Our interview today is with VacationRoost (www.vacationroost.com), a Salt Lake City-based company focused on vacation rentals. VacationRoost plays in an area which has seen lots of interest lately -- one of its big competitors, HomeAway, just went public. Julian Castelli is the CEO and founder of VacationRoost, and he tells us about he leveraged his many years of experience as an executive at Primedia, the firm behind ApartmentGuide, private equity backing, the former travel operations of Overstock.com, and a more to start VacationRoost, and how he sees the market shaping up.
First off, for those not familiar with VacationRoost, can you talk about what it offers consumers?
Julian Castelli: VacationRoost is an online travel agency for vacation rental properties. When I say online travel agency, I'm talking about sites like Expedia, Travelocity, and those kinds of businesses. The vacation rental space is fairly hot, and a couple of companies in our space have recently gone public or received big financing rounds. HomeAway is one of those. There is a lot of attention and excitement about vacation rentals going online. We have a very interesting travel product that people are interested in. Vacation rentals are hard to find and hard to book, and over the past five years a number of different companies have tried to aggregate inventory and make it easier for the consumer. Our angle in that whole arena is that we're not only aggregating inventory but also providing an online travel agency perspective. Not only do we help the consumer find vacation homes but we allow them to book it online. That's a real technology challenge. We also package the vacation rentals with airline tickets, rental cars, group transportation and a full travel-planning service packaged around unique inventory.
As you know, people have been used to going online to book their hotel or car rentals on the big sites, and that's fairly standard. But when it comes to the new category of vacation homes, it hasn’t been possible. If you look back five or ten years ago, to find a vacation home you would have to Google between different realtor's websites, property management companies, or individual owners. There were not any good brands which aggregated the inventory, allowing you to choose them like you might choose a hotel. However, about five years ago a number of companies started providing aggregation. We're now taking the next step to actually providing online booking and the features and aggregation that the customer is used to.
You mentioned HomeAway--how is this different than what they have done?
Julian Castelli: They're the big player in this space, however, they are different. What they've done has been really good for the industry because they've aggregated inventory and created a solid brand in the category, and they've raised a lot of money to do so. They do aggregate properties, but like Craigslist, you go on there, find what you like, and they refer you to the owner to do your own individual negotiations for a property. You soon find that you can find things there, but you can't book them online and they can't take care of your travel needs. You have to rely on the property owner for advice and you have no idea if they are being truthful or are just promoting their own property. In our view, an online travel agency needs to do several things to make it easier. One is we help consumers book properties online, and the second is we have trained destination experts in many of our markets who are familiar with both the properties and the destination. If you are booking a trip to Florida and have specific needs you can look it up online and book with your credit card and feel safe. We also represent lots of different properties and are not biased to pushing one or another. You can always pick up a phone to talk with an expert who really knows that property and destination and they will give you consultative advice on finding a home and using our technology to make that choice really easy. We've got the best technology for our shopping experience. If you were the shopper and I was the agent, we could qualify your basic needs -- budget, how many bedrooms, if you want to be on or near a golf course, and so on -- and we prepare a property offer, almost like a menu customized to your trip which we can send to your iPhone, email, or any device. You can look over that at your dinner table with your family; it makes the choice as easy as possible. If you're interested, you can click on whatever choices you want -- it's pulled into our booking engine and we can serve that up with an airline ticket or rental car, lift tickets, and merchandised with discounts and other things. We're taking the experience of the vacation rental and bringing it to 2011 travel e-commerce standards in a way the category hasn't had before.
What's the story behind VacationRoost, and how did it start?
Julian Castelli: I started out as an investment banker at Goldman Sachs, then was at McKinsey & Co. before joining the telecom industry where I was the CFO of PageNet back in the late ‘90s. Later I became the CFO of a company called Primedia. That company did online marketplaces and print marketplaces. The firm's biggest brands were ApartmentGuide and ApartmentGuide.com. I was there running several divisions working on growth efforts, including a company called Rentals.com. Rentals.com was going to be a parallel guide to ApartmentGuide.com and provide an aggregated, consumer marketplace for smaller apartments and private homes for residential rental. As we started going on that I got very interested in the vacation rental space. At the time, in 2006, there weren't any good aggregated portals or listing services for vacation homes. I was going to move that site to focus on vacation rentals. About that time HomeAway started working on their business plan. In fact, I once tried to buy them while I was at Primedia, but they decided to go it alone. We ended up chasing some of the same acquisitions such as VRBO.com. I ended up going out on my own and raising money for this company because Primedia didn't have the interest or ability to match HomeAway on their spending and buying businesses.
