Pop Quiz! Question 1…Quick, name the largest (and arguably most controversial) investments in the travel and affiliate marketing industries in the last twelve months?

If you answered the $250 million cash investment in HomeAway, Inc., by several well respected VCs and Google’s restructuring of its $3.1 billion DoubleClick Performics acquisition respectively, you’d be right.

Pop Quiz! Question 2...was each a ‘good thing’ for affiliate marketers?

If you answered ‘maybe…perhaps…depends’, you’d also be right as, in our opinion, it’s still a bit too early to tell how each of these staggering deals will play out.

However, we believe there are two indisputable facts about both companies – each is a ‘network’ (though of different stripes), and each holds the potential to be a ‘game changer’ in their industry.

“How so?” you ask? To answer that, let’s peel back the proverbial onion on each, beginning with HomeAway.

First off, HomeAway, Inc. is actually not just one company, rather it is as  CrunchBase and others have noted a ‘network’ of 11 separate online websites stitched together via a roll-up strategy, with the mother ship, HomeAway.com, and each subsidiary company focused exclusively on the vacation home rental market.  Boasting more than 309,000 vacation rental homes, condos, guesthouse, cottages and cabins in some 188 countries, Home Away has a rather simple business model: connect owners of vacation homes (or property managers) in the US and Europe with travelers that are looking for alternatives to traditional hotel, resort or timeshare accommodations at vacation destinations worldwide.

While the service is free to consumers, homeowners are charged $329 annually to list their properties on HomeAway Network’s branded sites (alternative 3 month listing and other positioning/offer fees also available).  This is HomeAway’s sole revenue source – they do not make a commission or receive any fees when a home rental reservation has been transacted over their network.

Is vacation home rental a big market?

You bet! In a recent PhoCusWright (PCW) report on the vacation home market, Vacation Rental Marketplace: Poised for Change, the market research firm estimates that “…vacation rentals accounted for more than 333 million available unit nights in the U.S market in 2007 and nearly $24.3 billion in rental revenue.  Approximately 10% of all U.S. Adults and nearly 20% of all online travelers have booked a vacation rental”, according to PCW, and they project “the growth in the online vacation rental sales will accelerate through 2010, when the online vacation rental market in the U.S. will reach nearly $4.7 billion, up from $2.8 billion in 2007.”

Pretty heady stuff, that.  These statistics also help to explain why HomeAway attracted the interest of a bevy of top-tier venture capital firms (VCs), each anxious for a piece of their $250 million expansion round (it is also important to note that this new round of investment was on top of the $209 million raised since the Company was launched in 2003!).   Among the many suitors, Technology Crossover Ventures (TCV) was chosen by existing shareholders and management, and together with existing VC investors Institutional Venture Partners (IVP) and Redpoint Ventures, provided the capital for HomeAway’s next phase of growth.

Given the terrible state of the financial markets last November, was pouring in all this new money into an online travel company a smart move on the part of these VCs?  One way to perhaps answer this question is to look at the names of past online travel and non-travel companies these VCs had invested in – do Expedia, Orbitz, cNet and eHarmony, or Netflix, WebEx and Twitter ring a bell?

Asked by the Wall Street journal (WSJ) about the Company’s valuation during the press conference announcing the new funding, Brian Sharples, HomeAway’s CEO declined to provide a number but tellingly noted “Our valuation is in a range where only a handful of companies could consider an M&A transaction involving us.”  Translation: a princely figure that in all likelihood is so high that it resembles the type of valuations given out by wide-eyed VCs during the heady days of the late 1990s ‘dot.bomb’ bubble.

There have been some published reports that speculated the pre-money valuation was in the neighborhood of $1.15 billion, and that HomeAway’s 2008 revenues were about $150 million, with EBITDA of $50 million.  If true, then this data suggests that HomeAway was valued at a multiple of more than 20X EBITDA. Generally, multiples of that magnitude are paid by savvy investors only when they have been convinced beyond any doubt that there is significant, sustainable and air-tight upside growth.

So, from the perspective of Silicon Valley, HomeAway is has the potential to be a home run.

Another useful approach that travel affiliate marketers can use to assess HomeAway’s potential to be a ‘game changer’ in the online travel space is to look at how the Company’s management has used the mountains of investor money that has poured into the Company’s coffers.  Most of the new and past funding rounds went towards an aggressive roll-up of competitors – and it looks like their consolidation strategy may well have succeeded.

Todd Chafee, Managing Partner at IVP was quoted in the same WSJ article that, with respect to their roll-up strategy, “We really wanted this funding to be a statement of ‘game over’ [for competitors], and we feel like we have this undiscovered gem we’re going to build into a household name.  It’s going to be one of the best-known companies on the Internet.”

Considering that, at least among travel companies, Expedia probably holds the title as the most widely recognized online travel brand – and the billions of marketing dollars Expedia and its prior owners (IAC and Microsoft) spent to build their brand – makes Chafee’s statement either border on the ludicrous, or, is a fair warning to other online travel retailers that there is a new ’800lb gorilla’ on the prowl.

