Brian Sharples: The IPO of Alibaba will change things and perceptions of who will lead the Internet globally.
When I met Brian Sharples, the CEO and co-founder of HomeAway, one rainy morning in Singapore last week, he was due to fly to Bali that afternoon for a week’s vacation with his family.
His first time in Bali and indeed, also in Singapore beyond a transit stop. It’s fitting he should choose Bali for his holiday because if there’s one island that cries out “vacation rentals”, it’s this island where today there are probably more “luxury villas” than temples.
The recent news that some villa owners stood to be fined because of illegal lettings through AirBnB also makes Bali a fitting spot for Sharples to think about the grey area the whole “sharing economy” is stirring up, and perhaps dragging his industry into.
To Sharples, the term “sharing economy” was coined to lend sex appeal to certain technology companies and it doesn’t apply to HomeAway. “People have been renting houses out for years, they were the pioneers of the sharing economy. What HomeAway did was take that original sharing economy and put it online.”
The term, he said, would be more appropriate to a company like Airbnb “because they created a different kind of sharing, people sharing the space they live in. They created a whole new market and really, they have been more innovative and disruptive than us.”
However the two worlds are blurring – the HomeAway and Airbnb models. “The two concentric circles are moving together and I reckon there’s a 7% overlap between the two circles. There is more money in vacation rentals, the transactions are bigger and perhaps that’s why other companies are getting into it.”
HomeAway likewise is looking at the city business and evaluating what it does there, he said. “If we get into cities, we recognise that people go into cities for vacations as well, and we would err on the side of second homes and investment properties rather than primary homes.”
The other question to ask is which model would work better for city rentals. “AirBnB has the merchant model and collects the money and disperses after the stay. We don’t charge traveller fees, we put the burden on the owners.” However the case is different with Travelmob in Asia, in which it has a 61% equity. Travelmob works on the merchant model.
Travelmob, HomeAway’s Asia play.
So while the rules and regulations surrounding vacation rentals got figured out a long time ago, HomeAway, as the main investor in Travelmob, has to contend with the uncertainty surrounding these sharing models in Asia.
In Singapore, there was news that two HDB (public housing) owners lost their flats because of letting through Airbnb and the day I met Sharples, I learnt from a taxi driver whom I had booked through GrabTaxi that the main taxi company, NTUC, had forbidden new drivers from taking third party calls.
Said Sharples, “As a public company, we have to be careful and it does put us at a disadvantage in terms of the right way to operate. Private companies like Airbnb and Uber are rocking the boat. What we’d like to see happen is for every market to adopt sensible regulation – the place where the business thrives the most is where rules and regulations have been written so everyone knows where to play. This will take time but eventually cities will take a stand one way or another.”
Alibaba’s IPO could change perceptions as to who leads the Internet
Sharples also believes the Internet world is on the brink of change – from one led primarily by the US to one where Asia will become a force to be reckoned with. He feels we should watch companies like Japan’s Recruit and China’s Alibaba closely. “Recruit setting up its headquarters in Austin, Texas, as part of its Indeed acquisition is one to watch and Alibaba’s upcoming IPO could change things and perceptions as to who will lead the Internet globally.
“They could well become the biggest travel company. Travel is the most successful category on the Internet and in travel, 87% of people start on the Internet – it’s a natural category for online – and everyone recognizes that.”
And so as travel becomes a horizontal with more non-travel companies getting into the sector and disintermediating it even further, could one argue that the “travel brand” as we know it is dead and that more people will prefer to buy from platform plays versus brand direct?
“I think there are two types of people in the world – those who are loyal to brands and those who are loyal to discovering new things. There are more people who prefer the big platforms, the discovery platform. We asked the question, why do people stay on our platform for years? After all, once an owner has dealt with the guest directly, they can then deal directly the second time.
“As it turns out, we found that only 10% of owners’ bookings come from people who have stayed in their property before.”
