NB: This is a guest post by Pedro Colaco, president and CEO of GuestCentric Systems.

Due to the recent economic downfall guests are searching for alternative accommodation products for their leisure travel.

Vacation rentals are capitalizing on this trend and finding ways to reinvent their offer and look for new online distribution channels.

Firstly, there are now important distribution sites like Homeaway to sell their units.

Secondly, vacation rental owners and managers finally understood that having their own website and a reliable ecommerce system with social marketing tools can help them grow their business.

These two aspects, coupled with consumers’ willingness to accept lower levels of service, are now turning vacation rentals into real alternatives to hotels for leisure travelers. But what aspects of the environment are influencing the shift to vacation rentals?

1. Guest search is intensifying

Industry studies show that the overwhelming majority of travelers (up to 80%) select their accommodation through the Internet and over 50% end up booking online.

In addition, online search is intensifying and consumers are searching tens of sites for experiences outside the “normal” hotel before booking.

New accommodation products are emerging with an experience and budget orientation: vacation rentals, design hostels and couch surfing are now all valid accommodation alternatives for leisure travelers.

2. Specialized distribution networks are being established

Searching for and booking vacation rentals online has been difficult to date. Mostly, vacation rentals have been rented out via intermediaries and word-of-mouth.

But, since HomeAway acquired VRBO in 2006, the vacation rental online distribution business has grown very rapidly as an alternative to traditional mediation agent.

HomeAway.com has been the unifying force that has taken a highly fragmented and localized business and made it easy for consumers to search for vacation rentals on a global scale.

This rapid adoption of distribution sites is similar to the adoption of online travel agents like Expedia as a preferred tool to search for and book hotels in the late 1990’s and early 2000’s and is the foundation of establishing e-commerce and distribution networks for vacation rentals.

3. Professional website design and high quality pictures are affordable

A successful online business starts with a website that transmits quality, professionalism and credibility through professional design and good pictures.

With today’s technology it is extremely easy for vacation rentals to have a professional website that:

• Communicates their property’s unique look and experience to web visitors.
• Is quick and easy to setup, avoiding long and complex web design “projects”.
• Can be kept updated without external involvement.
• Provides a pay-as-you-go model, so that upfront investment is minimized.

When setting up a website, images are paramount, as they are the second factor right behind pricing in terms of influencing the choice of property to stay in.

With the proliferation of digital cameras, it is now extremely easy even for amateur photographers to create good pictures that provide renters with the experience at the property.

4.Ecommerce solutions are readily available

82% of hotel guests prefer to book directly at the website of the property if they can get a good price and a trustworthy experience.

While vacation rentals are not experiencing this level of direct business yet, industry studies show that direct rental business is increasing at good pace, and it is expected that the same behavior as for hotels will apply.

If you tie these results with the rate of growth of online bookings in 2009/10, then now is the perfect time for vacation rentals to capitalize on the online opportunity.

A powerful ecommerce offer enables properties to maintain good levels of occupancy rates and decrease distribution costs.

5. Social engagement is the new word-of-mouth

The use of social media like Facebook and Twitter has changed the way people communicate, forever. Word-of-mouth is now amplified by millions.

This creates the perfect opportunity for vacation rentals to overcome the SNAD (significantly not as described) curse, as positive reviews of a property distributed by a network of friends can generate immediate referral business.

Satisfied customers will always provide and share good reviews and comments about their stay. Hence, no matter the size of the property it is very important to have direct communication with guests in order to promote and sell their units and understand their needs.

This will reflect on an increase in people that follow the property and create a snowball effect on the property’s brand. New technologies simplify this social interaction and provide the necessary information to create strategic viral marketing campaigns to increase market share.

Conclusion

Guest search is intensifying and alternative accommodation products like vacation rentals are becoming mainstream options for leisure travelers due to their willingness to accept lower levels of service.

Vacation rentals are capitalizing on this trend and behaving like mini-hotels by looking for new online distribution channels, establishing their own websites, e-commerce systems and leveraging social media to overcome the SNAD (significantly not as described) curse, and create referral business.

By adopting this strategy, vacation rentals are becoming mini-hotels that can compete for business and improve occupancy rates and profitability and weather difficult economic times.

NB: This is a guest post by Pedro Colaco, president and CEO of GuestCentric Systems. More information and case studies.

