Tnooz: HomeAway, Home and Away and the links between online travel and teen angst

HomeAway is the largest vacation rental site in the world. Home and Away is one of Australia's longest running soap operas and a launch pad for plastic surgeons, vampire hunters and psychotic clowns. What do they have in common? Check out my latest Tnooz post "HomeAway and the real life Home and Away soap opera" to find out.

PhoCusWright: HomeAway boss Brian Sharples talks acquisitions and how far we are from instant conf in online vacation rental

The travel industry has conquered the sale of hotels online. The big four (Expedia, Orbitz, Travelocity and Priceline) as well as local players (Wotif, Rakuten, Ctrip, HRS) have been aggressively and successfully selling hotels online for nearly a decade.

I have often looked to the very under developed market for the booking of vacation rentals and wondered when it will be ready for the same level of online sales as hotels. When will the structural and supply roadblocks impeding online vacation rentals be removed to allow for the massive amounts of online research for vacation rental and pent up demand for vacation rentals translate into bookings. Actual online transactions rather than the listing and referral models that dominate.

With that background HomeAway CEO Brian Sharples took to the centre stage at PhoCusWright yesterday with his vision for the company and the vacation rental business. As a reminder HomeAway is the biggest of the vacation rental aggregators. They have raised more than $450mm in venture funding including a massive $250mm round in November 2008 - specifically targeted for acquisition spending.

Brian shared with us that they have been very active in spending that money having completed fourteen acquisitions 5 years. He made one of the most acquisition positive statements I have ever heard from an online travel CEO. "If you can't compete with it, buy it" was his rallying cry for growth through consolidation.

The potential for Vacation Rental online is substantial given the difference in the online percentage of sales for vacation rental compared to hotels. According to the recent PhoCusWright report on the industry called "Vacation Rental Marketplace: Poised for Challenge" in 2008 the total vacation rental market was about $25bb in the US and $100bb globally. But only 12% of the vacation rental market is online. PhoCusWright predict that the online market in the US will hit just $4.6bb in 2010 compared to online hotels being a $100bb plus market.

But as the report and Sharples both say, the biggest impediment to the industry is the challenge of securing inventory from property owners. To enable consumers to be able to secure instant confirmation bookings rather just kicking of an email conversation with the property owner. To enable the aggregators like HomeAway to generate merchant level margins by shifting from being a listing business to a merchant.

Sharples indicated that he is determined to get to the merchant model. Two of the fourteen companies bought by HomeAway are property management technology companies. Sharples will use these to supply property owners with the means (and rewards for) providing real time inventory. He is backing that up by "first time in three years increasing our tech budget as a percent of revenue" That is not surprising. The biggest player in the online vacation rental market should be working day and night on finding a solution.

What is surprising is how far away the industry is from the solution. Sharples believes that "it will take 5-7 years for vacation rental to be properly online" (instant confirmation). Dara Khosrowshahi (Expedia CEO) was similarly pessimistic about how long it would take. During his executive interview the next day Khosrowshahi said that instant confirmation vacation rental transactions were 3-5 years away.

It has been five years since the launch of HomeAway (crunchbase profile), seven-eight years since Cendant first started to put together a consolidation play of European vacation rental sites and 11 years after Expedia bought Vacationspot and Rent-a-holiday. Yet according to two of the best placed execs in the market we are still half a decade (or more) away from instant confirmation bookings at scale. Clearest evidence imaginable of how hard it is and will be to crack instant confirmation on the most distributed and fragment accommodation sector.

BTW - for more on this sector but in a different region see my recent interview series with Australian vacation rental boss Justin Butterworth. Part 1 here, part 2 here.

HomeAway buys Homeliday with part of their cash mountain

Back in November US based vacation rental listing company HomeAway raised a staggering $250mm at a billion dollar plus valuation. Sitting around at PhoCusWright with other bloggers we speculated who they would buy with the money and whether or not they would use the money to get into Europe. Now care of a Kevin May Travolution story we know that they have spent some of it (no idea how much) on acquiring the French based Homeliday.

Other vacation rental business owned by HomeAway include:

• VRBO.com,
  
• VacationRentals.com,
  
• CyberRentals.com,
  
• A1Vacations.com,
  
• GreatRentals.com,
  
• Holiday-Rentals.co.uk,
  
• OwnersDirect.co.uk,
  
• FeWo-direkt.de; and
  
• Abritel.fr.

Hard to pass any substantive judgement without knowing the price paid. Generically speaking the vacation rental business is (like any media business) a scale game, so improvements in scale (including brand breadth) are a good thing. That's right, I said "like any media business". Don't let the look and feel of HomeAway fool you. It is not a retail/sales model like an OTA or online hotel company or the HomeAway competitor VacationRoost. HomeAway operate on a listing model - properties pay to list on the site. The base package is a flat listing fee (this I know for sure) which might be supplemented with premium listing packages and fees (this I am speculating). Think of the model as a targeted, online yellow pages model. Summary - a media business not a retail business. Media loves more and more scale and HomeAway are happy to buy their way.

Wow - HomeAway raises $250 million at a $1.15 billion valuation (TechCrunch)

Headline says it all. Wow. TechCrunch is carrying the whole story on this monster sized fund raising round for vacation rental company HomeAway. Makes money raised to date $459mm. TechCrunch state the pre-money valuation is $1.15 billion but does not say what the source is but remember that the biggest online travel company Expedia (EXPE) has a market cap currently of $2.38 billion. To give another example Google bought Youtube (top 5 site worldwide) for $1.65 billion. At first glance it is hard not to agree with TechCrunch's view that this is overvalued. What do you think is the vacation rental space hotter than first thought?

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