Wednesday, April 22, 2009

Travolution summit write-up

Interesting insights from Homeaway.com at the Travolution Summit

For those that follow me on twitter (@bencolclough) you would have seen a flurry of messages yesterday about the Travolution summit.  The summit was a fantastic event where a bunch of smart people in the world of online travel got together and listened to some great presentations.  
For me the highlight of the day was Chief Exec of Homeaway.com.  For those that don’t know it yet, Homeaway.com is a huge conglomeration of sites with over 360,000 vacation rental properties on its books.  It has serious VC wonga behind it, and has grown aggressively by hoovering up loads of smaller local vacation rental sites.  By its own admission it still has only aprox. 10% of global properties on its books.  The presentation raised three thoughts for me:
  1. There are still significant untapped niches in travel: Despite the fact that travel is the second most mature online industry (I’m not mentioning the first), there are still untapped niche markets with huge value.  So whilst VCs have helped fund countless fancy travel apps and social networks, big money remains on the table for those brave enough to roll up their sleeves and get their hands dirty.  Consolidating supply of rental homes isn’t necessarily glamorous work but there is money in it, and it meets a real unmet customer need.  I would count the adventure travel market which Tourdust.com operates in as another example (and is actually a larger marketplace than vacation rentals worth aprox. $200B globally)

  2. Simple is good:  I quote “our sites aren’t special”.  Homeaway.com boils down to offering as much product coverage as possible to customers.  There truly isn’t anything special about the web site.  They even stick with a tried and trusted listings model, owners simply pay aprox $300 per year to list.  They are just getting on with the nuts and bolts of meeting an unmet customer need, simply working on getting that sales and marketing machine turning over nicely.  A lot of start-ups would benefit hugely (Tourdust.com included) from looking at homeaway.com as a case study of focussing on simplicity not the latest sexy social app which might get us a cheap and dirty traffic spike from Techcrunch or Mashable.

  3. M&A in online businesses:  I’m intrigued how an online business can make M&A pay.  The theory is that in an ideal market, when you acquire another company you pay fairly for the value of their future revenue streams.  So if you can’t squeeze some some extra margins by combining forces then the deal won’t cover its costs (lawyers, financiers etc.).  This would typically mean reducing staffing overhead, so combine marketing teams and support functions etc.  I can’t see these savings being significant in the online world because HQ teams tend to be very very small. Likewise it doesn’t make sense to shut the old site down due to the google link juice it will have built up over the years.  So where are the synergies?  Maybe it is simply a case of saving on the sales costs it would take for homeaway to recruit all the properties on the target’s books directly?  For example, if it costs Homeaway.com an average of $30 to acquire a new rental home to the network (via sales or marketing channels), then acquiring a site like homelidays with 40,000 properties on its books saves homeaway an investment of only $1.2m in sales & marketing (assuming there is no overlap in the portfolios).

Other highlights of the day for me included:
The presentation by Tripadvisor:  What struck me most, despite their obvious success in social media is that they still refer to their review content as "their's".  If I had contributed a review to tripadvisor, I would quite firmly believe that content was mine not tripadvisor’s.
Frommer’s research report:  The key point they tried to hammer home was that consumer’s want to see information on a destination when they are browsing online travel agents.  Add to this that Google doesn’t want you to have the same content as everyone else and you get the crazy result of a million and one different destination articles written about the same topic.  How can that add net value to the overall economy?

8 comments:

Thomas said...

I enjoyed yours and others Tweets from the Travel Summit yesterday.

As some one who advertises a holiday property on HomeAway sites I was particularly interested in the various comments on the HA Chief Execs presentation. As you said, Homeaway.com is a huge conglomeration of sites with over 360,000 vacation rental properties on its books. It has serious VC wonga behind it, and has grown aggressively by hoovering up loads of smaller local vacation rental sites. There are many holiday home owners who do not believe this is doing us or people looking to stay in our properties any good. They may have a simple set up - but its a big and rather cumbersome set up.

Someone also tweeted that the Chief Exec also said HomeAway provides an average value in bookings they deliver for owners of $20,000. I think they can only say this because of the number of big Agencies they now take on.

Sorry, but I think the HomeAway was pulling the wool over your eyes.

Personally, from the tweets, I thought the representative from Google was making much more interesting comments.

Ben Colclough said...