HomeAway teamed with Mobiata to launch its first mobile app, HomeAway Vacation Rental Search by Mobiata for the iPhone.

The free app enables users to filter by number of bedrooms and price, and also to search by destination and amenities.

iPhone users can share the results with groups of friends via email, Facebook and Twitter, rotate the iPhone to landscape view to peruse property photos, and search for vacation rentals via nearby landmarks and geographies using Google Maps.

A HomeAway spokesman says the vacation rental firm plans to bring the app to other mobile platforms “in the future.”

Here’s a YouTube demo of the HomeAway iPhone app.

Mobiata creates its own apps, including FlightTrack and FlightTrack Pro, and develops apps for third parties, as well.

Holiday rental specialist HomeAway has brushed itself down quickly after disappointing news over rental policy in New York and is now pushing London as a vacation hotspot.

Late last week, HomeAway and TripAdvisor saw New York governor David Paterson (with the support of NYC mayor Michael Bloomberg) sign into law a measure to ban vacation rentals of less than 30 days in some city buildings – an issue both companies are opposed to.

HomeAway co-founder and chief strategy and development officer, Carl Shepherd, urged others looking to protect important revenue streams to write to Paterson.

But the apparent failure of the opposition campaign – the only leeway appearing to be a stay of execution until mid-2011 – hasn’t dampened strategy too much at HomeAway.

The company has switched its attention 3,000 miles across the Atlantic Ocean to London, which happens to have a burgeoning property rental scene and the small matter of the Olympics Games in 2012.

In an announcement today, HomeAway claims the average owner stands to make around £4,500 if they rent a property for the entire 16-day extravaganza, assuming prices double to coincide with the event.

The company currently has 500 properties in the UK capital and is predicting an increase in the number of listings by around 100%, based on experience in South Africa for the World Cup tournament this year when the site experienced a significant increase in residents renting out properties.

The Olympics has the “potential to earn millions in rental income” for Londoners, says UK general manager Tim Boughton.

Unless local government officials introduce similar legislation, of course…

In that regard, Carl Shepherd, HomeAway’s chief strategy and development officer, says he thinks the New York action is less a bellweather than a testament to the power of the New York City hotel lobby, which pushed the bill.

Shepherd, a HomeAway co-founder, said the company has been in touch with New York City vacation-rental owners and “friendly competitors” since Paterson signed the bill and will formulate a plan within the next couple of days on how most effectively to get the law overturned.

UPDATE: New York Governor David Paterson late Friday signed the bill into law restricting some vacation rentals in New York City.

HomeAway co-founder Carl Shepherd says “sources on the ground” indicate that New York Governor David Paterson plans to veto a bill that would bar vacation rentals in New York City for durations of less than 30 days.

“I’m hoping that’s true,” says Shepherd, HomeAway’s  chief strategy and development officer.

The bill, S6873, was delivered to the governor July 13 and he has 10 days to veto or sign it, which means a decision should be imminent.

“The governor is currently reviewing the legislation and soliciting input from stakeholders on both sides of the issue,” a spokesperson for the governor said this afternoon.

The legislation has provoked an outcry among vacation-rental owners, online vacation rental sellers and travel industry figures.

Here’s a YouTube video from a New York City Hall rally July 21 in opposition to the bill, which was passed by the New York State Legislature.

Shepherd says HomeAway offers 875 vacation rental listings from New York City property owners and backs their efforts to ensure that Paterson doesn’t sign the bill. He urged anyone opposed to the bill to contact the governor’s office immediately.

Shepherd says the bill would be precedent-setting because it would be the first time that a state enacts legislation that limits property rights in one city.

Shepherd says HomeAway has been sharing and receiving information about the issue with “friendly competitors,” although he declined to specify which ones.

Along those lines, TripAdvisor founder and CEO Stephen Kaufer sent a letter to Paterson urging him to veto the bill because “this legislation goes too far and threatens to shutter legitimate, trustworthy businesses.”

“For a significant and growing number of tourists who vacation in New York each year, vacation rental properties offer a cost-effective way to visit the city,” Kaufer wrote. “As the nation strives to overcome the worst economic downturn in decades, families need to make every dollar count and not everyone who wishes to enjoy New York’s attractions can afford some of the more expensive accommodation options. These travelers and their families depend on vacation rental properties, and their owners, to offer affordable alternatives, especially for travelers who wish to extend their stay by a week or more.”

