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Saturday, December 14, 2013

Cities Reference to include VAT into its commission starting today - Is PAYG model an endangered species?

Continuing the race downward of the spread between the net rent to the property owner/manager and the grand-total paid by the traveler, Cities Reference is to include VAT into its commission rates starting today. This will result in a further 22% decrease of its net commission continuing the dramatic drop that has seen the commission fall ~70% in the past 10 years, count in promotions and discounts that nowadays more often than not kick in and you get a razor thin margin.

This is broadly good news for travelers and property owners/managers alike, at least until the system stays afloat. As argued in a previous post here about the winning business model in the vacation rental market which is likely to take-all in the medium/long term, market pressure on the small/medium sized vacation rental portals featuring an 'Owner Friendly' model (or PAYG, or PPB) is applied by its own richer peers, like Airbnb, that are backed by venture until IPO and need more aura than results in the bottom line to keep blowing in the bubble.

It is not reasonable to think they are not aware that this is going to backfire in the medium term after they go public and they will have to bring home results, therefore we can infer they are after a short term strategy at the moment to offer a handsome exit to the ventures that have invested in them money and, most importantly, know-how.

The outcome is somewhat ironical, in that, at least attending our analysis, the winning model in the vacation rental market will likely be the oldest one. Since the beginning of the new millennium we've tended to believe that whatever had to do with internet advertising would have eventually embraced a very analytical approach of pay per results. In the age of virtually full tracking of customers funneling the furthest away you can get, and the closest to old style advertising, is the pay per listing model (PLW) whereby you pay a yearly forfeit in advance with no control on your listing's exposure, forget conversions to leads and/or bookings.

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