Kennedy set to reinvent holidays with Homestays
Hostelworld founder brings a new venture to €10bn travel market
TOM Kennedy, the entrepreneur who, together with Ray Nolan, made a fortune selling the Hostelworld business to private equity for over €200m in 2010, is back with a venture that may change forever how and where we spend the night.
Kennedy's Dublin headquartered Homestays.com has raised over €3m in funding from venture capital Group Delta and UK firm Britannia Student Services to build up and develop its disruptive new business, which promises to scare the pants off some of the larger hotel and hospitality operators.
The low-key company founder has brought in some serious players to help deliver his vision. Homestays chairman is internet entrepreneur and former Baltimore Technologies ace Paddy Holohan, who sold Newbay to BlackBerry maker RIM for $100m in 2011. The company has also just hired Alan Clarke as chief executive. Clarke was head of gaming at Paddy Power. Debbie Flynn, whose background is in the language school sector, is also a key player.
Kennedy's track record is pretty good too. He was involved in the Avalon hostel in Dublin before hooking up with serial technology entrepreneur Ray Nolan in a move to try to make hostel bed booking more efficient. They set up Web Reservations International (WRI), better known by its brand name hostelworld.com, in 1999.
The initial funding of the business involved an original pitch. They approached five hostel owners and in return for the promise of €20,000 in free online advertising they each coughed up €10,000. Other investors came in later, including U2 manager Paul McGuinness and his business associate Trevor Bowen, ex-Baltimore Technologies executive Michael Butler and insolvency practitioner Michael Buckley.
It was a simple concept but one that worked spectacularly well, growing rapidly to become the 600lb gorilla in the bed-booking space. The idea paid off in spades with a €200m plus cheque for Nolan, Kennedy and other investors.
Kennedy's masterplan is to put a similar booking and organisational structure on the massively fragmented home-stays market. This is where people come and stay in other people's houses for a fee. It is one of the fastest growing sectors in the entire tourism and accommodation space.
The lessons learned from the huge Hostelworld.com success will now be applied to put manners on this unruly market.
The size of the home-stays market is staggering, Kennedy told the Sunday Independent last week. The global youth travel market alone is worth $165bn, with the home-stay market around $10.8bn. In Ireland alone, 96,000 foreign students come to learn English here every year, largely staying with host families with their accommodation organised by a mish-mash of schools and agencies. It's a very informal and somewhat inefficient structure.
It's not just language students coming to Ireland. They also travel to Canada, Malta, UK and other countries. And it's not just language students either. People on internships, gap years, volunteers as well as those on shorter stays such as sports or cultural travellers. Kennedy believes the market could run to the "billions".
The vast Hilton hotel chain is said to view new home-stays operators as being the biggest threat to its business over the next decade.
US group AirBNB has raised $120m from investors and is expected to generate $1bn in sales this year as it arranges accommodation for 10 million people in 33,000 cities in 192 countries this year. The space is smoking hot, with investors falling over themselves to back the right concept. Wimdu recently raised $90m from venture capital funds.
But while companies like AirBNB are essentially just large booking engines for accommodation, Kennedy's Homestays is different.
Potential customers will be able to search through host families and choose those with shared interests as well as the basic accommodation needs.
"Nobody is doing online housebooking for industry such as language schools," Kennedy added. It's less of a gap in the market, more a humongous chasm.
Homestays operates with a different business model to some of its competitors, with its partnership structure meaning that the operators have "skin in the game" and are better able to handle customer relationship issues.
The first phase of the business roll-out saw it develop all the technology and back-office smarts as well as signing up an initial 25 language schools around the world. The public phase is now kicking off with the homestays.com website.
The third phase of the Homestays development will be about "matching interests", according to Kennedy.
Drawing from social media and partner data, Home- stays.com will be able to match up a tennis fan with a family that plays tennis or somebody planning to visit a city for a marathon with a running host or a tourist coming to the Irish Open will be teamed up with a golfer. The potential is endless.
This aspect may completely revolutionise the accommodation space as travellers "come looking for the experience of staying with people who share the same interests," Kennedy forecasts. This could be a game changer.