Why You Can't Rely On the Big Listing Sites for Your Future Rental Income

Historical Blog Post

This post was originally published on the Owners HQ Blog way back in 2015, many points are still valid however some stats, links or facts may not be current.

If you own a holiday home which you rent out to guests then it is more than likely that you have an advert with one of the big listing sites.

In the UK the big 3 are HomeAway, Owners Direct and Holiday Lettings and between them have 1.5 million property listings according to their sales materials.

That’s a big slice of the market to control and when a few companies work their way into that kind of dominating position in any industry it never ends up going well.

How Did They Get So Big?

Initially the big listing websites like Holiday Rentals and Owners Direct rose to prominence because they offered a good service to property owners.

You paid for your listing and you got your enquiries / bookings, the process of connecting holidaymakers and property owners worked well and everyone benefited.

Operating a popular listing site was (and still is) a very good business to be in. A quick look at the math shows why this is so:

10,000 listings paying just £150 a year equals £1.5m in annual recurring revenue, not a bad bit of business really.

That’s just from basic listing fees, add in ‘upgrades’ like featured properties, extra photos, translation services, then throw some onsite advertising into the mix and you could easily double the £1.5m figure, and that’s just from 10,000 listings, never mind over 1m of them!

As an investment opportunity there is no better business than one that generates recurring income from the same client base, it’s the golden goose, attract a customer once and get paid over and over again.

Venture capital backed businesses came knocking and started buying up the bigger listing sites, HomeAway bought Holiday Rentals and Owners Direct, the previous owners got a big pay day and HomeAway got its hands on tens of thousands of property listings.

This consolidation comes with positives and negatives for the individual property owner.

What Consolidation Means For a Property Owner

Initially big listing sites were your friend.

Having a big funded company like HomeAway entering the market raised the perception of the industry as a whole, large advertising campaigns brought the benefits of private holiday rentals to the attention of a wider public, which meant more customers for you.

They could also help bring a sense of ‘trust’ that some people associate with brands.

It was all good, for a while…

The obvious downside of a consolidated holiday rental marketplace is massively increased competition between listings.

If your property is based in even a semi-popular location you will have seen your competition increase massively, for us (my parents) it was Denia in Spain. We went from one of about 80 properties to one of 600 plus.

Even with an increase in holidaymakers and visitors into HomeAway’s websites those extra 500 competing listings are seriously going to affect your enquiry levels and bookings.

But it’s not just Denia properties that we are competing against, imagine a holidaymaker looking for a rental property somewhere on the Costa Blanca. Before this consolidation occurred there might have been 800 – 1,000 properties to look at, there are now over 7,500.

This is a massive problem for the solo property owner.

Publicly Listed Companies Are Often a Disaster for Everyone Except Shareholders

What happens when a company becomes listed on the stock exchange? The interests of the shareholders becomes the number 1 priority at the expense of all other interested parties.

Just look at Google as an example of this.

Google started out as the alternative to larger, corporate owned search engines. They became the most popular due to their better technology which put user’s interests first. Their search results were better than everyone else’s and their aim was to index the web to let searchers find what they needed quickly and efficiently.

Fast forward to the present day and the once champion of the people, ‘do no evil’ Google, is a massive publicly listed company that does anything it can legally (and sometimes illegally) to help users increase profits, whether it is better for the user or not.

A similar process is underway at HomeAway, the move to instant online booking is not being driven to help their customers, it is so they can charge a percentage fee for each booking they make for you which will increase their profits substantially.

It is argued by them that holidaymakers want and expect this convenience, I think there is some mileage in this, but let’s not kid ourselves that this is the reason for the switch.

Let’s go back to the math on this:

Their most basic listing is priced at £249 + VAT for a years subscription, alternatively you can have a free listing with a 10% commission fee on all bookings.

If an average booking for you is £800 and they make just 5 of them then your bill is £400 + VAT, that’s a 60% increase in their earnings.

Change the numbers to 7 bookings at a £1,200 average and your bill jumps to £840 + VAT (a 237% increase!).

Forcing you to use their management dashboard, blocking you from the email addresses of enquiries, and penalising property owners who don’t respond to enquiries immediately is their way of making sure they are getting their commission.

Where Listing Sites Are Heading

If you’re not growing you’re dying, that’s a pretty well-known business quote and it particularly applies to businesses with shareholders.

Continued growth in profits equals a growth in share prices which is what shareholders want. Flat lining profits is almost as bad as declining profits, so the pressure is really on companies of this size to keep squeezing every bit of revenue out of a market that they can.

So for a company like HomeAway, where can this profit growth come from? There are only 3 real ways:

  • More listings (which means even more increased competition for your property)
  • Increased revenue per listing (more commission based listings)
  • Taking money from holidaymakers (booking fees charged directly to them as well as you)

All of these 3 paths are bad for the solo operators looking to generate income from their properties.

HomeAway have already stated that all of their listings will be online bookable by the end of 2016. (Source: skift.com)

Can you guess what will happen once they have managed to achieve this? Their 10% booking fee will start creeping up, they will introduce tiered commission levels, give them more commission, get more enquiries and bookings.

It’s foolish to think this isn’t going to happen.

It all spells a bleak future for people relying on them for their rental income.

(I may seem to be targeting HomeAway but Holiday Lettings are treading the same path, they are owned by TripAdvisor though, another public company…)

Are Property Owners Doomed Then?

For a section of property owners I think the next 2 – 4 years will spell the end of their activities in this market.

They will get despondent at increasing fees, fewer enquiries / bookings and what they may feel to be more convoluted ways of dealing with enquiries.

They will look at everything and decide it’s just not worth it anymore.

There is another future though, for property owners with the right mindset, the right knowledge and the right tools, the future can be one where you take control back from the listing sites, generate your own bookings, and keep your income for yourself.

It will take a bit more work than you may be use to but it is totally achievable, there are owners doing it already and you can join them.

So, how do you get started down this path? It starts with owning your own website, I’ll explain why soon.