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Lawsuit: New fees from Austin-based HomeAway are ‘bait and switch’

We came across this story here and felt that it needed sharing…

We have also included a letter from Brian Sharples regarding the traveller fee rollout

A federal lawsuit accuses Austin-based vacation rental company HomeAway Inc. of engaging in “bait and switch tactics” after it rolled out new service fees for customers booking vacation rentals.

Those fees “range from 4 percent to 10 percent of the total price of the vacation rental,” according to the suit filed this week in U.S. District Court in Austin. The suit claims the new fees are substantially increasing prices paid by consumers and dramatically changing the business model HomeAway and its sister sites, such as VRBO, were built upon.

HomeAway, which was acquired last year by travel giant Expedia for $3.9 billion, is the leading player in the online vacation rental industry. The company says it has more than 1 million paid listings in 190 countries around the world, offering travelers an alternative to hotels. It reported total revenue of $446.8 million in 2014.

Only in place a few weeks, the fees have already had a significant impact on owners of vacation properties, the lawsuit contends, reducing “the number and value of bookings by travelers.”

The suit seeks class-action status, alleging that property owners had contracts in place with HomeAway that prohibited the company from implementing the fees without their consent.

Austin attorney Dan Byrne, who filed the suit along with California attorney Michael Bowse, said he believes this suit is the first of its kind since HomeAway’s decision to implement the consumer fees – fees that are being charged on top of subscriptions already being paid by the owners of vacation rental properties.

For example, the owner cited in the suit, Ivan Arnold, said he paid $1,848 in February for a platinum-level HomeAway subscription.

HomeAway declined to discuss the claims made in the suit. “We do not comment on pending litigation but, as always, HomeAway is committed to maximizing the value of our partnerships with our owner partners and travelers worldwide,” the company said in a written statement.

Byrne said it’s unclear how long it could take for the suit to be resolved. A court date hasn’t been set.

“Much depends on how HomeAway approaches the suit and the issues it raises,” he said. “It is too early to say with any certainty whether there are mutually agreeable terms under which the suit could be resolved.

“It is worth noting, however, that our research indicates that vacation home owners who subscribe to HomeAway’s websites have already lost bookings because of HomeAway’s new fees to travelers. Compensation for those lost or reduced bookings is one of the categories of damages sought by the lawsuit.”

One of the issues with the new fees was how they were rolled out, said Jamie Anderson of Austin, a former HomeAway client who listed her properties on the site until recently. The company didn’t give adequate notice, she said, leading to confusion.

Anderson isn’t involved in the suit against HomeAway.

“Initially, I didn’t know what was going on,” Anderson said. “I’ve always been booked all of March, and I was not booked for March. Well, apparently they were already charging the fees without telling me.”

Part of HomeAway’s appeal, according to many users, was that there was no charge for renters to use the site. The fees have changed that, Anderson said.

“I felt like they were double-dipping,” Anderson said. “I thought it was unfair to the people making the reservation. We were already paying a fee. They shouldn’t have to pay one, too.”

Anderson said she expects many property owners will leave HomeAway once their current contracts are up.

“Really, it’s a perfect opportunity for someone to come in and start a new company,” she said.

HomeAway CEO Brian Sharples acknowledged the backlash to the fee in a letter to property owners and managers posted on HomeAway’s website [See letter below]. Sharples conceded HomeAway hadn’t done a good job of communicating the change, but he defended the fee.

The fee will be used to improve the online booking experience and expand marketing to bring in more travelers, he said.

“The good news is that vacation rentals are now considered a mainstream travel option,” he wrote. “But as a result, travelers are demanding more from listing sites like HomeAway and VRBO. Our research and experience shows that it is no longer enough for us to just operate an online classified-listing site.”

Many competing websites already charge similar service fees. San Francisco-based Airbnb, for example, charges 6 percent to 12 percent on top of the 3 percent booking fee that owners pay.

Reverdy Johnson, research director of San Francisco-based Blueshift Research, said it is unlikely that HomeAway will take a financial hit because of the fee.

