REPORT Reverdy Johnson, [email protected], 415.677.5801

Largest Property Owners/Managers Support AWAY’s Pay-Per-Booking

Companies: AWAY, EXPE, PCLN, TRIP January 29, 2014

Research Question:

Will HomeAway’s new pay-per-booking program deliver increased revenue and rental listings, or cannibalize its subscription-based business?

Summary of Findings Silo Summaries . Thirteen of 23 sources, including professional property managers 1) Property owners & managers listing on AWAY & with more than 1,000 properties, said HomeAway Inc. (AWAY) will competitor sites Six of the eight largest property owners said PPB will increase revenue and listings through its pay-per-booking (PPB) bring HomeAway additional revenue and more rental feature. It will appeal to property owners/managers not previously listings. The feature will appeal to those not currently listed on HomeAway, and those for whom the subscription service using HomeAway, and likely is intended for use by was not financially viable. property managers more than individual property . owners/managers. Six sources expect PPB to Sources were divided as to whether PPB would cannibalize the cannibalize HomeAway’s subscription business, and subscription business by enticing subscribers to switch services. three suggested HomeAway eventually wants to . Three sources believe PPB ultimately will eliminate subscriptions, eliminate subscriptions altogether in order to compete with Booking.com and Expedia. Seven sources said the and is HomeAway’s attempt to move users to an online booking 10% commission charged per-booking is prohibitively system so it can compete with growing efforts from Priceline.com high for property owners, especially when competitors Inc.’s (PCLN) Booking.com and Expedia Inc. (EXPE) to enter the charge far less, but PPB is likely to attract those new to vacation rental market. HomeAway who have not yet paid an annual fee and have nothing to lose. The two sources most enthusiastic . Eleven property owners/managers cited HomeAway’s 10% PPB fee and supportive of PPB each represent over 1,000 as a deterrent to switching from the subscription business, since properties, revealing where PPB might have its greatest competitors offer cheaper rates. impact. A major complaint about PPB is that HomeAway has cut off direct contact between guests and property . Another concern for property owners/managers is HomeAway’s owner/managers, viewed as an important customer control of the reservation system, eliminating the possibility of a service option. Two sources said HomeAway told them conversation with the owner/manager and denying the opportunity PPB listings would not be at the bottom of the page, for personal customer service. while another said it was temporary and was unfazed. However, two sources said a low placement through . Four sources said having PPB listings at the bottom of search PPB would affect their decision to use the service. results would hurt owners/managers and effect their decision to use the service. Sources heard the low placement is temporary, 2) Property owners & managers listing on AWAY only and two have been told by HomeAway that PPB results will not be Four of five sources, all with 20 or fewer properties, placed at the bottom. expressed disinterest in HomeAway’s PPB because of the high 10% fee. These sources prefer the subscription . Property owners/managers increasingly consider Airbnb a viable option, and three have had success with VRBO rather option for PPB, based on positive results and lower fees. Reviews than HomeAway. One source started with HomeAway of TripAdvisor Inc.’s (TRIP) FlipKey were mixed. because of the PPB option, and said the subscription fee for her single property was too high. Two sources complained that the subscription fees are rising too much and too frequently, though not enough to prompt

PPB Effect on PPB Effect on PPB Effect on them to switch to PPB.

Revenue Listings Subscriptions 3) Industry specialists Properties listed All six sources agreed that HomeAway’s PPB will bring on AWAY and in new listings and additional revenue, as it will appeal others to some property owners currently not listed with Properties listed HomeAway. Five sources said PPB will not cannibalize on AWAY only the company’s subscription revenue, mainly because subscriptions make more financial sense for most Industry property owners/managers, giving current subscribers Specialists little incentive to convert to PPB. Three sources consider Airbnb to be a strong competitor to HomeAway.

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HomeAway Inc.

Background HomeAway Inc. recently introduced a pay-per-booking (PPB) program for its property owners/managers. This new feature allows owners/managers to pay 10% of each transaction to HomeAway, rather than an annual $349 fee, making it attractive to those exploring the possibility of renting their homes. The company hopes that, in addition to providing a new stream of revenue, HomeAway will increase the acceptance of its concept among property owners, thus driving growth in its rental base.

HomeAway already has had some success with its pay-per-booking model. In November, it enlisted its largest vacation rental provider to date: Swiss-based Interhome, which is expected to add “tens of thousands” of its managed properties to HomeAway’s PPB program. HomeAway has partnered with companies like Rentals United, a platform for owners and agencies to list their properties, in an effort to test its new booking model. Additionally, HomeAway recently acquired Stayz Group, an Australian company that operates under a commission-based model similar to the new PPB feature. HomeAway expects to increase the number of listings in the near term as a result.

HomeAway’s new model directly competes with established travel companies in the vacation rental space, including Airbnb and FlipKey, both of which charge only 3% per booking. In addition, the introduction of the PPB model could cannibalize the company’s subscription-based revenue stream. As property owners and management companies consider the PPB feature, some may leave the subscription-based model, resulting in a smaller take on the subscription side and only the same number of listed properties. Furthermore, the PPB model could hurt the quality of HomeAway’s available rental portfolio, making it a less attractive option for customers.

Blueshift’s Feb. 14, 2013 report found that HomeAway was a necessary evil for property owners and managers because of its reach. While sources were not in favor of the company’s new pricing and listing bundle program, very few of them expected to abandon listing with HomeAway given the company’s lead position. Competitors, property management software representatives and industry specialists acknowledged the company’s strength and dominance in the industry.

Current Research In this study, Blueshift Research assessed whether HomeAway’s PPB will increase revenue and rental listings or cannibalize its subscription business. We employed our pattern mining approach to establish and interview sources in four independent silos: 1) Property owners and managers listing on HomeAway’s and competitors’ sites (12) 2) Property owners and managers listing on HomeAway’s sites only (5) 3) Industry specialists (6) 4) Secondary sources (5)

We interviewed 23 primary sources, including seven repeat sources, and identified five of the most relevant secondary sources focused on the introduction of PPB from various companies, as well as the rising threat to HomeAway from Airbnb.

Next Steps Our next report will follow up with property owners/managers on the progress of PPB and to determine if the new service is gaining traction or costing too much money to continue. We will continue to seek large professional property managers and smaller home owners to determine the similarities and difference between the two groups. We will determine the size of the threat to HomeAway from Airbnb. Lastly, we will assess the effect of guests not being able to contact property owners/managers directly.

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HomeAway Inc.

Silos

1) Property owners and managers listing on HomeAway’s and competitors’ sites Six of the eight largest property owners said PPB will bring HomeAway additional revenue and more rental listings. The feature will appeal to those not currently using HomeAway, and likely is intended for use by property managers more than individual property owners/managers. Six sources expect PPB to cannibalize HomeAway’s subscription business, and three suggested HomeAway eventually wants to eliminate subscriptions altogether in order to compete with Booking.com and Expedia. Seven sources said the 10% commission charged per-booking is prohibitively high for property owners, especially when competitors charge far less, but PPB is likely to attract those new to HomeAway who have not yet paid an annual fee and have nothing to lose. The two sources most enthusiastic and supportive of PPB each represent over 1,000 properties, revealing where PPB might have its greatest impact. A major complaint about PPB is that, in taking control of communication with guests, HomeAway has cut off direct contact between guests and property owner/managers, viewed as an important customer service option. Two sources said HomeAway told them PPB listings would not be at the bottom of the page, while another said it was temporary and was unfazed. However, two sources said a low placement through PPB would affect their decision to use the service. Airbnb is an emerging competitor to HomeAway, while FlipKey ranks second to HomeAway for several sources.

KEY SILO FINDINGS HomeAway’s pay-per-booking - 6 of 12 sources (including 6 of the 8 representing between 25 and more than 1,000 properties): PPB will bring additional revenue to HomeAway. o Also said PPB is likely intended most for professional property managers. - 3: PPB will increase the number of listings with HomeAway, attracting new properties not using subscription business. - 6: PPB will cannibalize HomeAway’s subscription business. o 1: likely to replace subscription business long-term. - 3: PPB is HomeAway’s attempt to eventually move all customers to an online booking system; able to compete for business with Booking.com and Expedia. - 7: 10% commission for PPB is too high. - 3: preferred HomeAway’s pay-per-lead program; more affordable. - 2: using PPB, both managing over 1,000 properties. - 3: considering using PPB. - 7: against using PPB for their properties. - 5: take issue with HomeAway eliminating option for customer to contact property manager/owner. - 2: hearing from HomeAway that PPB will not be at bottom of page. - 1: PPB low listings temporary, not concerned. - 2: PPB low listings will negatively affect their outlook on and usage of PPB. HomeAway’s subscription-based business - 2: subscription fees increasing again, have been on the rise consistently for last couple years. - 1: HomeAway trying to move subscription business to PPB. - 1: PPB and subscription business can coexist for now. - 1: Subscription works better in remote areas where guests needs to contact owner; PPB better in major city. Competitors - 3: Airbnb is creating competition for HomeAway and bringing in more bookings than a year ago. - 2: FlipKey is the No. 2 site after HomeAway. - 2: Airbnb is not seeking to work with professional property managers. - 2: there are many duplicate listings across all the sites; property managers will cross sell. Background - 12 sources ranging in size from 1 luxury retreat to more than 1,000.

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HomeAway Inc.

1. Executive for an international property management company with over 1,000 listings worldwide HomeAway’s new PPB program is able to deliver increased revenue because it has gained new listings from property management agencies with fully-online booking systems, which are easier to integrate into this new model. HomeAway eventually may want to convert to an all-online booking platform to have access From what I understood, to all the larger online travel agencies (OTAs) and booking channels, such as HomeAway is trying to convert Booking.com and Expedia. It is distinguishing itself from Airbnb, which has a existing subscription model person-to-person model, while HomeAway is oriented toward professional customers to PPB customers. I property management companies. Though still in its early stages, the PPB model am guessing they want to get currently is working better in Europe. on platforms such as HomeAway’s pay-per-booking Booking.com and that would . “So far with the PPB program, we’re getting bookings and it’s going well, but differently in different countries. The majority of the bookings are from only be possible if you have a Europe and in Europe. Bookings are the fewest in the United States, PPB model, where the platform probably because customers are less likely to travel to Europe where most is up to date. For both the of our properties are, whereas in Europe, the destinations are close by. customer and the property There could be more bookings but it’s the early stages. We expect owner, it’s always more HomeAway to become a top partner but we’re still working on that. There were technical issues in the beginning but it’s being sorted out.” comfortable to book everything . “Listing with HomeAway’s PPB program makes it more possible for us to online, rather than ask for a directly list our properties with them because of our completely online quote and see if it’s still booking system, and it makes it more possible for them to list our available. I think HomeAway properties.” wants to shift into a more hotel . “The 10% PPB program works well for us because we have a larger mark-up than that. It works out to be about the same as the commission we give to like booking experience. This any reseller. Mark-ups depend on the inventory available in each would make sense. destination. [New York City] for example doesn’t have too much inventory while Tuscany does, and the mark-up can be as high as 100%.” . “I’m not sure where they’ll put PPB listings on the page in the long run. For now, they are at the bottom of the page because HomeAway doesn’t want to With the PPB program, most of cannibalize their other clients. They are playing with it for the moment while our listings are new to they see which model is more profitable for them. But one of their manual HomeAway so it does mean sorting criteria is what is bookable online, so PPB customers with online new listings and new revenue platforms can be moved higher up. For now, the subscription clients make for them and no up a larger portion of HomeAway’s clients, so they need to be catered to by being on top.” cannibalization. … Some . “Most of our property owners don’t want to talk to the customers. The owners are unhappy with PPB agency takes care of it and the owner doesn’t have to be there. This model because anyone can go and has worked for a long time in Europe. Of course, the mark-up is larger. It’s they can’t decline it after it’s different from the Airbnb model or the paid subscription model. There’s a 24/7 hotline for problems.” booked. Many would want to . “My guess is they want to go in the direction of converting into an all-online know the renter beforehand. booking platform to have access to all the booking channels. My guess is For these, the subscription they want to get into the larger OTAs.” model works best. But it’s a lot . “From what I understood, HomeAway is trying to convert existing more work for the customer, subscription model customers to PPB customers. I am guessing they want to get on platforms such as Booking.com and that would only be possible if you who might find the calendars have a PPB model, where the platform is up to date. For both the customer are not up to date and might and the property owner, it’s always more comfortable to book everything have to contact twenty different online, rather than ask for a quote and see if it’s still available. I think owners to book a property. HomeAway wants to shift into a more hotel like booking experience. This would make sense.” Executive Intl. Property Management Company

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HomeAway Inc.

. “If HomeAway has a PPB model, that means they’ve been able to update all their calendars. Otherwise this model would not work. Cooperating with Expedia starts to make sense, because Expedia will only accept listings that are bookable online. I think that’s their long-term strategy, to have more PPB models, so they can also be on booking platforms like Expedia, like Booking.com, like other standard online travel agencies. That’s my guess.” HomeAway’s subscription-based business . “With the PPB program, most of our listings are new to HomeAway so it does mean new listings and new revenue for them and no cannibalization. A few listings from some countries were already on HomeAway but were redirected to our site when customers wanted to make bookings.” . “Some owners are unhappy with PPB because anyone can go and they can’t decline it after it’s booked. Many would want to know the renter beforehand. For these, the subscription model works best. But it’s a lot more work for the customer, who might find the calendars are not up to date and might have to contact twenty different owners to book a property.” Competitors . “Airbnb charges 3% to the owner but the client has to pay 13% so in the end it’s more expensive.” . “Airbnb does not want to work with professional property managers. They have a [person-to-person] model.” Background . “We’re using HomeAway’s PPB program for properties in Europe and the United States.” . “HomeAway is just one more site among many for us to advertise on.” . “We also list the properties on our site and on many other sites throughout Europe like Booking.com, LastMinute.com, Expedia, Casamundo, e-domizil and many others.”

