Skift Take

Vacation rentals and alternative types of accommodations is such a hot space that it is fairly clear that HomeAway is likely to be joining forces with a major player sooner rather than later. With a $3.2 billion market cap, HomeAway is relatively affordable.

In the immediate aftermath of the Priceline Group’s announcement that it agreed to acquire OpenTable for $2.6 billion, the focus turned to vacation-rental behemoth HomeAway and whether it might be the next big prize that a Priceline, Expedia or Google might scoop up.

As HomeAway announces that it now hosts 1 million vacation rental listings in 190 countries through its network of sites, Skift caught up with HomeAway co-founder and CEO Brian Sharples and asked him whether he’s ever discussed a merger with Priceline and whether it would make sense given Priceline Group member’s protracted drive to offer all sorts of alternative accommodations, including vacation rentals.

“Over the years we have been in contact with all the leading companies in travel and there have been lots of conversations over lots of years about lots of things,” Sharples says.

In addition to speculation about Priceline, it might make sense that an Expedia acquisition of HomeAway would be a fitting answer to Priceline-OpenTable given a distribution partnership between Expedia and HomeAway that’s in the works.

“HomeAway clearly occupies and leads significantly a set of accommodations that’s number two to hotels.” Sharples says. “All the companies competing to be the leading travel sites in the world have a natural interest in the space.”

“Whether or not there ends up being a combination is about whether or not they’re willing to reward HomeAway shareholders,” Sharples says.

Priceline’s $103 per share deal to acquire OpenTable, announced on June 13, amounted to a very hefty 46% premium over OpenTable’s closing share price a day earlier.

If HomeAway, as a public company, attracted an offer with a similar premium from a Priceline, Expedia, Google, or another company, it likely would be an offer that Sharples and the HomeAway board would be hard-pressed to refuse.

Was Sharples’ common-sense comment that a “combination is about whether or not they’re willing to reward HomeAway shareholders” a signal that HomeAway is ready to be wooed?

It is interesting that Sharples didn’t utter the usual verbiage by CEOs in this situation that the company has its head down and is focused on perfecting its own destiny without worry about noisy distractions.

Surprise, Surprise

Sharples also offered his take on Priceline-OpenTable, saying he assumed Priceline would be “fairly aggressive” given its “monster market cap,” success and cash.

“ is probably the most successful M&A deal of all time,” Sharples says. “When you’re good at it you’ve got the clout to do more.”

The acquisition of OpenTable took Sharples by surprise, as it did to most observers.

“I was more surprised by who they bought than the fact that they had a lot of money to spend,” Sharples says of Priceline’s OpenTable acquisition. “It was a non-travel company, although I sort of get the logic.”

In the Skift interview, Sharples also discusses HomeAway’s phenomenal growth, the Airbnb valuation, why the subscription model is so attractive despite the much-vaunted launch of a commission model, and also the company’s first real foray into search engine marketing.

Following is the rest of the interview:

Skift: How significant is your announcement about having 1 million vacation rental listings on your global sites?

Sharples: A milestone is just a number with a lot of zeros behind it. In the business we are in breadth of inventory does matter quite a bit. When we started in 2005 we had a recognition that we had to build a global business. The market encompasses so many vacation destinations around the world and that would require us to ultimately have big inventory numbers.

It signals that it’s only the beginning. Research show us worldwide there are 10 or 15 million vacation properties. So it’s just a start.

When we stared the biggest was VRBO. When we acquired them they had 70,000 listings; in 2005 that was state of the art.

The latest research says there are still millions of properties marketing offline — believe it or not. The ones that aren’t tend to be in far flung local communities where they still do use that local approach. In Europe tourist boards are still popular.

Take the U.S. and Europe where we have our strongest position. Most of the next million listings are in those regions. There are 6 million listings in those market.

As a subscription service we had a barrier for those who wanted to try it. For the three to four years prior to the launch of the commission-based product our growth rate was 10-15% a year. Now it is 28-30%. This model of growth makes it easier to try.

