The presence of established players such as HomeAway and TripAdvisor, plus a market that isn't as addressable as it might appear, will make the vacation rental startup sector the next bubble.
Get ready for the next glut of travel startups: The allure of the vacation rental market is calling.
If you search AngelList for vacation rental companies, you can compile a list of nearly 100 companies ranging from Rentini (“A blend of Airbnb and HomeAway spiced up with Vayable”) to Pinocular (“Kayak for vacation rentals”), and BookingPal (“Next generation vacation rental management”).
Some of the startups, such as Turnkey Vacation Rentals, have attracted funding from high-profile investors.
There are definitely plenty of reasons to be excited about the potential of the vacation rental market, which is transforming the lodging industry.
Market leader HomeAway notched $280 million in 2012 revenue, and just partnered with Expedia, and this has the potential to help make vacation rentals even more mainstream than they are becoming today.
And, there is talk about Airbnb, with its peer to peer rentals, generating a $2.5 billion valuation.
These developments, coupled with a new report from PhoCusWright that pegs the U.S. vacation rental market alone as a $23 billion industry, are stoking the imaginations of the next batch of entrepreneurs looking for good startup ideas.
But that seemingly huge $23 billion number may be a little misleading because that vast majority of vacation rentals owned by individuals as second homes are still booked offline.
While professionally managed properties are transitioning to online booking, a huge swath of vacation homes are owned by individuals who may have not have much interest in transacting business online, especially if it brings increased scrutiny from tax authorities.
There are some parallels between the vacation rental, and tours and activities markets.
PhoCuswright estimated that the tours and activities sector was a $27 billion market in the U.S. in 2009.
Both markets — tours and activities, and vacation rentals — are highly fragmented, and despite the very enticing sound of their respective market dimensions, there are huge portions of the tours and activities, and vacation rentals markets that aren’t addressable by the current crop of startups.
In both tours and activities and vacation rentals, there is plenty of potential, but it may take an extended period for the markets to take shape to the extent that there would be substantial pool of customers looking for solutions.
There has been a substantial shakeout among tours and activities companies, particularly the peer-to-peer variety, and with more vacation rental startups drafting business plans as we speak, there may be bitter disappointments in this arena, as well.
It will be the challenge of vacation rental startups to help accelerate online adoption by vacation rental owners, but like the many of tours and activities that have crashed and burned, the vacation rental startups may find some heavy lifting there.
One silver lining in the vacation rental startup trend is there does seem to be a relatively high percentage taking a business-to-business tack, offering marketing services and software for owners and professional property managers rather than merely going after consumers.
Still, big players, such as HomeAway, are offering both B2B and consumer services for vacation rentals, so there will be very tough competition for the ever-growing number of startups.
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Photo credit: From vacation homes to villas and apartments, a new crop of startups is envisioning big money in the alternative lodging sector. Pictured is a Luxury Incline Village vacation rental in Lake Tahoe that was listed on HomeAway. Nancy_mic / flickr.com