2. Executive for an international property management company with over 1,000 listings worldwide HomeAway’s new PPB program will increase revenue by bringing in online listings from other platforms not previously on HomeAway. In the long term, it will replace the subscription-based business, as HomeAway will be rolling out the scheme to all its clients in order to compete with big OTAs that also are delving into the vacation rental market. Furthermore, 10% commission on each rental will garner more from property managers than an annual subscription. Bookings in the first few weeks of listings through HomeAway’s PPB program have been good, due to HomeAway traffic added to this property manager’s listings. Some destinations have done better than others. However, lack of connectivity between owner/managers and guests—essential in long-term rentals—will be problematic if HomeAway does not adopt a platform that allows such communications. HomeAway’s pay-per-booking . “PPB is going to be far more lucrative for [HomeAway]. I don’t think they PPB is going to be far more have much of a choice because Booking.com and Expedia and all the large lucrative for [HomeAway]. I hotel booking sites are starting to come into the vacation rental sector. don’t think they have much of a They’re also talking about Expedia or Priceline purchasing HomeAway.” . “We’re getting good results with HomeAway’s PPB scheme. We’ve listed in choice because Booking.com the past with their subscription based business. They’ve been reluctant in and Expedia and all the large offering the PPB scheme to everyone so far but we’re trying it out. It’s a big hotel booking sites are starting move for HomeAway. I think working on a commission model is far more to come into the vacation lucrative. The subscription-based model has worked very well for them and rental sector. as far as I can see they are pushing their PPB quite heavily now. They will be rolling it out more. As a business owner I love to push my properties out Executive to HomeAway from across my platform because I do online bookings Intl. Property Management Company anyway. But it might start crowding out the private owners.” . “Bookings via HomeAway compared to other platforms we use are comparable. Because of the sheer volume of traffic HomeAway receives, it’s only natural that bookings numbers would be good.” . “It’s working well in certain destinations and not so well in others. In London it’s really working, Brussels not so much. Most of the clients they’re getting are Americans. We only went online a couple of weeks ago and so far so good. The bookings have steadily increased.” . “I haven’t seen that my listings are on the bottom of the page.”

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HomeAway Inc.

. “Eventually [PPB] will be rolled out to cover everyone. Why as a business owner not roll this out if for one booking you can make the same amount of money as you can make from that client for the whole year? And also the emphasis is on HomeAway now. If they’re getting paid on performance, they need to ramp up their marketing efforts and improve their website and improve their communications with their customers. Eventually, we’re talking a few years down the line, I don’t think customers will have any choice but to go on the PPB scheme.” . “The new PPB does not allow for client contact. I can understand if you own the property yourself and you want to speak to the people who’re coming into your property and have contact with your customer. But at the end of the day, you need to accept that people want to make decisions online. But I would never book a property through HomeAway myself. I want to be able to make my own decision.” . “There’s concern the big boys are coming in with big marketing budgets and everyone is starting to connect with everyone else.” . “We’ve started encouraging smaller companies to come through our online booking platform and push online availability. And we have a mechanism where a customer can come online and talk to us whether live or by email. And they then go back to the website and book online.” HomeAway’s subscription-based business . “There’s no reason why PPB would not co-exist with the subscription We’re getting good results with program for a while.” HomeAway’s PPB scheme. . “They introduced about eight months ago where you’d advertise your properties with HomeAway, you’d have your number as a property manager We’ve listed in the past with on the side of every single property and whenever someone sent a request, their subscription based they would be pushed through to the owners’ or property manager’s business. … We only went website. So you’d actually book directly from the owner’s or manager’s online a couple of weeks ago website online. It still works that way.” Competitors and so far so good. The . “You’ll find there are a lot of sites with duplication, like HomeAway and bookings have steadily Airbnb and FlipKey and HouseTrip, because everyone is trying to work with increased. … I haven’t seen these sites now. There are so many properties out there they can get their that my listings are on the hands on. When they tell you they have 800,000 properties out there, 25% bottom of the page. of that could be duplication.” . “There was a time when HomeAway didn’t see Airbnb as a competitor and Executive now they’re taking a big chunk of the market. HomeAway needs to do Intl. Property Management Company something with their positioning and this is one big move for them.” . “They had to move to the PPB sector otherwise they’re still going to be left with the private owners when now, we target private owners with our platform and distribute them to other channels, including HomeAway and Booking.com. However, we enable the owner to keep in touch with their customer so you can actually send messages through the site to the owners and you communicate with them as well.” . “No one is going to book a house for two weeks for $5,000 without actually speaking to the owner and finding out more information about the property and where it’s really located, what amenities it’s got. There’s only so much information you can get form an ad.” . “The quality of the requests on Trip Advisor are less good than on FlipKey.” . “People like FlipKey and TripAdvisor have changed the outlook in the industry with the pay-per-lead model and it’s going to be some kind of hybrid between the pay-per-lead and pay-per-listing and maybe merge. You need to have the incentive for companies to really push and make bookings. This is what FlipKey has done.” . “Over the past 12 months the way the market is developing, it’s really fragmented. It’s been occupied by a lot of small localized businesses and now with the introduction of Airbnb and HouseTrip, and with HomeAway coming into the online booking sector, the market’s changing a lot.” Background . “We have about 9,000 properties that we manage. We work with other web sites and we have our own affiliate program where we push out properties to some of our partners. We also work with some owner direct web sites as well, like Home Lettings, and many smaller sites such as Zstay in the United States. We have used HomeAway’s subscription plan and now we’re using their PPB program for some of our properties. Our platform allows instant booking so this works well with the program.”

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HomeAway Inc.

3. Manager of over 600 properties in Florida; repeat source PPB is likely to cannibalize subscription revenues, but the increase in bookings should also increase revenues, which could offset the loss. All of this source’s properties currently are listed by subscription at HomeAway. He also places some listings on other sites, primarily FlipKey. He would like to use HomeAway’s PPB program, but expects it to feed data directly from his software so that property and calendar updates remain current. While it is not a done deal, he said they We are listing 600+ properties are working on the details. with HomeAway and are HomeAway’s pay-per-booking considering going to the PPB . “PPB would have to cannibalize subscriptions unless they are able to greatly program, but have not yet. … I expand the distribution method to new customers. But increased bookings should also result in increased revenues for HomeAway, which could offset expect that online booking the loss. I expect it is too soon to see that result yet.” feature would increase our . “We are listing 600+ properties with HomeAway and are considering going bookings, and the data feed to the PPB program, but have not yet. It is not a done deal.” feature would help expand our . “We do have a few listings strategically placed on several other sites using distribution and exposure. I the PPB programs. It is a test for us right now to see what works, what the conversion rates are, and how the cost compares to the revenue it would expect increased generates. It is really too early to know.” revenue as a result. . “With PPB all of the bookings would automatically appear on the calendar, Manager and customers could book directly online without having to make a phone Over 600 Properties in Florida call.” . “I expect that online booking feature would increase our bookings, and the data feed feature would help expand our distribution and exposure. I would expect increased revenue as a result.” . “If PPB listings drop to the bottom of the search, that would impact my decision. But that is not what they are telling us in their sales pitch. I do not think it sounds accurate.” HomeAway’s subscription-based business . “Right now we are subscription-based with HomeAway. It is labor intensive to run this way. PPB would, or should, run off a data feed, so updates automatically feed into their system without having to make all the manual entries, and all the listings should remain current.” Competitors . “HomeAway is the number one online listing service and it definitely gets the most exposure for my properties. FlipKey is next, and they have grown If PPB listings drop to the significantly over the past couple of years.” bottom of the search, that . “We spend more at HomeAway but it is considerably more listings, so there would impact my decision. But are more bookings made there. It is a significant spend but it is worth the that is not what they are telling revenue we get in return.” . “We place a few specific listings on FlipKey, so they do not have all my us in their sales pitch. I do not inventory on their board. And we have a few listings strategically placed on think it sounds accurate. several other sites including VHR, Perfect Places and Vacation Rentals.” . Manager “I have reached out to Airbnb more than once and they are simply non- Over 600 Properties in Florida responsive. I have left voicemail messages and sent e-mails, and I just get no reply at all.” . “The other sites work well with our data feed. It could improve everyone’s experience with data feed bringing consumers directly into our reservation system.” Background . “We have more than 600 properties listed with HomeAway.”

4. Manager of 25 vacation properties near Seattle, Washington HomeAway’s PPB program can deliver increased revenue and listings because it is aimed at property managers who have yet to list on the site. Getting these managers to advertise even a single available week would add new revenue, and

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HomeAway Inc.

would benefit both managers and owners. Around 25% of professional property managers currently list on HomeAway. For this source, whose bookings are at around 80%, HomeAway’s annual subscription costs 3%-5%, and makes more sense. Bookings through Airbnb, with its low 3% cost, have increased this year, though its platform is not targeted to the professional property manager. With around 30% profit on bookings, this source is not willing to pay 10% to list with HomeAway’s PPB program. HomeAway’s pay-per-booking . “I’m not using HomeAway’s PPB because it doesn’t make sense for me because my advertising cost with them is closer to 3%-5%, depending on the site. So it doesn’t make sense for me to pay more, to pay 10%.” . “Where PPB is going to make sense possibly is for property managers, like on the East Coast, where they have a high percentage of customers that are repeat customers and they’re looking to augment their marketing. HomeAway said at their last conference that only 25% of professional property managers list any of their properties on HomeAway or any of their sites. And so they’re using this as a tool to get those people to advertise.” Where PPB is going to make . “PPB is going to be to get new people onboard. I’m sure HomeAway would love if all of us would pay 10% for every single booking. But I don’t think sense possibly is for property they’re foolish enough to think that we’re all going to do that. It’s just one managers, like on the East more arrow in their quiver. It’s going to be for the property owner with Coast, where they have a high maybe one week to sell for the summer and if that week is worth $1200, percentage of customers that you’re paying them $120 instead of $349 or potentially more to get a are repeat customers and higher listing. In those scenarios it might make sense. Or cash-flow wise. If you’re on a budget, you might not have that $349 so the 10% commission they’re looking to augment per booking makes more sense.” their marketing. … PPB is going . “While this new PPB is supposedly new, it’s not really new in a lot of ways. to be to get new people Escapia, one of the software products for property owners and managers onboard. that HomeAway bought a couple of years ago—if you used that software, the only way you could advertise on HomeAway is if you did pay-per- Manager booking, and that percentage was 10%. So that percentage has existed in 25 Vacation Properties near Seattle the property management space for a long time.” . “To be fair if you used Escapia, I believe FlipKey’s percentage was 13%. However, that’s no longer true because you can also do pay by subscription if you use Escapia now. So the 10% model has existed for a long time and is not new on the property management side. What is new is for individual home owners to have that option.” . “My business model is different in that I have a year-round season. Our average occupancy for the year is near 80%. On the East Coast, a lot of Last year, Airbnb was about property managers have a very short season of 13 weeks and if they have a 12.5% of my business and this good book of business of repeat guests, and if they’re looking to augment year, January is going off to a their business or if they have some empty weeks, it would make sense for rocket start, to about 25% of them to pay a 10% fee per booking rather than pay possibly an annual $349, or more than that, depending on how high they want to be listed, my bookings with Airbnb. Eight depending on the dollar value of their condo, and how many weeks they percent of my bookings go want to sell. That’s where it makes sense.” through FlipKey. All the HomeAway’s subscription-based business HomeAway family brings about . “I just renewed my contract with HomeAway this year and I’m paying them 35% of my bookings. I also get $28,000 in advertising but it’s worthwhile because last year they brought in $459,000.” a lot of booking with Google, . “I pay for the global bundle which is HomeAway, VRBO and where I don’t pay but I have VacationRentals.com and I also pay to be the top listing in my market. I pay good SEO. around $1200 per property.” . “HomeAway [calculates that] 5% is the normal cost for people to advertise Manager 25 Vacation Properties near Seattle their property. If you spend $1000 with HomeAway you’re probably going to get $20,000 in bookings. My data happens to back that up. I’m doing other marketing efforts and other campaigns to try to make it so I’m not that dependent on HomeAway for leads. And when I’m comfortable with the mix I have, I might take some of my listings and not post them as high and see what kind of

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HomeAway Inc.

returns I get. Ultimately I have a pie of nights I can possibly book and if other marketing channels start working more, if Airbnb becomes 30% of my business by the end of 2014, I might dial back HomeAway.” Competitors . “Airbnb and FlipKey charge 3% to cover the merchant account fee, which costs something, so they probably make 1% off that. Airbnb charges 6%-12% to the guest booking the accommodation. That way they have multiple revenue streams. Airbnb’s model is different that way while HomeAway is only making revenue from the home owner.” . “Because Airbnb drives traffic to my own website, I end up paying six-tenths of a percent to them for advertising on their site and driving me bookings that the guests pay for. That I love. But they’re not catered to the professional property manager, so I end up breaking their system at times with too many properties listed. They’re not catered to property managers. You have to go and build in sales tax to your rates. You have to do lots of things.” . “Last year, Airbnb was about 12.5% of my business and this year, January is going off to a rocket start, to about 25% of my bookings with Airbnb. Eight percent of my bookings go through FlipKey. All the HomeAway family brings about 35% of my bookings. I also get a lot of booking with Google, where I don’t pay but I have good SEO.” . “Every market is so different. My numbers are going to be completely different than someone in cities, where Airbnb works well. Airbnb doesn’t work well in ski towns and cabins, according to interactions I’ve had with property managers and other people in the property management world. “ Other . “I’m intrigued by the chatter of Priceline being interested to buy HomeAway. That type of acquisition would make me nervous. HomeAway has been buying out other vacation rental companies. But from the beginning they’ve been a vacation rental company. It would worry me that Priceline, though they have brilliant people working for them, vacation rentals aren’t hotels and those kinds of services.” . “I’d be worried they wouldn’t understand our industry and make some mistakes in how they build models. Trying to force us on a 30% OTA model wouldn’t work for vacation rentals. I make 30% from the properties I manage. I’m not going to pay anybody 30%. That’s also why I don’t want to pay HomeAway 10% because that would cut my profit in thirds.” Background . “I list 25 properties with HomeAway and all its affiliate sites like VRBO and VacationRentals.com and also advertise on Airbnb, FlipKey /TripAdvisor. We’re also on a few boutique sites but we don’t get much business from them.” . “I advertise all my properties on all the sites because it makes sense for my inventory. A 5-bedroom 5-bathroom ultra-luxury property, I probably wouldn’t put on Airbnb, though I’d have nothing to lose. But it wouldn’t really be a good fit.” . “With Google, I don’t pay for ad work but I have good SEO so I’m on the first page when people look for vacation rentals in my area.”

