Earlier this week, Bloomberg Businessweek’s Sarah Rabil discussed HomeAway’s attractiveness as an acquisition target for online travel companies, such as Expedia and Priceline. The article cited the growth of the vacation rental industry into a travel sector staple, growth in the number of listings to 700,000 among the HomeAway family of sites, vast proprietary content, and the company’s dominant position in the market as reasons for potential suitor attention.
However, three key factors lessen the likelihood of a HomeAway purchase in the immediate future.
1. Underdeveloped Tech Stack
HomeAway’s growth through acquisition creates complexity in aggregating multiple business models and technology platforms, including VRBO.com, Travelmob.com, OwnersDirect.com and 16 other brands.
HomeAway’s 21st acquisition in its recent $198 million purchase of Australian-based Stayz alone added four websites to the HomeAway family, which admittedly require a “significant” technology overhaul, according to a BRW, Australia’s leading business magazine. “It’s our judgment that significant investment is required,” said HomeAway founder Carl Shepherd.
A HomeAway job posting for software engineers reflects the challenges faced, “With 19+ brands coming together to one common platform, with millions of dollars exchanging hands every single day on our eCommerce platform, with the most complex engineering problems you will ever see, working at HomeAway is an engineer’s dream.” One example of a “complex engineering problem” is demonstrated by HomeAway’s plans to merge inventory between sites, such as giving Australians access to the south-east Asian listings on Travelmob, the Singapore-based start-up it bought a majority stake in earlier this year.
HomeAway suitors will likely find the deal more attractive once the technology platforms and pricing models have been further developed and integrated.
Businessweek called a potential HomeAway acquisition “the most expensive Internet deal since 2007.”
As a $3.4 billion company, HomeAway has estimated 2013 revenues at $343 million, up from $280 million in 2012, and is home to over 800 employees. In contrast, Priceline purchased Kayak in November 2012 for $1.8 billion, with $293 million revenue and 180 employees at the time of purchase.
One analyst says Expedia is not in the position to make an acquisition of this magnitude and Priceline won’t. Recent investment by Expedia and Priceline in Trivago ($632M) and Kayak ($1.8B), respectively, show a move away from aggregation and toward metasearch.
According to BRW, Shepherd said the challenge with applying metasearch to vacation rentals is that all the properties are “extraordinarily unique.”
“Metasearch works best in a commodity world and vacation homes are not commodities,” Shepherd said. “I’m not sure where metasearch fits, but there are very clever people trying to bring metasearch to vacation homes, and we’ll wait to see if they’re successful.”
A significant portion of clients and consumers simply don’t like doing business with HomeAway, whose customer base consists of three main customer segments: 1) travel consumers trying to rent a vacation home, 2) individual vacation homeowners, and 3) vacation rental management companies (VRMs).
Travel consumers find themselves spending tedious hours trying to find a rental, communicate with a property owner, and complete a booking –all factors which contribute to a difficult user experience. Skift’s article, “Why online vacation rental listings are still stuck in the past” points out, “Lots of people think the lack of progress in being able to book vacation rentals online, as you would hotel rooms, is a technology problem, but it’s also an attitude problem,” pointing out that online booking is critical to improving the user experience.
However, individual homeowners are less comfortable with the move to an online booking model, as many want to own the relationship with the guests and have the ability to get to know the people they are renting to. In addition, HomeAway is spending more energy catering to professional property managers, and professionally-managed rentals are increasingly able to rank higher in the property search pages with more photos, more reviews and online booking options. Individual homeowners are feeling less love from the former champion for rent-by-owner properties.
In spite of increased attention by HomeAway, professional vacation rental management companies (VRMs) also struggle with their business perception of HomeAway. VRMs have seen their brands deteriorate and their marketing costs increase as a direct result of the competition HomeAway brings. More often than not, VRMs consider HomeAway a “necessary evil,” and reluctantly list inventory on their sites.
A quick Google search demonstrates some of this frustration. One company review site gave HomeAway 1- 1/2 stars out of 5, while Barefoot Technologies, a leading vacation rental software provider, called out HomeAway in a recent blog post, “As a professional property manager, who has YOUR back?”
Before becoming a viable acquisition target by companies such as Priceline or Expedia, HomeAway will likely put effort into becoming more popular among these three customer segments, who can expect to see increased education for property owners and managers, a better user experience for consumers and a significant public relations initiative.
While HomeAway will continue to walk a thin line between individual homeowners and VRMs, the value of the company is unlikely to drop without disruptive competition. A HomeAway acquisition will be a pricey one for whoever takes the leap. However, the price will be easier to swallow once HomeAway develops its technology stack and improves customer perception.
By Amy Hinote