The two largest OTAs reported substantial growth last quarter in sales of the alternative accommodations they offer, Expedia via HomeAway and Priceline through listings on Booking.com, which analysts said are becoming increasingly important parts of their portfolios.

Priceline interim CEO Jeffery Boyd and Expedia CEO Dara Khosrowshahi each discussed their company’s alternative accommodation offerings on their most recent earnings calls.

Khosrowshahi said HomeAway’s revenue grew 36% year over year in the second quarter, “and based on current trends, we expect revenue growth to accelerate in the second half of the year.”

He also said HomeAway now has more than a million online-bookable listings and that listings on the site are “growing at 20-plus percent.”

According to Khosrowshahi, HomeAway’s inventory “is going to be fundamental to our product on a long-term basis.”

Meanwhile, Boyd reported that Booking.com has around 493,000 instantly bookable vacation rental properties, a number that grew 39% year over year. He estimated that Booking.com’s 1 million total properties amount to an inventory of about 23.7 million bookable rooms: 16.3 million in traditional hotels and 7.3 million in “homes, apartments, villas and other categories of unique places to stay.”

Huge and growing market

Douglas Quinby, Phocuswright’s vice president of research, called alternative accommodations “a huge and growing market.” In the U.S. in 2015, he said one in three travelers stayed in a private accommodation, up from one in 10 in 2011.

“This is the fastest growth I’ve ever seen in a new industry vertical, with the possible exception of mobile ride-hailing,” Quinby said. “And companies such as HomeAway, Airbnb and Booking.com as well as some property management companies in both the U.S. and Europe have been instrumental in mainstreaming this inventory by making it more easily discoverable, comparable and bookable through their online marketplaces.”

Atmosphere Research analyst Henry Harteveldt said that alternative accommodations substantially increased the variety of lodging that OTAs are able to offer.

“Like good retailers, Expedia Inc. and Priceline Group want to offer as many different products to sell their customers so that they can say, ‘Yes, we have something for you’ as many times as they can to as many people as make the request,” he said.

Improved technology has made it easier for consumers to book nontraditional properties online, Harteveldt said.

Making the properties bookable online is far more convenient than when alternative accommodations were listed online like classified ads, requiring consumers to call a property owner or manager to inquire about the spot, potentially having to undergo an interview, etc.

Chris Anderson, director of the Center for Hospitality Research and an associate professor at Cornell University’s School of Hotel Administration, agreed that alternative accommodations are increasingly important offerings for OTAs to bring to the table.

With some hotels listing properties on Airbnb, for instance, and OTAs investing in alternative accommodations, Anderson said, “Clearly, alternative accommodations are of major strategic importance [with] both traditional hotels and intermediaries trying to figure out how to best play in this emerging sandbox.”

Question of fees

The revenue models for Priceline’s and Expedia’s offerings differ in that Expedia’s HomeAway earlier this year introduced a traveler fee averaging 6%, while similar properties on Booking.com do not charge a fee. Airbnb also charges a service fee for travelers ranging from about 6% to 12%.

Khosrowshahi said that HomeAway’s fee brought with it a “conversion decrease initially,” but that conversion is up year over year, “and I think that that momentum is going to continue for some period of time.”

When asked by an analyst about Booking.com’s fee-free model, Boyd said, “I think that HomeAway’s customer base and their owners are chafing a little bit at the substantial increase in fees.” He said he believes customers will ultimately be looking for the best value in vacation rentals, “and I’m hopeful that we’ll be able to provide the best value.”

Anderson of Cornell said that in his view, suppliers would likely be more willing to provide inventory in an environment where they are paying fewer fees, because travelers are picking up some of the bill.

On the other side, Harteveldt said a service fee would likely only factor into consumers’ decision-making processes if they were looking at two very similar properties where a fee would result in a noticeable price difference.

Quinby agreed that the fee does not seem to be affecting travelers negatively.

“The bigger issue right now for private accommodation is supply, and there are still significant supply gaps across those three players,” he said of HomeAway, Booking.com and Airbnb.

“As supply increasingly overlaps, and it is, pricing competition will become more of an issue,” Quinby said.

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