5. Executive for an international property management company with over 500 listings worldwide HomeAway’s new PPB program will add revenue, because earning 10% for each booking is more valuable than many of the annual subscriptions, but PPB likely will cannibalize its subscription based business. This source believes HomeAway intends to transfer all of its customers to this program, alienating property management companies that see The PPB model will only work in subscription investments for listings diluted by free PPB ads. Additionally, the automatic booking system could work for city destinations but not regional ones, city destinations and resorts. In where there is a greater need for direct communication between the customer the regional destinations, which and the agent/owner. This source said agents are collaborating to find new is probably about 60%-70% of marketing strategies to weaken HomeAway and to avoid polarization in the the historic market, it’s going to industry. run into a certain amount of HomeAway’s pay-per-booking trouble. The guest will want to . “The PPB model will only work in city destinations and resorts. In the speak to the agent and the regional destinations, which is probably about 60%-70% of the historic home owner. market, it’s going to run into a certain amount of trouble. The guest will want to speak to the agent and the home owner.” Executive Intl. Property Management Company

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HomeAway Inc.

. “HomeAway is trying to get close to the Booking.com model. They want to take 10% out of every booking rather than make $500 from a subscriber who could make all the bookings in their own name.” . “Brian Sharples [CEO of HomeAway] said in a blog that launching the ‘book it now’ system was the opportunity for agents to publish their entire portfolio on their website when they didn’t have the technology or administration time to worry about it. It’s actually a way of getting the entire portfolio online and pushing it on HomeAway.” . “From talking to other professionals, the general opinion is [HomeAway] wants to take a percentage of all the bookings. To do that they have to put an edge between us and the guest. With other models like Airbnb you can’t communicate very well with the guest on the other side, for example to send links about locals shops, or other properties. My guess is their subscription revenue will drop because we and every other agent I talk to are trying to find another way to market our properties outside of the HomeAway network.” . “HomeAway is creating polarization and that’ll have to be addressed.” . “I’ve spoken to several large companies who are all willing to do something to try to take HomeAway down.” . “In Europe, agents make at least 30% commission from an owner. The perception at HomeAway is to take a big slice of that 30% and put it back into the market by becoming number one in the search engines. In the [United Kingdom] however, most agents are only going to get 15%-17%, so they don’t have 10% to give to HomeAway.” . “HomeAway, TripAdvisor, Holiday Lettings are all effectively saying the same thing. You need to pay through our system because you can trust us. In effect it’s also saying you can’t trust the owner or the agent, so it’s upset many people. And HomeAway’s credit card transaction rates are higher than the ones we give. And all the agents using HomeAway’s booking facilities won’t be paid until the guest has arrived. For example, we’ve received 400-500 bookings this January for guests in June and July for an average each of 1200 [euros]. That would be sitting with HomeAway until June and July and it’s non-refundable. So they’d be sitting on 500,000 [euros] and we’d have no cash flow.” . “[PPB] can’t work in regional areas because of the nature of the booking system and the inquiry mechanism. We’ve invested huge amounts into our My guess is their subscription inquiry system. I’ve been told that everybody will be forced to use the revenue will drop because we dashboard of HomeAway. We can’t log in to the HomeAway dashboard 500 times in 2 days. That’s impossible. I think people will find a way around it and every other agent I talk to and they will navigate it.” are trying to find another way to . “Google is a role player here because Google Ventures is an investor in market our properties outside HomeAway, too. You have a certain amount of power when that is the case. of the HomeAway network. … If the search engines decided that HomeAway should not be the number HomeAway is creating one listing in every destination, they would lose traction to other companies.” polarization and that’ll have to . “In the United Kingdom, a typical profit is 700 pounds per booking and be addressed. … I’ve spoken to there are 15 bookings per year, so maybe 12,000 pounds and the agent or several large companies who owner might pay 500 pounds to get the advert and inquiries. With the PPB are all willing to do something system, if all the bookings are through HomeAway, it would mean more than to try to take HomeAway down. double the profit for them. I think they’re really going to push this. They’re also going to rank listings according to reviews at some point in the future, Executive and also rank according to those who pay the highest commission.” Intl. Property Management Company HomeAway’s subscription-based business . “HomeAway has caused an enormous disturbance by acquiring so many other companies. It used to cost us 90,000 [euros] to get 12,000 inquiries; now it costs us almost double. With HomeAway’s new structure put in place two or three years ago, the level of subscription makes a difference on where your ad will be seen. The price can go up to 1600 dollars for the top package. The price of subscriptions has gone up hugely. It’s a massive investment now to put your product on HomeAway with a subscription.” . “They told two of our account managers they will never get rid of subscriptions and they will never dominate the bookings with ‘book it now.’ Times have changed. Now they’re saying you can’t communicate directly with the guests and that’s absolute nonsense. In hundreds of thousands of bookings we’ve never once had fraud. They’re only doing it to gain control of bookings on their dashboard. They’re trying to get rid of the subscription system without admitting to it.” . “Our 200 listings in Italy on HomeAway cost us about 130,000 euros. We’re not a small customer. Our inquiry ratio is down in the last year by 10% already and that’s because of the way some of the companies are pushing their product in front of the customer. HomeAway is trying to grab inventory from vacation destinations from all over with

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HomeAway Inc.

their PPB program, and this is diluting our investment in subscription. The advertisers haven’t paid anything because they’ll only pay if they get a booking, but they’re diluting our listings, our subscription.” . “Over 60% of the properties on HomeAway are managed by agents. And they’re going to polarize them, too, into what’s attractive for them. If I were the owner of a really nice apartment in London, I would just stick it on HomeAway or HouseTrip, and I’d pay about 10%-15%, and the business is going to come and everybody will be happy. But in Tuscany, for example, that wouldn’t work, because the majority of the guests are from the United Kingdom, or Central Europe or the United States. And they have a lot of questions about Tuscany, about how to get there and they’ll want to know all sorts of information about the location. That won’t work with HomeAway’s ‘book it now.’” . “In cities, London, Paris or New York, renters usually know what they will get because the neighborhood is well- known, etc. In regional areas, such as the Italian lakes, there are usually seven or eight phone calls from each guest, because they are traveling from far away areas, perhaps the United States or all over Europe, they want to know how to use the spa, where to get their hair done for going to a wedding—that’s the kind of service our agency provides for the guests. In London, on HomeAway you might see 3500 properties of which probably the first few pages are ‘book it now.’ But if you look for Lake Como in Italy, it’s much harder. There’s a huge disparity between city locations and resorts that are well-known and independent, individual places.” Competitors . “We put some properties on Airbnb to try it and also HouseTrip, but they’re marking them up. The guest pays. It is actually attractive to quite a lot of people. The problem with it is, it’s not generating business right now outside of city destinations.” . “Trip Advisor and Holiday Lettings started this and went from a subscription to a pay-per-lead model for about 6 [Euros]–per lead, but they started heavily pushing the ‘book it now’ model and they charge between 6%-7% now. So they’ve become more attractive to people.” Background . “We are a large property management agency that started 20 years ago with properties in Italy and other destinations, including in the United Kingdom and Europe. In some places we work with management companies and marketing partners. We contract directly with the owners and we do all the marketing and finance and everything connected with the management of the property.” . “Since 2006, we’ve seen HomeAway making acquisitions and become a more important player in the vacation stay businesses. In this time we’ve seen an increase in the number of properties coming into the market for rentals due to a lot of people buying second homes in Europe and the market crashing and people not being able to sell them so looking to rent them. So we have a larger inventory and the inventory needs more marketing and more people going into this marketing area.”

6. Manager of over 100 properties in the Midwest; repeat source This source chooses not to use HomeAway’s PPB system because of the 10% commission, and he currently is trying various sites because HomeAway plans to cancel its inexpensive pay-per-lead program. He plans to list a few properties strategically under both HomeAway’s subscription and PPB programs, as well as at TripAdvisor and various other If anyone does go to listing sites, then will decide on the most cost effective approach. This source treats a HomeAway inquiry as a lead that he will cross sell into any of his [HomeAway’s] PPB, they would appropriate properties, no matter the source. He does all the selling and controls cancel their subscription. It will all the rates. He is considering dropping all HomeAway listings and going to have to cannibalize their TripAdvisor. In any case, he will be listing fewer properties than in the past. current client base. And with HomeAway’s pay-per-booking higher fees, it would increase . “If anyone does go to [HomeAway’s] PPB, they would cancel their revenue, unless they subscription. It will have to cannibalize their current client base. And with disenfranchise their clientele higher fees, it would increase revenue, unless they disenfranchise their clientele and everyone just cancels, or reduces the number of listings.” and everyone just cancels, or . “I am aware of PPB with HomeAway, but we are not using it. A 10% fee of reduces the number of listings. the full booking is just too much for a property manager who is covering Manager Over 100 Properties, Midwest

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HomeAway Inc.

marketing as part of the service. We could pass it on to the owner or to the customer, but we have not made the decision to do that at this point.” . “We are also not using TripAdvisor’s PPB at 3%, for the same reason.” . “I do not expect to generate any more revenue from their more expensive programs. For one thing, they are not offering anything different for the money. I would not expect any additional bookings from the same listings. And I plan to reduce the number of listings. I do not see this program as being well received at all.” . “There are significant flaws in their PPB model. It is not a hotel room where we have 100 of the same room to sell every night. We are not selling reservations. We deal directly with consumers to find a property that meets their needs. HomeAway does nothing to contribute to the process, except generate the leads.” . “A HomeAway inquiry simply puts a hold on the calendar for a particular date. I still have the right to deny the reservation or redirect it to a more appropriate property. We still do all the work to sell the booking. So with PPB, I would pay 10% for a booking on the original inquiry but I may not even rent that property to them. It makes no sense.” . “I do not think HomeAway will put the properties on PPB at the bottom. They will give them premium exposure in order to increase their own revenues.” We were using a pay-per lead . “We were using a pay-per lead program and it was very inexpensive compared to either the subscription or the PPB programs. They will be program and it was very dropping that program, so we are making decisions about how to handle the inexpensive compared to either change, and dropping the number of listings is one way. We may drop the subscription or the PPB HomeAway and go to TripAdvisor exclusively.” programs. They will be dropping HomeAway’s Subscription-based business that program, so we are making . “I expect everyone will pick either the subscription program or the PPB, but not both. We may initially try some properties on both, on a limited basis to decisions about how to handle compare results. We will likely list fewer properties overall.” the change, and dropping the . “We can filter the customers ourselves. We do not need HomeAway to insert number of listings is one way. themselves between us and the guest.” We may drop HomeAway and Competitors go to TripAdvisor exclusively. . “Online dominance is critical and right now HomeAway is the dominant player. But they are charging exorbitant fees and continue to raise them. Manager TripAdvisor and FlipKey are second in online dominance.” Over 100 Properties, Midwest . “We have our own website also, and it is most cost effective to use it versus the other search engines. But it is all about placement. If I advertise all of my properties on their website, I am simply adding competition for my own website. But if I can place a few properties strategically on their sites, to get inquiries into my website, that is most advantageous to my property owners. I certainly do not want to be reliant upon them for all my bookings. If I put everything on HomeAway, I force my customer to go through them to get to me. I want to avoid that.” . “We may go to TripAdvisor’s PPB and drop HomeAway altogether. Airbnb has lost control of their target audience. They had more of an urban appeal, but now they will list anything.” . “I am also more likely to list less popular properties, ones that get less attention. Ones that are rented all the time anyway do not need the additional exposure.” . “We are really in a trial analysis process right now. We will be testing all the options with a few listings.” . “Hotel online marketing got taken over by Expedia, who charges a 25% fee. Expedia grew and dominated the search so they started demanding more nights and best rate guarantees. The hotel industry is struggling because of Expedia’s online dominance. No one goes direct to the hotel anymore. As property managers, we do not want to give that much control over to HomeAway or anyone else. We want to maintain control over our rates and clients and properties.” Background . “We manage over 100 properties and we list a few on HomeAway, VRBO, FlipKey, and TripAdvisor. Usually they are leading properties, and when we get inquiries we book the customer into the most appropriate property we manage, not always the property they inquired on.” . “We strategically place properties depending on the season and the rent-ability. We use properties that generate the most calls, that can easily cross-sell to other properties.”

