Airbnb started it.
We all know the story by now. Airbnb founders Brian Chesky and Joe Gebbia couldn’t afford to pay rent in their San Francisco apartment and decided to rent air mattresses in their loft. With success, a disruptive marketplace was born, offering residents–later to be known as “hosts”–a way to make money renting extra rooms or space in their homes. The company we now know as Airbnb charged both the host and the guest a transactional fee.
Seven years later, Airbnb had raised a massive amount of awareness–and capital–and had expanded into the whole-home, established vacation rental space, colliding with the offerings of industry leaders HomeAway and TripAdvisor. The idea of a guest fee proved to be seductive for these short-term rental giants. In 2015, TripAdvisor mirrored Airbnb’s transactional model and added the guest fee, and in the same year when Expedia purchased HomeAway, it also added the fee for travelers.
The move was unprecedented in the traditional vacation rental industry and caused significant confusion for guests, homeowners, and vacation rental managers.
The fee for travelers grew from 6 percent to up to 22 percent for travelers before pushing downward to average 10 to 15 percent.
Since the mass introduction of the guest fee in late 2015, vacation rental industry and ecommerce experts have been questioning the sustainability of a fee for travelers in a world in which digital transparency is paramount.
Fast forward to present day, three companies have emerged as leaders among vacation rental marketplaces, Airbnb, Booking.com, and Expedia (HomeAway.VRBO); and these companies differ in how they are currently viewing the traveler fee.
Of the top three online rental marketplaces, Booking.com stands alone in never adding a traveler fee.
“We’ve never charged a booking fee to customers for our service, and this is something that we are extremely proud of,” said, Booking.com VP Olivier Grémillon in a recent interview with VRM Intel. (see the whole interview in the upcoming summer issue of VRM Intel Magazine)
“From our point of view, charging travelers is far from optimal for the customer. At Booking.com, we want to be as transparent as possible towards partners and customers so this means that what you see is what you get. We believe our approach is much clearer for both travelers and partners than others in this space who charge in different places, making for similar fees once guest and partner fees are added.”
Grémillon added, “At the end of the day, we are committed to delivering the best possible consumer experience to ultimately win more business for our partners.”
It appears Airbnb is rethinking the guest fee now that it is emerging as a full-scale travel company. According to Phocuswright, Airbnb is now testing a voluntary program that shifts the traveler fee to hosts/managers at a comprehensive rate of 12 percent for suppliers.
Phocuswire’s Jill Menze reported, “A source at Airbnb says the initiative is a response to feedback from professional hospitality managers looking for a different model to increase revenue. Targeting this service to professional property managers – in this case, about 100 – hints to Airbnb’s further ambitions to infiltrate the hotel and professional hospitality space.”
Menze continued, “Now it’s a question of how its service stacks up against the competition.”
In Expedia’s latest earnings call, Oppenheimer’s Jed Kelly addressed the issue head on: “Airbnb’s been testing removing the traveler fee to reduce some friction. Do you ever foresee where potentially you shift more of the fees to the host versus the traveler?”
Expedia CEO Mark Okerstrom replied, “With respect to Airbnb testing the removal of the traveler fee, listen, HomeAway has been in the great position of having a combination of all monetization models for a while. We think it’s important to have that flexibility.”
Okerstrom added, “I think that all of the alternative accommodations players out there are likely to have some combination in the near term. I think that as the overlap between properties amongst the players gets larger–and I think that will happen over time–I expect that the monetization will shift a little bit more to supplier pays and away from traveler pays based on what we’ve seen in other industries, but right now that’s just an expectation. We don’t really know at this point.”
The Future of the Guest Fee
VTrips CEO Steve Milo warned an audience of vacation rental managers at VRM Intel Live Breckenridge last week the life expectancy of the guest fee is likely short, and property managers should expect to see that transactional fee shift to the supplier. Milo predicted that, as the fee for guests begins to disappear, the fee for suppliers will increase to up to 15 percent.
Milo also suggested that all OTA bookings would soon be transactional. And HomeAway’s recent earnings call supported his theory as Expedia CFO Alan Pickerill said, “The fact is that a big percentage of the listings, the online bookable listings, are on pay-per-booking on HomeAway, but there’s still a big, I call it disproportionate or out-sized percentage of the bookings happening on subscription properties.”
Pickerill added, “So for all bookings on the platform there is a traveler service fee, but for a good number of the bookings there still is not a host fee. Those are still coming through subscription and so that will continue to evolve as the business goes forward and as more and more of the business moves over to pay-per-booking.”
In summary, Booking.com never had a guest fee and will not be adding it, Airbnb is testing the removal of the fee, and HomeAway believes it can implement a “combination of all monetization models.”
Like a grade school playground, we will see who follows the leader.
Amusing the hysteria over vacation rentals…love the pitchmen promoting their own rental sites too.
Recently heard of a small city sharing vacation rental growth of 1800 percent in three years and local citizens of verge of insurrection over no regulation, parking abuses, noise, disrespect from theses short term toadies….
The fees in this industry from the online platforms are out of control and they seem to be trying to take property managers out of the equation.
We launched a new platform that was designed by a property manager for property managers that puts total control back in your hands. We believe that the clients belong to you, not us. No booking fees, complete open communication and vetting of your renters, and so much more.
Go to http://www.perfleek.com. It launched 30 days ago and is offering 6 months free trial to prove to you that we will do what we promise.
Andrew Welsh, Founder
And I no longer advertise my vacation rentals on HOME AWAY because I don’t believe my guests should have to pay for the privilege of booking my home for their vacation.
So come and visit HERONS VIEW or SUNSCAPE in Fenwick Island, DE and PAY NO FEES TO BOOK!
In the longer term, I think this will prove to be nothing more than a cycle. Not only have the practices of leading OTAs led to an emergence of new competitors, the disrespect they have shown for property owners has created an environment of “resentful bondage,” and that never works well over time.
The OTA clearly provides marketing value and even before adding fees, which were originally presented to look as though they were being charged by property owners, were rewarded for this value with subscriptions that for VRBO averaged a bit over $600 per year per property. However, following massive and unbridled consolidation, the leading players had enough market share to leverage their positions with sharp elbows to claim a larger portion of the value equation.
It’s not just the extra fees that have chapped property owners, it’s the new policies that prevent the owners from running their operations as they see fit. The OTAs seem to ignore the fact vacation properties are often very expensive and owners want to vet travelers before accepting reservations. That is no longer possible.
With these new practices and charges, the dominant OTAs have spawned a second wave of OTA startups that don’t charge fees, allow direct owner to traveler communications and are perfectly happy with the old subscription model.
Some owners have taken it a step further. With higher charges being levied for marketing, owners have developed dedicated websites (we’ve done this) and are working with new cooperative OTAs (my term) that provide helpful information for travelers that goes far beyond just advertising places to stay. Examples here are Houfy and VacationSoup.
That is the great thing about capitalism – if the margins get too fat, new competition emerges.
I have a problem with the fee being a percent of the rental. The “fee” that increases as a percent of the rental does not give a person an enriched benefit. If there is something the vacation rental is doing for the guest, it is an equal benefit. Why should it cost more?
We are clearly aware of the blowback from property managers and homeowners who are being threatened with this latest news. Our site went live on the 15th of May, 2018 and in that short period of time we have added almost 400 listings!
The model won’t work if homeowners refuse to list their homes, or in our case, do what others are doing and switching their listings over to different platforms like https://vacation.rentals
When you give power back to the homeowners and property managers you bring back the joy that comes with short term rentals
I no longer rent from any of these companies with the rip-off fees!! Nothing but greed.