| There are literally hundreds of Vacation Rentals | | | | relatively low. Most owner's review their |
| by Owner sites and it seems new ones are | | | | advertising on an annual basis, based upon the |
| appearing every week. On the face of it, it may | | | | results (enquiries, bookings) that they have |
| seem like making money from a "vacation rentals | | | | received. "Vacation rental by Owner" sites that fail |
| by owner" site is easy: all you have to do is get | | | | to produce results are not able to persuade |
| 1,000 owners to sign up, each paying $100 per | | | | owners to renew. Many new sites that start off |
| year, and you can generate an annual income of | | | | by offering free trials fail to turn these into paying |
| $100k with almost no running costs, right? | | | | customers because they have not been able to |
| Well, it's not that simple. For a start, getting | | | | attract renters in sufficient numbers to generate |
| vacation rentals owners to pay for a listing on | | | | rental bookings. Hence, the bargaining power of |
| your site is not that easy, and secondly, if you | | | | buyers (owners) is a negative for the industry |
| expect to keep them, you will need to generate | | | | profitability. |
| enquiries and bookings, which only come as a | | | | 5. The Bargaining Power of Suppliers : In the |
| result of spending money, time and effort | | | | context of running a "Vacation Rentals by Owner" |
| marketing your "vacation rental by owner" site. | | | | site, the main services that site owners buy are |
| Compare Owner Holiday Rentals ( recently | | | | "hosting" ( which is cheap and plentiful) and |
| decided to take an analytical look at the business | | | | marketing/ advertising ( which is plentiful, but not |
| of running a "Vacation Rental by Owner" site. | | | | that cheap). Since hosting is relatively unimportant, |
| Some of you may be familiar with Michael Porter's | | | | let's focus on marketing/ advertising. As more |
| famous framework for analysing the | | | | and more "vacation rental by owner" sites come |
| attractiveness of an industry: based upon Porter's | | | | online, getting good results on search engines such |
| model, you can predict how profitable a particular | | | | as Google is getting harder and harder. Hence, |
| industry is likely to be in the long term. We have | | | | "Vacation Rentals by Owner" sites are |
| used this model to analyse the attractiveness of | | | | experiencing the need to invest more in targeted |
| the business of running a "vacation rentals by | | | | marketing and advertising in order to attract |
| owner" site. | | | | renters to their sites. This eats into margins and is |
| Porter's model says that there are 5 factors | | | | affecting the profitability of the business. Hence, |
| which influence the level of competitive rivalry, | | | | although previously neutral, the bargaining power |
| and hence the relative profitability, of an industry. | | | | of suppliers is increasingly a negative for the |
| These are: | | | | industry profitability. |
| 1. The threat of entry by new competitors. | | | | So, with 4 out of 5 factors being negative, does |
| 2. The intensity of rivalry among existing | | | | that mean that this industry is so unattractive |
| competitors. | | | | that it is impossible to make money running a |
| 3. Pressure from substitute products. | | | | "Vacation Rentals by Owner" site? |
| 4. The bargaining power of buyers. | | | | Not necessarily, although undoubtedly it is getting |
| 5. The bargaining power of suppliers. | | | | tougher. In particular, smaller "me-too" vacation |
| These factors can either have a positive or | | | | rentals by owner sites are unlikely to be able to |
| negative effect on the long term profitability of | | | | be profitable enough to stay around for the long |
| an industry. Let's take each of these in turn and | | | | term, although new ones will probably continue to |
| see how they can be applied to the business of | | | | enter the market, start off by offering extended |
| running a "Vacation Rentals by Owner" site. | | | | free trials, stay in the market for a couple of |
| 1. The Threat of Entry by New Competitors: As | | | | years and then fold. |
| already indicated, there are new competitors | | | | However, there are probably two ways you can |
| entering the "vacation rentals by owner" business | | | | build and maintain a profitable business in this |
| on an almost weekly basis. The main reason for | | | | industry. |
| this is that the "barriers to entry" are so low: | | | | Firstly, some large "vacation rental by owner" |