Travel guidbook publisher Arthur Frommer, too, blogged in opposition to the bill, arguing “the bill, in effect, would erect a barrier to staying in the city and the state, removing low-cost accommodations from the choices offered to tourists.”

The stated purpose of the bill is to bar property owners from keeping New York City dwellings off the housing market by renting them out to vacationers.

There have been accusations that the hotel lobby is behind the bill as a way to clamp down on competition from vacation-rental owners.

The issue is not limited to New York City.

Paris, too, is cracking down on apartment rentals of less than a year, according to The New York Times.

HomeAway primarily acts as a vacation-renting listing service, but it just brought in a PayPal executive as chief operating officer and continues to explore payment and booking initiatives.

“We do believe there is a significant opportunity to improve the simplicity and safety of financial transactions in the vacation rental industry,” says HomeAway CEO Brian Sharples, responding to questions about the appointment. “As such we continue to work on a number of initiatives that hopefully will benefit both suppliers and travelers from a payment and booking perspective.”

“Brent’s experience in global payment solutions will greatly enhance these efforts,” Sharples says.

Brent Bellm is the new COO, replacing Andrew Harris, who passed away last month.

Bellm spent the last nine years at PayPal, where he most previously was vice president of global product and experience. He also served four years as CEO of PayPal Europe, and at eBay in 2001 he was an active participant in eBay acquisition of PayPal.

HomeAway also announced the hiring of Tom Hale as chief product officer, a new position.

Hale most recently was chief product officer at Linden Lab, creator of Second Life, and from 1995 to 2007 served in leadership roles at Macromedia and Adobe Systems. At Adobe, Hale directed the redesign of the Acrobat user experience, and at Macromedia he played a key role in the evolution of Flash Player, HomeAway says.

HomeAway says Bellm’s appointment bolsters the company’s “knowledge about international operations, Internet marketplace strategy and global payment solutions.”

Consumers seeking to book a HomeAway vacation rental today make payments — in a variety of forms — directly with property owners or property managers.

As HomeAway expands internationally, global payment solutions, such as PayPal, may come more into play.

HomeAway currently advises renters if they book a vacation rental property internationally, then the property owner or manager may request a bank to wire-transfer the funds.

“Our mission,” Sharples says, “is to make finding and booking a vacation rental or B&B as easy as a hotel, and we still have significant work ahead to fully achieve that goal.”

If this were a movie, you might call it, “Hotel-Review King Meets Vacation-Rental Honcho.”

TripAdvisor CEO Stephen Kaufer casts doubt about the reliability of HomeAway’s vacation rentals — and HomeAway CEO Brian Sharples expresses caution about the integrity of TripAdvisor’s vacation rental reviews.

In separate interviews, the two CEOs expressed respect for the other company, but went at it nonetheless.

Kaufer says TripAdvisor, which took control of FlipKey two years ago and recently acquired HolidayLettings in the U.K., is making a big push into vacation rentals, but acknowledges “we have a long way to go to become known as the place to go for vacation rentals.”

He pays some homage to vacation-rental leader HomeAway.

“In the vacation-rental space, they don’t have the brand but they have the reach and the product offering right now and they are doing very well,” Kaufer says. “I give them a lot of credit for it.”

But, here come the zingers.

“I want them [consumers] to have a totally safe experience and it’s still a little on the risky side when you rent a property from HomeAway because you are sending a check off into the wilderness and you don’t have a lot of guarantees that you will have a great time,” Kaufer says.

Kaufer adds: “They [HomeAway] don’t have the breadth and depth of reviews that we do and the types of reviews they have, let’s just say I wouldn’t put my faith in them.”

So, how’s that for some irony: The head of TripAdvisor, which has been challenged — sometimes too vociferously, in my opinion — over the integrity of its hotel reviews, is casting aspersions about HomeAway’s reviews.

But, Sharples of HomeAway, with its 850,000 reviews, fires right back.

“As a newcomer to the business, I’m surprised he’s [Kaufer's] trashing the very owners that he’s attempting to attract,” Sharples says. “Travelers who stay at vacation rentals are extemely happy with their experiences, and as the largest company in this category, we work harder than anyone to assure it is safe for all.”

