Skift Take

The phrase "listen to the customer" is a cliche. But in the early days of the vacation rental business, the smart move was to listen to what the marketplace was saying rather than force feed it the opposite.

Looking back at the history of short-term rentals coming online starting in the mid-1990s, it’s easy to see how arrogant thinking and missed opportunities left their mark, and swayed the sector’s trajectory.

That’s an easy takeaway from Skift’s recently published three-part Definitive Oral History of Short-Term Rentals because this theme of opportunities seized and lost permeates the piece.

Expedia Looked at Vacation Rentals Through a Hotel Lens

In Part 1 of the series, Expedia founder Rich Barton and HomeAway co-founder Brian Sharples talked separately about Expedia’s flawed early approach to vacation rentals, and how HomeAway nearly embarked on a similar path.

Barton recalled how Expedia acquired vacation rental startup VacationSpot in 2000. Expedia purchased the vacation rental aggregator, co-founded by a couple of Microsoft/Expedia alums, for $82 million in stock.

But Expedia’s vision for Vacationspot, as Barton recalled, was to wire up the home inventory for online bookings just as Expedia was busy doing for hotels. The problem for Expedia was that vacation rental owners weren’t ready to cede control of their homes to a third party, and the companies that were really gaining a foothold in the sector — such as VRBO in Colorado and Holiday Rentals in London — used a classified ad model that left reservations as a matter solely between homeowner and guest.

“I would say we took a little bit of a flawed approach instead of coming at it like VRBO did,” Barton said in the oral history. “We looked at buying VRBO when we were at VacationSpot … a couple times, as well as a bunch of these other kind of server-in-somebody’s closet somewhere in Cincinnati or Steamboat Springs of wherever, running basically a classified advertising listings website.”

Barton said, referring to himself and the VacationSpot co-founders about the bevy of mom-and-pop listing sites: “We were tech snobs, arrogant tech people, who liked software, and they didn’t appeal to us.”

VacationSpot shut operations several months later when homeowners and property managers didn’t want any part of the online marketplace strategy. Expedia retained its focus on the more lucrative hotel business with commissions of 25 percent or more.

In 2004, when Brian Sharples and Carl Shepherd co-founded World Vacation Rentals — the precursor to HomeAway and today’s Expedia-owned Vrbo — they had a business plan that likewise envisioned online bookings with parallels to what VacationSpot had tried to do.

But Sharples and Shepherd abandoned that idea when they saw the traction that the classified ad, or subscription, model was getting, and after Sharples cold-called Barton, and met with him to learn first-hand what had gone wrong with Expedia and vacation rentals.

Expedia’s “idea was simply, Why shouldn’t this work like the hotel business? We’re going to take this site and all the customers, and we’re going to flip them to online booking,” Sharples said. “And they actually did that. Then guess what? They lost most of their customers. And that’s when I started to learn things like these homeowners didn’t want somebody else to have control over their bookings.” 

HomeAway would eventually transition away from subscriptions to online bookings a dozen years later after Expedia acquired the company in 2015. But in the early years, HomeAway focused on acquiring vacation rental websites around the world that used the subscription listing model.

HomeAway and Others Underestimated the Airbnb Threat

HomeAway had Airbnb on its radar from the early days, but underestimated the threat. Shepherd and Chesky developed a friendship, and meet and converse occasionally to this day.

But like other public or then-soon-to-be public companies, HomeAway was fearful of having to communicate to investors and the Securities and Exchange Commission if it were to try to acquire Airbnb that most of Airbnb’s rentals were illegal in the early days. Airbnb’s losses weren’t attractive for public companies, either.

Of course, that’s assuming that Airbnb wanted to sell, which was likely a dubious proposition.

Sharples didn’t specify the year, but he recalled in Part 1 of the oral history being approached about the idea of trying to acquire Airbnb.

“As Airbnb got bigger, I do remember at one point investment bankers coming to us, I don’t remember who it was, saying, ‘Hey, listen. We’re looking at this company [Airbnb]. It’s growing pretty fast. They have …’ I don’t even remember what it was at the time. Maybe they had $25 million in revenue. And they said, ‘It might be a really good idea for you to acquire this thing. We think you can buy it for 250 million bucks.’ And I went, ‘Are you fucking crazy? 10 times revenue?’ And of course these days people do that stuff. But back then it obviously would’ve been a great purchase at 250 million bucks if we could’ve done it.”

Jeff Hurst, who’s currently chief operating officer of Expedia brands, including Vrbo, joined HomeAway in 2010 as director of strategy and planning, and recalled in Part II of the oral history how he and some of his colleagues around 2011 didn’t view Airbnb as a particularly significant threat.

Hurst was a McKinsey & Co. engagement manager prior to joining HomeAway.

“So I did the McKinsey style, and I said we’ve [HomeAway] got superior economics because they’re only in shared spaces,” Hurst said in the oral history. “It’s going to be really low ADRs (average daily rates) and really short lengths of stay. And they’re going to have all these regulatory challenges. This was not something we needed to pay attention to.”

He recalled laughing at himself over the years about the misjudgment — and he was not alone in failing to predict or react to Airbnb’s rise.

“We spent several years, I think, stuck in a trap of are we going to try and out-Airbnb Airbnb or are we going to be something unique?” Hurst said. “And I think really in the last, maybe three or four years, we (Vrbo) re-found that unique thing we are in a way that’s given us a lot of momentum.”

For his part, HomeAway co-founder Shepherd said he told investment bankers in the early years that if Airbnb succeeded they would be able to tap a market — primary homes — that was much larger than HomeAway’s vacation home, or second home, market. In that regard, Airbnb had created a whole new market, he added.

Booking Holdings Should Have Been More Risk-Tolerant

Like several executives, Booking Holdings CEO Glenn Fogel said in Part III of the oral history that in hindsight the company should have gambled earlier in short-term rentals.

Jon Gray, HomeAway’s former chief revenue officer who’s currently CEO of RVShare, expressed similar sentiments about HomeAway’s approach at Skift’s Future of Lodging event in mid-May. Gray said HomeAway should have paid more attention to the primary home arena.

Booking Holdings was slow to get into offering primary homes in part because of the legal ramifications.

“Brian (Chesky) and I talk,” Fogel said. “Sometimes we’re at conferences and we’ll say hello and stuff. We’ve spoken. Yeah. Give this man credit. He created a giant business. If I had a time machine, there’d be a whole bunch of things I’d do differently. I’d be willing to tell our investors, and tell everybody, that we believe the future requires us to sacrifice some of our near-term profitability to more fully invest in the future in this area.”

For more, read:

The Definitive Oral History of Short-Term Rentals Part I

The Definitive Oral History of Short-Term Rentals Part II

The Definitive Oral History of Short-Term Rentals Part III

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Tags: airbnb, booking holdings,, expedia, future of lodging, homeaway, mergers, mergers and acquisitions, online travel, online travel newsletter, oral history, vrbo

Photo credit: Airbnb co-founders (from left) Brian Chesky, Joe Gebbia and Nathan Blecharczyk at Y Combinator in 2009.

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