Something has puzzled me for a week or so after the PhoCusWright conference in Los Angeles.
Maybe 'puzzled' is the wrong word: 'intrigued' is probably a better description when pondering how the UK travel industry will react when the growth potential of the holiday home market is realised.
Obviously Brian Sharples, CEO of US 'vacation rentals' giant HomeAway, was quite understandably talking a good game when he told me in Los Angeles about the size of the European market - an astonishing $25 billion, based on HomeAway's evaluation following a paid-for report by PhoCusWright into the US market.A sizeable share of this bounty is still transacted privately through classified listings and affiliate sites.
HomeAway made what appears now to be a good decision in 2005 to buy Holiday-Rentals, the UK holiday home letting website and market leader. It also bought Owners-Direct.
The Austin, Texas-based outfit has recently found itself on the end a mammoth funding round of $250 million.
[As someone pointed out to me the other day, this investment was probably the biggest injection of private capital into an online travel firm since the equity rounds with the big tech firms in the US at the back end of 2006-early 2007]
So while so many on the 'traditional' wings of the travel industry, others are seeing huge growth opportunities.
Sharples admitted HomeAway, which until now has stuck to its owner-subscription business programme, could well follow the path of the start-up holiday home sites in the US, such as VacationRoost.
This would be a major decision to switch disciplines to an online travel agency model but it may well also be necessary.
One of the critical questions in all this is whether the existing European online travel firms will attempt to move in to capture growth opportunities which are now emerging.
The holiday rental market in the UK could be turned on its head if the likes of Expedia or lastminute.com or Thomas Cook and Thomson decide to actively target homeowners and offer them a new distribution channel.
The marketing muscle would be an obvious benefit to homeowners if any of these companies decided to have a serious go at the market and, some might argue, the hotel contracting teams operate in a similar way, meaning the recruitment of homes would be a smoother process (although the volume would be considerably different).
So, should the existing holiday rental sites be concerned about the - as yet unknown - intentions of OTAs and others with regards to this enormous, as yet untapped market?
Would moving into holiday rentals be a step too far or an inspired move for travel firms?
NB: Here is some interesting context about how unrealised the rentals market truly is. At the same event where the tips for targeting bloggers came up last week, the MD of the host agency - which is one of the biggest in the UK - was completely unaware of the size of the market.
"I better get myself one of those rental sites as a client, eh?" the boss said reasonably sheepishly.
We acquired Villarenters.com 2 years ago as we saw huge potential in this market. The business is very successful and we have big plans set for the future.
Does this mean that we are ahead of the game Mr May? If we carry on we may even be mentioned in the same breath as some of these ground breaking online players soon ............ :)
Matt:
You are absolutely right and our apologies for missing the acquisition in our original analysis.
Do you think Expedia et al would consider holiday rentals as a new channel?
Apology accepted :)
The biggest issue for any OTA is that of integration. Unless they are happy just selling it as a standalone product it would be very difficult to integrate it into a DP/Holiday search.
A large proportion of the properties are still not "instant confirmation" as the process relies on the owner often confirming the final booking. As there is a risk of non-fulfiment you can't let consumers package themselves as the flight element has to be confirmed straight away. It could lead to huge cancellation issues and cost.
There needs to be increased communication to the owners to keep their inventory updated and therefore live. As an aside Villarenters not only have a B2C site but also provide owners with the inventory management tool that can be used on other website. Quite clever really .......
As a vacation rental owner and Blogger for owners, I can see many issues arising from this idea. Matt made the point that ‘the process relies on the owner often confirming the final booking’ and therein lays the problem that would confront OTAs. The majority of vacation rental owners require a rental agreement to be signed that defines terms and conditions of a rental, a situation significantly different from any other travel product. The emotional involvement many owners have with their properties could make any form of ‘arms length’ reservations impossible, and could severely limit the inventory an OTA carries. This is the reason owners choose to manage their own bookings or use a rental agency who carry out stringent screening and reservation management processes.
I think one of the questions is, would holiday homeowners be prepared to work with OTA’s. It depends if they go down the route of commission [villarentals] or subscription fee [holiday rentals] – all owners want are quality enquiries which lead to bookings and they are prepared to pay for that.
OTA’s would have to learn fast about how they interact with owners.