If you peruse HomeAway.com, there sure is a preponderance of positive consumer-written reviews.

Sharples says property owners view the consumer reviews, perhaps 12-24 hours before they are posted, and can dispute them if the reviewer never stayed at the property, booked it somewhere else, is blackmailing the property owner to get a deposit returned, or if the review is “overly malicious.”

An example of being overly malicious, Sharples says, is if guests write that they arrived at the property, a window was stuck, and then give the property a review of one star out of a possible five.

“Only a handful” of reviews don’t get posted or come down off the site for such reasons, Sharples says, adding that 90% to 95% of guests are satisfied with their stays.

Kaufer’s diss of  HomeAway’s reviews “is a bit of a head-scratch,” Sharples says. “For TripAdvisor to make the reviews the issue is a natural for them to do because that is what their business is.”

He acknowledges that when HomeAway acquired VRBO, its review process, which he labeled a “guestbook approach,” had to be cleaned up because the owners had a lot of power over them.

But, Sharples proceeds to call into question the integrity of some of TripAdvisor’s vacation-rental reviews.

He says that when TripAdvisor signs on listings from property management firms, they are allowed to import whatever reviews they already had in their database so that “a process beyond TripAdvisor drives a lot of those reviews.”

TripAdvisor spokesman Kevin Carter says that is not how the process works.

“TripAdvisor allows management firms to import their guest records, which allows TripAdvisor/FlipKey to send personal emails to guests inviting them to review the specific property they stayed in,” Carter says. “Once a guest has submitted their review, the content is processed through an authentication filter, applying proprietary verification techniques and specific supplemental processes unique to the vacation rental category.”

“Neither TripAdvisor nor FlipKey provides functionality that allows users to submit existing reviews or self reviews,” Carter says.

Sharples believes that TripAdvisor’s raising of the HomeAway review issue and implying there is great risk is off-base because reviews are only one element of HomeAway’s audit process.

Sharples says HomeAway has 650 employees and “half are focused on trust and safety.”

“Bad renters and properties are kicked off the site,” Sharples says.

Sharples agrees with Kaufer that HomeAway faces challenges in brand awareness, and says its Super Bowl ad “took our awareness numbers from very small to small.”

The 15-minute video which HomeAway created about the Griswolds triggered 2.5 million views, Sharples says.

Kaufer and Sharples likely would agree that TripAdvisor and HomeAway will do battle in the vacation-rental market, but will come at it with different strengths and weaknesses.

HomeAway has reach, but little brand awareness, while TripAdvisor has brand awareness and little reach.

Although HomeAway is the market leader, it commands only a small portion of the massive vacation-rental market.

And, this means there is room for plenty of players.

Says Sharples: “I don’t spend sleepless nights worrying about TripAdvisor.”

—–

Related Links:

Part One of Four: TripAdvisor boss not sold on Google Travel

Part Two of Four: TripAdvisor CEO explains link policy, feels the hotel love

Part Three of Four: TripAdvisor boss sees competitive advantage growing

HomeAway hit back quickly today after seeing TripAdvisor become a new and potentially powerful rival on the European stage as well as in its back yard of North America.

TripAdvisor snapped up UK-based HolidayLettings yesterday in an undisclosed deal.

HomeAway wasn’t asked to give a reaction to the acquisition (just some detail on where HolidayLettings stands alongside HomeAway-owned brand HolidayRentals), but it still sent a lengthy response, perhaps hinting that the Austin, Texas-based company is finally looking over its shoulder.

European president Petra Friedmann says:

“This move comes as no real surprise to anyone following the travel industry – and specifically the holiday rentals space, which we have been dominating over the past five years through rapid growth and acquisitions. Holiday rentals is one of the very few sectors that has experienced strong year on year growth – even during one of the worst recessions on record.”

HomeAway goes on to say how the company has seen annual revenue growth of 95% since it was formed in 2005 and can now boast half a million properties listed worldwide.

“To put that into context, that’s more rooms than the world’s leading hotel chain,” Friedmann says.

She ends:

“If the growth of HomeAway, the world’s leading holiday rental company is to be used as a barometer for the industry, our enquiry, traffic and listing figures suggest that investment in the holiday rentals space is a sound business strategy.”

