Expedia's Vrbo Plays Its Hand in the Shadow of Airbnb

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Five years ago, Airbnb toyed with the idea of launching a a "superguest" loyalty program, but CEO Brian Chesky seemed to shoot down the notion of a rewards program a couple of weeks ago.

He cited the company's standard talking point that 90 percent of its traffic comes direct (Similarweb had it at 75 percent in December) and the fact that Airbnb attracts tremendous social media buzz, and was the subject of 600,000 news articles in 2022 to attract attention.

"The best loyalty program is building a product people love so much they want to come back and you [don't] have to pay them to come back," Chesky told financial analysts February 14. "And we just take a full funnel approach to marketing around PR (public relations), and we think of our general advertising as really educating people on new products."

That brings us to Expedia Group, which is poised to launch a unified cross-brand loyalty program this year that would enable guests of its major brands to earn and burn rewards. Previously, Expedia, Orbitz and Hotels.com had disparate loyalty schemes. At Expedia's vacation rental brand, Vrbo, it would be the first time it gets included in a loyalty program.

This will be somewhat of a transition year for Vrbo, and Expedia is leveraging several tools at its disposal that it hopes to wield to advantage to compete against Airbnb, which by one measure, is 2.6 times the size of Vrbo. Expedia doesn't break out Vrbo's financials, but said that at the end of 2022, it had around $1.8 billion in guest deposits for future Vrbo bookings. Airbnb had $4.8 billion.

Expedia Group plans to do at least three things to grow its Vrbo business in 2023.

CEO Peter Kern told an investor conference Monday that Vrbo would be the last of its core brands, including Expedia and Hotels.com, to transition to a consolidated front-end tech stack this year, and when that's completed Vrbo would see an acceleration of engineering tests and potentially product development. The Group's game-plan is also to "wire" Vrbo into Expedia Group's partnership business, and to get cross-brand benefits from the new loyalty program.

Kern noted that once the Vrbo migration into the unified tech stack occurs, then engineers would be freed from those labors to focus on testing and product innovation. "And you start to get acceleration, less drag and you don't need to invest more in product because we have tons of engineers, tons of product people, and now they're all working on one stack and they're working faster and they're going to get more efficient," Kern said. "So more efficiency, I'd say, in the cost line relatively speaking and greater acceleration on the top line for that."

Of course, that's assuming the tech transition goes smoothly.

"I think what's different about Vrbo is not so much the product suite or whatever," Kern said. "Of course, it will benefit from being on the Expedia stack. It will benefit from being part of One Key [the pending new loyalty program]. Those are really big benefits. It will also benefit from being able to be wired into our B2B business, right?"

Expedia's has the largest — or among the largest — business-to-business segments in travel, and that's not a space that Airbnb plays in much, if at all. In 2022, Expedia's business-to-business segment grew 74 percent to $2.5 billion in revenue — about 22 percent of the Group's total.

"We have this very big B2B business where we power banks and OTAs (online travel agencies), offline travel agents, all kinds of things, which Vrbo has only been barely wired into because of a lot of technical constraints as again, we get everything on one stack and all of this product gets easier to use, we can pipe that through to a bunch of these third-party demand sites essentially," Kern said. "And that's a real advantage for us relative to our competitors."

Of course, Expedia Group, like Booking Holdings, is disadvantaged by pay to play loyalty programs, which Airbnb doesn't have to deal with. Kudos to Airbnb for building a brand that is not loyalty reward-scheme dependent. There are not many big brands in the travel industry that can take a pass on loyalty incentives.

Airbnb has another advantage too, among many. It will benefit from a traveler return to cities, where Vrbo is under-indexed. That's travel industry jargon meaning Vrbo is stronger in resort locations than in urban centers.

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