@Thomas.
Thanks for your input. I can see the challenge a home-owner faces with the consolidation of supply and the threat of being lost amongst an ocean of other properties and at the mercy of a potential monopolist.
Does it not really come down to customer journeys and making sure your property is marketed optimally in each.
For instance I could simplistically argue that customers find holiday rentals in 2 ways. (1) They want to be able to visit a trusted brand and have a large choice of properties in different locations. or (2) they want to be inspired by suggestions on a more niche local level. Presuming there will always be both types of site (homeaway and local specialists) then the most rational course is to list in both to make sure you get exposure to the customer in either journey (as long as you get sufficient return on your listing fee).
In some ways, having a large well backed player could help the industry as a whole grow. for instance, Homeaway showed their TV adverts yesterday that they are launching in the US. The advert puts forward the case strongly that vacation rentals are a better option than hotels. As a result you would expect the industry as a whole to benefit.
Must admit I am also healthily sceptical at the average value of $20,000 value to owners.

Thomas said...

@Ben

Given your "simplistically" caveat, I agree with you 100%. Just one problem with having a well backed, aggressive player is that as soon as you find a successful site working at a more local/themed niche level - HomeAway comes along and "hoovers" them up.

You suggest having a well-backed player is helping the industry grow - that is a bit too simplistic to let pass. In what way and for whom are they helping the industry grow? Think, for instance, about their £3300 Rental Guarantee - looks great on paper, but is that what the industry really needs? A more important issue is whether the properties advertised on these websites live up to claims made by owners. Some of the HA sites introduced reviews. Fortunately, I have not fallen foul of these, but it seems from stories I have heard HA always sides with the reviewers not owners. So holiday home owners are easily held hostage by vicious minded holiday makers. There is simply no way a set of websites the size of HA is going to be able to deal with this issue.

I fear that as HA do their utmost to promote the industry, and attract new holiday makers, so too the negative aspects they can not deal with are going to increase and have an overall negative impact on the industry, giving us lowly home owners a bad reputation.

You touch on what a lot of us exercise our minds with: For instance I could simplistically argue that customers find holiday rentals in 2 ways. It seems to me, we really do not know much about how customers are finding holiday rentals. As an owner I ask my guests how they found me, but there are as many different ways as there are guests. The 'research' on this issue by companies like HomeAway always seems to be self-serving, understandably. What I can not find, please let us know if you know, is some reliable, independent research on this issue. And it is because of the apparent (to me at least) lack of independent research on this issue that I thought the comments from the Google representative were very interesting.

Danbec said...

Homeaway industry dynamic is specific: immensely fragmented supply (individual owners) and immensely fragmented demand (renters) make an intermediary aggregator valuable even despite Google. Moreover it is sustainable as there is almost none repetitive purchase on the same property, so brand loyalty can be developed at aggregator level and not (or little) at service provider level.

It's worth noticing the model is simply a publisher model - i.e. they just publish ads, and don't take any liability or insurance about the service. This is a major advantage compared to the classic travel aggregators.

This model works (especially the hefty fees) as far as there is no competition driving price battles. One way to prevent alternative sites to grow to significant threatening size is to buy them before. Get it now?

Ebay did precisely the same thing in auctions.

In a nutshell, this is a great place to be for them. If they don't sleep down on threats, they are going to remain in a solid position.

Xin said...

I too enjoyed your tweets from the travolution summit and completely agree that adventure travel is equally as fragmented as the home rental market!

You mentioned in your tweets that homeaway favors a flat listing fee of 300 or so dollars per year to list a property as opposed to charging commission. Would you be able to elaborate on this?

Melissa

Ben Colclough said...

@Danbec - I agree with you. Only point of difference I have is the threat of price competition. I a competitor came in offering cheaper prices to the homeowners, they would have less funds to market themselves, therefore less traffic and consequently are of less value to the homeowner. I believe there are a bunch of free homeowner rental sites out there already.

@xin Hi Melissa, they favour the listing fee because their research tells them that is what their homeowners want. They don't want online booking because they want to be able to have vet the prospective renter before agreeing to a rental. He died cite the example of a competitor tiering their pricing based on the number of photos and then ranking listings according to the number of photos - apparently it had worked well, but not really in the interests of the consumer imho.

Xin said...

makes sense. Listing fees are easier for the homeowner (rather than trying to keep track of bookings for commission).

also like adventure travel in that consumers want to speak with the homeowner and vice versa before booking. why i am not sure online booking in either space is workable.

Joyce said...

Interesting that not more companies are exploiting this huge gap in the holiday rentals market, (not in terms of exploiting property owners by that ridiculous fee to list), but as you say tapping into the social networking features that has been so successful in the last 2-4 years.

Saw a recent article on the Travolution website (http://www.travolution.co.uk/articles/2009/10/13/2946/holiday-rental-site-housetrip-launched.html), it appears that Housetrip.com has found this untapped potential that might give homeaway a run for their money.