“Airbnb has had this fee and it hasn’t slowed them down,” Johnson said. “So if HomeAway is imposing a similar, if not smaller, fee than its chief rival, you don’t expect that it’s going to significantly hurt or change their business.”

He added, “They’re not charging something that’s egregious or out of line with what has become the industry standard.”

Johnson said the anger might be as much about HomeAway’s handling of the fee as the fee itself.

“If renters think it’s the homeowner and the homeowner can’t explain, that’s a problem,” Johnson said. “That’s an execution issue and something that needs to be fixed.”

HomeAway was one of Austin’s most high-profile public companies when it was acquired by online travel giant Expedia last year. It has more than 1,900 employees worldwide, including 1,300 in Austin.

Founded in 2005, HomeAway built a network of vacation rental websites that includes HomeAway.com, VRBO.com and VacationRentals.com in the United States, as well as multiple international sites.

Here’s what Brian Sharples had to say to owners regarding the service fee

Brian SharplesPosted by brian.sharples in HomeAway Insights on Feb 24, 2016 4:42:00 PM

Since the launch of the new service fee on HomeAway, I have heard from many of our long-term customers via email. And I’ve been following posts on the subject on social media. Many of you share the same concerns, so it makes sense to respond on Community where all our customers can have the opportunity to read my answers to your questions.

 

I want to let you know that I am listening to your concerns, and every HomeAway employee is committed to making you as successful as possible.

 

First, I understand that many of you would like more and clearer communication on changes coming to our sites.  Despite our attempts at communicating this change in advance, we fell short of your expectations.  I take full accountability to make sure we are better on this in the future.  Below, I want to explain our rationale for launching a service fee, and tell you a bit about how we plan to incorporate your feedback going forward.

 

Second, I want to acknowledge that we are in the middle of a huge shift for the industry.  The good news is that vacation rentals are now considered a mainstream travel option, but as a result travelers are demanding more from listing sites like HomeAway and VRBO.  Our research and experience shows that it is no longer enough for us to just operate an online classified listing site.  (I miss the good old days too – believe me.)  We know this because properties that are online bookable get chosen at almost double the rate of ones that are not.  And our most dissatisfied travelers are complaining louder than ever about listings with inaccurate calendars and offline payment methods that can’t be backed up with online receipts and solid financial protection from our company.

 

As a result we announced in late 2014 that we would ask all of our owners to make their properties bookable online by the end of 2016.  This doesn’t mean you can’t still communicate or negotiate with travelers prior to accepting a booking request, but it does mean that your properties need to be accurately quotable online, calendars need to be maintained, and we need to be able to process the booking through our systems in order to provide the financial guarantees travelers are demanding.

 

To incentivize our owners to adopt online booking, we have increasingly been favoring online bookable properties in our sort algorithms.  It is no secret to any of our owners that a higher position in sort leads to more bookings. We are also rewarding listings in sort when they have higher conversion rates – because a listing that rejects most of its booking or inquiry requests is not a good experience for travelers. Most of the travelers who choose to stop using our sites say it’s because they are frustrated by not being able to find a property that is actually available.  This is offset by being able to book the property online so it increases the number of travelers who gravitate to HomeAway listings that are bookable online.  Worst case for our customers and HomeAway:  travelers leave our sites and go to sites where all properties are already required to be online bookable.

 

Our #1 goal at HomeAway is to drive more bookings to our owners and property managers.   Your success is our success, as it has always been in this business.  Every piece of evidence says that the right way to do this, given the demands of the “new” vacation rental consumer, is to do the following:

 

  • Provide transparent price and availability data so travelers can get accurate quotes online
  • Back up every transaction with a strong guarantee, instilling trust in new travelers who are unfamiliar with our industry and how it works
  • Invest heavily in brand and online marketing to compete with other travel alternatives such as hotels.  Now that vacation rentals are mainstream and the category is large, we need to work harder than ever to bring in more travelers
  • Protect the rights of owners to rent their homes on a short-term basis.  We are currently fighting battles in dozens of cities and investing millions of dollars to maintain your ability to rent out your home to guests.

