travelers to use HomeAway & VRBO as there were no service fees, thus saving the traveler money.
The service fee by HomeAway, which ranged from 4% to 10%, was brought on with no real advance notice to vacation rental owners, except for a one sentence mention hidden at the very bottom of a newsletter, containing no specifics. So, as you can imagine, vacation rental owners were caught off guard when the service fee was implemented, causing confusion and dismay. The service fee has since been increased and now stands at 5% to 12% to travelers to book online through the HomeAway sites.
Some vacation rental owners were fortunate. Their vacation rentals were already booked for much of of 2016 when the fee came to play, so they did not feel full effects of it right away. 2017 has been a much different year. Vacation rental owners have reported a dramatic decrease in the number of views for their property listings, with fewer inquiries converting to bookings. Based upon reports from various vacation rental owners, listing views are down as much as an 80% for some. Bookings aren't faring any better, with some rentals seeing a 50% or greater decline in bookings through HomeAway & VRBO.
One of the most contentious aspects of the service fee from Homeaway is how it is identified (or hidden) to travelers. The service fee is not made evident to travelers without them having to search for quote details, and then it only states service fee, with some travelers assuming the owner is charging the fee. Vacation rental owners who have sought to clarify that it is not their fee in their responses to inquiries have been chastised by HomeAway and some have even had their listings deactivated for being what HomeAway calls “bad actors”.
Whose Pocket Does It Come From?
While you may think that the service fee is being paid by the traveler, it is indirectly coming out of the vacation rental owner's pockets. With the new service fee in place, many rentals listed in HomeAway & VRBO are now priced higher in total cost than rentals from management agencies, as vacation rental owners traditionally have set their rental rates to match those listed with with the rental agencies. This has prevented vacation rental owners from increasing their rental rates to keep in step with inflation and operation costs, with some vacation rental owners reducing their rates in order to stay competitive.
Where Is My Vacation Rental Listing?
While the implementation of the service fee is certainly a driving factor toward the decline in bookings for vacation rental owners, other actions taken by HomeAway have proven just as disastrous and may have contributed even more to the booking declines.
HomeAway introduced their "Best Match" search algorithm that has perplexed both vacation rental owners, travelers and even industry experts. The new search method puts vacation rentals that might be many miles away from travelers intended destinations in the search results making searching for vacation rentals by travelers a daunting, if not impossible task. Travelers have to wade through pages of irrelevant listings to find ones that are actually in the place they want to go.
Areas that once had just a few hundred rentals listed now thousands with best match search including rentals fifty or more miles from where the travelers are looking to go, with listings for the actual destination area buried beneath those for other areas. Owners who previously showed up on page one are now showing on page 27 or deeper, with some not showing at all.
My Way Or The Highway
In order for HomeAway to collect their service fees, which is now their main source of revenue, they are now requiring that all vacation rental owners accept online bookings. In a series of onerous moves they incrementally put in a series of "warnings" to travelers throughout their sites that the only safe way to book is through HomeAway, they have demonized vacation rental owners in their final push toward their goal.
They have now implemented a requirement that all new listings or existing listings being renewed must accept online booking. They are also phasing out alternative payment methods for vacation rental owners, requiring everyone to use their payment processor, Yapstone. If the name Yapstone sounds familiar, they are the ones who had a massive data breach exposing personal and credit card information for millions of people.
HomeAway has implemented other restrictions that are detrimental to vacation rental owners, including forcing vacation rental owners to accept a one of a few restrictive cancellation policies. In one of the most bizarre policy changes, HomeAway actually penalizes vacation rental owners if a guest cancels a reservation.
Who Are You?
The most recent change was just announced. HomeAway is now hiding all contact information (email address, phone number) of both vacation rental owners and travelers from each other until a reservation is made, leaving the only communication method to be through the Homeaway sites.
Many vacation rental owners on HomeAway & VRBO have traditionally vetted their guests through online searches of the person, social media accounts, etc. to verify the person's identity and see what type of guest they would be. Not every person is right for every vacation rental. This is now impossible to do with HomeAway hiding contact information.
While is is already being done with AirBnB, there are some safeguards in place on AirBnB to verify travelers before they can book through their site. HomeAway has no so such verification process in place leaving vacation rental owners renting blindly and taking all of the risk.
The quality of renters has apparently also diminished as Expedia has implemented expanded marketing efforts to the hotel crowd, traditionally people who cannot afford to rent a full beach house in the summer. The result has been an increased number of people asking for discounts and less than desirable guests who require more attention, some leaving properties damaged or extraordinarily messy.
The Future Is Singular
So, what will the industry look like at the end of 2017? Well, AirBnb will still be AirBnB. HomeAway & VRBO are heading in the direction of AirBnB and by the conclusion of the year it is expected that they will have completed their transition to the AirBnB model.
Wait, what about TripAdvisor? Though lagging behind, TripAdvisor has been slowly changing their model, following the lead of HomeAway, and will eventually end in up the AirBnB model as well. They have begun moving all TripAdvisor listings to their Vacation Rental Homes website and incrementally changing their policies.
So, in the end we will have three conglomerates with the exact same business model.
We should also note that there are lawsuits pending against HomeAway with multiple claims against them for breaching their own terms of service among other things. While these civil actions wind their way through the courts the detrimental changes seem to be continuing unabated.
An Obituary Or An Opportunity?
The upheaval in the vacation rental market has brought on a lot of anger, resentment and raw emotions from vacation rental owners. But, it has also spurred innovation to fill the void created by these changes. Many new vacation rental listing websites are being launched, as well as some of the older listing sites who could not compete before trying to come back to life. Some are good, some not so much. But, an effort is being made on many fronts and all ideas are on the table.
One of the most innovative approaches is the development of regional vacation rental listing websites, which concentrate on a specific area or state. The cost for launching and marketing one of these regional sites is far lower than what it would cost to launch a national or international vacation rental listing website.
Why Regional Sites?
Several national vacation listing sites have been developed since HomeAway & VRBO began their changes however, a national site requires massive amounts of marketing dollars in order to be even remotely competitive. Regional sites, however, can target their marketing efforts on specific areas where their typical vacationers come from, thus being more effective for far less money.
Many of these regional sites have their own marketing efforts, but are part of a broader effort with a centralized website (vacationrentalbyowner.net) acting as a central portal/directory to all of these regional sites. Since these regional sites use identical platforms, which are back to basics VRBO type sites, the look, feel and operation of each site is uniform for travelers, making it easier for them to navigate throughout all of the sites.
Each regional site owner lives in or has a vacation rental in the area they represent, making their listing sites locally owned and operated by people familiar with the industry who know the area where the regional site covers.
Too Many Eggs in One Basket
No matter what happens with HomeAway, vacation rental owners are all in the same leaky boat. While some are bailing water, others are trying to plug the holes, all in an effort to keep the boat from sinking. With the introduction of alternative sites, whether they be national or regional, it is clear that vacation rental owners need to diversify and look at all possible alternatives instead of keeping all their eggs in one basket.
While AirBnB has been a successful alternative for some, restrictions there can be just as onerous, and AirBnB may not be a good match for many vacation rentals. Homeaway is certainly becoming less than a viable option with each passing day as is TripAdvisor with the direction they are headed.
Many vacation rental owners are now taking initiative by creating their own websites for their rentals, launching Facebook pages, listing on alternative sites, advertising on social media and taking other steps toward independence from HomeAway.
To the vacation rental owners we can only wish you the best of luck in such an uncertain future.