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In my previous post, I have shared a summary on the competitive landscape in the online travel industry which is a game of scale from 3 key players: The Priceline Group, Expedia, and TripAdvisor.

In this post, I will provide a deep dive into an increasingly important lodging sector – the apartment and vacation rentals market. This has become a more popular choice among the consumers, thanks to the rise of the sharing economy.

The rise of sharing economy – The trigger

The sharing economy is people fuelled and cloud powered, according to Daniel Newman, Co-CEO V3 Broadsuite and President of Broadsuite Media Group. People enjoy connecting with others; smartphones, mobile apps, and cloud-based technology have made it easier for everyone. One of the prominent startup of this kind is Airbnb. People used to ask questions such as: Who would want to sleep on an air bed? Or Who would want to sleep on other people’s bed? But right now, doing so has been seen as an innovative way to experience your travel destination and to “live like a local”. Airbnb has been changing the dynamics of the travel industry by adding new capacity that competes with hotels through offering a sharing economy based on people renting out their rooms and homes. Following the “disruption fever”, other industry superpowers have also explored and expanded in this hot segment of the travel market: Expedia acquired HomeAway in Nov 2015; Booking.com invested in organic growth to increase listings from both vacation rentals property owners and homeowners; TripAdvisor acquired FlipKey in 2008 but only invested heavily in this sector recently, integrating FlipKey into TripAdvisor Vacation Rentals single platform and tweaking its business model to target homeowners. This has been seen as an industry-wide move (Booking.com, FlipKey) to focus on individual homeowners who will make up the majority of potential listings.

Apartment and vacation rentals – The game of 4 key players

The overall travel category is a US$1.3 trillion category. The alternative lodging category is US$100 billion and the 4 key players are Airbnb, HomeAway of Expedia, Booking.com of the Priceline Group, and FlipKey / TripAdvisor Vacation Rentals. Let’s look at each of them in details.

#1: Airbnb

Fact sheet:

Latest updates:

  1. On Mar 27, 2015, Airbnb has signed an agreement to be the official alternative accommodation services supplier for the 2016 Olympics in Rio de Janeiro which will take place from Aug 5-21, 2016. The deal, which saw Airbnb pay an undisclosed amount to local Olympic organizers, means official Olympic sites will feature a link to Airbnb’s website and encourage spectators (estimated 380,000 people) travelling to Rio for the games to use the service to rent space in private homes and apartments (around 20,000 offerings). This is the first time the company has signed on an official partner for the world’s biggest sporting spectacle.
  2. On Nov 3, 2015, Airbnb announced a partnership with American Express, where cardholders can pay for stays using Amex Membership Rewards® loyalty points.

#2: HomeAway (Expedia)

Fact sheet:

  • Founded in 2005, HomeAway provides a marketplace for vacation rentals including home rentals, condos, villas, beach rentals, cabins, cottages, etc.
  • Brands: HomeAway.com, VRBO (acquired in 2005), VacationRentals.com, travelmob.com (APAC short-term rental site), etc.
  • Operations: 190 countries with 1.2 million paid listings 
  • CEO – HomeAway: Brian Sharples
  • CEO – Expedia: Dara Khosrowshahi
  • Niche: vacation rents – second homes (managed by vacation rentals property managers), whole houses
  • Fee: Currently, no booking fee for guests, 10% commission for vacation rental owners. In addition, as the subscription service had a barrier for those who wanted to try it, HomeAway has moved from subscription service to launch of the commission-based product.

Latest updates:

  1. Expedia announces acquisition of HomeAway for US$ 3.9B on Nov 4, 2015 (the transaction would close in Q1 2016). Expedia’s pending acquisition of HomeAway is a game-changer in that it saves Expedia years of building up its own vacation rental supply. HomeAway’s vacation rentals will appear on Expedia.com, Hotels.com, Travelocity, Orbitz, and other Expedia brands.
  2. Starting Q2 2016, HomeAway will follow Airbnb’s lead and add a booking fee for travelers which would average around 6% of the booking. Charging travelers fees will enable HomeAway to lower commissions to vacation rental owners to be more competitive with Airbnb and FlipKey. Vacation rental hosts and managers that pay HomeAway subscription fees to list their properties would get incentives to entice them to make their vacation rentals online bookable. About half of HomeAway’s listings are online bookable and the goal is to get that figure to 90-100% by the end of 2016.

