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Major players from Airbnb and HomeAway to the Priceline Group and TripAdvisor have tapped into only about one-fifth of the addressable $100 billion vacation rental and alternative lodging market and some of these companies, particularly the online travel agencies with their huge marketing budgets, face what might be be considered a surprising obstacle in their way.
That is, namely, those pesky vacation rental owners who are loathe to start paying commissions and often prefer to deal with guests directly and offline.
Those are some of the main findings in Evercore’s new report, A Change of Vacation Plans, which focuses on Priceline’s and TripAdvisor’s opportunities in the global vacation rental market.
As part of the report, Evercore estimates that Airbnb has now surpassed HomeAway with the largest roster of listings, 1.2 million, versus HomeAway’s 1.04 million.
There have been issues with Airbnb’s own listings’ estimates, as Skift previously found, because Airbnb often counts listings twice if they appear in overlapping neighborhoods. Evercore, however, expresses confidence in its 1.2 million figure for Airbnb listings, with one of the report’s authors saying the data come from aggregator allTheRooms.com, which counts Airbnb properties, forsaking geographic or neighborhood filters in its calculations, to avoid the duplication issue.
The Numbers Game
Evercore’s vacation rental listings estimates, which peg Airbnb at 1.2 million, HomeAway at 1.04 million, TripAdvisor at 650,000 and Priceline at 257,000, are not necessarily the ultimate metric as a predictor of future success but they are very important nonetheless.
The comparisons are not apples to apples, for example, because most of HomeAway’s customers pay for their listings upfront via subscription fees while Airbnb collects a commission from hosts only when there is a booking — and if there is a booking.
When it comes to room nights, the Evercore report estimates that Airbnb’s stays in 2014 decelerated to a 62.5 percent increase to 39 million, which the financial services company characterized as “sub-scale in room nights versus online travel agency competitors.” Priceline’s room nights increased 27.6 percent to 346 million and Expedia’s climbed 26 percent to 184 million, Evercore states.
Evercore states that Priceline and TripAdvisor exhibit “strong” momentum in the professionally managed section of the vacation rental market but the problem is that this segment only represents about one-third of the market.
On the other hand, Evercore states, HomeAway and Airbnb each have a “strong advantage” over the online travel agencies in the vacation rental by owner market segment, which represents about two-thirds of the alternative lodging market.
“Two thirds of the vacation rental market tends to be For Rent by Owner, which is an inherently tougher market to penetrate where technology tends to be lacking and owners are more loathe to tripping commission fees as they essentially manage the front desk,” Evercore states. “We recognize Airbnb’s flexibility around inventory classifications and resulting success as having set the stage for other performance players (e.g., online travel agencies), at least initially.”
But Evercore argues that HomeAway and Airbnb have something that Priceline/Booking.com and TripAdvisor covet — their selection of local vacation rental inventory options, which really drive bookings.
“In other words, although we see a nice window of opportunity in vacation rentals for Priceline and TripAdvisor as the industry moves to a model based on pay-for-performance, accelerated by the one-third portion that is managed by property managers,” Evercore states. “We acknowledge a tougher two-thirds remaining portion of the market (i.e., FRBO), where HomeAway and Airbnb maintain strong advantage.”
In February, HomeAway CEO Brian Sharples made a similar argument, contending that HomeAway has a huge inventory advantage over Booking.com, which has been making a big push in vacation rentals.
Acquisitions or Partnerships?
How would TripAdvisor, the Priceline Group or even Expedia, which has a fledgling partnership with HomeAway, scale up their vacation rental by owner inventory, which seems to be such a labor-intensive endeavor.
An acquisition of HomeAway would seem to be one route while Airbnb, with its $20 billion valuation, could be more than a tad pricey.
Priceline and TripAdvisor could increasingly find ways to tap into the vacation rental by owner market, though, through partnerships with third party inventory management partners such as MyVR.com, FutureStay, Evolve and others, Evercore states.
“Essentially, the new class of third-party aggregators are offering freemium products that are increasingly connecting FRBOs to a growing number of channels, improving reservation capabilities, calendar syncs, etc.,” Evercore states.
If these third-party channels accelerate their growth, they have some potential to enable the online travel agencies to further access the vacation rental by owner segment, and pair that capability with the online travel agencies’ huge marketing and demand-generation advantages over HomeAway and Airbnb, Evercore argues.
Listings Sites Will Still Be Attractive
However, Evercore still sees listings sites maintaining an advantage over sites using a pay-per booking model in the vacation rental by owner segment. Airbnb and Booking.com exclusively use the pay-per-booking, or commission, model while HomeAway is pushing pay-per booking but states it will remain a commission-subscription hybrid.
“Nevertheless, given a growth in seller channels and the higher propensity for recurring stays in the vacation rental market where owners and travelers are often dealing with one another directly, we can see where the more premium or in-demand supply, whether due to favorable user reviews, tighter location or other, will likely optimize towards more listing-based, less-transaction-fee heavy channels, thus keeping this market relatively fragmented even despite the trend towards greater connectivity and transparency,” Evercore states.
Individual vacation rental owners, many of whom prefer to work directly with guests and prefer paying subscriptions over transaction fees, may have a lot more to say about the direction of the market than some of the largest players might hope for.