Vacation Rentals by Owner Sites: Are they
There are literally hundreds of Vacation Rentals by Owner
sites and it seems new ones are appearing every week. On the
face of it, it may seem like making money from a ”vacation
rentals by owner” site is easy: all you have to do is get
1,000 owners to sign up, each paying $100 per year, and you can
generate an annual income of $100k with almost no running costs,
Well, it’s not that simple. For a start, getting vacation
rentals owners to pay for a listing on your site is not that
easy, and secondly, if you expect to keep them, you will need to
generate enquiries and bookings, which only come as a result of
spending money, time and effort marketing your “vacation
rental by owner” site.
Compare Owner Holiday Rentals (http://www.compareownerholidayrentals.com)
recently decided to take an analytical look at the business of
running a “Vacation Rental by Owner” site.
Some of you may be familiar with Michael Porter’s famous
framework for analysing the attractiveness of an industry: based
upon Porter’s model, you can predict how profitable a particular
industry is likely to be in the long term. We have used this
model to analyse the attractiveness of the business of running a
“vacation rentals by owner” site.
Porter’s model says that there are 5 factors which influence the
level of competitive rivalry, and hence the relative
profitability, of an industry. These are:
The threat of entry by new competitors.
The intensity of rivalry among existing competitors.
Pressure from substitute products.
The bargaining power of buyers.
The bargaining power of suppliers.
These factors can either have a positive or negative effect on
the long term profitability of an industry. Let’s take each of
these in turn and see how they can be applied to the business of
running a “Vacation Rentals by Owner” site.
The Threat of Entry by New Competitors: As already
indicated, there are new competitors entering the “vacation
rentals by owner” business on an almost weekly basis.
The main reason for this is that the “barriers to entry” are
so low: anyone with some IT skills can quickly build and
publish a site, with the only cost being their time and some
hosting charges. These low “barriers to entry” and the
presence of so many new competitors are a negative
for the profitability of the industry.
The Intensity of Rivalry among Existing Competitors:
Free trials, free listings, reduced prices: all of these are
indications of the increasing level of rivalry among the
existing sites. Many of the new “vacation rental by owner”
sites offer the first 6 or 12 months free of charge.
Although some of the established “vacation rental by owner”
sites have tried to hold the line on pricing and special
offers, the indications are that they are finding it hard to
hold their market share. Again, the level of rivalry is a
negative for the industry profitability.
Pressure from Substitute Products: By “substitute
“products, we will restrict ourselves to other ways that
vacation rentals owners can choose to market their
properties. Hence, this includes newspaper / magazine
advertising (a medium in declining usage), using rentals
agencies (still highly used, particularly in Europe) and
marketing via the Owner’s own website (which seems to be
increasing, particularly with the advent of Google Ads). All
the evidence suggests that more owners are using the
internet for advertising their vacations rentals; even the
rental agencies now heavily use “Vacation Rentals by
Owner” sites for marketing their properties. Also,
although there are exceptions, using the commercial “Vacation
Rentals by Owner” sites is very much more effective than
using a personal site. Hence, the pressure from substitutes
is relatively low, the industry is growing and this is a
positive for the industry profitability.
The Bargaining Power of Buyers: Largely because there
are so many options, including free trials and special
offers, buyers (owners) have a lot of power when deciding
where to list their properties. Also, the cost of switching
to a different “vacation rental by owner” site is relatively
low. Most owner’s review their advertising on an annual
basis, based upon the results (enquiries, bookings) that
they have received. “Vacation rental by Owner” sites
that fail to produce results are not able to persuade owners
to renew. Many new sites that start off by offering free
trials fail to turn these into paying customers because they
have not been able to attract renters in sufficient numbers
to generate rental bookings. Hence, the bargaining power of
buyers (owners) is a negative for the industry
The Bargaining Power of Suppliers : In the context of
running a “Vacation Rentals by Owner” site, the main
services that site owners buy are “hosting” ( which is cheap
and plentiful) and marketing/ advertising ( which is
plentiful, but not that cheap). Since hosting is relatively
unimportant, let’s focus on marketing/ advertising. As more
and more “vacation rental by owner” sites come online,
getting good results on search engines such as Google is
getting harder and harder. Hence, “Vacation Rentals by
Owner” sites are experiencing the need to invest more in
targeted marketing and advertising in order to attract
renters to their sites. This eats into margins and is
affecting the profitability of the business. Hence, although
previously neutral, the bargaining power of suppliers is
increasingly a negative for the industry
So, with 4 out of 5 factors being negative, does that mean that
this industry is so unattractive that it is impossible to make
money running a “Vacation Rentals by Owner” site?
Not necessarily, although undoubtedly it is getting tougher. In
particular, smaller “me-too” vacation rentals by owner
sites are unlikely to be able to be profitable enough to stay
around for the long term, although new ones will probably
continue to enter the market, start off by offering extended
free trials, stay in the market for a couple of years and then
However, there are probably two ways you can build and maintain
a profitable business in this industry.
Firstly, some large “vacation rental by owner” sites will
achieve sufficient scale (possibly through acquisition) to use
their size to generate competitive advantage. These sites will
have the critical mass of owners and visitors to be economically
viable. As evidenced by the recent acquisitions that the WVR
Group have made, it’s likely that some of the better smaller
“vacation rental by owner” sites will get absorbed into such
larger entities. Currently, VRBO and the WVR Group, (which owns
a1vacations, Greatrentals, Cyberrentals and Holiday-Rentals
amongst others) are the two 800 pound gorillas in the industry.
Expect further consolidation to happen in the coming years.
However, it is also possible for a smaller “vacation rental
by owner” site to be successful. To do this, it will need to
carve out a profitable niche, possibly focusing on a particular
geography or demographic to build competitive advantage. By
focusing marketing efforts on a targeted group, these smaller
sites will be able to attract vacation rental owners and
renters. Hence, expect to see an increase in the number of
specialist sites ( e.g. Petfriendlytravel focusing on renters
with pets), possibly offering add-on services that differentiate
them from the larger “vacation rental by owner” sites.
Indeed, many small regional sites offer full vacation rental
management services, from booking through handling changeover,
as an alternative to the model which relies upon the owner to
manage everything themselves.
It is inevitable that the business of running a “vacation
rental by owner“ web site will change in the coming years.
Although the overall market will grow as people continue to move
away from traditional package holidays and embrace holidays
using vacation rentals, it is likely that “vacation rentals
by owner” sites will split into two camps: the large sites
with the critical mass to cost-effectively market thousands of
properties, and the smaller, niche sites, that offer some unique
differentiating factor to be attractive to a more targeted group
of owners and renters.
About the Author
Kevin Graham is the
founder of Compare Owner Holiday Rentals (COHR).
COHR provides a guide to
choosing the best vacation rental sites. For further details,
Compare Owner Holiday Rentals .
Copyright 2005 Compare
Owner Holiday Rentals
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