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HomeAway's Pillaging of Vacation Rentals

By William May
Published: 01/21/09 Topics: Comments: 0

Somebody has to say it I suppose. The era of vacation rental home ownership has been taken over by people hell bent on dominating the industry and sucking the profit out of it from all other participants.

For the last 10 years or so the market for vacation rentals has grown faster then any other kind of lodging. At first, during that time, owning and operating a rental by managers or owners became an enjoyable and profitable experience.

Some homes actually make a cash profit after all expenses including mortgage. But many simply help to offset the costs property owners experience in holding a wonderful family asset in highly desirable locations.

Now, however, the fun is over. A company by the name of HomeAway has brought big finance to the small industry. They are offering website advertising and other services to owners and managers but they are doing so without consideration of the effects on those people.

The reason for their mistakes is clear. They've raised a purported $450 million dollars US to buy vacation rental advertising sites promising investors the kind of astronomical returns that were common in the pre-dot com bust and now in the pre-mortgage bust era. HomeAway managers have no choice but to wring out every possible dollar in profit immediately in hopes of satisfying their overly ambitious promises.

Bringing rentals into a centralize database for easy website distribution makes selection seemingly easier by guests. Anything that streamlines the buying process should serve to increase consumer awareness and the market size.

Unfortunately, HomeAway is followed a path common for companies hell bent on growth. They are instituting monopolist practices to limit competition and adding features which may sound good to owners and guests but which are leading to the demise of the customers (owners and managers) who actually by the bills. Here are some examples:

Search Engine Optimization - In the travel industry, getting your website to appear high on Google, MSN and other dominant portals can mean the difference between success and failure in any industry. But the technology and diligence required to do so are daunting. Google changes its ranking algorithm 500 times last year alone.

The only way to stay on top is to have expert staff to manipulate the system. HomeAway has the people to do it and no one else does. They constantly appear high on listings but it is a position they do not deserve. Consumer use search engines to find businesses not businesses that list other businesses.

Can you imagine newspapers allowing radios to appear in the first article on the first page of every issue? Google has lost its mind to allow this kind of manipulation. But HomeAway has been happy to capitalize on Google’s failure.

Pay Per Click Dominance - Another way to appear high on portal sites is to buy Pay-Per-Click (PPC) ads. When Google solidify this opportunity PPC's were a god send for owners and managers. It allowed commercial sites some opportunity to get their ad and website noticed.

Providing you were in a unique location with unique key words such as "Kitty Hawk", "Kapalua Maui" or "Deer Valley UT" advertisers could figure out how to be found and pay reasonably affordable rates.

But Google didn't get blasphemously rich by being stupid. Their PPC system (now copied by pretty much all portals) allowed competitors to bid for position to get higher on the page and gain more attention. Of late Google has been killing the fatted cow by making their ad placement system more and more complex. All of these present several problems for Vacation Rental Operators.

First, Google may couch their overly ambitious ad system as allowing advertisers to buy only what they want and where they want it. But manipulating the PPC console has become arcane. Even knowledgeable operators find the time necessary to manage their ads simply not worth the time.

Second, the end result of Google's endless tinkering has, surprise, only served to increase the per click price and decrease the cost effectiveness of the ads. Most operators no longer find PPC’s of adequate benefit.

Third, and here again we come to HomeAway. Guess who is the only company large enough to employ staff to constantly monitor and manipulate the PPC system? But HomeAway also have a known habit of picking and choosing where they advertise on the portals to keep their listed operators happy. One day an advertiser thinks they are doing you a favor and the next day their inquiries plummet because they moved their ad money elsewhere. Of course HomeAway won’t tell them but is happy to keep the listing fee.

This also means the consumer is ill served. When he types in a town to find a vacation rental, he doesn't get a listing of the managers and operators in Orlando. Instead he gets links to HomeAway websites which, in turn, have listings to that town. A link to a link to a link. Anything that makes finding director operators more difficult harms the entire industry.

Surely Google and HomeAway know that consumers want easy to find products and services and don’t want to be clicked from one portal to another to another. But they have an unspoken collusion to force consumers through the hoops, to justify their existence and extract ever heavily ad costs from owners and operators.

Unaffordable Pricing - When (VRBO.com)VRBO.com was started ads were affordable, the number of properties was manageable and the service was cost effective. The prior owners of (VRBO.com)VRBO.com held out a long time but eventually succumbed to HomeAway's huge offer to buy the website.

But assets are hungry investments. The only way to service the debt or profit demands of investors is to crank up gross income. HomeAway has found insidious ways to do that. Like charging for extra photos – which no other site does.