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7. Manager of over 300 properties in North Carolina; repeat source This source lists more than 300 properties with VRBO, using its pay-per-lead services. Some properties also are listed on sites including FlipKey and Beachhouse.com, and the company utilizes its own website for online bookings as well. Choosing either the subscription or the PPB program will raise the cost per property significantly. This source has been told PPB would receive higher rankings and better perks, but this does not justify the increased cost. Her take on higher end properties is 10%, which is more than half of her take for lower end properties. She will not move her properties to PPB, and she expects other property management firms will decline PPB at that price as well. HomeAway’s pay-per-booking . “I would only do one program. I cannot see anyone paying for a subscription and that PPB fee. Why would they? One would have to cannibalize the other.” . “We are not using their subscription or PPB programs. We use an older platform, [pay-per-lead] which is considerably less expensive than either of these newer programs.” . “A subscription would be significantly more cost than our current program. They say PPB will make more revenue with better rankings and perks, but either way the change will be labor intensive. PPB will be more than subscriptions, so either way the cost is going way up.” . “We are not using any other PPB programs for the same reasons. It will be more expensive.” My understanding from their . “10% is my management fee on a high-end rental. Why would I give it all to sales pitch was that PPB HomeAway? I cover marketing for my owners, and even on the lower-end rentals, 10% is more than half of my take. I just cannot see doing it, ever.” listings rank higher than . “Every market is different and I am getting good results doing what I am subscriptions. And HomeAway doing, so why would I pay more for the same results? I cannot see what will makes more money on the be different or better. It is still an online listing.” PPB, so why wouldn’t they list . “My understanding from their sales pitch was that PPB listings rank higher them higher? than subscriptions. And HomeAway makes more money on the PPB, so why wouldn’t they list them higher?” Manager . “HomeAway is hoping to become the online marketplace for vacation Over 300 Properties , North Carolina rentals, like Amazon. But the difference is that every property is different and requires personal contact. Guests will always want to contact the owner or property manager directly to make their own best personal choice. We do a significant business through our own website, and that is always preferable for us.” HomeAway’s Subscription-based business . “I will likely go to a subscription for my VRBO listings. I have used another PPB program, not HomeAway, and I had a comparable number of inquiries. Sometimes a contact does not book the property they initially inquired about, so I don’t pay the fee. But I still end up booking them into one of my properties.” . “The pay per lead program really is more fair to both of us. I pay a flat fee for every phone call or email, then I work direct to make the best accommodations for that guest. They get paid for the lead and they bring me a contact.” . “HomeAway just sent me an email announcing an increase in subscription rates. I am not really sure what they were before, but I can tell you a subscription is certainly more than we are paying per property to list with them on our platform.” . “It will be too expensive for management companies to bite on 10%. They will not do both.” Competitors . “Our plan is not easy to track per-property, because we cross sell and it doesn’t really matter which listing the lead responds to. Because it is inexpensive, it does not matter.” . “Our budget for HomeAway is more than for the competitors, but we have more listings with them as well. It is hard to track our spend to revenue but I expect the cost per property is similar across the various sites.” Background . “We have 300-plus properties listed at VRBO. We also have properties listed at TripAdvisor, FlipKey, BeachHouse.com and several smaller listing services.”

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HomeAway Inc.

8. Owner of fewer than 10 luxury properties in France and the Caribbean HomeAway’s new PPB program is basic internet marketing that takes commissions for bookings, rather than asking customers for their trust through paying a subscription. This source plans to switch his subscription to PPB when his annual listing expires. Additionally, he may advertise his luxury properties that have previously been represented by physical agencies. Although he would have nothing to lose, he is skeptical that customers would have enough confidence to pay the high price of luxury rentals by credit card online. HomeAway’s pay-per-booking . “When my annual subscription with HomeAway expires in a few months, I will advertise my mid-price range property through HomeAway’s PPB program. So it will be a cannibalization of the subscription service and not provide them with additional revenue.” . “My luxury property has so far been represented by physical agencies and I never thought HomeAway was appropriate, but with the PPB program, I might consider it. I have nothing to lose. Especially because I have a When my annual subscription personal assistant onsite who could greet guests with the key and all. But with HomeAway expires in a I’m not sure if people are ready to pay that much money by credit card on few months, I will advertise my HomeAway. I don’t know what the average transaction is on HomeAway and mid-price range property whether there are large transactions for luxury property.” through HomeAway’s PPB . “PPB makes sense to me just like affiliate marketing does on web sites. This is a marketing technique that has been around for 15 years and the program. So it will be a idea of being paid for results is something understandable. I pay you if you cannibalization of the do something for me. Otherwise I don’t pay you. This is how I run any subscription service and not business. I was surprised that HomeAway asked to be paid for a listing, not provide them with additional even knowing the outcome.” revenue. … My luxury property . “Although I pay my agencies that take care of my luxury properties much more than the 10% HomeAway charges for PPB, I need these properties to has so far been represented by have local representatives as I am not always there. This has a cost. The physical agencies and I never agency can also reassure customers who’ll be very careful about who they thought HomeAway was pay their $30,000/week price to. In this kind of circumstance, brick and appropriate, but with the PPB mortar agencies have an important role to play.” program, I might consider it. I HomeAway’s subscription-based business . “When I started in the rentals business, I didn’t know which sites were have nothing to lose. good, which ones gave results. And when I was asked to pay right away, Owner, Luxury Properties in France & how can you know which one is good if you have to pay right away, without the Caribbean seeing it first? This is why HomeAway is doing it, to reassure people. Even Airbnb is commission-based.” . “There are other models. There’s the PPB model, there’s the pay-per-listing model, and pay-per-lead model. Each requires different actions from the owner. With these models, I pay if I get results but for some, I don’t, as an owner, have to be very active on the site. If I don’t do anything, it doesn’t really matter. If I pay my listing though, since I already paid, to make my investment back, I have to be very active with my listing. In pay-per-lead, I have to make sure my calendar is up to date otherwise I have to pay for leads that might not get me any bookings.” Competitors . “I get more bookings on HomeAway than on FlipKey.” . “On FlipKey, there are many large agencies that advertise and at times, a property will show up many different times. I don’t advertise my luxury villa on there but it’s there four times, placed on FlipKey by four different agencies. This actually isn’t very good for a luxury property. The problem with FlipKey, for an independent owner, an individual listing is lost in their vast number of agency ads.” Background . “I advertise in different ways. I have a luxury property in the Caribbean that has always been managed by agencies in the 20 years that I’ve owned it. These are agencies that not only find customers but greet the guests and take them to the property and give them the key and are available if there’s a problem. They take about 20%-25% in commission for their services.”

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HomeAway Inc.

. “I have another mid-price range property that I advertise directly on HomeAway and FlipKey. For yet another property, I use a local agency that greets the guests and does the cleaning, and they also take a large commission.”

9. Owner of seven vacation properties in California If HomeAway’s PPB would provide better services, this property owner would consider it instead of paying an annual fee. This source lists her properties on HomeAway and Airbnb, and has seen an increase in bookings through Airbnb, while HomeAway and VRBO bookings have dropped to less than 50%. Changes making direct communications with customers more difficult have prompted her to consider moving completely to Airbnb, where direct communications is equally difficult, but costs would be 3% for each booking. HomeAway’s new PPB program will not deliver increased revenue and rental listings, she predicted, because the offer does not provide better services to existing advertisers who are already paying nearly $1000 per property if they want their listings on top. HomeAway’s pay-per-booking . “PPB would have to [replace] the annual fee. You can’t have both.” . “It might be worth paying 10% instead of the annual fee if they would put me It might be worth paying 10% on top of the list. That’s worth a few hundred dollars because that really instead of the annual fee if they works well. You get so many more responses when you’re at the top. But to would put me on top of the list. go on the bottom of the list, I wouldn’t do it. I would drop the whole thing and That’s worth a few hundred definitely switch to Airbnb.” dollars because that really . “Airbnb charges for how much money you’ve made through them. A lot of what I paid them has been in the last year. 3% is good but 10% isn’t worth works well. You get so many it.” more responses when you’re at . “I haven’t heard about HomeAway’s PPB but lately I don’t look at any emails the top. But to go on the I get from them.” bottom of the list, I wouldn’t do HomeAway’s subscription-based business it. I would drop the whole thing . “I’m considering dropping VRBO and HomeAway because I’m also listing on Airbnb. I’m getting more than 50% of my bookings with Airbnb and though and definitely switch to Airbnb. they have some annoying features on their site, I can keep my rates a little Owner lower by not paying as much to list on VRBO.” Seven Vacation Properties, California . “I don’t really like the way they’re doing it now because they’re encouraging this competition to get yourself up higher on the list and the rates get higher. I started out with $99/year with VRBO and I don’t believe they have that many more expenses now and it’s 10 times the cost for me. I don’t like that.” . “The new change that VRBO did this last week, where I can’t email customers directly and I don’t get their information, that’s the annoying part of Airbnb, too. And with VRBO, I have to pay to be on there, but not with Airbnb.” . “I like people to be able to call me. I like more communication. Despite the automatic booking, people like to call me and have questions before they even go into the automatic booking. I want to be available to talk to them and help them out. I don’t like the change.” . “Starting this week, you can’t go directly to the customer’s email. You have to through HomeAway including to send attachments and pictures. It’s a I’m considering dropping VRBO whole other step where the customer needs to send me their personal email address. The clients get suspicious about why we want their email and HomeAway because I’m after all that.” also listing on Airbnb. I’m . “I’m getting less than 50% of my rentals from HomeAway/VRBO, while getting more than 50% of my Airbnb is moving fast. In the last year it’s amazing how much [Airbnb] has bookings with Airbnb. changed and my bookings with them have grown.” . “VRBO needs to keep their clients at the top of the list with the money we Owner pay them. The clients are going to start dropping away.” Seven Vacation Properties, California . “I’m thinking of dropping all my HomeAway and VRBO listings down to the minimum payment, and that would be 60% less for me.” . “If HomeAway/VRBO is trying to get another percentage on top of the high rate they’re charging, their services just don’t support that direction they’re taking. They have a boring site, people don’t like it well.”

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HomeAway Inc.

Competitors . “I would say HomeAway is working less well. I don’t get that many reservations from them anymore. Airbnb is a growing site and VRBO seems to be kind of stagnating.” . “Airbnb has a more interesting clientele and listings and attitude, and they’re making more money than VRBO because they charge up to 15% between the owner and the renter.” . “Airbnb lists a lot of people who want to rent their house when they go on vacation. It sounds like VRBO wants to compete with Airbnb. But I don’t think those people will find anyone on VRBO. It’s different kind of people—stuffy, kinds. When I go on vacation I go on Airbnb. The people are interesting and we can talk. Their houses are more interesting.” . “VRBO doesn’t have the right attitude. Airbnb is all about finding out all the places to go to from the people who live there. VRBO is about getting a vacation rental and not bothering any private people because you’ll have your own home. The guests are very different between the two sites. I like the guests from Airbnb better.” . “HomeAway is putting too many barricades between the owners and the guests. Airbnb has a strong screen because they don’t want you to make contact before they get their percentage. That’s understandable. That’s how they run their business.” . “Airbnb had complaints about rentals in un-zoned areas.” . “Airbnb charges too much to the guest. I don’t feel like it would be necessary to charge that much.” Background . “I have seven listings and I spend a lot of money on HomeAway and VRBO. For a couple of my listings, because I pay extra to have them listed higher, it’s up to nearly $1000 year.” . “I also do [Yelp Inc.] and it’s been great for me because I’ve been with Yelp for years so my listing comes up right away and I get interesting last minute guests, and that’s free.” . “I don’t want to keep up any more sites than Airbnb and VRBO.”