In 2007, I decided to pursue this business full time because I was passionate about the space. On a personal note, I've always been the guy who organizes these types of trips -- the skip trip or beach trip for family or friends -- and I've personally gone through the real pain of trying to find homes and unique vacation venues. Anyway, as we were researching the space we found that HomeAway was going after the ILS, the Internet Listing Service market -- the Craiglist approach, but was not doing any transactions and no one was providing a higher-touch service or booking advice. So in 2007 I partnered with Kinderhook Industries who shared my vision and who knew I knew how to build listing services from my time at ApartmentGuide. I knew HomeAway was going to be a major player in vacation rentals but I thought, "Why don't we go and build another brand which does something similar, but does it with a more hands-on approach, where we provide the online bookings, process transactions, etc… like an online travel agency?"
We raised a little bit of money, and instead of doing it from scratch, we took the roll-up approach versus the startup approach. Part of the reason is that in any network type of business or classified business, which is being an aggregator, starting up is very difficult. You need to have inventory to have traffic but you need traffic to get inventory. Many startups have struggled to do that unsuccessfully. Instead, we rolled up a few players and built that into a company and brand that we wanted. In April of 2007 we bought our foundation company, which was then called Mountain Reservations. We actually bought that from Overstock.com in Salt Lake. They called it O-Travel, and had bought it in 2005 from an entrepreneur in Park City. That became the foundation of our business, and we have since rolled up another three or four other companies. We bought the beach villa provider Mexican Destinations, bought a startup vacation rental technology firm called Rooster.com, and bought ski wholesaler, Moguls Mountain Travel. We put all of those together and took the good things they came with, including good inventory and markets and a customer base and traffic, and put them all together under the VacationRoost banner. What we had to do is take those interesting niche businesses and build them into the platform we have, which was a difficult technology exercise.
Can you talk about that technology?
Julian Castelli: Technology is really key to what we're doing and to the expansion and the growth we're seeing. All of that has to do with technology. On the brand side, Mountain Reservations, our primary ski brand, is number one or two in most ski markets. We also have twenty or so brands that are specific to locations such as ParkCityReservations.com, JacksonReservations.com, and AspenDestinations.com -- local specialty services -- which serve as central reservations sites in those markets. We've also got several beach brands, such as MexicanDestinations.com and Island Escapes -- all regional sites under the VacationRoost umbrella, from both the branding and technology perspective. VacationRoost serves as our primary global brand and I'd describe that as the OTA (Online Travel Agent) for vacation rentals. What we do with VacaitionRoost is follow certain consumer best practices and follow a consumer bill of rights, promising that consumers can book online with their credit card, they can speak with a customer service agent, and that they will get the best selection in every market, and the best rate is guaranteed. Those brand attributes come from the VacationRoost side, and if you look at Mountain Reservations or Park City Reservations you'll see those are shown as "Powered by VacationRoost." That helps with consumers so they can see the company is legitimate and has the same brand attributes and makes the same promises.
So it does sound like you've done quite a work on the technology side?
Julian Castelli: The technology piece is critical. When we first bought the business there were a number of disparate sites, .ASP or PHP sites, which provided good SEO but were really just lead generation sites that led to an offline booking experience. When we wanted to expand nationally and internationally to meet our goal of having online bookings and a packaged product, we needed to make big investments in technology. We spent two to three years investing in technology around the whole online booking piece. I'm proud of it because it was so damn hard. If you're an online travel agent selling hotels, you've got big, multi-billion dollar companies like Sabre and Worldspan which run a GDS, Global Distribution System, to provide you with car rental rates and hotel rates and so on. But no vacation homes systems are connected to that. To have online bookings, rates, and availability in real time, we had to spend a lot of time connecting to tiny suppliers. There are lots of gateways and pipes to various systems property managers themselves use, with lots of quirky, one-off connections. Having built that technology allows us to provide real-time rates, availability, online calendars, and take online bookings. The old model was calling to reserve and waiting for someone to get back to you. The new model is online availability, where you can book online or in our call center, where an agent can book and make changes online without a phone call to the supplier. I'm not sure any of the other players have that same kind of online connectivity.