It would be reasonable to expect any rhetoric from HomeAway in the coming months to consistently use the term “world’s leading holiday rental company”.

TripAdvisor has been in the rental game for a while (FlipKey acquisition in 2008 hinted at things to come), but it is the move into Europe – HomeAway’s extremely fertile region for growth in recent years – that indicates how seriously it is taking the sector.

Neverthless the signs were there earlier this year when TripAdvisor parent Expedia Inc waded in with what looked at the time to be a random comment from its CEO Dara Khosrowshahi.

He predicted HomeAway would go public in 2010 – a suggestion quickly denied by HomeAway.

As one figure close to the situation suggested yesterday: CEOs of Wall Street-listed companies do not make predictions about other companies unless they have a pretty good idea it is going to happen, or they are mischief-making and reminding people of the power they can wield.

Perhaps in this case it was the latter?

Clearly an important week in the holiday rental marketplace – as TripAdvisor snaps up HolidayLettings in the UK, HomeAway’s BedandBreakfast is rolling out across Europe.

The site is now available in French, Italian and Spanish and has already slipped into the HomeAway web interface used across the portfolio.

HomeAway purchased BedandBreakfast for an undisclosed fee just three months ago.

The site has have over 11,000 properties listed around the world and was the latest in a long line of acquisitions by the mothership in recent years, especially in Europe where the value of the sector is estimated to be close to $30 billion a year.

One difference between BedandBreakfast and much of remainder of the HomeAway portfolio (and, increasingly, TripAdvisor-owned sites) is that reservations can be made on the site rather than through the property owner.

The new European sites will be found at BedandBreakfast.fr, BedandBreakfastespanol.com, and BedandBreakfastitalian.it.

TripAdvisor is making a serious and its first move into the European holiday rental business this week after confirming the acquisition of UK business HolidayLettings.

The deal for what was the UK’s last remaining large independent holiday rentals business puts TripAdvisor on the road to becoming an intriguing rival to the dominant player in the sector, HomeAway.

Terms of the acquisition were not disclosed today.

The purchase of HolidayLettings is the first major acquisition for TripAdvisor in Europe for a number of years. It snapped up review site HolidayWatchdog in February 2008.

But the timing of the deal will not come as a surprise to HomeAway after seeing TripAdvisor buy US-based rental business FlipKey in 2008 and officially launching its vacation rental channel on the main site in 2009.

HolidayLettings was created in 1999 in Oxford, UK. It has since grown to include around 40,000 holiday homes listed in 166 countries around world, attracting 25 million visitors a year to the website.

The business will continue to be run as an independent site, TripAdvisor says.

But the marketplace in the UK has changed in recent years with HomeAway snapping up HolidayRentals and OwnersDirect to spearhead its so far success and reasonably unchallenged push into Europe.

The other major rental brand in the UK is Villarenters, owned by Teletext Holidays.

A report from PhoCusWright in 2008 estimated the US vacation rental market to be worth around $25 billion a year. Unofficial estimates at the same time put Europe even higher.

Although HolidayLettings claims to be completely independent, two-thirds of the business was owned (until today) by RightMove, one of the UK’s largest property sales companies.

TLabs Showcase focus on startups featuring UK-based Getaway Earth.

Who and what are you (including personnel and backgrounds)?

We are Getaway Earth, a vacation rental website, run by two guys with an accounting background and absolutely ZERO knowledge of how to set up, run and deliver a web based business. Ouch!

So how on earth do we think we can succeed and why should someone pay for our product?

Very simple: we have been renters of holiday homes for over ten years and know what a renter needs in a listing site. We have a strong sense of customer service. We have a strong vision about what we’re trying to achieve.

We have a proven track record of delivering in our regular day jobs. And, above all, we have a serious ambition to build something with integrity that lasts for years. No quick bucks and no delusions of this being easy.

What financial support did you have to launch the business?

We had zero financial support to launch Getaway Earth other than some small savings. We have relied totally on a very good developer friend who has charged us a fraction of what a web development agency would charge.

And we’ve been trying to market ourselves by using all forms of social media (Twitter, Facebook, blogging, forums and word-of-mouth).

What problem are you trying to solve?