10. Owner of a single luxury retreat in the Caribbean This source thinks the PPB program is a bad idea that will damage HomeAway’s market and clientele. HomeAway offers nothing for the increased price, and undermines the subscribers by giving priority to PPB listings. The PPB program removes the entry barrier for listings, opening the site to repetitive entries of the same property and “junk” listings, creating a lot more competition for his single listing. HomeAway’s service was described as abysmal, while Travel Keys was immediately responsive and very good to work with, even though it charges more than HomeAway’s10%. HomeAway’s pay-per-booking . “I do not think the PPB program is being at all well received. And it has dropped the quality of the listing on HomeAway so much that I’m thinking of I do not think the PPB program cancelling their service altogether. Their relevance is gone when Travel is being at all well received. Keys is doing a much better job. If others are like me, they will lose customers and revenue over the program change.” And it has dropped the quality . “I would never consider doing both a subscription and a PPB listing with of the listing on HomeAway so HomeAway, so obviously the PPBs would cannibalize the subscriptions.” much that I’m thinking of . “I am considering dropping my subscriptions because since HomeAway cancelling their service started the PPB program there is no entry barrier. Anyone can list anything altogether. Their relevance is with no fee. Travel Keys has my listing on there anyway, and I would have to be listed four or five times to remain competitive.” gone when Travel Keys is doing . “Now other sites, like Travel Keys, are picking up listings from HomeAway or a much better job. If others are wherever, and reworking the page and entering them back on HomeAway like me, they will lose as a competing listing to the original. Some properties are on the site four customers and revenue over or five times, with a different picture and lead line. My single subscription the program change. listing is lost in all the noise.” . “I did not expect to notice any impact from the PPB program, but this is Owner, Luxury Retreat definitely backlash I had not expected.” Caribbean . “I would not pay 10% for HomeAway PPB. It is way too much. Their conversion rate is abysmal and the quality of their leads is thin. Travel Keys only lists luxury properties. People that

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HomeAway Inc.

use their service are prepared to pay my rates, and ready to book before I get the contact. They are very easy to work with.” . “I recently noticed the lower priority of my listing when it showed up at 130, then a few days later at 150. Then yesterday, my listing was at 20. Now eight out of ten properties on the list appear multiple times, and my single listing has all that to compete with. I cannot figure out how my premium subscription is making any difference. They have to be giving priority to PPB listings, or my listing would not be impacted in the sort. It would still be near the top.” HomeAway’s subscription-based business . “I was on HomeAway’s original plan to pay-per-lead, and it was less than the subscription rate. The subscription plan is less valuable to me than the original pay-per-lead plan.” . “The subscription program makes more sense than PPB when HomeAway is really just providing leads that very often never book. But now that my property is lost in all their junk listings, everything changes. HomeAway is no longer relevant to me.” . “The lack of any entry barrier has opened up their site to all kinds of junk listings from low quality properties to repetitive listings. It has significantly changed their market and their target customer. Now they are more like HomeAway’s service is zero. Airbnb. Owners of high quality and luxury properties will all leave.” They do not answer emails. . “HomeAway’s service is zero. They do not answer emails. They do not even They do not even give out a give out a phone number, just a blank anonymous email form that goes who knows where. I have trouble getting my listings corrected. I have asked phone number, just a blank about the numerous multiple entries of the same property and how that anonymous email form that devalues their site to me. They just don’t respond. No answer. No service. goes who knows where. I have Their service is abysmal. Why would anyone pay 10% for that?” trouble getting my listings Competitors . “My own website has the best conversion rate and my property is the only corrected. I have asked about one featured, no competition. I had upfront costs to set it up, but now the the numerous multiple entries cost is minimal to maintain it.” of the same property and how . “Travel Keys has given me a list of names and numbers to call if I have an that devalues their site to me. issue. When I call, someone answers the phone and fixes the problem They just don’t respond. No immediately. My listing issues were resolved in minutes. That is the kind of service I expect for a premium price.” answer. No service. Their . “Luxury Retreats has thinned their listings, making less competition for my service is abysmal. Why would property, rather than more. They feature fewer and more expensive anyone pay 10% for that? properties, and they have a clientele to match, higher quality leads, ready to pay a premium price for a premium property. They may also add HomeAway Owner, Luxury Retreat Caribbean free listings to pick up additional leads, but by the time they come to me, they have done all the service and sales already. I just finalize the booking.” . “I want to be in a luxury $1000+ per day market, not listed next to a $400 a day apartment. Those customers just want to negotiate down my rates, and waste my time. I am constantly wading through junk emails from those thin leads. It is just not worth it to me.” Background . “I have a luxury resort property in the Caribbean, and it is listed on HomeAway, VRBO, FlipKey, Travel Keys, Luxury Retreats and several other sites.” . “I have subscriptions with VRBO and FlipKey, even though they are all PPB now, I am grandfathered into the program I initially agreed to with them, and they offer a very low conversion rate.” . “I never listed anything on Travel Keys. They just picked up my property from another site and they have it relisted on HomeAway. They charge more than HomeAway’s 10%, but they are really quite good. They bring me qualified bookings with a credit card in hand to finalize the payment.” . “U.K.’s Wimco will not work with owners at all, only property management firms.”

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HomeAway Inc.

11. Owner of 50 properties in the Midwest This source has five listings on VRBO and 50 on FlipKey, on a pay-per-lead basis. It is inexpensive and she is satisfied with the number of leads for the price. PPB sounds very expensive. She likes her own reservation software, and is unsure how HomeAway’s PPB program would interface with hers. She gets more leads per-property on VRBO than on FlipKey, but is at capacity during high season and feels no need to spend more for additional marketing. HomeAway’s pay-per-booking . “I have seen [HomeAway] ads on PPB, but have not looked into it yet.” . “PPB might increase my exposure so I am looking into the option, but I do not have that much competition, so I do not need to pay a lot for marketing. I am really about the only game in town, and I am completely full during our high season.” . “I do not know about paying 10%. That seems crazy high to me. I would never do that. I really do not know anything about the priority of their listings since mine are pretty much the only ones that show up on a search for my area.” . “I like the pay-per-lead because there is no upfront cost really. I have not really researched their other programs.” I do not know about paying . “All of our bookings are by phone or on our own website direct. Per lead the 10%. That seems crazy high to cost is minimal.” me. I would never do that. HomeAway’s subscription-based business . N/A Owner, 50 Properties Midwest Competitors . “VRBO gets more leads than FlipKey but it is also more expensive. I get three to four leads a day on those 5 listings, but on FlipKey I get about 10 leads a day on 50 listings.” . “Of course, I cross sell the inquiry to the most appropriate property for that guest. HomeAway is more expensive than either of these.” . “I use reservation software from FlipKey, so my interface works seamlessly with theirs. I am really not sure of HomeAway’s software interface.” Background . “We took over these properties just a few months ago, so we are sticking with what the previous owner had going for now. We have five listings on VRBO and 50 on FlipKey, and we pay a set rate per inquiry.”

12. Vacation rental agent, Cape Cod This rental specialist’s agency will not use HomeAway’s PPB because the 10% cut is too high. PPB could work in some areas where property managers get a higher commission from owners. Her firm lists properties on HomeAway under its pay-per-lead program, but she has been told HomeAway plans to eliminate that option. If so, she will likely switch to subscription-based listings. HomeAway is second only to repeat business in producing revenue for her firm, and is the top producer among websites. HomeAway’s pay-per-booking . “Quite a few [rental agents] have gotten together and discussed the PPB option. Depending on the region you’re in, PPB may work for some but it On the Cape, the majority of the doesn’t work for our region.” rental agents get a 15% . “[The success of PPB] really depends on the region and what the commission. If I have a PPB commission structure is.” lead that comes in [through . “On the Cape, the majority of the rental agents get a 15% commission. If I HomeAway] and converts into a have a PPB lead that comes in [through HomeAway] and converts into a reservation, we’re only left with 5%, which is crazy. So for us, it doesn’t reservation, we’re only left with work. We have the option of utilizing it but we don’t.” 5%, which is crazy. So for us, it . “I have a colleague who works [at a vacation rental agency in New doesn’t work. Hampshire] and they take 20%. I’m not sure if they’re utilizing [HomeAway’s PPB] but it could work for them.” Vacation Rental Agent, Cape Cod

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HomeAway Inc.

. “Pay-per-lead gives us a little more control, although they do require us to have 90% of our inventory on there. It can get costly. You’re paying for every inquiry that comes in. FlipKey charges $7 for an email lead and $10 for a phone lead. HomeAway is $8.99 for both.” . “If you look at the numbers, based on pay-per-lead, we spend anywhere from $12,000 to $18,000 a year just on pay-per-lead. It’s possible [property managers in certain areas] could tighten that up with PPB.” . “HomeAway is looking to get rid of the pay-per-lead program. We’re ultimately going to have to decide if we’re going to list some properties under PPB or whether we’re going to be doing subscriptions. For us, it may be more cost effective to do the subscription fee. The PPB here is just not cost-effective for us. It won’t work for us at all.” . “We’ve been told the reason they’re getting rid of pay-per-lead is that because they are a public company now, the pay-per-lead is too unpredictable in terms of how much income they get from it. With PPB and subscriptions, they have a better sense of what revenue to expect.” HomeAway’s subscription-based business . “We have two homes on HomeAway now [through a subscription] and it’s worked out very well. I have them on a higher tier level than the classic HomeAway is our second- plan—the more money you pay, the better exposure you’re going to get. One leading revenue producer, after is a higher-end home that’s open year-round and is one of our leading producers. The owner happens to own another property so we put that on [a repeat business. Our own subscription listing] as well.” website is probably third. . “We might choose more [properties to list under a subscription plan] down Vacation Rental Agent, Cape Cod the road but we’re also trying to fight, particularly in this region and other parts of New England, to keep the pay-per-lead [option].” Competitors’ PPB . “HomeAway is our second-leading revenue producer, after repeat business. Our own website is probably third.” . “HomeAway is a top producing marketing site but FlipKey is right behind them. They’re not trying to be like HomeAway but to offer some of those same services like online booking. I do like them a lot. We do end up with a lot of inquiries through FlipKey and TripAdvisor but our conversions are less than what we’re getting through HomeAway.” . “HomeAway always tries to assure us they’re not trying to take business from us and tells us how fantastic we are. They have to keep us happy to some extent. Can you imagine if all the property managers pulled out from HomeAway? Based on the way things have progressed, they’re not making it any easier [for property managers].” Background . “Do I think of HomeAway as a competitor? Yes. They are tailoring a lot to the rental by owners and are utilizing the same procedures that we are—offering travel insurance, online bookings, security deposit protector fees.” . “We do utilize HomeAway for exposing homes through their pay-per-lead program. We also use their Escapia software [for our own website] because we wanted to have a fully integrated website and we also wanted to have better exposure on what they’re doing to keep an eye on it.” . “It’s very competitive here. If you talk to anyone in Martha’s Vineyard—it says there are 1,700 listings [on HomeAway] but that’s because those property owners are co-listing with all the rental agencies there. If I’m listing a property and it’s co-listed with another agency, both of us are going to be on HomeAway, so there’s a 50-50 chance we’ll get the booking. It just depends who appears first.” . “At one time, 90% of our inventory was co-listed, meaning we were sharing it with other rental agencies. We’ve been able to drop that number down to where 60% of our listings are exclusive.” . “Our marketing costs are about $1,000 per house. That’s including websites, online marketing etc.”

2) Property owners and managers listing on HomeAway sites only Four of five sources, all with 20 or fewer properties, expressed disinterest in HomeAway’s PPB because of the high 10% fee. These sources prefer the subscription option, and three have had success with VRBO rather than HomeAway. One source started with HomeAway because of the PPB option, and said the subscription fee for her single property was too high. Two sources complained that the subscription fees are rising too much and too frequently, though not enough to prompt them to switch to PPB. Two sources heard negative reviews of FlipKey.

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HomeAway Inc.

KEY SILO FINDINGS HomeAway’s pay-per-booking - 4 of 5 sources: will not use PPB because of the 10% fee. o 1: PPB not good for single property owners. - 3: seeing better results with VRBO o 1: cancelled HomeAway, and VRBO bookings doubled year to year. - 2: PPB will cannibalize subscriptions, not add revenue. - 1: does not want to give reservation control to HomeAway. - 1: started using HomeAway because of PPB. - 2: heard bad reviews of FlipKey. HomeAway’s subscription-based business - 4: choose subscription instead. - 2: subscription rates increasing consistently, not happy. - 1: not considering subscription, more expensive than PPB. Background - 5 sources, 3 of which have 1 property, another with 2 properties, and the final one with 20 properties.

1. Owner of one vacation property on the Pacific Coast of Washington She was not aware of HomeAway’s PPB program, but this source will not pay 10% when other property owners in her area are seeing better results with less expensive Airbnb. She has seen a decline recently in her bookings through HomeAway’s subscription program and has researched other sites, determining that Airbnb seems to be the best alternative. HomeAway’s pay-per-booking . “I haven’t heard about HomeAway’s new PPB service but 10% is too much compared to the 3% my neighbors are paying for Airbnb.” . “Bookings through HomeAway seem to have decreased so I spent time I haven’t heard about looking at what other people in the area are doing. There are a lot of listings HomeAway’s new PPB service with Airbnb and they charge the guest a percentage and they charge the but 10% is too much compared host just 3%. That seems to be working well for people in the area.” . “Why would I use HomeAway’s PPB at 10% when I could do 3% with Airbnb? to the 3% my neighbors are They do credit card processing and everything. I’m thinking to not renew my paying for Airbnb. … I’m subscription with HomeAway.” thinking to not renew my . “I looked into FlipKey one time and found the people were not real happy subscription with HomeAway. with it. I’m going to look at it again because my bookings have decreased.” HomeAway’s subscription-based business Owner, Vacation Property . “In the summer I rent my place about 90% of the time and in the dead of Pacific Coast of Washington winter 20%-30%. In the spring and fall somewhere in between. But in the last year or so it’s gone down.” . “When you compare HomeAway to Airbnb and look at local people’s web sites, they’re using Airbnb and they’re getting more bookings than me. It’s a pretty good deal if they’re only paying 3%.” . “I don’t know why my rentals have decreased. Maybe it’s because of HomeAway and VRBO. Or maybe other people are not charging tax or as much of a cleaning fee. Maybe for them it’s included in the cost. Other people don’t have those charges and it works out for them on Airbnb. I may do that.” Background . “I only have one property and I list it with HomeAway and VRBO. They charge me for it on an annual basis.”

