At the recent Skift Global Forum, Expedia CEO Mark Okerstrom fielded on-stage questions from Skift founding editor, Dennis Schaal, about the progress the company is seeing from HomeAway.
“Just to clarify, we bought the Craigslist of vacation rentals at the end of 2015, and today, trailing 12 months of last quarter, this thing has $11 billion of bookings online,” said Okerstrom. “Revenue has basically already doubled. Last quarter EBITDA had doubled—and customers and hosts love it. We’ve done all of that in the last two years, we’ve got an incredible team there, they are a rocket ship. But we are also invested for long term, and we are just in phase one. Phase one was about taking Craigslist and turning it into e-commerce . . .”
Schaal interjected, “Yeah, but they didn’t think of themselves as Craigslist.”
Online Booking and Urban Markets
Okerstrom responded, “Well, it was a listings business. I still use Craigslist, I like Craigslist a lot. I’m not disparaging it, okay? But it was about taking an offline thing and making it online. Phase two, then, is about going into the urban markets where HomeAway and VRBO have not been traditionally and really stepping on the gas.”
Take Rate and Guest Fees
Schaal asked, “One thing I’m interested in is with HomeAway, with alternative accommodations, the take rate you have, the amount that you collect from both the host and the consumer is less than the hotel business. So you’re ramping up alternative accommodations for the long term. Booking.com does not charge traveler’s fee, you do. Airbnb charges much less commissions to the host of the hotel than you do. How does this become a sustainable business for you if there’s all this demand there but you’re earning less per booking?”
“I think first of all, a new booking, an incremental booking, is a great thing,” Okerstrom said. “Right now, if you have a family of five who wants to go to—I don’t know—Myrtle Beach, we don’t have a lot of great alternatives for them on Expedia right now because it’s hard. You’ve got to find two rooms or you’ve got to pony up for the suite, and that’s really expensive. Enter HomeAway/VRBO inventory—and then you’ve got the perfect place for that. Whether the commission is X or Y, doesn’t matter, it’s incremental, it’s new, and our customers absolutely love it.”
Okerstrom added, “There are consumer fees, there are supplier fees. Our solution to it is we’ve got both. We’re able to monetize whatever way the customer is willing to pay or the supplier’s willing to pay . . . Our approach has been, let’s have a flexible model, and we can adapt it how the market place needs.”
“I think the models are just going to evolve over time, and remember, the only thing that’s happening here is you take a customer who says, ‘I’ll pay $200 a night.’ and they’re choosing this place versus that place versus that place. At the end of the day, if they’re willing to pay [$200], the supplier is going to say, ‘Listen, I want at least $175.’ Now you’ve got that $25 Whether the supplier pays you or the consumer pays you, in the end, it doesn’t matter.”
Cannibalizing Hotel Bookings
Schaal asked, “Do you worry that incremental booking, as alternative accommodations go mainstream, that it hurts the hotel business?”
Okerstrom responded, “We’re very focused on making sure that we continue to drive good results for our hotel partners, absolutely. But, at the end of the day, we’re a travel agent . . . We’re just essentially automating all of the things that travel agents used to do. Just like a travel agent would say, ‘Where do you want to go?,’ ‘What kind of place are you looking for?’ If you tell me, ‘I want to stay in a big house,’ we’ve got to have that, so that’s our approach. In the end we want a big marketplace, and we’ve automated the traditional role of a travel agent.”
Earlier in the conference, Google execs spoke about their intention to provide a vacation rental offering. Schaal asked if there were actions being taken by Google that keep him up at night.”
“So much keeps me up at night. That’s my job—paranoia,” Okerstrom said. “Yes, absolutely, the big tech players who have tremendous capabilities, I think about them a lot. As you mentioned, right from the start we’ve been at this for 20 years. We have 6,000 of the brightest product and technical engineers in the industry that work for us. We’ve got some of the brightest AI talent and data scientists certainly in this industry, working at Media Group. And we are stepping on the gas. If we were standing still, saying, ‘Gee, I’ve got to protect what I’ve got,’ I’d be a lot more worried. But the answer for us is to move faster, be more focused, focus on the customer—because in the end, if you deliver an incredible product to the customer, if you have a platform that your partners get real value from, and if you move fast, everything is possible.”
Tours and Activities
Tours and activities were a big topic of conversation at the conference, and Schaal asked: “Last year you said tours and activities needed to be a higher priority for Expedia, and now Airbnb is doing experiences, TripAdvisor is really growing with Expedia in experiences and Steve Kaufer at TripAdvisor thinks it can be a really gigantic business. What kind of priority does it have for Expedia?”
“It’s up there. Definitely—definitely, top ten,” Okerstrom said.
“This industry is competitive, and the reality is there’s just so much activities business that is out there. It’s a well over $100-billion segment, a fraction of it is online, and there’s a huge amount of opportunity. We’re focused on doing what we have structural advantages on. One of the structural advantages we have is that because we’re a full travel agent—we’re not just a hotel-only player—we have the ability to know where people are, they’ve got our apps installed, and we have a lot of advantages . . . I think there is room for two, there’s room for three. I think in the U.S., particularly, people talk about, ‘oh, it’s saturated, it’s mature.’ Nothing is saturated, nothing’s mature.”
Millennials
Skift’s Schaal also asked the Expedia CEO, “Why should a cost-conscious millennial use HomeAway instead of Airbnb?”
“That is the question that HomeAway/VRBO is driving more now. There are a few big reasons, I think. One, that there’s a significant difference in the inventory set, There is some overlap, absolutely. But there’s a difference in the inventory set, generally, in the way it skews. HomeAway and VRBO are generally for larger resorts and big groups, and Airbnb’s skews to smaller shared units. Over time, we’re going to be moving into that shared unit urban space; and if you’re a millennial, heck, why not try something new? The experience is saying you’re open-minded—you’re a millennial—try something new. At the same time, maybe you had an amazing trip you booked on Expedia and you got your Expedia rewards [points] . . . And now you see that same property that’s on Airbnb on Expedia, why would you not book that, you’re cost-conscious. It’s the same thing, and you get points; and by the way, it’s on the app—you can fly there, it’s all there, and when you arrive, we have an incredible activity you can do. That’s awesome, millennials love it.”
Related article: HomeAway CCO Jeff Hurst: “We do not allow shared spaces at HomeAway.”
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