| anyone with some IT skills can quickly build and | | | | sites will achieve sufficient scale (possibly through |
| publish a site, with the only cost being their time | | | | acquisition) to use their size to generate |
| and some hosting charges. These low "barriers to | | | | competitive advantage. These sites will have the |
| entry" and the presence of so many new | | | | critical mass of owners and visitors to be |
| competitors are a negative for the profitability of | | | | economically viable. As evidenced by the recent |
| the industry. | | | | acquisitions that the WVR Group have made, it's |
| 2. The Intensity of Rivalry among Existing | | | | likely that some of the better smaller "vacation |
| Competitors: Free trials, free listings, reduced | | | | rental by owner" sites will get absorbed into such |
| prices: all of these are indications of the increasing | | | | larger entities. Currently, VRBO and the WVR |
| level of rivalry among the existing sites. Many of | | | | Group, (which owns a1vacations, Greatrentals, |
| the new "vacation rental by owner" sites offer | | | | Cyberrentals and Holiday-Rentals amongst others) |
| the first 6 or 12 months free of charge. Although | | | | are the two 800 pound gorillas in the industry. |
| some of the established "vacation rental by | | | | Expect further consolidation to happen in the |
| owner" sites have tried to hold the line on pricing | | | | coming years. |
| and special offers, the indications are that they | | | | However, it is also possible for a smaller "vacation |
| are finding it hard to hold their market share. | | | | rental by owner" site to be successful. To do this, |
| Again, the level of rivalry is a negative for the | | | | it will need to carve out a profitable niche, possibly |
| industry profitability. | | | | focusing on a particular geography or demographic |
| 3. Pressure from Substitute Products: By | | | | to build competitive advantage. By focusing |
| "substitute "products, we will restrict ourselves to | | | | marketing efforts on a targeted group, these |
| other ways that vacation rentals owners can | | | | smaller sites will be able to attract vacation rental |
| choose to market their properties. Hence, this | | | | owners and renters. Hence, expect to see an |
| includes newspaper / magazine advertising (a | | | | increase in the number of specialist sites ( e.g. |
| medium in declining usage), using rentals agencies | | | | Petfriendlytravel focusing on renters with pets), |
| (still highly used, particularly in Europe) and | | | | possibly offering add-on services that differentiate |
| marketing via the Owner's own website (which | | | | them from the larger "vacation rental by owner" |
| seems to be increasing, particularly with the | | | | sites. Indeed, many small regional sites offer full |
| advent of Google Ads). All the evidence suggests | | | | vacation rental management services, from |
| that more owners are using the internet for | | | | booking through handling changeover, as an |
| advertising their vacations rentals; even the rental | | | | alternative to the model which relies upon the |
| agencies now heavily use "Vacation Rentals by | | | | owner to manage everything themselves. |
| Owner" sites for marketing their properties. Also, | | | | Conclusions: |
| although there are exceptions, using the | | | | It is inevitable that the business of running a |
| commercial "Vacation Rentals by Owner" sites is | | | | "vacation rental by owner" web site will change in |
| very much more effective than using a personal | | | | the coming years. Although the overall market will |
| site. Hence, the pressure from substitutes is | | | | grow as people continue to move away from |
| relatively low, the industry is growing and this is a | | | | traditional package holidays and embrace holidays |
| positive for the industry profitability. | | | | using vacation rentals, it is likely that "vacation |
| 4. The Bargaining Power of Buyers: Largely | | | | rentals by owner" sites will split into two camps: |
| because there are so many options, including free | | | | the large sites with the critical mass to |
| trials and special offers, buyers (owners) have a | | | | cost-effectively market thousands of properties, |
| lot of power when deciding where to list their | | | | and the smaller, niche sites, that offer some |
| properties. Also, the cost of switching to a | | | | unique differentiating factor to be attractive to a |
| different "vacation rental by owner" site is | | | | more targeted group of owners and renters. |