August 24, 2017
The Future of Online Booking: Understanding The “Why” That Determines The Future “What”
These are fascinating times in the world of vacation rentals, Airbnb’s, and other alternative accommodations. The space has never seen such a prolonged period of such rapid growth. And with that growth comes attention, both good and bad. Attention from guests certainly, but also attention from vested interests, regulators, and NIMBYs all fighting to stop the flow of innovation and progress, and to maintain the status quo. Working with tens of thousands of property owners, thousands of professional rental managers, and seeing the properties distributed across nearly 100 different booking platforms, now seemed like a good time to share what we at Rented.com are seeing, and the implications for the future.
To understand where HomeAway exists today, much less where it will be in the future, it is critical to understand where it came from. The original strategy was to buy up and consolidate all of the top listing sites around the world. This density would make HomeAway the default global winner. The sites all under one roof would create a sort of gravitational pull for evermore guests, further cementing the market leading position, and making it difficult if not possible for anyone to compete.
In the process, those behind HomeAway began to question the value of professional vacation rental managers. If owners can just list directly on VRBO, and the site can drive all of the bookings an owner could want, why would anyone ever need to hire a third party to whom they would have to pay a large percentage of the income coming in? What could they bring to the table? As time progressed, the answer was “quite a lot.” This came in two main ways:
- Getting the guest was just one small piece of the puzzle. A website still cannot get the keys to the guest, provide the personal service that people are looking for, much less scrub toilets, wash sheets, or answer the phone at 3 in the morning when a guest calls because something went wrong. On-the-ground guest support is needed and professional managers have a vital role to play in that.
- HomeAway began to realize that 10,000 customers with an average of 100 listings each was an easier and better business than having to deal with 1,000,000 individual customers who each had 1 home. The cost to serve was much lower. Guests seemed to prefer the convenience of professional management rather than haphazard variability of Rent By Owner management. This is turn led to better guest experiences, more repeat traffic, more bookings, and with the reduced costs, larger profits.
This all drove HomeAway down the path of building a more professional-friendly business. HomeAway Software moved beyond rolling up listing sites and expanded into rolling up enterprise software like V12 and Escapia. Over time, the target customer for the company increasingly became the professional manager.
This shift was only accelerated with Expedia’s acquisition of HomeAway in 2015. Expedia’s entire business has been built by working with enterprise level customers from Hilton and Marriot in the hotel space to Delta and American Airlines when it comes to flights. Changes implemented post-acquisition from aggressively pushing instant book, to hiding phone numbers, have all been intended to make life easier for professionals. The cost has been that VRBO and other HomeAway-owned sites are now less friendly towards the Rent By Owner crowd. This alienates those who want to spend the 8.4 hours a week that HomeAway says it takes to manage your home yourself, but that doesn’t matter. These people are no longer the customer they are trying to serve. Expect more of this, and for the changes to come even more quickly going forward as Expedia/HomeAway seek to further secure the status as the place for professionals, as well as the place to search and book for those who want professional services.
Airbnb is about 5 years younger than HomeAway. You could say this means the company comes at things from a different angle, or you might think this just means Airbnb is earlier in the same discovery process HomeAway has already gone through. In either case, when Airbnb started is less important than why and how it started. The company literally stemmed from the founders throwing airbeds on their San Francisco apartment floor and letting strangers stay with them during a conference. From the beginning Airbnb was about personalization and community, not as a result of any website they bought, but rather because of the founders’ own personal experience.
Thus, when professionals seeking to distribute their properties on Airbnb complain about the difficulties they face in working with the company from inadequate support, to non-functioning APIs, these professionals need to realize it is because Airbnb does not see them as the company’s real customer, and has no desire to make them so. This admittedly can be confusing. Airbnb after all has a group whose supposed focus is to grow the number of professional managers working with the platform. For this reason most think the failure to date is because of a lack of ability on the part of Airbnb to address the clear issues. However, Airbnb has billions of dollars on hand, and some of the best engineers in the world working for it on a daily basis. If these issues were in any way a priority for the company, they would have been fixed long ago.
The reason these problems persist is because the leadership within the company does not want to fix them. They want to preserve Airbnb as the haven for the 1:1 personal interactions, as the place where you can authentically “live like a local.” This desire is so strong that far from actively addressing professional managers’ concerns, there are even tales of the site “throttling” professional listings (i.e., pushing them down the search rankings to limit page views and additional bookings) in order to make individual hosts move up in search, and thus perform better.
All of this stems from why they started Airbnb in the first place. It was never to build a business for businesses. The “why” was personal, it was local, it was authentic. Now, there are a couple of less charitable interpretations one could take from the same fact pattern. Namely:
- This all has far less to do with any deep-seeded belief system, and more to do with PR and the necessity of the situation. Airbnb is currently in the sites of regulators. To survive and thrive it depends on its story as an online community where individuals “share” their space with strangers. If it is just another platform catering to businesses, Airbnb would immediately lose the sympathy vote.
- This is actually a far more strategic and Machiavellian move on Airbnb’s part. In this telling, Airbnb is purposefully trying to stop anyone on the managerial side of alternative accommodations from getting too big or well known. Airbnb has seen the battles that companies like Expedia have had to fight when negotiating with global hotel chains, and has more recently seen those chains’ push for direct bookings. It has no desire to ever have to deal with a customer with that much market power. So long as Airbnb can keep professional managers subscale, they can commoditize that entire part of the business. If successful, no manager will ever become a recognizable brand in the eyes of owners or guests. In this world, Airbnb is the only brand that matters.
Whatever the true reason, the result is the same. Airbnb was built by and for the individual host. As such, it does not adequately address the needs of most professionals today, and is unlikely to do so anytime soon.
This is the dark horse in the future of alternative accommodations. The company got a later start than the other two mentioned above. Despite rumors for years that it would be the one to buy HomeAway, when the time came it chose to leave that prize to Expedia. This meant it would need to pursue the space on its own, and do so from scratch. The stated reason for passing on HomeAway was that it did not see a clear path forward to making 100% of HomeAway’s listings instantly bookable online, or easily integrate these listings with Booking.com. Expedia’s difficulties on the same front suggest these concerns were prescient.
So what will Booking.com do? What will that mean for the industry? The company has a strong track record of being able to deliver value to small and medium-sized businesses such as the smaller hotels across Europe that make up Booking.com’s bread and butter. This customer base looks a lot more like the professional management companies that currently exist in the alternative accommodation space than either Expedia’s enterprise customers like Hilton and Marriott, or even Airbnb’s individual hosts like Hillary and Mark.
It is still early days for the industry, and especially for Booking.com’s foray into it. That being said, for the company that The Economist dubbed “the best-run internet company after Amazon,” the future looks bright.