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. 1 1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com 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. 2 1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com 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.