Homeaway

Brands in the News

Why Homeaway’s New Fee Makes Sense

29 Mar , 2016  

Home rental giant Homeaway recently began charging a new fee to travelers. This has caused an uproar in the rental world. Despite the initial adverse reaction, the fee is a smart idea.

Homeaway is the largest home rental website in the world. It owns a range of sites including VRBO.com, homeaway.com, and vacationrentals.com. Collectively, there are more than one million properties listed on the sites. Expedia acquired the company in late 2015 for $3.9 billion.

Historically, Homeway relied on listing fees to generate revenue. Homeowners paid an annual fee to the company to list each property. For premium placement, that fee could be well over $1,000 a year. Property owners could then opt to pay extra to run promotions.

Earlier this year, Homeaway started charging renters a fee as well, about 5 to 10% of the total booking cost.

The new fee has angered both renters and property owners for obvious reasons: Homeaway is taking a significantly larger share of the overall transaction. Some property owners have said they will abandon Homeaway sites. Others have threatened legal action. You can read more about the issue here.

Although the new fee is creating controversy, it is a very smart idea. It capitalizes on two important concepts in marketing: segmentation and customer advantage.

Segmentation

Segmentation is a simple concept built on the fact that people are different. What is perfect for one person may not be perfect for another.

Homeaway’s previous revenue model was fairly blunt in terms of segmentation. Everyone paid the same amount to list a property. While this seems reasonable, it is far from ideal. Someone with a $3 million vacation home in Vail that rents for $1,000 a night paid the same price as a person with a $100,000 condo in Denver that rents for $80 a night. The Vail property owner probably paid too little; the Denver owner paid too much.

The new system charges high-end properties more, and this makes perfect sense. The booking site is creating much more value for the property owner in Vail than the one in Denver. Over time, the listing fee will likely fall and the booking fee will grow.

Customer Advantage

Customer advantage is the idea that you want to provide a benefit customers value, are willing to pay for, and see you as best at providing. Strong brands and businesses often have considerable customer advantage. Brands with a lot of customer advantage can raises prices because price elasticity is usually low. When prices go up, people keep buying. Think Apple, Nike and Tesla.

Homeaway provides compelling benefits to both property owners and travelers. It is an important tool for owners–it produces valuable customers looking to rent–but it is also a good tool for travelers, because it offers the benefit of a vast selection accompanied by reviews.

While people don’t like Homeaway’s new fees, they aren’t likely to move away for the simple fact that there aren’t many alternatives. Airbnb is one option, but Airbnb already has a booking fee.

Getting the price right is essential if you want to build a great business. The new fee from Homeaway is a wise move.


The next session of the Kellogg on Branding executive education program is May 15 to 20 in Evanston. It should be a great week. Learn how to create and build great brands. You can read more about it here



23 Responses

  1. Scott McDermott says:

    Home away is a bunch of crooks. They charged me a fixed fee for my booking and then bait and switched by taking a % of every bookings. Modern Tech Crooks!!!!

  2. Michelle says:

    I have lowered the price of my home two times over the last 6 weeks still no bookings, so I am now giving to Homeway even more fees to get the price of my home down to where people will rent it. Surely Homeway is noticing this decrease?

  3. Jack Hurst says:

    Professor is it possible you might be biased in your opinion since you and Tom Hale (COO of HomeAway) attended Harvard together?

  4. Jack Hurst says:

    The professor’s article once again proves the adage “Those that can, do; those who can’t, teach”.

  5. Professor, as I’m sure you’ve told students, you need to study/research/understand subjects before writing on them. Sadly, it’s very evident that you are ignorant on this subject. If I were you, I’d remove this article, because it totally ruins any credibility you may have had beforehand. Execs at VRBO/HOMEAWAY/EXPEDIA are under-handed, double-talking, contract-breaking, money-grabbing crooks. The new fee only benefits their bottom line. We as homeowners and vacationers are rapidly omitting them from our options…and we’ve MOVING ON! I don’t do business with people/companies I don’t trust, and the way we’ve been treated and talked to, particularly in the past few months, I have no longer have any trust in them. My listing expires next month and I’ve found other very good online options for advertising my vacation home.. also finding many wonderful properties for our family’s summer vacation NOT ON VRBO/HOMEAWAY! I keep a list of all sites (hotel sites, too) that Expedia now owns, I’m no longer doing business on any of those sites…I encourage others to do the same.

  6. Jerry says:

    My subscription expired April 7, 2015. I did not renew because I was not receiving any inquires and any prospective renters of my home can not pay a 9% service fee to HomeAway for doing nothing except listing my property. I take all the risk, HA wants to big a piece of the deal.

  7. an owner says:

    Professor ?? In Bullshit?? Never read before such an nonsens.

  8. merrill says:

    It appears you did not properly/fully investigate the manner in which HomeAway has implemented the “service fee.” Although, the fee MAY make sense, its current implementation does not.

    The Segmentation concept does not apply. The new service fee is an additional fee, charged only to the traveler.

