Is VRBO.com About to Lose Steam?

VRBO.com (Vacation Rental By Owner) has turned the vacation rental industry on it’s head by connecting renters with vacation homeowners all over the world. They claim travelers can “rent a house for half the price of a hotel”- and with over a million listings in some of the world’s hottest locations, it’s no wonder they have exploded in popularity in recent years. I recently sat down with Brian Brown, VP of Business Development at one of our portfolio companies, BookingPal, to talk about what's happening in the booming alternative stay industry. Here's some interesting insights I gleaned from our conversation:

Why would VRBO.com have any reason to be worried?

Here’s why: Vacation rental by owner listings are not currently shown on Expedia, Booking.com, Trip Advisor, and other heavily utilized travel search engines. Is there an opportunity to capitalize on market share? You bet.

Why place VRBO-type listings on the mega OTAs (Online Travel Agencies)?

First, from the property manager’s perspective, listing their vacation rentals on the major OTAs gives access to huge audiences.

The top ten online travel agencies generate 257 million unique visitors per month- that is a lot of eyeballs- so property managers can significantly increase their property exposure and ultimately increase bookings. At this point, even some of the non-travel channels, sites like Zillow, Trulia, Homes.com, Rent.com, and Forrent.com, are starting to launch short term rentals within their sites. These sites generate another 115 million unique visitors a month, so they are just helping to make the short term rental market grow at an even faster pace.

Second, the big players in the industry like Trip Advisor have taken notice of this growing trend within travel and they want to get involved.

They see the kind of revenue HomeAway has been able to generate with a limited inventory of only about 800,000 listings. In turn, these large travel OTAs have much more site traffic and they also understand they have an incredible opportunity in front of them.

What is the difference between the VRBO business model and the OTA business model?

HomeAway and VRBO typically charge a flat subscription fee to have your property listed. The subscriber has to pay regardless of whether the property gets booked or not.

In contrast, the OTAs like Expedia, Booking.com, TripAdvisor are coming in with a pay-per-performance model via charging a commission once a booking actually occurs.

Why aren’t VRBO-type listings currently on the mega OTAs?

The biggest challenges have always been expense and resources.

Historically, travel channels have operated on a flat subscription fee, so whether you generated a booking or not, you had to pay. That works if you were on only one or two sites but if you want to be on hundreds of sites, you just could not afford it as a property manager.

The second issue was resources. In order to be on a third party channel, you had to go in as a property manager and upload availability, rates, photos, description, etc. and you had to do that on each and every site. So a property manager would have to have a full time employee to keep this information relevant and current on each site. As a result, you could only do a handful of sites- five, maybe ten at the most- to be able to keep up-to-date availability. This is because every time a booking occurred, you had to log-in to to each site and update the availability or else you had bad availability and generated double bookings.

BookingPal is changing the industry?

BookingPal is solving both the expense and resource issues. We have negotiated a pay-per-booking model with each of our channel partners so that every property is only charged when booked real-time. At the same time, we have partnered with various property management software companies that the vacation property rental managers are using. When the property managers update their information in their property management software system, BookingPal has done the integration which allows us to pull that information and distribute it to all of our channel partners instantly. For managers of individual properties (who generally do not use a property management software), we have developed our own portal for easy information transfer. So the cost per site listing has dropped dramatically and managing a listing on 100 sites is as simple as managing a listing on a single site. It seems that there is an opportunity for BookingPal to shake up the vacation rental by owner market.

I’m curious to hear other opinions on how the alternative stay industry is evolving…do you think VRBO.com will sustain their growth trajectory in light of the OTA’s entering this space?

Madding King