While we have decent market share in U.S. and Europe there’s probably as many listings in other parts of the world where we’re just getting started. We are the leading site in Brazil with is growing tremendously fast. Asia is potentially an explosive market for us.

Take Asia, for example. There aren’t any players to acquire because the business is just getting started. We made acquisitions of companies that had the best chance to grow those markets. Travelmob is our fastest growing piece of business.

Skift: What does Airbnb’s and Uber’s sky-high valuations mean for HomeAway? And for Airbnb in particular, what do you like or dislike about what they are doing?

Sharples: There are times in the marketplace where private valuation differs widely than public valuation. It is interesting because Airbnb gets lots of credit for doing something innovative. But what you see is pretty traditional short-term rental stuff. Parts are pretty unique and other parts aren’t really that unique. It’s hard to understand what the basis is for the valuation.

It signals that this is a really big market and the dollar value of transactions is really big. In the end valuations come down to profit and cash flow. That’s something we’re really proud of.

Skift: What is the future of the vacation rental space, and how do you see it evolving?

Sharples: We have under 40% penetration of e-commerce listings — people who take online payments and online bookings. We still have a way to go to make it more of a hotel booking experience. One of the big themes will continue to be pushing e-commerce.

If you look at HomeAway we were a classified listing site. We are moving to e-commerce now. We introduced buyers and sellers and then stepped out of it and hopefully they would be back a year later.

The next phase is getting more involved with the rental itself. Within the next few months we’ll be launching a sexy piece of tech that will be a mobile-to-mobile app. When a trip is booked the traveler will be prompted to download the app. It will know where you’re going and when you’re going and provide maps and directions, packing advice, weather, and all the information you need about the place where you’re staying. If something breaks you’ll know how to find a plumber. It will have recommendations from the owner and you can communicate with the owner on during your trip. And we can send you a notification on the beach to see how you’re doing.

We aren’t a hotel company with concierges, so we’re going to try to do that through tech. By the end of this year we’ll be on vacation with the travelers. The tests we’ve done show that the traveler uses it 15 times on vacation. [The] plan [is to launch the app the] latest at the end of the third quarter.

Skift: How has your experiment in search engine marketing been going? Any learnings yet, and what are your plans?

Sharples: We will talk more about this on our quarterly call. It’s doing fine. For us what we’re learning is that you can’t necessarily generalize and say certain markeing works everywhere in the world. In some places it’s the most efficient thing to do. In other markets it’s less profitable. There’s no doubt we can do it profitably. One is geography in which is more profitable than others. We’re kind of in the business of managing markets.

We may have an excess of demand over supply. SEM is more used to shore up markets with a temporary imbalance of supply and demand. The second thing we look at is property type. We have both owners and property managers, with a handful of very large property managers almost exclusively in Europe — big ones that distribute in many places. So when it comes to SEM we have a lot more success with small managers and individual owners because they are more exclusive to our listings.

Skift: Can you give us an update on pay-per booking and how do you keep individual owners happy?

Sharples: It’s very early days. On the property management side they just love the concept with percentage because that’s how their business operates. It aligns their marketing costs with their owner fees and makes a lot of sense. They will probably stay that way for awhile. On the owner side we’re seeing a tremendous amount of success. They see it as a cheap try before you buy a subscription package. If those customers are rational, if you get 2-3 bookings you’ve matched the pay per booking price. If you get more than 3-4 bookings a year you’re going to want to switch to a subscription.

When a pay-per-booking customer hits the point where they’d save more money by buying a subscription we’re going to let them know. Yes, we might lose revenue but in the long run will bring a lot more loyalty. Subscription is a much better business. It’s a little bit simpler. We had people switch in the first week.

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Tags: ceo interviews, homeaway, mergers and acquisitions, opentable, priceline, vacation rentals

Photo credit: HomeAway CEO Brian Sharples concedes he has talked to all sorts of companies in travel about a variety of strategic considerations, and an eventual merger would depend on the deal that shareholders get.

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