#3: Booking.com (The Priceline Group)

Fact sheet:

  • Founded in 1996, acquired by the Priceline Group in 2005. Booking.com started as a hotel company. Since then the company expanded into alternative accommodations, and now vacation rentals. Currently Booking.com is the world’s largest lodging seller in terms of numbers of hotels, vacation rentals and apartments. However, the Expedia – HomeAway combination would displace Booking.com as the #1.
  • CEO – The Priceline Group: Darren Huston
  • Niche: one-stop shop for hotels, vacation rentals and apartments
  • Fee: no booking fee for guests, unpublicized commission fee for vacation rentals owners and hosts (Expedia predicted the commission fee would be around 15%)

Latest updates:

  1. Booking.com will focus on organic growth. On Nov 30, 2015, Priceline Group CEO Darren Huston says his company didn’t get involved when HomeAway put itself up for sale “because “we’re quite picky” and HomeAway’s model of allowing vacation rental owners to wait 24 hours before confirming a booking and charging travelers a booking fee “just didn’t fit us”. Huston is betting that his Booking.com’s alternative model in vacation rentals – instantly confirmable online bookings with no traveler booking fee – will win out over the Expedia – HomeAway goal of online bookings and a traveler service fee along with letting vacation rental owners vet reservations before accepting them. Booking.com is sticking to the principle of properties being instantly bookable and verifiable, and no consumer fees.”
  2. Give new emphasis to individual homeowners and apartment renters as an industry-wide move. Booking.com wants to answer the needs of “one customer”, the one who books and apartment one day and a five-star hotel the next.

#4: FlipKey/ TripAdvisor Vacation Rentals (TAVR)

Fact sheet:

  • TripAdvisor bought FlipKey in 2008 and in recent months TripAdvisor has transitioned its FlipKey unit’s vacation rentals onto a single technology platform called TripAdvisor Vacation Rentals (TAVR)
  • 720,000 vacation rental home listings
  • TAVR President: Dermot Halpin
  • TAVR General Manager: Tracey Zhen
  • CEO – TripAdvisor: Stephen Kaufer
  • Niche: As compared to Airbnb, FlipKey offers similarly original accommodations with beach, apartment, home, boathouse, and villa listings, except that they do not have shared room listings, only private rooms, and entire property rentals. According to Expedia CEO Dara Khosrowshahi on his Nov 4, 2015 interview, TripAdvisor’s advantage is that they sit at the top of the funnel, and a lot of people go to TRIP just to research on where they’re going, and therefore, they’re able to soak in a lot of demand for accommodations and other things just because they’re at the top of the funnel.
  • Fee: TAVR charges 7% commission fee for vacation rentals managed listings and 3% commission for individual homeowners with a guests booking fee ranging from 5-15%

Latest updates:

  1. On Aug 28, 2015, more than 100 property managers representing more than 14,000 properties have written an open letter to TripAdvisor CEO Stephen Kaufer lamenting the problems and protesting the fact that they deliver high volumes of listings to FlipKey yet must pay 10% commissions while individual owners only pay 3%. On Aug 28, 2015, TAVR responds: CEO Tracey Zhen acknowledges that “ a key change of this year and last has been our increased focus on homeowners as demand to list independent properties continues to rise sharply in vacation rental market. Property managers, which have sometimes thousands of properties and require account managers, custom technical integrations and more, have different requirements than independent homeowners. We’ve set our rates to match these requirements, and these rates are very much in line with industry standards.” So the new emphasis will be given to individual homeowners and apartment renters as an industry-wide move.
  2. Booking.com’s participation on TripAdvisor’s instant booking platform Book on Oct 14, 2015 is a major win for TripAdvisor as Booking.com is the first OTA to do so, , likewise sister brands Priceline.com and Agoda.com will subsequently join in. This will give TripAdvisor a much wider hotel coverage and on the way to become a quasi-OTA.

Some final thoughts…

While Airbnb receives a higher publicity as a pioneer in the sharing economy and disruption services (together with Uber), the other 3 players are still one step behind in this field but their advantage is that they are the superpower houses in the OTA world so they will have more leeway to expand in a wider category of apartment and vacation rentals markets. This would be a highly competitive race that each player needs to answer these questions: What is your positioning, What is your niche, Where do you stand, and Where do you want to go. According to Expedia CFO Mark Okerstrom in his interview on Dec 2, 2015, the websites that have the most comprehensive set of lodging choices, whether they are hotels, vacation rentals, apartments or igloos, will dominate. He predicted this will be the future of travel in lodging.

Published on my LinkedIn profile