    HomeAway still charges a flat fee to Owners to list their property – this fee is based on the level you chose to list at. The highest level, platinum has over a $1600 fee.

    AirBnB does not charge a listing fee -they take advantage of Segmentation by charging a set % to both the owner and the traveler.

    FlipKey (TripAdvisor) has a pay per booking plan, taking advantage of Segmentation, by charging % fee to both the owner and the traveler. They also have a subscription plan, but when an owner signs up for the subscription plan, there are no additional fees to the traveler.

    Regarding Customer Advantage – At one time, I was their customer, and my renter was my customer. Now we are both HomeAway’s customer.

    As long as HomeAway continues to charge its inventory base (read property owners) an exorbitant fee to list their property, HomeAway will certainly begin to lose their inventory.

    If my property costs less to list on FlipKey & AirBnB, and therefore I am able to charge lower rates on those sights, ultimately, other sites will be the source of my revenue, and my association with HomeAway will no longer be necessary.

    It appears that HomeAway has decided to be like AirBnB. Even their homepage feels more like AirBnBs homepage. Their business model now seems to be more AirBnB like, except they have not adjusted their fee to their original customer, their inventory base – and little by little, that inventory base will find other ways to be successful without them.

  9. Chris K. says:

    As a vacation rental owner my inquiries are down 90% for this time of the year and half of the ones I am getting are fraudulent. If I’m going to continue hosting vacation rental clients I will have to take my business elsewhere.

  10. Angie S says:

    Thanks Professor, but I don’t think you know a lot about our markets. My market has low price elasticity. My property is in a location that attracts working class families who want a week at the beach to build family memories. They don’t have a lot of money to waste. The new fee is coming on top of rates that are already at the top of their budget. Until the VRBO Service Fee fiasco, I actually thought that I was VRBO’s customer and I was very happy with the service. But the Service Fee was not well-thought out, was poorly communicated and is assessed with no known benefit. Their explanations are absurd. How can that possibly look like anything but a scam to potential renters? They aren’t stupid. And the service fee is regressive, charging lower rentals the highest percentage of the fees. That’s not right.

  11. Jeff says:

    What a joke! Customer Advantage will mean I can raise my price!!!??? So somehow my homes should cost MORE on VRBO/HomeAway? I’m pretty sure someone would sooner pay $2000 elsewhere for a week than $2200 on HomeAway, but hey, I gues this “guarantee” means I should be charging $3000!

    VRBO/HomeAway is NOT Nike, Apple, or Tesla. Those companies own things and make things. VRBO/HomeAway owns nothing!

  12. 2 dogs says:

    I have successfully rented my vacation home to capacity in high season (ski season) for almost 16 years. The only exception was this past year. Was it the new service fee that caused this or the poor winter weather? I know my customers and the ones that I want in my vacation home are smart enough to research & google our name to call direct and bypass this useless fee up to $499. HA is a listing site for me and thats all. I do my best to control communication with my guests rather than relying on a greedy, corporate conglomerate only concerned with the bottom line. I have been doing this longer than they have. I think it is important to read reviews and how many. It is not risky. I still believe in the good people who rent from us and they trust me as well.

  13. Alan Oakes says:

    Professor. You should know better. You clearly did not do enough research to come to such a conclusion . You are far far far off the mark

    Indeed you will be presenting the case to your students as to how to kill your business in a few years.

    There can never be a scenario where screwing your customer base can work well. And just so you know there is a case of constructive fraud with their behaviour that I hope plays out in court. Owners and travelers are fleeing fast. A company who tests how to show the fee and whether they can find Ways to hide it and who is goes to is one that shows this company can’t be trusted by owners and travelers alike

  14. Deb Mann says:

    I STRONGLY DISAGREE with your statement: ” it is a very smart idea. It capitalizes on two important concepts in marketing: segmentation and customer advantage”

    This new fee has done nothing but ruin their brand and reputation. The booking site is deceptive on who the fee gets paid to. HomeAway has admitted that if the traveler realizes it goes to HomeAway instead of the owner, the traveler will find another place to book. So the burden lays on the Owner to explain that the fees get paid to HomeAway (Now Expedia). I paid over $1200.00 just to get degraded because I don’t use their “Book it Now” so they can also get this added fee from the traveler. I did not get what I paid for or what the Terms of Service told me I would get. Like most owners, I was never informed they would degrade my listing before I paid.

    The unexpected fee is causing many owners to have to sell and take a huge loss in their investments as they are no longer getting inquiries and bookings as this “fee” has put a very bad taste in both owners and travelers alike.

    For this reason I think the service fee was not thought out and by NO Means a “Smart Decision” or benefit for anyone. Only after it’s too late will they will realize that they brought what was once a good thing to the ground… for everyone.

  15. Cmives says:

    You have GOT to be kidding me!

