Third Party Bookings...Where Are They Going?

By George Volsky, Instant Software - Director of Research

Third-Party Bookings: Where Are they Going? How Much Do We Need them? At What Price Point?
...and At What Cost to Our Future?

Hi!  Hope your holiday was pleasant, or at least not chaotic.  The weather on Hatteras Island was FANTASTIC, as was the beach, food and company (spouses included).

Everyone is looking for bookings, and managers look at any third-party agent who can supply them.  My view (as always, not necessarily that of Instant Software) is that third party bookings could end up hurting the industry more than helping it.  Whether this occurs may depend on how managers use third-party booking agents.

Third-party booking agents include Internet listing sites that cater to rent-by-owner and those who primarily serve rental managers (the latter being better for managers). They come with a variety of fee structures and services—lower fees are always best unless the agent books homes that would not have booked without cannibalizing full-pay customers.  

How Much Do We Need Third-Party Booking Agents? 

We are pressured to believe we need every agent that can bring a booking.  But our industry does not need booking agents that do not bring value.   They should bring:

• Customers who wouldn’t book directly through our own web sites; or
• Customers who will pay more rent than customers we book directly; or
• Enough extra bookings to offset their booking fees; or
• Bookings that will keep homeowners in the rental program; or
• Extra revenue that contributes to overhead when managers’ need to minimize losses for the year.

At What Price Point? 

Some listing sites don’t bring value because they cost too much, e.g., where they book:

• homes we could book on our own without paying a fee (cannibalization);
• discounted rents for homes that would attract a full-pay customer;
• by way of fee-based “referrals” that generate too few bookings.

At What Cost to Our Future?

Is our industry on a path where we will end up paying third-party booking fees for most of the reservations we used to take ourselves?  The answer may be “yes” if we help investor-backed listing sites achieve their goals.

Also ask, “Will the aggregate cost of third-party booking fees be justified by revenues from renters who wouldn’t have otherwise booked?”  I think not, unless booking fees fall considerably below the margins currently expected by venture-capital backed listing sites.  I think that aggressive advertising will divert hotel customers to vacation rentals.  But high booking fees could offset any bottom line benefits.

Assessing the Value of Third-Party Booking Services

• Does the booking agent merely hand an inquiry off to the manager?
• Do 3rd-party booking agents allow managers’ to employ fewer reservations staff?
• Do they allow managers to spend less on advertising and other promotion?
• Is there a reason for managers to pay more for bookings than airlines pay?

Booking on Rent-by-Owner (“RBO”) Sites

On Internet search pages, the face of vacation rentals is dominated by rent-by-owner listing sites.  Perhaps one-third of homes listed on these sites are managed.  The problem:

• Most RBO sites don’t differentiate managed from unmanaged homes;
• These sites charge too much to allow most managers to use them extensively;
• Managers’ fees help buy pay-per-click ads that promote rent-by-owners;
• By listing, managers help rent-by-owner sites attain even more dominance;
• If  RBO sites become more dominant, managers may need to use them more;
• There is no reason to believe that new renters will offset RBO site booking fees;
• If RBO sites succeed, the cost of vacation rentals may increase to cover their fees;
• Long term, this could make vacation rentals less competitive with hotels.

I think managers should insist that listing sites differentiate managed homes from rent-by-owner homes.  These are different products, and can be sold side-by-side as long as consumers understand the differences.  Most consumers don’t.  We need to work on this

Related topics
Friday Blog Posting: “Booking on Rent-by-Owner (“RBO”) Sites”
Next Week:  "What is a Third-Party Booking Really Worth and How Much Can We Afford to Pay?”

Comments

[Mike]

Great post George.

We are witnessing (in the luxury market) a growing need for help with the advertising and marketing of luxury rentals. The cost of acquiring a customer is becoming so expensive that it's worth allowing some 3rd parties to source the new clients.

With the influx of luxury vacation home owners looking to rent their homes out to augment income it's becoming too costly for managers to absorb all the online marketing costs. We are trying to address this issue for the high-end clientele by offering one online solution that managers can pass along to owners.

http://thesociety.com/products/globalbundle

[Marc Ricker]

I think you present some really good points of view in your article! I agree with you 100%. Having been intimately involved in the vacation rental industry for the past year and a half, I have experimented with many of these 3rd party sites, with mixed reviews. High fees and a lot of times the same leads we get through our own site.

Luckily for the industry, we are about to launch a revolutionary vacation rental website and company to transform the way third party sites/agents are viewed, and hopefully your opinion as well. No upfront fees and only commissions for rentals actually booked through our sites, real sales agents with knowledge of each location, and actual customer service. Our goal is not to hurt the management companies by feeing them to death, but to act like an agent in their office that produces as many sales as 5 agents! We help them cut their overhead and increase sales at the same time! Not to mention, we will not accept By Owner properties. We want to adhere to a certain standard and improve consumer confidence in the Vacation rental industry and feel this is only done when properties are professionally managed. We have all heard the horror stories, and we are going to try and get rid of that stigma. Hopefully this will help management companies grow their inventory as well as homeowners start to see more value in their services.

As we begin our launch process, we will be experimenting with different SEO techniques, consumer confidence tests and attempt to fine tune our model into something you and the world can write about and support!

Launching Fall 2009! http://www.rentobi.com
The Rental 'online business initiative'. Taking vacation rentals online the right way. The rentobi way.

[Joe]

TripAdvisor differentiates between rent by owner and professionally managed listings throughout its display. http://www.TripAdvisor.com/VacationRentals