2. Owner of two vacation rentals in the Southwest This source would not consider HomeAway’s PPB due to a poor experience with Airbnb’s PPB, and because of the 10% fee. She uses VRBO, which has proven to be more successful than Airbnb. HomeAway had a messy transition when it

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HomeAway Inc.

acquired VRBO, making any future partnership less likely. She is satisfied with the cost and revenue with VRBO, but is dismayed that rates continue to rise each year. She expects PPB will cannibalize HomeAway’s subscription service. HomeAway’s pay-per-booking . “I know about PPB because I used to do a program like that with Airbnb. I have cancelled them now and do only VRBO. It is enough and I get what I I would only do one or the need.” . “I raised my bookings when I moved to VRBO from Airbnb.” other, and I do not think I will HomeAway’s subscription-based business ever do the other at 10%. It just . “My bookings are stable over the last year and in line with my expectations.” is not worth it. It might be . “I do not like HomeAway. They picked up my property from VRBO, but listed comparable at 2%, but never it in another area, and I was getting numerous inquiries for people who 10%. I expect it will only wanted to visit 100 miles away from my rentals. It was a mess and a big waste of time. It was not too much trouble getting it corrected once I finally cannibalize if anyone goes with got in touch with them.” it. . “I am happy with the cost to revenue with my subscription, although they Owner, Two Vacation Rentals keep raising the fee about $50 a year, and there is no additional benefit to Southwest me.” . “I would only do one or the other, and I do not think I will ever do the other at 10%. It just is not worth it. It might be comparable at 2%, but never 10%. I expect it will only cannibalize if anyone goes with it.” Background . “I have a subscription with VRBO for my properties.” . “I was with Airbnb before. We wrote up our own listing. But they encourage their customers to negotiate rates and that was just a lot of hassle for me. My rates are already very reasonable. I am just not going any lower when I get plenty of bookings at my regular rates.”

3. Manager of over 20 properties in Florida, repeat source This source is put off by the 10% rate of PPB and will not use it. Instead, she uses a premium global bundle to list her properties through VRBO. She passes the cost of marketing through to the property owners as an additional fee, and does not want to lose that revenue. The source prefers her reservation system, and has no incentive to cede control to HomeAway. She is happy with the number of bookings and the service she receives from VRBO, but is dissatisfied with the annual cost increases, and may drop down a level when she renews her subscription. HomeAway’s pay-per-booking . “I heard about [PPB] and 10% was all I needed to hear to say no.” . “It would never make sense to pay them half of what I make. I charge 22% It would never make sense to and I bill my owners additionally for marketing. Also with PPB, they want control of everything, and I do not want to use their systems. I like my own pay them half of what I make. I reservations system and it is complicated enough without having to run charge 22% and I bill my mine and theirs.” owners additionally for . “If I were the owner of a single property, I might consider PPB, but never as marketing. Also with PPB, they a property manager. I pass the cost through to the owners, but that is on top want control of everything, and of what they pay me. 10% is just too high.” . “Maybe if they had a lower rate for property managers and just charged I do not want to use their private owners the higher rate, they might get more takers.” systems. I like my own . “I might consider PPB at 3% or even 5%, but [VRBO] has not done a great reservations system and it is job selling it to me. It is significantly higher cost than my subscription and I complicated enough without just do not see it being worth more. I am even considering stepping down level on my subscription because they keep raising the rates.” having to run mine and theirs. Manager, Over 20 Properties Florida

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HomeAway Inc.

. “I tried PPB at FlipKey for six months. It was complicated to use both systems and keep up with two calendars. It was a whole different system. I just dropped it and stuck with [my own software].” HomeAway’s subscription-based business . “I do not want to use their systems. We are a small [operation] and we have some trouble keeping up with technology already. We would always like to see more bookings but we stay very busy and managing their system and mine just is too much trouble.” . “Sometimes my properties do not perform as well as I expect, but the VRBO account manager helps me improve my listings. I have my own contact so their service is very good. It is getting more expensive all the time though. I pass through the cost of marketing to my property owners.” . “I am most dissatisfied with annual increases. It just keeps going up and up and price is a critical factor. I am not asking my owners to keep kicking in more for marketing.” . “If I saw PPB listings getting priority over my premium subscription listings, it would just make me mad. I better be showing up with the priority they said I would have. That is what they sold me and that is what I expect.” . “Cannibalization could be an issue, or just getting anyone to go for the PPB might be a more critical issue.” Background . “I use an annual premium global bundle at VRBO and the listings get picked up on 15 affiliated sites around the globe.”

4. Owner of one vacation rental in Wisconsin; repeat source A PPB program would be more expensive than this source’s subscription to VRBO. She cancelled her listing with HomeAway in September of 2013 after a customer service issue which HomeAway failed to resolve. She lists her property only through VRBO, and her bookings have doubled since last year. Customers looking online for vacation rentals are interested in reviews and stars, and she has a 70% return guest rate with guests calling her directly. HomeAway’s pay-per-booking . “PPB is only helping HomeAway. They are expanding their focus but PPB is not good for single property owners. Even if it does not fly, HomeAway has other avenues to make money, so it will not hurt them.” PPB is not appealing to me . “I would not expect to see any increased revenue from PPB, no impact on anyway, but as a subscription bookings, just higher cost.” buyer, it would make me mad . “I would never advertise using PPB. To be competitive, I would not spend to know they were putting PPB that much for marketing. They change the rules anytime they want, and they don’t care if you have a contract.” at a higher priority than my . “PPB is not appealing to me anyway, but as a subscription buyer, it would subscription listing. make me mad to know they were putting PPB at a higher priority than my Owner, Vacation Rental subscription listing.” Wisconsin . “Visitors who shop for rentals online are interested in reviews and star ratings. I ask everyone that calls and they all say the same thing.” . “I get great reviews and I ask all my guests to post a review. I also have a 70% rate of returning guests, who just call me direct.” . “I would have to do the math to consider paying 3% for a PPB listing, but there is no way I would do a 10% PPB ever, with anyone. Any percentage program is more than my subscription rate. It just does not make sense.” HomeAway’s subscription-based business . “A subscription makes more sense to me. You have a set budget and the cost to revenue is more advantageous.” VRBO has doubled my bookings . “My trouble started when HomeAway merged with VRBO. They got the compared to last year when I property numbers confused and I was getting calls for someone else’s property. When I called they said it was supposed to work that way, and had listings both there and at never even addressed my complaint. Really? I am supposed to field calls for HomeAway. I have not missed someone else’s property? I do not think so. I said no more. I have no time to my listing at HomeAway at all. field numerous calls on a property I know nothing about. And you can imagine the frustration to the callers.” Owner, Vacation Rental Wisconsin

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HomeAway Inc.

. “HomeAway completely disregarded my issues. They would not return my phone call or respond to my emails. I am in customer service and that is just unacceptable. The HomeAway community is on my side. They know exactly how bad service at HomeAway is.” . “VRBO has doubled my bookings compared to last year when I had listings both there and at HomeAway. I have not missed my listing at HomeAway at all.” . “I am working on my own website.” . “I have considered listing on other sites, but I would rather invest that money into my own website.” Background . “I have a single vacation rental and I have it listed on an annual subscription with VRBO. I cancelled my HomeAway listing in September of 2013.”

5. Owner of one home in California PPB is delivering increased revenue and rental listings. This source would not have listed her home on an annual subscription basis, as she did not have the cash available. She listed her home three months ago and has had one booking and several inquiries. She is satisfied with the PPB program and chose HomeAway based on its reputation compared to competitors, and because her listing will also be seen internationally through HomeAway’s sites. HomeAway’s pay-per-booking . “I chose to rent my personal home with HomeAway because of their PPB system. I didn’t have $349 disposable at this period of my life anyway. Something out of something is better than nothing.” . “It’s too early to say if it’s meeting my expectations. I have a reservation for later this summer and I’ve had a couple of inquiries. I don’t know what I expected because it’s my personal private home. But I do house sitting and travel and can stay with friends so this is extra income while I go to school. If I chose to rent my personal I’m not going to be there anyway, I’ll try it and see how it goes.” home with HomeAway because . “I’d rather have them take a little bit out of the something I’m getting rather of their PPB system. I didn’t than not get anything at all.” have $349 disposable at this . “HomeAway seems to have a pretty good reputation and it’s also connected period of my life anyway. … I’m with several other sites so it’s automatically listed on them too. And it’s listed on different sites around the world. So that’s a good thing for the 10% not even considering their they’re going to take.” annual subscription at this . “If it doesn’t work out and I find another site that takes less of a percentage point I would probably switch or just keep both.” HomeAway’s subscription-based business Owner, Home in California . “My home is available on an open schedule. I’ve only had one booking for later in the summer. If someone needed it when I’m there, I would just stay with a friend during that time or do something else. For now, that’s extra income for me and it costs less than their annual price. I’m not even considering their annual subscription at this point.” Background . “This is the first time I listed my home and I’m only listing it with HomeAway for now.” . “I just started listing with HomeAway about three months ago, not very long.” . “I was looking into other sites because I was thinking of advertising there as well. FlipKey has really bad reviews from the people who’ve signed up with them.”

3) Industry Specialists All six sources agreed that HomeAway’s PPB will bring in new listings and additional revenue, as it will appeal to some property owners currently not listed with HomeAway due to the upfront costs of subscriptions or doubts about HomeAway’s effectiveness. Five sources said PPB will not cannibalize the company’s subscription revenue, mainly because subscriptions make more financial sense for most property owners/managers, giving current subscribers little incentive to convert to PPB.

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HomeAway Inc.

Three sources consider Airbnb to be a strong competitor to HomeAway, with one saying property managers are wary of HomeAway’s heavy-handed policies and prefer Airbnb because of its lower cost and better review policy.

KEY SILO FINDINGS HomeAway’s pay-per-booking - 6 of 6: PPB will appeal to a subset of property owners/managers and bring new listings. - 1: initial results in a test of HomeAway’s PPB were somewhat disappointing. HomeAway’s subscription-based business - 5: PPB will have no material impact on subscription revenue. - 3: annual subscriptions make more financial sense than PPB for most property owners. Competitors - 3: Airbnb a significant competitor for listings. - 1: property owners prefer Airbnb to HomeAway because of the cost and a fairer review system.

1. Top sales executive for a developer of property management software that is integrated with HomeAway PPB will not hurt HomeAway’s subscription revenue because the subscription model is far more profitable for property owners and managers. PPB, however, will entice some property managers who have not used HomeAway to give it a try, and many will ultimately buy subscriptions after seeing the results HomeAway can deliver. HomeAway’s pay-per-booking . “There are about 55,000 professional vacation rental management companies globally. A majority of those, and all the properties that adds up to, are companies that have not leveraged HomeAway because of some doubt about the benefits it brings or because of the upfront cost structure for [subscriptions for] multiple properties or just a lack of knowledge. PPB minimizes those barriers. It really eliminates those first two problems for why they’re not bringing on more inventory.” . “The [owners/managers] who have already been leveraging HomeAway will not, in my opinion, touch the PPB model because they know full well that their biggest ROI is on subscriptions. They have fully vetted that process.” The [owners/managers] who . “It’s going to be new adopters to the HomeAway network [that are have already been leveraging interested in PPB]. This will be a big catalyst for increasing inventory HomeAway will not, in my through these channels and then ultimately, what you will see is a transition opinion, touch the PPB model in six months to a year of these people on the PPB model [moving to because they know full well subscriptions].” . “If they do any sort of analysis, they’ll see clearly that paying 10% per that their biggest ROI is on booking is costing more than a flat subscription fee. Maybe through the subscriptions. … It’s going to be additional revenue they’ve generated through HomeAway, they’ll have the new adopters to the HomeAway means to go out and buy subscriptions.” network [that are interested in . “[PPB] is a way to get more people to adopt HomeAway’s platform, get more PPB]. This will be a big catalyst properties, and then over time [property owners and managers] will eventually end up converting over [to subscriptions]. They will very quickly for increasing inventory through see that paying 10% a pop is not the way to go.” these channels and then . “There’s still a large portion of the industry that isn’t leveraging the number ultimately, what you will see is one demand channel, HomeAway. Why is that? It’s simply because they’re a transition in six months to a not willing to pay the upfront subscription fee or have their doubts [about HomeAway’s effectiveness] and PPB will be another means for HomeAway year of these people on the to tap into this large untapped market that’s in the space today.” PPB model [moving to . “HomeAway is the absolute top player in terms of demand generation on subscriptions]. the vacation rental supply and in terms of an ROI on the cost to be with Top sales Executive, Property them—it’s significant and usually very quick depending on the market. I’d Management Software Developer say [ROI is] never more than 90 days, even with their most expensive

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HomeAway Inc.

subscription level.” . “There has been mixed feedback from the property management community about PPB. There’s some fear about the direction it’s going and [HomeAway] having too much control.” HomeAway’s subscription-based business . “It’s much more profitable for companies like HomeAway to have a commission-based model because that’s going to maximize their ability to monetize these customers. But in the long run, [PPB] will just mean a large increase over time into subscription buyers because they will see that the benefit they’re getting from HomeAway is significant and it will cost them more to be on that PPB plan.” Competitors . “Outside of the U.S. market, the mindset is largely geared around pay-for-performance.” . “In terms of competitors [to HomeAway], Booking.com accounts for two-thirds of Priceline’s revenue generation. TripAdvisor has FlipKey and Holiday Lettings. And then Airbnb is very much a host-based model that, to date, has shown no real interest in the professional management segment, which is the fastest growing segment in the vacation rental space today. Those are really the only three [that can compete with HomeAway] in terms of revenue generation.” . “One step down, I’ve seen companies that are not as global as those but are doing very well in certain areas, such as Wimdu or HouseTrip or some of these other channels that have similar processes to Airbnb that absolutely have a benefit to subscribers in certain areas of the world.”