 

So why did we launch a service fee?

The biggest motivation was to better accomplish the things I’ve mentioned above.  Today, our subscription customers pay us roughly 3% of the revenue we generate for them while our major competitors charge 6-15% (mostly in service fees).  We’ve always been proud to be the lowest cost solution for renting your home.  But we simply can’t provide the level of marketing and service that today’s travelers expect without asking travelers to also pay a fee for the service we provide.

 

Many owners have asked me if our fee was motivated by greed.  The reality is that we’re re-investing the majority of this money into marketing to bring in more travelers (we nearly doubled marketing spend with the introduction of this fee) and to provide true financial guarantees that can protect and help travelers who have bad experiences from using our sites. And we’re also more than doubling our investment in government relations efforts to continue fighting for the rights of property owners all over the world.

 

With that said, let me address some of the other things I’ve heard in the letters and posts from our owners and managers:

 

“The new fee represents double-dipping because we’re charging both the owner and the traveler” – In our marketplace there are two people that benefit: travelers and owners.  Going forward, we are asking both sides to bear some of the cost for the service we provide, and research shows us that travelers do not see the fee as a barrier to booking.

 

“The combination of the new fee and what you already charge is too much” – We hear you on this.  With the launch of the service fee, we did take down the rates charged to our suppliers for our pay-per-booking listing product (and our subscribers are always welcome to choose that option).  In April we will announce a new long-term plan for subscribers that we believe is more balanced than what we have today.  This will be based on our research leading into the launch, the data we are observing from this launch, and also will include the feedback we’ve been receiving.

 

“Travelers won’t pay these fees and they will choke off bookings” – I can completely understand this fear, in fact, I had that worry, too.  So we did a lot of research and testing before launching this fee, which is already charged at even higher rates by our two largest competitors in the United States. We’ve processed tens of thousands of bookings in just the last few days with a service fee.  Early data tells us that the fee has not been a meaningful deterrent for travelers making a booking on our sites.  We will be carefully studying how these fees impact bookings at different pricing levels, and adjustments may be made in the coming weeks.  The booking data we’re seeing supports our belief that this fee will not have a meaningful negative impact for the vast majority of our customers.

 

“By simply calling it a ‘service fee’ on the site the travelers don’t know who is actually charging them.” – The community is right about this and we hear you.  We’ll be adding language to the sites to let travelers know the service fee is being paid to us, and will clearly spell out the extra guarantees that come along with booking online.

 

“I’m better off dropping online booking, even though it is what you asked me to do.” – Many of you are justifiably concerned that non-online bookable properties now look cheaper on the site.  And you may think switching back to the “old way” will make you more competitive.  I completely understand the point here, but it would not be the right move for your rental business, because the benefits of sort would completely outweigh any short-term benefit of opting out of online booking.  The fact is that all online bookable listings are advantaged in sort order. And our sort algorithms going forward will be incorporating booking history and booking conversion as a factor in determining search position.  Simply put – the more and higher frequency of online bookings you do, the better you’ll perform on our sites over the long term.

 

I hope this explanation was helpful, and I appreciate that many of you are nervous and still quite concerned.  I also want to acknowledge again that I could have done a better job of communicating our rationale up front. Please know I am listening to your concerns, and we will take them into account as we design our new pricing plan to be announced in April.  And rest assured that if we see a meaningful decline in bookings from the fee, we will make adjustments to get it right.  But at the moment bookings are flowing at a very good pace (consistent with booking volumes before launch of the fee), and I should also note that most of the calls made to customer service have been from owners, not the travelers paying the actual fee.

 

Please continue to write and provide input. Again I’m sorry I can’t answer everyone’s email personally.  But I will read them and come back in a few days with a post to answer other questions that are consistent from our community.  In the meantime I ask you to please bear with us through these changes and evaluate our service as you always have – based on the business we deliver to you over the next several months and years.

 

Thank you,

 

Brian Sharples

Co-Founder and CEO

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