A lack of emotional connection and personality in existing vacation rental sites (eg HomeAway, etc). Is that a problem? Not really if you’re a renter that likes to book the accommodation and then visit other sites to plan your holiday.

But we believe there’s an opportunity for owners to use their listing to showcase what’s great to see and do in the area. To personalise them. And, in doing so, they become a host or local guide for the renter. For a renter that personal and local knowledge is a great tool to plan upfront and can help build trust in the owner.

Describe the business, core products and services?

Getaway Earth provides a vacation rental listing platform for owners to advertise their vacation rental for rent by holiday makers. The search combines traditional drop down menus with a Google Earth mashup. That’s the core product. Then, alongside that, we offer the following add on services:

Owners can create a portfolio of ‘points of interest’ – making their listings a personal travel guide. Owners know their area better than most so why not let renters know?

Owners can integrate their own social plugins and videos to help provide coherent web exposure for their listings and make them more personal for renters.

We are in the planning stages of offering a video shooting service which allows owners to showcase their place in a personal way and make that all important connection with renters.

Who are your key customers and users at launch?

We launched at the end of 2009 and have used the first 6-9 months to build a beta website. The key customers and users have been those first 600 owners who have helped us shape the way the site is today by providing strong, direct feedback and support. We have offered in return a free lifetime listing which will be extended to the first 1,000 listings.

Did you have customers validate your idea before investors?

We certainly have had customers to validate and test the idea. 90% of the feedback we have received has been hugely encouraging and our customers are saying Getaway Earth is a good product.

Those that have found problems with the product have helped us to refine what we’re offering. We have no investors at this stage and are trying to push this site as far as possible without investment. We’ll be stronger and more proven when investment (hopefully) comes.

What is the business AND revenue model, strategy for profitability?

The model is simple: A subscription service charged to owners who want to list their property with us. At present we are not generating any revenue since the first 1,000 listings are free for life.

We aim to hit that level by the end of the year, after which we will be charging an annual subscription and investing pre defined percentages into marketing and further site development. It’s an important part of our business to continue innovating in a way that clearly differentiates our site from the crowd.

SWOT analysis – strengths, weaknesses, opportunities and threats?

Strengths:

• We are a tiny but highly motivated team and, as such, our biggest strength is being able to try new things quickly without fear. That’s how we’ve developed the site this far. We also have the user in mind in everything we do, collaborating with our users in building new site functions. And, finally, we have a strong financial background so understand profit and cash flow.

Weaknesses:

• The tiny team is also our weakness as we have no expertise in marketing, nor any experience in running a travel related business. On top of this we have no investment behind us so cannot bring in people with those skills. So we’re often making marketing mistakes.

Opportunities:

• The opportunities in this market are many, especially with the growth of social networking in recent years. Aside from providing the owner a platform to make their listings more interactive and personal (as previously described) we believe there are two very big opportunities: on-line video ( it is a great opportunity for owners to connect with renters) and mobile (imagine the renter able to make use of owner recommendations in real time).

Threats:

• This is a very crowded, and therefore competitive, industry. The main player (Homeaway) is investing in projects we simply can’t match (eg Super Bowl TV adverts). And everything we have done can be copied and replicated. But this is precisely why we want to continue innovating and precisely why we believe we’re more likely to succeed – because we understand the threats and have proved we can innovate successfully and differentiate ourselves. And all the time listening to what our users are telling us.

Who advised you your idea isn’t going to be successful and why didn’t you listen to them?

Many people told us we were aiming for too much, being inexperienced. And they told us that our ideas were too grand for a company that had no investment. Coupled with those that told us that the market was saturated (again many), we could have been forgiven for binning the idea! But this was our clear dream and we knew, as renters of 10 years, that the industry was crowded with forgettable sites that did the same thing. This is the travel industry – people want to be inspired, and owners want to inspire them. This personal and emotional connection is totally missing in every other rental site and we saw this gap. We saw the saturation as an opportunity.

What is your success metric 12 months from now?

Twelve months from now we are successful if we are generating enough marketing dollars to be able to rise up the search rankings above the fringe players in this market. Not the Homeaway’s, but to be beating the fringe players. Whatever innovations we have, success in this market is being able to generate enquiries and bookings for owners, and that means we need to be visible in search results.

TLabs Showcase is part of the wider TLabs project from Tnooz.