The changes at HomeAway since Expedia’s acquisition of the company have caused significant buzz in the vacation rental industry. With changes in the subscription pricing model, the implementation of a service fee paid by travelers, new sort methodology, class action lawsuits, and changes in top leadership, there has been much written about Expedia’s footprint on HomeAway.

To be candid, with so much news and social media circulating in the marketplace, we hesitated to comment further on the movement at HomeAway. However, as facts turned to speculation, we thought it might be helpful to take a fresh look at what Expedia actually said and reported regarding shifts to the business model.

Below are takeaways regarding HomeAway’s post-acquisition activities from Expedia’s Q1 2016 Quarterly Report and comments from Expedia CEO Dara Khosrowshahi in the Earnings Call.

• Changes to the Subscription Model
• Online Booking
• Traveler Fee
• Where is the Traveler Fee Going?
• SEO
• HomeAway Team
• Listings Growth
• Expanded Distribution
• Owners vs Property Managers
• Is There Consumer Movement from Hotels to Vacation Rentals?
• Class Action Suits Against HomeAway

 

1. Changes to Subscription Model

HomeAway is eliminating subscription tiers, effective in July 2016.

DK:  Today we announced some significant changes at HomeAway as we continue to accelerate the transition of our platform from advertising to transactions. In the U.S., we’re moving to a single and simple subscription model of $349 annually for listings that are online bookable and $499 for those that aren’t. This will allow us to begin to optimize the sort and the properties consumers see by matching their unique travel preferences with the right listings while driving booking volume for owner and manager communities.

 

2. Is HomeAway Looking to Make All Listings Online Bookable?

In a previous article, we reported that HomeAway had “a short timeline to making all listings bookable online.”

HomeAway reached out to say that is not the case.

Today, we received an email from HomeAway stating, “There is no hard timeline in place for OLB, though it’s certainly a very important factor in where listings display in search results.”

DK: We are much more focused on driving online bookings versus trying to get every single property out there online bookable at this point. You know there’s always going to be a tail, we haven’t exactly kind of figured out a strategy, do we want to go to a 100% or do we want to go to 90%, you know what we want to do is solve for kind of the heart of the business at this point, optimize it, get it transactional, get the flywheel of higher conversion allowing you to market more, allowing you to gain more traffic. Gets that flywheel going and we’re not as focused on getting every single listing out there online bookable at this point. We’ll determine that over the year.

However, Expedia has said since its acquisition of HomeAway that it intends to turn HomeAway into a transactional marketplace.

Their quarterly report states: With Expedia’s expertise in powering global transactional platforms and our industry-leading technology capabilities, we are partnering with our HomeAway brand to accelerate their shift from a classified marketplace to an online, transactional model to create even better experiences for HomeAway’s global traveler audience and the owners and managers of its properties around the world.

The report also states: Our future working capital benefits could also be impacted by the transition of our recent HomeAway acquisition’s shift to more of a transactional model from a subscription model.

 

Subscriptions vs Online Booking

DK: We want to create a marketplace that is flexible but also provides the right incentives and what is very, very clear as it relates to our travelers is that they want and like online booking, so the subscription price for one of our partners who is providing online bookings is significantly lower than someone who is not online bookable – so to speak – and we think that kind of provides the right incentives in order to create a healthy marketplace that works for both sides. From a philosophical standpoint, we do want to build out toolsets that allow our supply partners – and this is at Expedia or Hotels.com or HomeAway – to have a very low entry base price and then to be able pay when they need to the bit demand or when they want to demand. It’s a very flexible model, it’s easy to get into the marketplace and then if you want to optimize to the marketplace, you can absolutely optimize to it and those are tools that we have built that on Expedia and Hotels.com. So I think those are the tools that we anticipate building out with HomeAway as well. And HomeAway being part of our family definitely gives us an advantage there because we have done it before.

 

3. Traveler Fee Implementation

DK: We launched a booking fee a bit earlier than we had anticipated. The early results have been excellent and transactional booking growth is up very big – 170% – and that will be revenue that we recognize kind of down the pike in Q2, Q3 based on a stay. So you don’t see that revenue coming yet, but we’re very, very optimistic. Conversion in general has held up very well, actually better than we have planned.

 

4. Where is the Traveler Fee Going?

DK: I’d say there are three areas. One is certainly product and technology. It is going to take some significant investment to build out a global transactional infrastructure. Second is marketing, both on the brand marketing side, but also building out a more robust variable marketing platform. Because HomeAway revenue was much more based on subscriptions and to some extent not related to traffic and conversions, HomeAway couldn’t bid on variable channels the way that some of our other brands can. More traffic means and higher conversion means, more transactions means, you can bid more on variable channels. HomeAway didn’t have that factor, and any time you bid up into variable channels typically your margins initially are lower and then you optimize to get to a higher return place. So certainly product, certainly marketing, we are going to reinvest a fair amount of the fees also to the consumer experience to make sure that they’ve got a great experience, to make sure that they get the home that they expect. So I’d say those are the three big factors. Another factor to be aware of, and it’s an announcement that we made today is on a go-forward basis, we are going to simplify the subscription product, which is going to take away some of the premium tiers that we had sold previously. And that’s going to be a revenue negative, which we do believe is going to be offset by transactional revenue, but we are taking some revenue out of the system, which then we have to replace through transaction.

 

5. SEO

DK: With booked transactional revenue up 170% year-over-year in the quarter, we took the opportunity to more than double our direct marketing investment, in order to drive more traffic to our sites and partners, while also offsetting some weakness that we’re seeing in Google SEO volumes for some of our brands.

