AUSTIN, Texas -- HomeAway.com, the website that dominates the online vacation rental market, has riled customers who say the company has engaged in fraud and deceptive marketing tactics, which have made the getaways of their renters more expensive.
At issue is a new "service fee" that HomeAway imposed in February on renters who book through the company's site. The move has infuriated property owners, some of whom pay HomeAway thousands of dollars each year to list on the site. They say HomeAway, which owns Vacation Rentals By Owner -- VRBO.com -- and VacationRentals.com, is "double dipping," using its near-monopoly power to charge renters excessive fees.
"I was blindsided by the fees," said Ivan Arnold, a Los Angeles-based investor who lists five homes on VRBO.com. Arnold is the lead plaintiff is a class-action lawsuit filed against HomeAway in March, claiming fraud and breach of contract. "It's had a devastating effect on inquiries and bookings. We already pay them to list; they shouldn't go after our renters as well."
Arnold paid $1,848 as a subscription fee to list just one of his properties on the site for 12 months, court documents show.
The booking fees came after a change in ownership late last year when travel giant Expedia bought HomeAway for $3.9 billion, using the acquisition to position itself to compete more aggressively with Airbnb, another short-term lodging website.
The new owner added the booking charge, levied on all renters of HomeAway sites. The fee is 5 to 9 percent of the rental cost, which can add more than $250 to a one-week stay at a home renting for $400 a night. Renters have balked.
By April, the backlash over the fees had hit HomeAway headquarters in Austin. Tom Hale, chief operating officer, left the company after slightly more than a year in the job. He had become the public face of the change, and homeowners had focused their anger on him.
"We appreciate his contributions over the years," a company spokesman said, declining to comment further on his departure.
HomeAway defends the fees and will spend most of the money on marketing, said Jordan Hoefar, corporate communications manager for HomeAway. He said booking on HomeAway's system is safe and secure and should give travelers peace of mind.
"Our book-with-confidence guarantee protects travelers against fraud, double bookings," Hoefar said. "We guarantee the vacation experience."
Its critics see something else in the change: HomeAway seeking to limit owner-renter interaction in order to control the entire rental process.
"I have seen a dramatic drop-off in bookings," said Larry Grossmann, a Missouri investor who owns four condos in Gulf Shores, Ala. "Renters are angry with the fees."
In recent years, two basic revenue models for short-term rental companies have emerged. HomeAway's rival, Airbnb, allows the homeowner to list a property for free. In exchange, Airbnb controls the booking process and does not permit the homeowner and prospective renter to communicate outside Airbnb until the payment is made. Airbnb takes a percentage of the rental (between 6 and 12 percent) and distributes the rental proceeds to the homeowner once the tenant checks in.
HomeAway's model has always been the opposite. Homeowners pay a listing fee and the service has been free to renters, who contact the owners directly. They then agree to a price and can either make the transaction among themselves or use HomeAway's online booking service. This approach allowed homeowners and renters to get to know each other before committing to rent.
"We like to talk to the [prospective] tenants before we rent," said Eric Karla, owner of a cabin at Sonora Pass near Yosemite, Calif. "We can vet them. We like to know who is going to be staying in our places. We cannot do that with Airbnb."
In the original HomeAway model, homeowners could find tenants at a fraction of what property managers or real estate agents charged, and the homeowners controlled the whole rental process. It was similar to a classified ad site.
By 2014, HomeAway's revenue had grown to almost $500 million. Along the way, the company acquired more than 20 competitors around the globe and now lists more than 1.2 million homes worldwide. More than 800,000 of these properties use HomeAway's booking service, according to the company.
While HomeAway and Airbnb dominate the short-term rental business, HomeAway has traditionally been much stronger in vacation rentals. Airbnb typically has attracted shorter-term urban dwellers. The two companies increasingly are encroaching on each other's turf, but HomeAway still is considered stronger in the family rental business.
"I get so many more inquiries from VRBO than Airbnb," said Grossmann, who lists on both sites. "It's not even close."
HomeAway's dominant market position and steady cash flow caught the eye of Expedia. It, too, has grown through aggressive acquisitions, buying Orbitz and Travelocity, among other rivals.
HomeAway declined to comment on the pending litigation, but a company spokesman, Adam Annen, said that discussions about the new fee were in the works "months and months before the Expedia acquisition."
But as recently as November 2014, HomeAway Chief Executive Officer Brian Sharples told shareholders that HomeAway was "going to be free to travelers." He then pointed out that TripAdvisor and Airbnb have "chosen to charge big fees to travelers. We're letting everyone know when you come to our platform, you don't pay a fee."
"A little more than a year after saying this, they started charging fees," Arnold said. "They were deceiving us. I would never have renewed my listing agreement if I had known about these fees."
Business on 06/04/2016