There’s been a lot of nostalgia in the last month or so for the VRBO-that-was, as owners recall their first experiences with putting their homes on the listing site and sigh for the bygone days.
Many are even sending out a rallying call for a similar style of site, where owners would list their properties like online classified ads for travelers to find, just like they used to do on the original VRBO in 1996.
Is there a way back to the old classified model? Or has the vacation rental industry fundamentally changed?
Where We Began: The Classified Model
Before VRBO, homeowners used to find travelers to rent out their vacation homes short-term either by placing a classified ad in a newspaper or by hiring a property manager to locate tenants for them.
VRBO took that same model and simply placed it online – which wasn’t uncommon in the ‘90s, the era of the dot-com boom. Before anyone fully understood how the internet would change the world of business, companies simply put their exact same business model online, assuming it would work much the same as their brick-and-mortar businesses.
They weren’t entirely wrong. Many owners were quite comfortable with the classified model of listing and uncomfortable with the idea of the internet in general, so in 1996 creating an online ad rather than a newspaper ad was familiar enough to feel safe for owners.
This model allowed them to stay in their comfort zone and use the same methods of vetting travelers and collecting payments as they had when ads were offline – owners often requested paper contracts and paper checks to be sent in the mail.
Travelers were reasonably comfortable with this method of payment, since online payments were still new and relatively unsecure. Scarcely a week went by without a news story about online credit card scams, and travelers didn’t want to take risks.
And so it went for about 14 years – until Airbnb came bounding into the industry with a revolutionary new model.
How Airbnb Changed Everything: The Conversion Model
Airbnb was founded in 2008, but it didn’t really hit its stride until about 2010, a year in which it made over 700,000 bookings.
The media went nuts for it. Airbnb was revolutionary in a number of ways:
- Airbnb first made mainstream the idea of sharing rooms in one’s house rather than handing over the entire property to renters
- Airbnb created a give-and-take method of ratings whereby owners and renters could “rate” one another as hosts and as guests
- Airbnb allowed guests to book “instantly” – holding a reservation for the traveler immediately after booking, while still allowing the owner 24 hours to confirm or cancel the reservation
These were all fundamental differences in the booking experience for travelers.
For the vacation rental industry, however, Airbnb was notable for one other significant change to the model.
They prioritized the listings that would most appeal to the traveler.
Which is to say, the listings that the traveler would be most likely to book would show up first.
This was a game changing approach in the vacation rental industry.
In the old classified world, owners were able to purchase subscriptions that allowed them to rank higher in the listings that appeared for a given location. If you paid for a premium subscription, your listing would appear above an owner who had only paid for a basic subscription.
This model was convenient for owners. Properties that were seen first were generally booked first – so if you wanted to get more bookings, you simply had to pay for a higher subscription level.
On the traveler end, however, it was less convenient.
Travelers weren’t necessarily seeing the nicest or most relevant properties first. They were seeing the ones whose owners had paid to appear at the top of the list.
Airbnb did away with that model, instead adopting the strategy that made Google the world’s #1 search engine: they listed the highest-converting properties first, helping travelers find the properties they wanted to find.
They also introduced the idea of paying for their traveler-friendly site by charging a “service fee” to travelers.
Airbnb’s model worked beautifully for them, and by charging both a booking fee to the owners and a service fee to the travelers, they were able to do several critical things that created a competitive advantage:
- They had an enormous marketing budget, which allowed them to attract new travelers who had never considered renting someone’s home
- They were able to create a highly sophisticated search model that put the most relevant results for travelers at the top of every list
- They championed and invested in their “Superhosts,” giving huge incentives to owners who provided the best traveler experience
This isn’t an all-inclusive list, but it highlights several important differences in Airbnb’s model.
Travelers loved it. An entirely new audience appeared seemingly out of nowhere. In 2015, they reported booking over 800 million nights – twice the number they had in the previous year.
When a major shift like this happens in any industry, the competition is forced to take notice.
HomeAway and TripAdvisor started to realize that they could attract and retain a lot more travelers by improving the booking process.
The Airbnb model convinced hundreds of thousands of travelers to attempt a method of lodging they’d never tried before – so why shouldn’t it work for traditional vacation rentals?
To pay for it, they did exactly what Airbnb did: they started charging a traveler fee to help fund services that would improve the traveler experience.
The Invisible Costs of A Seamless Traveler Experience
Now, does the fact that the service fee is helping create a better traveler experience mean travelers are big fans of the fee?
Nobody likes paying for something they used to get for free.
That said, we’d much rather pay a little more for superior service than receive inferior service.
And travelers are starting to receive a level of service from the major listing sites that they like enough to pay for it – even if they don’t realize it yet.
