Expedia Inc‘s acquisition of HomeAway, the vacation rental platform, for $3.9 billion (mostly in stock) could be understood as an alliance of mutual interest against Airbnb, the peer-to-peer short-term rental giant.
It’s true that executives only mentioned Airbnb once by name during their conference call today explaining the acquisition. But each one of their main stated benefits of the tie-up happens to have the side effect of creating a more formidable opposition to the San Francisco-based startup, whose valuation is more than 5 times as high as HomeAway’s.
Executives told investors and media today that the deal would let Expedia turbocharge HomeAway’s growth by spending an enormous amount on marketing the brand, by injecting Expedia’s complementary type of inventory, by creating a fee for consumers to bankroll quality guarantees, and by helping the brand more quickly execute on its tricky transition from a classified listings site to a instantly bookable transactions platform.
Expedia plans to step up HomeAway’s marketing within the next three years. That decision could be interpreted as an attempt to outgun and outmaneuver Airbnb.
HomeAway CEO Brian Sharples acknowledged at one point the larger context:
“It’s a brand game, a brand battle. There’s another company out there that gets a lot of press, a poster child of the sharing economy….
Not to give too much away to competitors, but we are planning to scale up and spend orders of magnitude more on marketing than we would today…. A much much bigger footprint that people will feel when you wake up on Sunday and watch TV.”
Launching an urban assault
Blending the inventory of the two companies, which don’t have much overlap in listings, could also position the combined brands more effectively against Airbnb.
For instance, Expedia’s vacation rental inventory and customer base is almost entirely in urban markets, said Dara Khosrowshahi, CEO of Expedia, Inc. An upcoming deal to bring on board tens of thousands of apartments in European cities will only deepen that inventory, he noted.
HomeAway’s vacation rental inventory and customers have tended to focus on resort and other far-flung areas. Out of about $14 billion in bookings transacted over HomeAway in 2015, less than $1 billion was for properties in urban markets, estimated Sharples.
While Expedia’s urban properties aren’t homestays, many of them compete directly for customers against Airbnb, which has an urban emphasis. The Expedia HomeAway combined inventory will likely have more breadth, and thus more appeal to consumers. Said Sharples:
“Long-term, even people in urban markets are going to have to participate in this channel because we’ll have made it too big for people who are in this business to ignore.”
On this point, Sharples acknowledged that some investors had worried about Airbnb’s superior positioning in urban markets.
“Something that has held our stock back a little is people looking at these urban markets. People ask, ‘What is HomeAway going to do there? Do they have the resources to do something there?’
Certainly in urban markets we now have … Expedia’s platform that has top demand in that area…. Together we’re going to try to find a sweet spot there. It may not be exactly competitive with some of the other models out there involving inventory we don’t like. But we think there’s a huge opportunity in urban areas with the inventory we do like.”
Targeting a “more profitable” segment
HomeAway focuses on second homes that are full-time for rental, unlike Airbnb, which still does a huge business in primary residences being turned out for rental. Sharples said he liked that:
“We’re not really in the homestay market today…. Job number one is to really really build the biggest business we can in the vacation rental market with the kind of inventory we’ve had….”
Sharples estimated HomeAway only has about 15% of the potential global transaction volume of second home inventory, with homestay being a separate category of business outside of that. He then dismissed the homestay model.