They have been raising rates relentlessly, while at the same time increasing the number of properties rented. They do not publish the kind of statistics traditional media (newspapers, magazines, radio and television) but surely the number of inquiries per home has plummet. A business built on hidden deficiencies has something to hide.

Less Efficient Cost - In the end HomeAway's lust for increasing revenue will be its undoing. They probably know that already.

But HomeAway management will not relent from its assault on operators. They have no choice but to squeeze every dime out of its advertisers at the same time that the economy falters and owners and managers are failing. Small publications have always adjusted rates to compensate for the benefit delivered.

Heavy Handed Policies - Recently HomeAway has been promoting a seemingly advantageous problem of guaranteeing the quality of vacation rentals on its site. That must sound good to consumers especially first-time vacation rental guests who worry they are dealing with smaller companies of unknown capabilities.

Surely there is nothing wrong with HomeAway guaranteeing anything it chooses except that they are doing it with the advertisers’ money in an underhanded method. A Maui owner recently reported that HomeAway demand he refund a large rental fee to a guest. Seems the guest was charged with damage and filed a claim with HomeAway, who demanded it anyway. No trial, no jury just a hanging judge.

HomeAway has no sense of due process. To protect its franchise, they find it easier to just give away the advertiser's money even to dishonest guests. Great deal of HomeAway, Great for the consumer and terrible for operators, who are obligated to comply with HomeAway's dictates even if they don't sign up for the program.

Hidden Failures - HomeAway is not without its failures. In the investment world, buying various businesses and combining them under a single shingle is called a "Roll Up." It can make good sense in the proper forum. But HomeAway failed to understand that advertisers duplicate their efforts on various sites. They have tried various schemes of combining listings on the various websites they have bought. Often the advertiser's results go down while their costs go up.

It is safe to say that HomeAway is very lucky they were able to buy (VRBO.com)VRBO.com which continues to be its stellar producer because many of the other sites simply do not produce sufficient results for advertisers.

Disingenuous Advice - One of the smartest things HomeAway did several years ago was to hire Christine Karpinski, about the only person who had written about on how owners could operate their own homes without assistance by managers.

Some of the suggestions in Ms. Karpinski's book made reasonable sense some years ago. But as home prices sky-rocketed and the economy has faltered her observations have become out of date. Unfortunately, she is obligated to continue her mantra that owning a vacation rental home is a great investment. An investment, of course, which requires operators to pay big bucks to her employer.

Prior to the last 10 years, the reason families bought vacation homes was to share and enjoy them with family and friends. They were respites from the hum-drum of our regular lives. Renting an unused home was a good way to offset some of its costs. Families that owned such homes for long periods surely benefited when the property was resold, but covering all costs or even producing a yearly profit were not in the cards.

HomeAway's need to continually promote vacation rental homes as the next get rick quick scheme is off the mark. They know so but remember again they have investors to pay and offering more prudent advice is not something they can afford to do.

No Customer Service - The sure sign of a monopolistic intent is when a company fails to offer reasonable customer service. Remember when Ma Bell was accused of the slogan "We don't care. We don't have to". HomeAway has now earned that dubious honor.

Owners and managers constantly report being unable to reach HomeAway on the phone, emails that don't get answered and employees who take a less than understanding approach to problems.

On occasion HomeAway calls with discounts and offers on advertising and sometimes provides better pricing to new operators than to long-time customers. This is a common mistake in the ad world, one that traditional media no longer make. Taking care of your best customers always makes more sense than fishing for new ones.

The End of the Road - HomeAway is beginning to reach the end of its road. It won't die of course because too many people have too much money invested. But they have made a great many mistakes and have been able to gloss over them for too long by injecting money as a salve for all wounds.

The company has some bad habits: employees who don't take care of customers who have over-paid for websites that no longer produce the results they once did. They are no longer cost effective.

HomeAway is promoting investments not in the best interest of the customers who support them. And is then sucking all the profit out of those customers. It is not clear why industry leaders have allowed this to take place. They see the company pillaging the industry and have stood by and allowed it to happen.

Independent associations are the heart of almost every industry. But the Vacation Rental business has allowed a for-profit and for-huge-profits company become too close to the center of the world.

New Ideas and Methods - The good news is that the industry will eventually respond and find new and better ways of advertising. It will find ways of assuming a more normal arrangement where participants decide the direction of the industry and no on company dominates.

Those who are the heart of the business - owners and managers - will innovate, cooperate and beat back this threat to their industry. More about that in future issues of this blog.

Author: William May – Volunteer, Vacation Rental Association
Blog #: 0099 – 01/21/09

Comments: 0

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