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Expedia CEO Dara Khosrowshahi at the GeekWire Summit 2016. Photo by Dan DeLong for GeekWire
Expedia CEO Dara Khosrowshahi at the GeekWire Summit 2016. Photo by Dan DeLong for GeekWire

After Expedia acquired HomeAway for $3.9 billion in late 2015, the travel giant shifted the business model of its vacation rental sites to more closely mirror competitor Airbnb, creating tension between Expedia and homeowners who had signed on under a different model.

Now the frustration is erupting in the form of a proposed class action lawsuit.

James May, a Portland, Ore., man who has been listing his property on HomeAway-owned VRBO for several years, filed a complaint against the company in U.S. District Court in Western Texas, where HomeAway is headquartered. May accuses the company of “breach of contract, fraud, and violations of consumer protection laws” and “a classic bait-and-switch scheme.”

May is seeking class-action status to include other homeowners who feel HomeAway violated their agreements.

Over the past year, Expedia modified HomeAway and VRBO to better compete with industry juggernaut Airbnb and meet consumers’ expectations. The changes include a “service fee” that travelers pay, a new algorithm to determine which homes are prioritized in search results, and a “Book With Confidence” guarantee, promising to refund customers who book or pay via HomeAway if a listing is fraudulent or misrepresented.

Earlier this year, Expedia CEO Dara Khosrowshahi also announced that the tiered annual subscription model, like the one May had been using, would be phased out. Instead, homeowners will be able to list their properties using one annual subscription at a flat rate of $349 if the owner enables online booking and $499 if he or she does not. Homeowners can also list properties for free and pay a percentage of each booking facilitated through HomeAway.

In the past, homeowners with annual subscriptions were given priority in search results. Now, those results are more favorable to properties that match search queries and allow online booking.

This business model shift is exactly what May and other homeowners are protesting. They are seeking compensation for damages suffered as a result of HomeAway’s “breaches of contract, fraud, and violation of consumer protection statutes, punitive damages, as well as other equitable and declaratory relief.”

Here’s how the complaint describes the alleged bait-and-switch:

“At the same time that defendants were marketing and promoting prepaid subscription services to Plaintiff and the other members of the Class …, Inc. were actively planning to change their business model by: (i) charging fees to renters, over and above the subscription fees prepaid by Plaintiff and other class members to advertise and list their vacation properties, which would (and did) thereby increase the effective price, and diminish the value, of the prepaid subscription services they were marketing and selling to Plaintiff”

Expedia declined to comment on active litigation.

When Expedia began rolling out changes to the HomeAway and VRBO platforms, GeekWire documented homeowners’ frustrations. 

“Where once I felt like HomeAway was working for me, now I feel like they are forcing me to work for them,” said one homeowner at the time.

Expedia CEO Dara Khosrowshahi called protesting homeowners “a vocal minority” during an interview at the GeekWire Summit last month. He said that HomeAway’s platform previously had a lot of friction and consumers have come to expect a transactional experience with services on the web.

“I think the backlash has turned a lot more positive, recently,” said Khosrowshahi. “I don’t want to count my chickens but I think, fundamentally, we’ve moved HomeAway from a media listings product to a transactional product because consumers just like transactions more.”

Watch Khosrowshahi’s GeekWire Summit fireside chat below. Discussion of HomeAway begins at 17:00.

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