He said that hotel brands were trying hard to increase direct bookings but unless one company dares to do what Southwest Airlines does and say, “I don’t need to be on your platform”, then it’d be hard to move users away from platforms. “Humans like variety and searching for the best price. It’s hard to change that.”
“We didn’t appreciate how big the market was”
HomeAway: 1 million listings and just 10% penetration.
Which is why he’s so optimistic for the future of vacation rentals. Asked if the company, nearly a decade on, is as he had envisioned, he said, “Exactly but bigger. We are very proud of the fact that at our annual strategy summit, we still use the two first slides from 2005.
“I didn’t think we appreciated how big the market was. We now have 1 million listings and we estimate there are between 10 and 15 million listings globally, so we only have 10% penetration. When we started, only 7% of US adult travellers/families were choosing vacation rentals, now that’s doubled and I think it will double the next 10 years.”
To date, HomeAway has made more than 20 acquisitions with the company currently valued at around US$3.23 billion. The internal debate is whether to build a brand around HomeAway or keep the multiple brand strategy. While he is aware having a one-brand strategy has its advantage – for example, hotel companies such as Marriott and Accor are easily recognized and associated with a certain level of comfort and trust – HomeAway’s multiple brand strategy works for it.
“Carl and I felt that travel is a global business and if you are going to be leader in a category, then you are going to have to lead everywhere. In 2005, nobody was trying to do this on an international level and there was no way to become a market leader without absorbing those companies. And so we wound up with multiple brands and it forced us to be good at managing multiple brands.
“We experimented in the UK with Holiday Rentals in UK – it was the first time we tried to change the brand and it confused people and it took us two years to recover from that.”
“Entrepreneurs do not make great employees”
The challenge is not really that of managing multiple brands but multiple entrepreneurs because each business it has bought has been started by an entrepreneur. “If I said to T (Turochas Fuad, CEO of Travelmob), let’s get rid of your brand, he wouldn’t like it. My philosophy is, entrepreneurs don’t make great employees. They can be bloody-minded, they are trained to make their own things so in the majority of acquisitions, we negotiate the exit of the founder before we even close the deal.
“Historically, we didn’t do earn outs or percentages – we just did outright acquisitions and typically founders left within six to nine months.”
Asia’s a different story though from the US and Europe. “One of the things we looked at was what success other US companies had had – and we found very little when they build it themselves. When it’s worked is when they have partnered with someone and given them strong incentives.
“With Asia, we knew we would not be successful coming in, changing the management team and forcing the HomeAway way of doing business, so we bought into the founders and left the big incentive for them to grow the business as fast as they can.”
With its investment in the Chinese vacation rental site Tujia, Sharples said he had to fight hard to get a piece of that business, which remains a small stake.
Creating more comfort and trust to convert hotel stayers to vacation home renters
Despite the company having grown to the size that it has, Sharples remains deeply involved and it is clear he is a very hands-on chief executive. He speaks of a travellers app to be launched later this year that will get HomeAway into the “destination experience” piece. It is basically the owner’s manual downloaded into an app and through a dashboard, owners will be able to populate the content as he or she likes. “In testing, we found the average consumer opened the app 15 times – for instructions like how to use the TV to what are the local attractions.
“Hotels have concierges, there is always somebody to call, this is not true of vacation rentals. This app creates more comfort for travellers. We are in an environment where the majority of people still stay in hotels and that’s due to discomfort and the lack of knowledge of vacation rentals. If we can offer customers trust and comfort, we can convert them.”
Sharples has also been watching with interest the current spate of acquisitions. Booking.com extending into villas.com, Priceline buying Open Table, Expedia buying Wotif, TripAdvisor and its numerous acquisitions.
“Perhaps booking.com is coming close to optimizing the opportunity in hotel bookings and so they are extending. TripAdvisor, Expedia and Priceline – all three of them want to be the biggest travel company in the world so I think there’s a lot of one-upmanship going on.
“We don’t have ambitions to get into that. I am a big believer in specialisation and you create the most value by specializing.”