A lot of the complaints I have read about large brands like Ryanair [Ryanair villas] Teletext's Villarentals [sorry Matt!] is the lack of communication and owners are used to having good levels of communication with ‘traditional’ holiday rental companies.
There are thousands of holiday home rental sites, but many of them struggle to compete, and the reason primarily is due lack of technology, and funds to create that technology. It’ll be interesting to see if the likes of Expedia jump into this market.
Disclosure: I used to own/run a holiday rental business, so have a lot of experience in this area.
Very valid points Darren and you'll not be surprised to hear that our primary action in 2009 will be to get closer to owners and communicate a lot more.
I couldn't read this post and the comments without leaving my input as well. . :)
I've seen a lot of websites try to "add on" short term rentals to their current system. They simply use their existing set-up that works well for hotels. But it just doesn't work for short term lets. It's a different market.
To be successful they would need to invest heavily in creating a booking system that is built with the short term letting market in mind. I'm not sure if they would go this far, but if I was them I would. But then I would say that!
Matt - I'm on the same lines as you with the idea of people using the system as their management software. If you can do that, the availability and pricing stands a much better chance of being up-to-date and will result in more suitable bookings.
The OTAs are aware of the market, but don't seem to know how to handle us. (discloser: I'm a US vacation rental owner and manager) We recently linked up with Orbitz via Zonder (basically Orbitz subcontracted the vacation rental piece to Zonder is what it looks like) and they have great potential, but still can't work with my availability calendars to go live after almost 3 months. In another attempt to go with ARES, a company that runs the booking engines for the State of CA sites, again has us left trying to fit in like a hotel, and we don't. They use hotel lingo, hotel contracts, and hotel level booking commissions. If anyone has the ability (read cash and understanding of vacation rentals) it's HomeAway and Mr. Sharples. FWIW, HA is NOT just a by owner portal. They've incorporated their TripHomes arm into the HA family, though they are charging managers a combination of subscription and pay per inquiry depending on listing position.
Does this mean that we are ahead of the game Mr May?
Sorry Matt, 10+ years behind it...!
I think the key here is that Holiday Rentals web sites are a vehicle to connect owners with customers & only that. The owners still have to do the customer service bit as they would do following any other form of advertising.
As for business model diversification HomeAway will be looking at other models as with so much venture capital investment they can't afford to ignore anyone who may poach on their patch. Having said that they are probably more likely to be baiting potential buyers for the business.... the investors, lead by Brian Sharples, will be queuing up for their mega payback ASAP.
Great post and interesting comments.
Every time I check the TUI site villadeals.com since reading this post a few days ago it is unavailable due to "upgrading", I was just curious to see if they had developed this site much recently as it's the obvious URL in their huge brand stable.
As an owner of a vacation rental company located in Asheville, NC, I know there is far more goes into a vacation renatl business than a fancy website. Perhaps if we were at the beach it would be different. However, having vacation rentals throughout different areas around downtown Asheville, it is evident that our website is never going to be the end all. Our customer service is what wins us over from the rest of the competition. We are able to give guests the peace of mind, knowing that we will match their needs with one of our rentals. We have 24/7 on call service and we will do our best to make their stay meet and exceed their expectations. I doubt that a huge company can really know about the towns they service and offer customer service with a flair.
Customer service is a big part of any business that wants to be successful, but I can definitely see the requirement of local knowledge. Half of my company are based in Edinburgh (which is where our main self catering letting site is based) but the main operations are run from Cardiff.
We had to really build up our local knowledge to be able to offer a quality service to our guests.
Funny - someone just rang asking about the walking distance from one of our apartments to Edinburgh Castle. Not always easy to tell from the map but a bit of local knowledge goes a long way.
Problem is - how do you expand a business that works on this basis?
More good news for holiday home rental websites ?
Apparently Barrack Obama uses them !
http://holiday-home-rental.co.uk/2009/01/obama-uses-holiday-home-rental.html
I very much doubt the OTA's would risk hurting their traditional lodging products, especially in the United States where so many rooms are in the large chain hotels.
I also doubt that consumers can be convinced that Expedia is the place to look for holiday rentals. Just like it took some real good sales to convince me to by a flat screen TV in the Supermarket!
I would guess that the trend would be for the OTA's to buy up sites like HomeAway.com, which might explain part of the massive funding they received.