  16. Lorraine says:

    Presumably it was someone in academia like you who advised Homeaway to make a major move like this without even advising their customers (the property owners) what they were doing. As a property owner, I can tell you that I WILL be leaving Homeaway the minute my subscription is up (June of this year). This move will cost the renter up to 10% more to rent my property. Are you and Homeaway assuming that we property owners were all so woefully unaware of going rates that we were all undercharging by 10%?? My rates are as high as the market can handle and an increase of 10% is driving my customers away. EVERYONE I know who is an owner and on VRBO/HA is losing business. There are other places to go, and I for one have already started listing on many alternate sites, and spending my money on advertising (and have been picking up business on the other sites).
    If HA loses both owners and renters, this will prove to have been a bad move for them.

  17. Marien Kaifesh says:

    Professor, have you forgotten the first rule of Business? Know who your customer is! Why on earth would you charge the renter when you are already charging the rental owner a hefty yearly subscription fee and providing the renter no services that they didn’t already have? (Greed, maybe?) Sorry, sir, you failed this exam.

  18. Homeaway must have paid you to write this “article” (advertisement) because it makes NO SENSE!!

    I, along with other homeowners, advertising on VRBO/Homeaway are seeing inquiries and bookings go down. I’m talking ZERO inquiries in April when I should be seeing a spike for summer rentals at a beach property.

    Many families come to vrbo as a way to save money – the service fees are outrageous and are deterring travellers from the site. The customer service vrbo offers to travellers is a joke. If there is a leak in the roof who is the renter going to call? The owner!

    VRBO/Homeaway is not paying the homeowners maintenance, taxes, mortgage, etc. The owners do not benefit but are suffering from lack of business and the bully tactics of VRBO.

  19. Paul says:

    “compelling benefits to both property owners and travelers” ?

    You are confused. There aren’t any compelling reasons for the property owner to accept this fee.

    As a matter of fact, home owners were blindsided by the fee and have lost revenue because of it.

    Rather, it’s a complete money grab by HomeAway.

    Too, the dirty crap HomeAway is doing to force it’s implementation is disgusting.

    Hoping the class action lawsuit against HomeAway stings…and stings bad.

  20. Pam says:

    Besides having added a substantial fee without adding any value, HA has completely changed their business model. By rolling it out in a secretive and misleading manner, they have also eroded much of their brand trust and completely alienated many owners and travelers. They seem to have forgotten that these are people’s homes, and not every market is well suited for an Airbnb type of set-up. This model is not what works for me and not what I signed up for. While I’m sure their calculations support a certain number of cancelled subscriptions, they have created a strong and very vocal opposition, who are actively working against them. In this day of social media, it might not be so easy to overcome.

  21. Marian Lasko says:

    So it makes sense as a money maker for Homeaway, but offers little advantage to the consumer other than a slimmer wallet. As someone who has used Homeaway/VRBO to find vacation places year after year, I can tell you I will not be using them anymore. Even though Airbnb charges, it is a smaller fee. And thre are other website that don’t charge anything. I guess I am just more likely to return to the places I have been and will book direct with the owner. You were right that getting the price right is essential. But going from zero to a $150 charge and adding essentially nothing is a complete deal breaker for me and tarnishes Homeaway for me forever. How stupid do they think we are?

  22. Susan K says:

    The new system does NOT charge high end property owners more. It charges people that book through the system more.No mention that a lot of the listings are property managers. No mention that HomeAway began the fee without notice to owners and property managers. HA now longer has over 1 million listings. It’s around 950, mostly from people not renewing their listing because of the change.

  23. ockeghem says:

    I still don’t see how a booking fee makes sense to a Homeaway renter, because (unless they’ve changed something) there is no benefit associated with it. I book a ton of vacation apartments, as I’m currently living abroad and we travel a lot, but I stopped using Homeaway & affiliates last year after too many bad experiences. The booking fee makes me even less inclined to go back. I am happy to pay Airbnb a booking fee because they deliver a benefit in return: Airbnb stands in the middle of the transaction and provides a guarantee. If something goes wrong with the owner or the booking is cancelled, Airbnb refunds my money and gives me a discount off other rentals for the same period. Homeaway has been nothing more than a listing service — a glossy Craiglist for vacation rentals, and similarly a caveat emptor situation. As soon as you find an apartment you like on the site, Homeaway is no longer involved and you deal directly with the owner. Many owners ask you to wire money directly to their bank accounts to hold the reservation, which is risky: Once the owner has the money, it’s gone. I’ve had multiple Homeaway owners flake out and claim to have “lost” the reservation, despite the email trail, and when that happens there’s no recourse through Homeaway — and there’s no way to find chronic offenders in advance, because Homeaway won’t allow you to review an owner who didn’t deliver the apartment. I’ve also had Homeaway owners/agencies tell me they “sent the wrong address” at the last minute, moving me to another of their homes that’s inferior to the one I agreed to (that was my last experience with Homeaway, last summer). These people continue to list with impunity on Homeaway, where on Airbnb they’d be weeded out, either through reviews or too many cancellations. I have no problem paying Airbnb a booking fee for their services. Homeaway has not provided similar services, so I don’t know why I’d pay them a booking fee.

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