Roughly 4 - 5 weeks ago HomeAway introduced its new 'traveler fee' to a lot of negative feedback from owners. Since then the discussion over HA's business model, fees and future direction seems to have amplified massively.
A section of owners are very upset with this change of direction by HomeAway, some have gone so far as to start a protest movement, complete with social media accounts and a website highlighting the comments of HomeAway’s customers and generally bashing this policy change.
The negative reaction to the new fee even drew a response from Brian Sharples (HomeAway CEO) in which he attempts to answer some of the more general comments which have been aimed at his company.
At a recent Expedia (HomeAway’s new parent company) investors meeting (reported excellently by VRMIntel) their CFO commented on HomeAway’s future direction and on the performance of conversion rates after the traveler fee introduction.
To sum up, HomeAway introduced an additional fee and property owners are not happy about it.
Let’s explore some of the reasons why this is and make some predictions on how it may all pan out.
Why Have They Brought In This Extra Fee?
If you read both the Brian Sharples response and the Expedia investors meeting notes (linked above) you will find that they are basically saying that the fee is for the following:
- to be able to compete against the likes of AirBnb
- to grow the VR market overall
- to grow their own market share
- to battle legislation against the home sharing economy
All the points seem logical and straightforward from their point of view.
AirBnB have basically turned up and made a massive impact in the home sharing space over the past few years, their growth has been phenomenal and HA see a lot of that down to the fact that AirBnb manage to keep somewhere up to 15% of the revenue from each transaction that happens on their platform.
Brian claims that HA’s traditional take is only around 3% with subscription listings so there is obviously a gap here that needed closing up.
HA are also making a point of the new traveler guarantees which cover things like fraud, double bookings and problems with a customer’s rental property experience.
What Are Property Owners Issues?
HA’s customers have a different take on this new fee, reading through many social media comments the general feeling seems like it is simply a money grab on the part of HA and it is not hard to see why this conclusion has been reached.
A lot of the negativity comes from the fact that many customers have paid a fairly large subscription fee on the basis of an advertising and business model that has now been changed by HA.
When their CEO states in November 2014 that HA is going to be free for travelers, and then they announce and introduce a ‘traveler fee’ less than 18 months later there is always going to be a bad reaction to this.
There has also been a lot of noise about owners losing bookings because of the new fee, reports of big drops in enquiry and conversion rates since the fee introduction and complaints about how the fee is displayed to potential guests in the booking process.
A recent article on the evolve VR blog covering the new fee has also sparked a bit of commentary from disgruntled HA customers. The article made some points about the evolving nature of bookings and the conversion process. I’ll cover my thoughts on this shortly but I wanted to first highlight a comment from ‘OpinionatedVROwner’ on the new service level that HA claims to be offering guests:
Link to full comment
It’s very hard to disagree with what they are saying on many of the points relating to the HA traveler guarantee.
The Cynical View
Astrid (in the evolve blog article above) sees the new fee as ‘inevitable’ and I think it is too but not for the exact same reasons.
Expedia have just paid $3.9 billion for HomeAway and will want a return on this. HomeAway see their biggest threat to be AirBnb who charge both owners and travelers and have a 4/5 x bigger slice of revenues generated through their business model.
As HomeAway there is absolutely no way on earth that they are not going to try and take a lot more revenue out of the business model. AirBnb have proved travelers will pay it, it would be crazy for them not to take it.
Do they need to charge this to compete with AirBnb and other listing sites? Probably, AirBnb have a model which generates more revenue and they have a lot of investment behind them, they are a formidable competitor so a major jump in income for HA will obviously help with this battle.
It would also be naive to think that jumping from a roughly 3% take rate to something approaching 12% – 15% isn’t going to impact their share price either…
Are they bothered if some owners complain? Yes, of course any negativity is bad for business but they will be betting that in the long term owners and travelers will just accept it and I think eventually many will. Albeit reluctantly.
How It Will Pan Out
In my humble opinion, this is what is going to happen.
- Some owners will continue to protest against the fees but HA will not reverse their decision.
- Some of these owners will leave HA and find other marketing channels with varying levels of success
- Many owners will stick with HA because it is all they know and whilst they may not be happy with the increased fees they see little option for change
- HA will shortly reduce the annual subscription fees to ‘compensate*’ for the introduction of owner and traveler booking fees
*I use the term compensate lightly, HA will still end up massively better off due to the increased fees but will spin a reduction (or even elimination) of subscription fees as a positive for property owners.
This is my prediction and I’m happy putting it out there for anyone to see.
Final Thoughts
I have some final thoughts which I’ve been mulling over the past few weeks / months.
1. HomeAway and AirBnb are different beasts. Whilst on the surface they are very similar, AirBnb target rooms in homes whereas HA has always targeted second / holiday homes. Whilst these are obviously related they are two distinct audiences and business models.
Yes, there is always going to be some overlap, and yes, AirBnb will likely start eating into HomeAway’s market sooner rather than later but that doesn’t mean that HA should be forcing their entire customer base into an AirBnb style model either.
2. Properties are mainly owned by real people. Comparisons between the home sharing economy and traditional hotel rooms have been made a lot recently. Services like AirBnb have the potential to impact on hotels profits, hence the new legislation battles going on right now.
HomeAway and AirBnb see this battle and want to provide a model which will let them compete with established hotels. Online instant booking is a major part of this, it’s hard to compete without it. The problem is that the inventory, people’s houses and homes are just that, people’s house and homes! Despite wanting to earn income from their homes (and second homes) there will always be a large segment of owners that want a lot of control over who stays in their properties.
The ‘hotel’ instant booking model will never cater for this for everybody’s needs.
3. Ever increasing fees are not the only option for home owners. Relying on any one listing site is not a good idea, it never has been. Property owners should be exploring ways of having their own website, with their own ability to take bookings and card payments, bypassing commission payments entirely.
This way will be a bit more work to setup and will take some time, but should pay for itself in a reasonably quick time frame.
Even if you keep an account with HA I’m sure it would be nice to accept bookings and payments on repeat guests, or referrals without having to go through a major listing sites booking process and paying the fees involved with this.
This is all possible for the pro-active owner.