They like knowing they can book instantly. They like knowing their credit card information is secure. They like not having to argue with the owner about a refund.
They like knowing if they have an issue with a property that isn’t as advertised, they don’t have to track down an unscrupulous owner or scam artist – they can confront a major company that has a high incentive to resolve the issue before they lose their reputation.
They especially like that all their searches are now turning up the most relevant properties with the best descriptions, the best photos, the most glowing reviews, and the most responsive owners.
So if travelers like the superior service they’re receiving, why are they upset about the service fee they’re paying to receive it? One simple reason:
They haven’t made the connection that their favorite new features and the new service fee are inextricably linked.
Listing sites often struggle to explain their exact business model to either travelers or owners, which means that both parties are seeing these fees as entirely unrelated to improvements on the site.
But that’s not the case at all.
Creating better search models costs money. Constantly updating algorithms to adapt to the way travelers search costs money. Actively marketing vacation rentals as a viable lodging option to travelers costs money. Providing insurance against scams costs money. Offering online booking costs money.
These features seem so obvious that it’s easy to forget they simply weren’t offered by major listing sites until very recently – and that those sites never factored these costs into the original classified model.
Until, that is, it became obvious that without those features, VRs couldn’t compete with the way travelers prefer to book lodging in today’s online age.
That’s why the fee structure is changing. Not because the VR listing sites are trying to gouge their users, but because the old model used to provide a service purely for owners – paid for by the owner fees – and the new model provides a service for owners and travelers both, and charges a fee to each party.
It should be noted that listing sites didn’t need to pay for their new features by charging the traveler. They could have boosted just the owner fees instead, for example. (Booking.com does this, charging a fee of roughly 15% to owners and 0% to travelers.)
Most sites that focus on vacation rentals, however, are following in Airbnb’s footsteps. They’re simply asking travelers to pay for the service they’re using: an easy-to-use, fully customized listing site that shows them the exact results they’re looking for and allows them to book online.
Travelers may not like the new fees, but they definitely want the features those fees are paying for.
Do You Want the Classified Model Back?
That’s all very well, you may be saying. But I liked the old way better and I want it back.
Well, several such listing sites already exist, albeit with very few properties. Or, if you’re willing to put in the time and money, you could build your ideal listing site yourself, and advertise it to other owners as an alternative option.
The question is this:
If you build it, will the travelers come?
They might. Some travelers have expressed unhappiness at the new service fee on HomeAway and VRBO, particularly since that fee wasn’t built into the model to begin with. (They don’t mind it on Airbnb, because it’s always been there.)
It’s possible that travelers might dislike the service fee so much that they’ll happily go to a new site where they deal directly with owners.
They might dislike the fee so much that they’re willing to scroll through a hundred listings with poor quality photos and no clear description to find the one they’re looking for.
They might dislike it so much that they’re willing to wait a week or two to find out if the owner is interested in having them as a renter – and wait another week or two to find out if the paper check they sent has successfully reserved their dates.
They might dislike it so much that they’re willing to take the risk that an unscrupulous owner will ask for more money at the last minute to keep their reservation, or keep their deposit even when they promised a refund.
That’s possible. There will surely be a few who make that trade-off.
We don’t think it’s likely for the majority of travelers, though.
In every imaginable industry, people are generally willing to pay a little more for ease of use, convenience, and security.
They were certainly willing to do it with Airbnb – and we think that given a little time to adjust, they’ll be willing to do it for the other major listing sites, as well.
Why Owners Should Take Heart
Simply put: travelers will adjust to the new fees. Within six months, a service fee for booking a vacation rental will be as normal to them as paying the same fee on Airbnb for a homeshare.
That’s not why owners should take heart, though.
They should take heart because the new conversion-based model means more travelers, more bookings, and more income.
We know that’s not easy to see from here. The fees are new, and we’ve seen plenty of owners on social media saying travelers are upset about them and refusing to book. We believe you! We’re sure there are travelers who are balking right now because the fees were unexpected.
But as they adjust, they’re going to start using VRs in an entirely new way because of the improved booking experience.
Instead of booking a vacation rental once a year for their summer vacation, they’ll start seeing VRs as a real option for that three-day weekend getaway, for accommodation during their business trip – in short, for all of their travel needs.
Having removed the barriers that made booking a vacation rental time-consuming and risky for many travelers, listing sites are actually doing their owners a favor: they’re creating an experience travelers will want to use more frequently.
Which means more bookings and more income for owners who are willing to play by the new rules.
Want to get a higher-converting listing, but don’t know where you’ll find the time? We take care of it for you by keeping abreast of industry changes and ensuring your listing is always optimally positioned for the most bookings. Speak with one of our Homeowner Consultants today by calling 877.818.1014 (press 2) or click here to learn more about Evolve.