2. Founder of a software firm for online booking and property management that is integrated with HomeAway PPB’s biggest benefit to HomeAway will be by bringing reluctant owners, or those unaware of HomeAway, into the fold, where they can later be convinced to buy subscriptions. PPB will not eat into subscription revenue, but instead may help HomeAway keep listings by providing another option for property owners. Airbnb has a game-changing business model, and a more equitable review system. HomeAway’s pay-per-booking . “Most vacation rental owners already know about VRBO, so PPB probably won’t help [gain new listings] there, but it could be a way to acquire new listings for HomeAway.” . “Vacation rental owners are super cautious, so [PPB] gives them a way to try before they buy at HomeAway. I think it will help HomeAway to increase revenues.” . “The PPB model would make sense for homeowners who rent part time, such as only for the summer, want to test the market for a marginal product Vacation rental owners are or location, or have a low-priced condo or cabin. The 10% [commission] may super cautious, so [PPB] gives be less than the annual fee and easier on the cash flow.” . “Yes, definitely [PPB will add revenue for HomeAway]. It gives HomeAway them a way to try before they more listings, a bigger marketplace, a new product, and a way to up-sell buy at HomeAway. I think it will owners from PPB to annual [subscription] listings.” help HomeAway to increase . “I wasn’t aware of [PPB listings being relegated to the bottom]. That will revenues. make the program fail. Bottom of list means no bookings, no conversions, and a bad example of how HomeAway performs. I doubt they will do this for Founder, Online Booking & Property long. HomeAway will optimize [the PPB listings] to increase revenues.” Management Software Firm HomeAway’s subscription-based business . “No, I doubt [cannibalization of subscription listings] will happen. Property owners can’t go back and change from a subscription [to PPB] for an existing listing. So it only becomes a threat [to subscription revenue] for renewals.” . “PPB gives owners of existing listings more renewal options. If they only got one booking, they might not renew for an annual subscription but would renew for PPB.” Competitors . “The tier two and tier three listing sites that give free trials stand to lose the most [if HomeAway’s PPB is successful].” . “Homeowners have a love-hate relationship with HomeAway. They love the bookings but hate the poor customer service and heavy-handed policies. They hate the anonymous reviews, where guests can post negative, inaccurate

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HomeAway Inc.

reviews and not be held accountable by hiding their identity. They hate the continual increases in prices and a feeling of being bullied by the 800-pound I wasn’t aware of [PPB listings gorilla.” being relegated to the bottom]. . “Airbnb is free [to property owners] for all practical purposes. [They only pay] That will make the program fail. the credit card processing fees of 3%. Airbnb is an amazing game-changer. Bottom of list means no They flipped the model and said we’re going to make this free for hosts and bookings, no conversions, and charge the guests a small convenience fee and generate tons of cash.” . “Guests love being able to search and book online and get accurate reviews a bad example of how [on Airbnb]. Owners love the Airbnb review system, which is much more fair HomeAway performs. I doubt [than HomeAway’s]. A renter is more likely to post an accurate review they will do this for long. because it’s tied to their social identity and they know the host has an opportunity to review the guest.” Founder, Online Booking & Property Management Software Firm

3. Developer of a platform for marketing rental properties This source determined that HomeAway’s PPB option delivered about 2.5% of the bookings needed to fill listed properties in an initial test, a number that was disappointing considering the quality of the properties. As some of the kinks are worked out, this number could rise. The source expects that properties coming online through his platform this year all will utilize HomeAway’s PPB option. He said HomeAway’s 10% commission is reasonable, and noted that other sites charge more overall since they take a cut from both property owners and travelers. HomeAway’s pay-per-booking . “It’s a bit early to be asking about PPB with respect to property owners as we are still testing only with properties from [two of our vacation rental listing websites].” . “Since we turned on about 3,000 test properties [with PPB], we get 20 bookings a day from HomeAway. To fill these properties, you would need about 24,000 bookings a month, so HomeAway PPB supplies about 2.5% of those bookings.” . “We have some bugs so it’s early days. However, I was expecting better than [2.5%] given that HomeAway also has VRBO and many other sites to sell through. I’m expecting the number to improve as we fix bugs. However, the inventory we sent them was all good and should book easily, so I’d expect properties with poorer presentations to convert less well.” . “[The sites that tested HomeAway’s PPB option] make up about half our inventory, but we are in a heavy integration phase at the moment, so we will Since we turned on about have many more properties online in the coming year, perhaps 20-times as many. We expect all of them to use HomeAway PPB either via us or via 3,000 test properties [with another route.” PPB], we get 20 bookings a day . “I hadn’t noticed [PPB listings] appearing at the bottom of HomeAway SERPs from HomeAway. To fill these [search engine results pages]. If I search [HomeAway] for cities where we properties, you would need supply properties, we fill the pages with our properties. I also read that they about 24,000 bookings a would appear at the bottom during testing but once live they would be pushed to the top.” month, so HomeAway PPB HomeAway’s subscription-based business supplies about 2.5% of those . “Owners of large properties prefer to speak directly with the guest before bookings. … I was expecting allowing a booking to filter out party-types. Some owners don’t realize they better than [2.5%] given that can still refuse a booking in the first 24 hours with PPB. This might be a short term problem for HomeAway.” HomeAway also has VRBO and . “Only HomeAway can answer this question [about the impact of PPB on its many other sites to sell subscription business] as it will vary from region to region. For some owners, through. I’m expecting the a [PPB] listing was great value, and for others it was not. For the former, number to improve as we fix PPB is likely to be positive for HomeAway, and for the latter probably not.” bugs. . “When you offer a pay-per-listing service, your goal is to sell as many listings as possible and you don’t care too much if the customers get enough Developer, Platform for Marketing bookings to pay for the listings. However, with PPB, it’s more important not Rental Properties

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HomeAway Inc.

to have too much inventory or you cannot bring enough bookings to keep your partners happy.” . “If they become unhappy, they will stop [updating] their calendars and online booking will not function properly. So the goal of PPB is to provide enough inventory to give users plenty of choice without diluting the bookings to each owner too much. In other words, less is more in terms of inventory in this case.” . “[Our vacation rental listing agency] never used [HomeAway’s] pay-per-listing for its own properties, nor for partner properties. We never tried it because there was no free trial so we could test the efficacy before paying. In retrospect, that was a mistake and we missed many years of cheap bookings.” Competitors . “[Property owners/managers] know HomeAway can deliver bookings, whilst Airbnb is taking 13% of the they complain FlipKey cannot.” . “Owners had it too good for a long time and now they are complaining about total booking fee. The fact they 10% booking fees—10% is cheap in this industry, and there is room for only take 3% from the property HomeAway to push that higher.” owner will fool only the most . “Airbnb is taking 13% of the total booking fee. The fact they only take 3% dimwitted suppliers. from the property owner will fool only the most dimwitted suppliers.” . “I don’t think there will be a big loser if PPB works well for HomeAway. In the Developer, Platform for Marketing end, the number of bookings via HomeAway’s websites will probably not Rental Properties change much.” . “The big danger for the industry would be if Priceline were to acquire HomeAway and attempt to enforce price parity on an industry that does not want it. That would be bad for competition and would hurt property owners and consumers, and would probably result in another antitrust action against Priceline.”

4. CEO of a vacation rental management software firm and a property listing site; repeat source HomeAway’s PPB model makes little financial sense for property managers because of the 10% commission, but this source predicts it will appeal to those that do not have the cash to pay upfront subscription fees. He thinks HomeAway actually wants its PPB service to cannibalize its subscription business, because the new option will provide more revenue per listing. Airbnb has the potential to become a stronger competitor if it makes more management tools available for property firms. HomeAway’s pay-per-booking . “Don’t let them fool you, [PPB] is simply a play to increase per-listing revenues and an effort to attract a less savvy customer to try out Don’t let them fool you, [PPB] is HomeAway. You’d have to be a borderline moron to use the service. At 10% simply a play to increase per- of the booking, it will cost a typical subscriber 10-times an annual listing listing revenues and an effort fee, not to mention the highway robbery that HomeAway makes on the merchant residuals and the lion’s share of the damage protection to attract a less savvy customer [insurance].” to try out HomeAway. You’d . “I don’t know what property managers [HomeAway] has spoken to, because have to be a borderline moron I’ve never met one who would touch that program with a 10-foot pole. That to use the service. At 10% of being said, there are a lot of idiot PMs [property managers] out there. the booking, it will cost a typical Perhaps they are appealing to that market.” . “I’ve got 600 PMs and 13,000 properties on [our software] and I don’t know subscriber 10-times an annual of one using PPB.” listing fee, not to mention the . “HomeAway knows that if a PM is getting $50,000 in bookings a year, the highway robbery that paltry $500 a listing they charge is nothing. They need that number to go HomeAway makes on the higher. An intelligent PM would always choose the annual fee as it’s a great merchant residuals and the deal.” . “Pay-for-performance seems appealing to a PM when they are renewing 30 lion’s share of the damage listings and having to fork out $15,000 at one time. Then they see the no protection [insurance]. upfront cost of PPB and get sucked in, even though the long- term numbers CEO, Vacation Rental Management make no sense. Most PMs barely make ends meet. HomeAway knows this.” Software Firm . “I see why a non-PM, someone testing the waters, might like pay-per-

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HomeAway Inc.

performance. That might draw more homeowners to try the service. But I would imagine more of those types would use Airbnb as the guest pays the fee.” . “I am sure it will add some marginal amount of listings and probably significant revenue. I am always amazed at the number of people who simply would rather pay more per listing over the course of the year then pay it all upfront. PMs are typically horrible at managing their cash, and many simply don’t have the cash to pay upfront. But over the long term, I could see more PMs not making it, as eventually those additional fees will creep into their profits.” . “Sending 10% to HomeAway is just so crazy an amount that I almost cannot even fathom it, although I am known to be a bit prone to hyperbole. Nonetheless, it’s a big number.” HomeAway’s subscription-based business . “On the surface, I would imagine [HomeAway] is hoping for significant cannibalization of their subscription revenue. Pay-per-performance is the holy grail. They would face a massive upheaval if they raised their per-listing fees by even $100, but through pay-per-performance they can get $1000-plus more per listing easily and never hear a gripe from anybody.” . “I only hear grumblings [from property managers about HomeAway], but most use [our software] because our tools are better than HomeAway’s and most who come to [us] want to stay as far away from HomeAway as possible.” . “HomeAway has done a much better job of beefing up their integration capabilities and PM staff. We can now offer a PM the ability to sync all listing data, calendar data and pull inquiries [from HomeAway], and next month we’ll be able to pull booking and payment info from HomeAway.” . “The only positive, consistent thing I’ve heard about HomeAway is their new ‘Book It Now’ [capability]. That feature is a good one, but it’s not offered for PMs yet. We’re having our kickoff meeting to offer our PM customers that option, but since HomeAway will be sending the guest and payment details to [us], I am not sure HomeAway will monetize that new feature.” . “I still maintain the day a better model comes to market, there is zero affinity for HomeAway. PMs will leave en masse.” All I hear is love for Airbnb. Not . “ HomeAway has just one objective—extract more cash per listing. Their model is that simple.” so much for FlipKey. But Airbnb Competitors is still less of a platform for . “All I hear is love for Airbnb. Not so much for FlipKey. But Airbnb is still less PMs as they offer no of a platform for PMs as they offer no integration at all. Once they bring integration at all. Once they those tools to market, I would think there might significant issues for both bring those tools to market, I HomeAway and FlipKey.” . “Once a PM gets a year under their belt with PPB and realizes the increase would think there might in their per-listing cost, they’ll be very open to a model [like Airbnb’s] where significant issues for both the guest bears the burden. I could see a nice bump in HomeAway’s HomeAway and FlipKey. revenue in the near term [from PPB] and then it falling off a cliff as competitors offer less expensive alternatives.” CEO, Vacation Rental Management Background Software Firm . “I own 12 properties. I’ve never had to use any listing service to maintain full occupancy. By having a great Facebook and website presence, coupled with extensive state and local marketing efforts, one can obtain high organic search engine rankings and realize a very low cost per listing and never have to deal with a listing service.” . “I do use some long tail Google pay-per-click, email marketing and social media outreach to past guests, which can drive an incredible amount of repeat and referral traffic. For some reason, having a distributed marketing mix is something that is not a component of the business models for most property owners or PMs, who are not real business savvy in many instances.” . “HomeAway could do so much more, but instead they focus on efforts that work to keep their system as closed as possible. They have awful customer service, and it just seems a company created to [serve] a select few and will eventually completely implode as it wasn’t built upon a solid enough business model.” . “[Our property listing site] is a second-tier listing site, like HomeAway. Subscribers pay a $99 listing fee to gain exposure for their listings, but I mostly use it as a marketing channel for properties [using our rental management software], so all [of those] properties also get a free listing on [our property listing site].”

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HomeAway Inc.

5. Editor of a site offering news and data services for the travel industry HomeAway’s PPB model will appeal primarily to professional property managers with numerous properties, as they will be better positioned to take advantage of it than individual property owners. The PPB option could help HomeAway take listings from Airbnb, which is moving into areas where HomeAway traditionally is strong. HomeAway’s pay-per-booking . “HomeAway’s PPB listings are at the bottom of search results, but this is very temporary. It’s just a way to introduce them. HomeAway will have to figure out how to mix them in with subscription listings without angering those who just pay subscriptions.” HomeAway’s subscription-based business . “HomeAway has carefully run the numbers and feels confident that PPB won’t cannibalize subscription listings. HomeAway is introducing PPB to increase revenue, not lose it.” . “While some individual homeowners will use PPB, the key target is professional managers. They have the sophistication to use it and take advantage of it—and they’ll bring along a ton of properties with them.” Competitors . “Airbnb could be disadvantaged [by HomeAway’s PPB model] because Airbnb charges a fee to owners and guests, while HomeAway only charges owners. The two companies will increasingly become direct competitors because Airbnb is moving into resort locations, HomeAway’s traditional turf.”