DK: We are seeing some of the moves I’d say broadly from Google, for example they’re adding a fourth paid search link, move a higher proportion of traffic from free to paid. Fortunately, we are a company that has built up some pretty strong capabilities on the paid search side. So we’re able to bring in the volume anyway, it is probably a next headwind for us on the margin side, but this is a headwind that we’ve been living with for a number of years and it’s a headwind that we’ve been able to grow through and so it’s nothing new. We’ve heard this song before and we’re up for the dance.

DK: On the SEO side I don’t want to get into too many specifics, there are some SEO effects that are structural, such as in general some of the search results being moved down the page or the free search results being moved down the page, some of the SEO results are results that we can optimize around and we can kind of build technology around, so I would say that the HomeAway team is definitely not standing still and we’re hoping to improve the SEO trends. In the meantime though our direct traffic trends are super-super strong and the team is more than making up for it.

 

6. Changes to the HomeAway Team

While the departure of HomeAway COO Tom Hale was not discussed in their call, Expedia did say they are moving “talent from the Expedia team” over to HomeAway.

DK: The HomeAway team has an incredible knowledge of the homeowners and managers and what they need, and it’s built up an incredible toolset there. And we want to combine that knowledge with the kind of knowledge that we have on the Hotels.com and the Expedia side as far as what travelers want. And when you combine those two you can create a pretty powerful platform. We’ve obviously done that on Expedia and Hotels.com side so we know what has to happen and right now. The HomeAway team is heads down and really building up the infrastructure that you need in order to build a global transactional travel platform, and it’s a bunch of technical work being done, design work being done, but we have done it before and the HomeAway opportunity is so attractive that a fair bit of talent from the Expedia teams are moved over to the HomeAway teams to help out.

 

7. Listings Growth

DK: Listings growth is actually very healthy and certainly healthy compared to historical trends, and we are taking a very significant portion of our services revenue and putting it either back to customer. For example, with the guarantee and we are putting in marketing money to make sure that we’re driving traffic growth on a global basis. So I’d say at this point, while there is certainly going to be some questions from homeowners in the community et cetera, I think the HomeAway team is executing very, very well in the plan. We still have a long way to go, but so far, so good.

MO: We are going to see a ramp up at HomeAway with the traveler fee and that’s just going to build as the year goes on. We feel good about that, we already see progress.

 

8. Expanded Distribution

DK: We are also seeing encouraging volume trends in the alternative lodging category for Brand Expedia and Hotels.com, which bodes well for a future state when we fully interweave supply and demand across all product categories within our global lodging marketplaces.

DK: And I think on the Hotels and Expedia front, once we get the HomeAway inventory – a higher percentage of the HomeAway inventory –online bookable, once we feed it into Hotels.com and Expedia and Orbitz and Travelocity in an integrated manner, all signs point to that inventory producing very well. We have been adding some apartment inventory mostly in urban centers, etcetera, on Expedia and Hotels.com and it is producing and it’s producing very well and it’s clearly kind of inventory category that our users want.

 

9. Owners vs Property Managers

DK: The HomeAway team is very focused on making sure that they have a marketplace that individual owners can play in, because those individual owners, those kinds of FRBO listings are the heart and soul of HomeAway. And having a marketplace where – obviously – the professional PMs can operate in, as well. And listen, it was true that professional PMs and individual owners were buying different tiers of subscriptions, etc, and they were figuring out ways to play in that marketplace. I think that the rules of the marketplace are changing. They will be a bit more favorable to travelers and traveler preferences. So the owners who are updating their calendars, the owners who have great reviews, the owners who have terrific pictures, who put up pricing, and are online bookable will tend to get more share in our marketplace. And we’ll make sure that we’re making tools available for individual owners to do it. We’ll make sure we’ve got FAQs. We’ll make sure that we’re in contact with them so that ultimately the right product is showing up in front of the right customer. It’s something that the HomeAway team thinks about a lot.

 

10. Is There Consumer Movement from Hotels to Vacation Rentals?

DK: Just on the HomeAway side, this has been a category that has been growing for some period of time and we look at HomeAway traffic and we look at listing counts, etc. And the growth rates there are consistent with the past or slightly stronger. Is that volume that is moving from a hotel to a home or is that just volume moving online? My bet is that that majority of that is just offline volume moving online, that’s powered our hotel listing for some period of time. And we think that this category behind where hotels were. So I think it’s really the move online that’s driving this business at this point. But HomeAway is young in our family and as we observe the trends over a greater period of time. And especially as we bringing this inventory into Hotels.com and Expedia, I think we will be smarter about telling you whether there is trade happening or whether it’s net new volume, it’s just too early at this point.

 

11. Putative Cases against HomeAway

On March 15, 2016, a putative class action suit was filed against HomeAway.com, Inc. related to its recent implementation of a service fee. Arnold v. HomeAway.com, Inc. , Case No. 1-16-cv-00374 (U.S. District Court, Western District of Texas). The putative class is comprised of homeowners that list their properties on HomeAway’s websites.

The complaint asserts claims against HomeAway for breach of contract, breach of the duty of good faith and fair dealing, fraud, fraudulent concealment, and violations of the Texas Deceptive Trade Practices Act, the California Consumer Legal Remedies Act, and the California Unfair Competition Law.

On April 15, 2016, a similar putative class action suit was filed against HomeAway.com, Inc., which also related to the implementation of a service fee. Seim v. HomeAway, Inc. , Case No. 1:16-cv-00479 (U.S. District Court, Western District of Texas).

The putative class is comprised of homeowners that list their properties on HomeAway’s websites. The complaint asserts claims against HomeAway for breach of contract, breach of the duty of good faith and fair dealing, fraud, fraudulent concealment, unjust enrichment, and violations of the Texas Deceptive Trade Practices Act, the Kentucky Consumer Protection Act, and other state consumer protection statutes.