World at Your Fingertips

Vacations are intended for relaxation, so it’s more than a little ironic that making arrangements for them can be so stressful.

That’s what Austinites Brian Sharples and Carl Shepherd thought in 2004, when they saw a need for an efficient worldwide, one-stop shop for vacation rentals.

Rather than trying to build a business from scratch, the pair secured capital and bought several existing web-based rental businesses. In June 2006, they were able to launch Austin-based HomeAway.com with more than 60,000 listings.

HomeAway, Inc. now runs the three leading U.S. vacation rental sites — HomeAway.com, VRBO.com (Vacation Rentals By Owner) and VacationRentals.com — and a total of 30-plus sites around the world. In June 2011, the company could put 3.1 million heads in beds, and offered lodgings in 430,000 properties, including beach houses, ski villas, barns, boats and even 555 castles.

A Big World Market

A 2010 survey HomeAway commissioned found that more than 6 million vacation properties in the U.S. and Europe were rented for an average of least two weeks of every year, generating more than $85 billion in 2010.

“We’re very aggressive about driving for market share and growth,” says HomeAway co-founder and Chief Executive Officer Brian Sharples.

Ben Bentzin, a lecturer at the University of Texas McCombs School of Business, says HomeAway’s business plan to think globally from the outset steered it toward success.

“One of the big values for HomeAway is what’s called the network effect,” Bentzin says. “The more property that’s advertised on HomeAway, the more the value of HomeAway grows almost geometrically.”
Bentzin says the sizeable listings give HomeAway economies of scale. The costs to manage a marketing platform for online renting are fixed, so consolidation allows for lower costs per transaction.

A New Challenge

Sharples was looking for a new challenge after a stint as president and CEO of IntelliQuest Information Group Inc., and teamed with Shepherd, then chief operating officer at the Internet information firm Hoover’s Online. Inc.

The duo formed WVR Group with $9 million of their own money and almost $40 million in seed money from Austin Ventures and Redpoint Ventures, using the funds to purchase five of the top vacation rental websites — HolidayRentals.com (the United Kingdom’s top site), Cyberrentals.com, Greatrentals.com, A1Vacations.com and Rent101.com.

The group added VacationVillas (owner of the top German site) and rebranded as HomeAway.com in June 2006. Five months later, the business hit critical mass, with an additional $160 million in equity and debt financing from existing and new partners.

With that stake, HomeAway bought VRBO.com, a leading U.S. rent-by-owner site. Over the next three years, HomeAway consolidated its market dominance by generating more than $250 million in private financing.

Clark Griswold Pulls Eyeballs

Then came the return of Clark Griswold. HomeAway brought back Chevy Chase and Beverly D’Angelo, who played the hapless Griswold and his wife in the 1983 cult classic comedy “National Lampoon’s Vacation,” for a 2010 Super Bowl ad. The commercial was a mock sequel called “Hotel Hell Vacation.”

They picked the Super Bowl because of — here’s that word again — scale.

The campaign was spectacularly successful. Consumer visits to HomeAway.com rose by more than 500 percent in aftermath of the 30-second ad.

In July 2011, HomeAway sold $231 million in stock in its initial public offering, netting $148.9 million. After the IPO, the company was valued at around $3 billion.

Making Planning Easier

With a wife and six children, Ed Jensen is not used to traveling light. The Wheaton, Ill.  resident, who recently retired after a successful career at Accenture, first used VRBO.com eight years ago to rent a beach house in Florida. Since then, he’s used it to rent about a dozen properties from Florida to Wisconsin.

“We have a large family and often travel with extended family members, so we have found that renting a house is more comfortable and often less expensive than using hotels when we travel,” Jensen says. “We have had great success in renting through VRBO.com.”

Jensen said the service doesn’t take all the work out of finding a vacation spot, but it simplifies the process. “Like anything else, you still have to do your homework but it’s nice that VRBO.com acts as a broker to help screen out the bad apples,” he says.

Planning the Trip Ahead

HomeAway has entered Australia and Brazil, pushing its market presence to more than 625,000 paid vacation rental home listings in 145 countries. It employs more than 900 people, 425 of them in Austin and the rest spread throughout the world.

“Our main mission and next step is to make finding and booking a vacation rental as easy as booking a hotel,” Sharples says.

Sharples says HomeAway faces challenges as it expands into different.

“HomeAway has tremendous opportunities in front of it, but we are also very disciplined financially,” Sharples says. “For example, one of the unique financial aspects of the company is that we deliver very high free cash flow relative to sales for our investors. So the trick for us is really maintaining the balance between our desires for continued growth in profitability and all the opportunities we have for investment.”

Future Staying Power

Bentzin says HomeAway faces two challenges in maintaining its momentum.

One, he says, is making sure property owners see the value in using the service.

The other challenge, Bentzin says, is one Austin experiences regularly. Because of the popularity of weeklong festivals such as South by Southwest and Austin City Limits, more homeowners are offering short-term property rentals. Some neighborhood groups, however, have challenged such rentals.

That’s the bad. But with those challenges, comes positives.

“On the other hand, for owners, if you’re out of your house for a few weeks or months at a time, you have the opportunity to generate income and that’s also good for tourism in the community.”