6. Luxury travel marketing consultant and travel writer; repeat source PPB could consume some of HomeAway’s subscription business, but it should also bring in new listings and revenue. The concept will appeal to those property owners for whom subscriptions or other marketing channels are not worth the cost or hassle to rent their properties for a few weeks each year. Ultimately, though, PPB will need to deliver, or property owners will turn to cheaper options. HomeAway’s pay-per-booking . “[PPB] will cannibalize some [of HomeAway’s subscription revenue], but I think there are a ton of owners out there who just can’t be bothered [to market their properties to renters] right now.” . “Having PPB listings at the bottom of search results would hurt the program a lot. Being top of the search is a huge advantage, like having lots of reviews—chicken and egg, of course. If it were me, I’d pay more just to get [a higher] profile.” . “On its face, [the 10% commission] feels high compared to competition, but if their results are markedly better and faster, I don’t care. Getting those few weeks filled is not something I want to spend a lot of time on marketing.” On its face, [the 10% . “If results [on HomeAway] are not that much better, I’ll go with the cheaper commission] feels high option. Not sure how HomeAway measures up in that respect, but I’ll know compared to competition, but if better this summer when I list myself. If I don’t find renters in my private network, I’ll probably list with HomeAway first, just to see what happens.” their results are markedly . “It’s all about delivering results and making it easy-peasy for the occasional better and faster, I don’t care. renting owners.” Getting those few weeks filled . “In addition to having worked in the industry, I also have a prime holiday is not something I want to home in iconic Canadian lake country. It’s not an income property, but I’d love to rent a few weeks a year when I’m travelling to help carry costs.” spend a lot of time on . “There are a ton of people like me who just say [marketing their property is] marketing. … If results [on too expensive, too much trouble. If you could make it easy and affordable HomeAway] are not that much for them, you’d find a huge resource of great new properties and revenue better, I’ll go with the cheaper streams.” option. HomeAway’s subscription-based business . “There are some [property owners] that see HomeAway as a necessary evil. Luxury Travel Marketing Consultant & Meaning, in our lake country, they may want to list with the regional Travel Writer

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HomeAway Inc.

specialists. But many feel they must list with HomeAway too—even though it’s not catered to their specific needs— because so many [others] do.” Competitors . N/A

Secondary Sources The following five secondary sources address HomeAway’s move to a PPB model and expanding it to VRBO.com, a supporting argument for the benefits of moving to a PPB model that HomeAway, FlipKey, and Airbnb have adopted, and lawsuits surrounding Airbnb as they expand into HomeAway’s vacation territory and experience impressive growth.

 Oct. 17 All Things D article HomeAway is offering a new PPB option to draw in homeowners that want to try HomeAway, but don’t want to pay the $349 annual fee. This is viewed as more of a direct competitor to Airbnb. . “The vacation-rental marketplace HomeAway charges $349 annually to list a property. For most current users, that makes a lot of sense; they bring in an average of $28,000 per year, and tend to rent at least 12 weeks per year.” . “But the annual fee doesn’t make sense for people who want to opportunistically experiment with renting their homes, for instance when a big event comes to town — the kind of stuff competitor Airbnb is especially good at.” . “So HomeAway is adding a pay-per-booking option, as it had previously told investors to expect in the fourth quarter.” . “Under the new plan, home owners can opt to pay 10 percent of each transaction to HomeAway. For 13 percent per booking, they can be connected with a service to build their rental listing and handle reservations. For 25 percent to 30 percent, they can hook up with a professional property manager who will handle cleaning and maintenance.” . “‘Property managers traditionally viewed us as competitors,’ Sharples said. ‘Now they are in-market partners.’ Some 28 professional management companies have signed on so far.” . “The move brings HomeAway into closer competition with the peer-to-peer darling Airbnb. But Airbnb’s appeal is about more than dropping the subscription fee; the company also authenticates hosts and guests using their history in the community and their offline identities. In some ways, Airbnb is less of a listing board and more of a social network of travelers.”

 Jan. 16 Skift article HomeAway extended its new pay-per-booking model to its VRBO.com site; additionally, newly acquired Stayz Group sites already offer the new pay-per-booking model. . “HomeAway upped the ante in its quest to transform its business, extending its new pay-per-booking business model to its VRBO.com site.” . “Under pay-per-booking, which is expected to get traction from professionally managed properties but is open to individual vacation rental owners, too, properties pay HomeAway 10% commission instead of the current model, which calls for annual subscription fees.” . “In other words, vacation rental owners and managers can list their properties for free, and only pay HomeAway when a guest books a Pay-per-booking is expected to property.” . “HomeAway launched pay-per-booking in October on HomeAway.com, has get traction from professionally now extended it to VRBO, and plans on rolling it out to its global sites, which managed properties. feature 773,000 paid listings in 171 countries.” Skift Article . “A few HomeAway sites, including those in the newly acquired Stayz Group fold in Australia, already offer pay-per-booking.” . “HomeAway also introduced its Professional Referral Network, which handles listings, inquiries and reservations for owners, to VRBO. HomeAway has 70 professional management companies that handle these services for owners.”

 Dec. 10 Bigger Pockets article HomeAway, FlipKey, and Airbnb all are making the right decision to list properties as pay-per-booking in order to leverage property owners’ and managers’ lack of time and ability to book nights on their own.

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HomeAway Inc.

. “[T]he most visible shift is in the direction of a pay-per-booking model, where, whether they like it or not, property owners and managers will begin It means that the nature of to pay a percentage of every single booking generated through the major platforms (as opposed to the one-time phonebook-style listing fee).” vacation rental marketing . “It means that the nature of vacation rental marketing budgets will budgets will suddenly switch, suddenly switch, from a fixed yearly amount, to a scaled number based on from a fixed yearly amount, to a performance. And for most successful owners/managers who rely on listing scaled number based on sites, this new model means profits will drop. Significantly.” performance. And for most . “So today—with the pay-per-booking implementation actually happening before our very eyes, and with the seismic roars in opposition heard from successful owners/managers all corners of the globe to prove it—I am going to let you in on where I think who rely on listing sites, this things are going next.” new model means profits will . “The pay-per-booking model enlisted by HomeAway, FlipKey, and AirBnB is drop. Significantly. based on one primary power play: that property owners and managers do not have the time and/or ability to book nights on their own. Leveraging this dependence on their control of the marketplace, big listing sites, it would seem, are smart to make this change. As profit-oriented corporations, The pay-per-booking model it will make them more money in the short term.” enlisted by HomeAway, FlipKey, . “1) Like in any emerging market, vacation rental owners/managers will and AirBnB is based on one ultimately go where the demand is.” primary power play: that . “2) These new methods for generating bookings are not a fantasy.” . “Already, owners and managers have begun to improve their own online property owners and managers reputations, dedicating more time and resources to self-sustainable online do not have the time and/or marketing. And new niche listing site competitors have started providing ability to book nights on their leads at a fraction of the cost (and in some cases free).” own. Leveraging this . “3) Under this new status quo, acceptable pricing and ease of use will be dependence on their control of king.” . “4) When these disruptions fully materialize, it will be the company with the the marketplace, big listing strongest brand loyalty that conquers all” sites … are smart to make this . “It could be a mistake of any given vacation rental company to neglect to change. … It will make them realize that the sustainability of their success lies ultimately in the more money in the short term. customer. The biggest challenge for major listing sites will be recalibrating users’ expectations while keeping that all-too-important loyalty fully intact.” Bigger Pockets Article

 Jan. 26 San Francisco Chronicle article Airbnb is experiencing dynamic growth while its business model hurts affordable housing and creates controversies with states’ and countries’ laws. Most of the controversies over renting laws should be worked out, as cities and countries adapt to the new form of rental housing. . “The conference rooms inside Airbnb’s swank new San Francisco headquarters are inspired by listings from the home-sharing website. There’s a Parisian pied-a-terre, an airy living room from Bali, a whimsical flat from Milan.” . “They’ve parlayed that startup into a $2.5 billion juggernaut with 700 employees and more than half a million listings in 192 countries. Airbnb, which lets people sublet rooms, homes or apartments—as well as castles, boats, yurts, igloos and private islands—to travelers, has facilitated well over 10 million guest nights since its founding. Its bookings are on track to surpass those of the Hilton and Intercontinental hotel chains this year.” . “Along with that explosive growth, Airbnb has incited controversies about whether it flouts local laws and hurts affordable housing.” . “Airbnb epitomizes the sharing economy, in which folks rent or swap all kinds of underused assets—spare rooms, cars, parking spots, lawnmowers, children’s clothes or their time.” . “In San Francisco and New York, rentals of less than 30 days are illegal in most multiunit buildings and often prohibited by leases. Both cities want the company to remit hotel occupancy taxes—something Airbnb initially resisted but now says it will do. And both cities, the two most expensive markets in the country, fear that scarce rental housing is being diverted into lucrative Airbnb rentals, even while some neighbors of Airbnb hosts complain that guests are intrusive.”

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HomeAway Inc.

. “Another concern is that ad hoc inns aren’t subject to the same types of health and safety regulations as regular hotels. Hotels in turn worry that In San Francisco and New York, Airbnb will hurt their business.” . “In San Francisco, Board of Supervisors President David Chiu has been rentals of less than 30 days are working for almost two years on legislation to clarify Airbnb’s legality and illegal in most multiunit buildings address the hotel tax issues.” and often prohibited by leases. . “Janelle Oris, a sharing-economy attorney in Oakland, said she thinks laws Both cities want the company to will evolve to cover Airbnb and its ilk. ‘The early reaction of some cities was remit hotel occupancy taxes— to want to ban Airbnb; that’s not a reasonable reaction because it clearly creates economic benefits for cities and residents,’ she said. ‘But if a city something Airbnb initially has a shortage of affordable housing, it can calibrate policies accordingly.’ resisted but now says it will do. . “Airbnb studies show that 90 percent of San Francisco hosts rent out their And both cities … fear that scarce own residences, and more than half rely on the income to make rental housing is being diverted ends meet.” . “But critics say some landlords turn apartments into full-time Airbnb rentals, into lucrative Airbnb rentals, even removing scarce rental housing from the market.” while some neighbors of Airbnb . “When an Airbnb guest trashed a San Francisco woman’s apartment in hosts complain that guests 2011, the company was initially criticized for refusing to compensate her. are intrusive. But it soon rallied to assist her. As similar stories emerged, it took out insurance that now guarantees up to $1 million for property damage, and San Francisco Chronicle Article set up a 24/7 customer hotline.”

 Dec. 27 Skift article HomeAway is in a lawsuit against Airbnb over its trademarked Birdhouse-branded promotion. It is worth noting that Airbnb is aggressively expanding into HomeAway’s traditional vacation markets and poses a bigger threat to HomeAway’s profits. . “Will consumers really come to erroneously believe that HomeAway has acquired Airbnb, and that Airbnb ‘operates as part of HomeAway’s birdhouse-branded marketplace?’” . “Carl Shepherd, HomeAway’s chief strategy and development officer, argues in an exhibit [second embedded document below] to HomeAway’s trademark lawsuit against Airbnb that such a scenario is ‘likely’ given HomeAway’s acquisition spree and Airbnb’s Birdhouse promotion.” . “‘In light of HomeAway’s acquisitions of other companies in the online travel space, it is likely that customers would perceive the Birdhouse Promotion as What comes across in the an indicator that Airbnb has been acquired by HomeAway and operates as part of HomeAway’s birdhouse-branded marketplace,’ Shepherd alleges in lawsuit is that HomeAway is his declaration as part of the lawsuit.” very concerned about the . “But, beyond all the concern about the birdhouse promotion, birdhouse competitive threat from Airbnb trademarks and a birdhouse-branded marketplace, what comes across in as it expands from its the lawsuit is that HomeAway is very concerned about the competitive threat traditional base of urban from Airbnb as it expands from its traditional base of urban centers into HomeAway’s more profitable and core resort destination and vacation centers into HomeAway’s more marketplaces.” profitable and core resort . “HomeAway almost says as much in the lawsuit, stating ‘Airbnb’s recent destination and vacation attempts to expand its business into traditional vacation markets only marketplaces. exacerbates the already substantial harm to HomeAway.’” . “‘Defendant and HomeAway target and provide services to an overlapping Skift Article class of Travelers for their respective services, through overlapping channels of trade,’ the HomeAway suit states. ‘On information and belief, Defendant, has long targeted the tenants in landlord owned apartments in major cities (such as New York, Paris, San Francisco, Berlin, etc.) as its major supplier of listings.’” . “‘However, Defendant [Airbnb] has recently increased its efforts to attract business in traditional vacation rental markets (such as the Gulf Coast, Rocky Mountains, Provence and Tuscany), in which HomeAway has long been well- established.’”

32 1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

HomeAway Inc.

. “This is at the heart of the suit. Airbnb is aggressively expanding into HomeAway’s resort destination turf, and now the gloves are coming off.”

Additional research by Seth Agulnick, Lisa Bullock and Eva Cahen

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33 1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com