Are you doing that technology development here?
Julian Castelli: We do. We have a very strong team here in Salt Lake City, consisting of 5–7 senior developers and architects, and we supplement them with work offshore, where we have a team ranging from ten to twenty developers in India. We design the products here and get a little help offshore with the swing capacity. It's not off the shelf stuff -- we have domain experts here that understand vacation rentals and travel and know how to package and design that software, with help offshore in building it.
Talking more about the business, does the fact that HomeAway has gone public made it harder, or easier for you as a company?
Julian Castelli: That's a good question, and one we debate often internally. There are two sides of the coin. On the positive side, after their IPO and fundings, they've done their part to promote the industry. We can't afford a SuperBowl commercial, and they've done that two years in a row. They've been advocating the category as much as their brand. We actually have been receiving a lot more calls since they went public, and it is an interesting category--it's a $24 billion market, with no market leader. Those are all positive. And, I think we knew before that they had a head start, and we'd try to ride their wake a little bit. On the flip side, they are a very well funded competitor, and they can pretty much do anything they want give their size and resources. It's no doubt they are the 800 pound gorilla, and have the ability to be successful. Where that has been challenging for us, historically, is they have lots of strong domains and URLs that rank very well for terms like vacation rentals. However, we find we have to be more creative and strategic with our brand strategy, so we run 30 to 40 sites where we are fighting them with jiu jitsu. You can't just go after them on broad vacation rental terms -- they'll outspend you. But we can beat them every day if you are looking for vacation rentals in some of our specific strong markets like Park City or Aspen because we have location specific sites that get better SEO and ROI on our search engine marketing. We are going out there with a much more subtle strategy, competing strongly, and building our brand through what I described.
Finally, what's the next big thing for you guys?
Julian Castelli: We've built this technology platform which helps for everything from lead generation to fully integrated booking. Because we have that, over the years a lot of our partners and people in the marketplace who have seen our tools have asked us to help them outsource their reservations. They told us they've gone through the exercise themselves but liked receiving bookings from us, and they like our team and want to know if we can do it for them. At first, we didn’t know if we could do it, but we found that actually, this is one area where the recession has helped us. Those partners wanted to go back to their core business and knitting instead of building technology and travel services. They wanted to figure out how to cut costs and be more efficient. They'd rather have a partner servicing a white label program, which we launched last year. One way to think about it is in any given market, we can provide a central reservations service for vacation homes, lift tickets, rental cars, and ground transportation. That's what Park City Reservations is. The Park City resort came to us and asked us if we could run it for them. We launched that in May as our first white label program. If you go to Park City Mountain resort or call them, they've got a thriving central reservations site which can plan a trip to get you on the mountain which is all operated by us. We are providing the technology, website, and people, and handling all of the bookings. The whole platform is run by us and it's grown dramatically, and they've been thrilled with it. We also signed up Alta and Sun Valley last year.
This year we signed up Kicking Horse, Taos, and expect to announce two or three others in the next 60 to 90 days. We had the expertise and technology. We had to build it out of necessity, and it ends up being a win-win for us and the resort. The reason why is resorts often had to do the same kinds of things but they treated it as a cost center, as a cost of doing business. They had to help someone book an airline ticket and do lodging but didn't really want to do it. However, that's our core business; we're already in their markets. So we figure, how about we do a revenue share and we'll pay them a percentage? In that regard, we've been able to take a cost center for them and help them turn it into a profit center, plus provide better service. We lead in that marketplace, which gives us more scale, and ultimately helps us get to where we need to be as a company so that we can scale and leverage our investments in technology and our team to build a larger business. It's been a really exciting business and grown from nothing to several million dollars in the last year. We've seen over 100 percent growth in that business this year, which is a really important to help us scale going forward.