However Chafee’s boast plays out, we think travel affiliate marketers can – and should – win big with HomeAway…here’s four reasons why:

1. HomeAway offers an Affiliate Program, with some very attractive components:

  • $85 commission (CPS)
  • 30 day cookie tracking
  • Exclusive affiliate-only coupons and offers
  • Pre-coded e-books, dynamic banners and content
  • Dedicated affiliate management team

2. They have a great value proposition for consumers: in most cases, the cost of renting a vacation home is far less than a stay at a ‘comparably’ appointed hotel for the same number of nights.

To underscore this point, we offer the following excerpts from an article in Hotel Interactive about the vacation home rental market:

“Vacation rentals are really starting to catch on,” said Margie ‘Di Guiseppe’ Van Zee, COO/Founder of Bella Palazzo, a company that markets extremely high end rental homes that can sell for upwards of $50,000 a week.

“People are starting to realize they can have the uniqueness of a private venue and have access to the wow factor. This is a more intimate experience and we are also able to offer all the hotel type amenities and services.”

At The Society, a luxury villa rental and marketing organization, co-founder Michael McFadden said the American public in particular is really starting to understand the value proposition of renting a single home rather than staying in a hotel and getting multiple rooms.

“The average 5-star luxury vacation home is less expensive than a mid-range hotel on a cost per person/per night basis,” said McFadden

Further down the article, the author writes:

“In Virgin Gorda, part of the British Virgin Islands, is Aquamare, a vacation rental village that offers a trio of 8,000 square foot villas that comfortably sleep up to 12 guests. Throw in the included amenities found at five star hotels such as daily housekeeping, laundry service and nightly turn down service, Frette linens, Bulgari bath amenities and access to private yachts, consumers start to feel very compelled to make a stay commitment. The property also features an on-site concierge, a private chef and beach attendants.

The cost: $13,750 per week, or $1,964 per day for up to 12 guests. That equates to just $165 per person, per day. That’s a number sure to make even the most seasoned hotelier a little jittery.”

A consumer value proposition like this is pretty powerful stuff in a depressed economic environment like we’re in today, where even the most affluent travel consumers are looking for travel bargains. In our opinion, for most travel affiliates, selling upscale vacation home rentals should mirror the expectations of the HomeAway’s VCs – they should be ‘home runs’.

3. Remember those PCW statistics and forecasts we referenced in the beginning of this post?

  • Vacation rentals accounted for more than 333 million available unit nights in the U.S market in 2007 and nearly $24.3 billion in rental revenue
  • Approximately 10% of all U.S. Adults and nearly 20% of all online travelers have booked a vacation rental
  • Growth in the online vacation rental sales will accelerate through 2010, when the online vacation rental market in the U.S. will reach nearly $4.7 billion, up from $2.8 billion in 2007

PCW’s analysis clearly reveals that the home vacation rental market is in its infancy, and that going forward, the upside is huge. Moreover, home vacation rentals will increasingly challenge traditional hotels and resorts for a larger share of the travel consumers’ wallets.

Additionally, given the state of the economy, we believe even more travel consumers will be hunting online for accommodation bargains; even the ‘uninitiated’ (i.e., a large chunk of the 80% of online travelers who haven’t booked a vacation rental) will come across vacation home rentals in their searches and jump on the opportunity to lock in the savings and value-add vacation home rentals offer.

The timing couldn’t be better – we suggest that travel affiliate marketers should ‘think like VCs’ – invest their marketing savvy, time and energy to capitalize on this growing trend…the competitive advantage pretty much always goes to the first mover.  Why shouldn’t it be you?

4. Lastly, and perhaps most importantly, HomeAway is a rarity in terms of travel distribution – other than HomeAway’s own consumer direct efforts, they do not partner with any other sales/distribution channel…We can think of no other travel product category or vendor that can make the same claim.

Today, HomeAway offers more than 360,000 paid listings, up almost 50% since 2007; that represents a potential affiliate revenue pool of $30.6 million.

Granted, we don’t expect that all HomeAway listings will be sourced through travel affiliate marketers, but other than competing with HomeAway’s own consumer-direct efforts, you, the travel affiliate marketer, have no other competition. This includes the likes of the big online travel agencies (OTAs) like Expedia, Travelocity and Orbitz, who are unlikely to ever ‘partner’ with a player like HomeAway, given that each sees the other as the ‘enemy’.

Affiliate marketers tend to be better at online marketing than even the most renowned global brands; HomeAway’s unique distribution strategy sets the stage for focused and knowledgeable travel affiliates to cash-in on an emerging growth market.   In our opinion, the HomeAway ‘network’ represents a huge money-making opportunity for travel affiliates!

Do veteran travel affiliates see the same opportunity that we do?  Have any of our readers worked with HomeAway?  What has been your experience?  We’d like to hear from you.

In our next post, we’ll assess the impact and implications on affiliate marketers regarding that ‘other type of network’, the Performics/GAN affiliate network.  Stay tuned!

Print This Post Print This Post