• Expedia makes short-term rental move

Expedia Group has acquired two software solutions which will “embolden” its short-term rental offering.

The comments came as the group released its third-quarter earnings, which saw room night growth narrow and Ebitda increase as the CEO described being in “the early days” of the company’s journey.

Expedia Group has bought Pillow, a software solution that helps building owners and managers “empower their long-term residents to rent their residences”, and ApartmentJet, a software solution enabling the rental of guest suites in multifamily communities.

Speaking to analysts on the company’s third-quarter earnings call, Mark Okerstrom, president & CEO, said: “We are super excited about these two acquisitions that we’ve made. What these technologies do is allow apartment type or multifamily owners and managers or communities to have a central way to manage all the alternative accommodations, rental activity that’s happening in the building, and also allow them to rent out some of the hospitality suites that sometimes exist in these buildings, all in a way that can be tracked and in a way that makes it quite easy for owners and managers to be compliant with whatever regulation is put in place over the years. And certainly that’s a fast-moving area.

“I wouldn’t expect it to have any significant impact on length of stay or booking windows or really be a significant driver in the near term 2019 of HomeAway booking volume. I think these are foundational investments that are going to build a platform on which that we can really start to build an urban business over time, but it is going to take some time.

“We see the addition of these unique software platforms as a key step in establishing the foundation that will help embolden HomeAway and Expedia Group’s urban expansion efforts in the coming years.”

The company continues to drive the growth of HomeAway, adding 100,000 additional listings onto for the quarter. The group’s total platform – excluding HomeAway – saw the addition of 40,000 properties, taking it to 300,000 listings, on pace to directly acquire at least 180,000 new properties for the full year. The platform now has over 895,000 properties, with Okerstrom commenting that the group would see “another effort” to add more hotel supply next year.

HomeAway was described as delivering “strong results”, posting more adjusted Ebitda in the third quarter than it did in all of last year, with USD209m. HomeAway accounted for 12.5% of Q3 revenue, with the core OTA business bringing in 77%.

The company as a whole reported an 11% increase in gross bookings, with domestic bookings up by 13% and international 9%. Total stayed room nights grew by 13%, against 16% in the same period last year, with Okerstrom commenting that the metasearch engines were “running slower”. He added that room night growth was running ahead of the overall average, reminding the listeners that “it’s a multi-year journey”.

The company increased the low-end of its guidance range and said that it expect consolidated adjusted Ebitda growth of 10% to 12% for the full year.

Commenting on the group’s technological innovations, Okerstrom said that it was continuing to invest in voice, launching a new application with Google, allowing the customers to ask questions and make bookings. It has also been investing in chatbot technology, with the CEO describing “significant volume through our chatbots” in Asia. He added: “The reality is, as long as the experience is good, people don’t really want to talk to a human.”

Expedia was also looking to harness its data. Okerstrom said: “We sit on an incredible amount of data, and we’ve been working very hard on making sure that we are using that data to our full advantage, getting much more able to actually provide much more personalised results, real-time, on-the-fly, through a lot of the work we’ve been doing in the machine learning and AI space.”

The CEO concluded: “The industry remains massive, USD1.6 trillion and we’re single-digits of it. So we really do have a significant opportunity to expand. We think that the offline to online opportunity is significant, and where we are investing to make sure that we continue to be the place where people go to for travel is in all of the places that you’ve heard us talk about.”

HA Perspective [by Katherine Doggrell]: So long metasearch, long live the sharing economy. And the race to be the provider of all travel things to all people is on, with the OTAs leading the way as hotels continue their experimenting with maybe, perhaps, possibly adding on some room stock which doesn’t conform to the bed with ensuite and that’s yer lot model.

It’s all very well for the OTAs, of course, they can bolt on supply without having to worry what font to use for the logo or which bespoke scent to waft out into the street to lure in the punters, but the moaning about that ends here, because, as Okerstrom was keen to point out, the group is now into voice technology.

It is this which is likely to split the men from the brands, as the punters are much more likely to ask their ‘phone for a hotel in a certain location than a certain brand. To compete with this, the brands must sell the story that they do have a hotel where you want it – of any brand – or have access to hotels and will find one for you. AccorHotels was on the right lines with the marketplace initiative, but unless the brands can come up with some compelling reasons to search them first, they will be forced to explain to Expedia – no doubt with cash – why their hotels should come first in a voice search.

Additional comment [by Andrew Sangster]: Expedia’s push to take HomeAway deeper into urban markets, which was the driver for the acquisition of the two software companies Pillow and ApartmentJet, may prove to be a double-edged sword.

While the online travel agent giant certainly needs to grow its offering in the so-called sharing economy space (not sure how a home rental platform is sharing – only in the sense of sharing the customers’ money perhaps), hoteliers are going to start asking for commission levels that are comparable to the home rental platforms.

Just to check how much HomeAway charges, I signed up for a two-room apartment in London and the fee for the pay-per-booking listing started at 8%. This is a number that hoteliers would find very appealing.

Tech companies have historically been prepared to “eat their own young” in the sense of cannibalising existing business in favour of what is perceived as the higher growth new business. But it is tough to do.

Expedia lost out to Booking.com in Europe thanks in part to its desire to hang on to the merchant model too long. The merchant model yielded higher commissions but there was a bigger overall prize in the agency model as Booking proved.

With the home rental platforms, margins can be good thanks to the reduced dependence on Google. HomeAway had a margin of 22% for the full year 2017. CFO Alan Pickerill made clear on the results conference call that Expedia was prepared to see this margin slip in the interests of driving global growth for the business.

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