I’ve seen a lot of discussion lately about the number of points the HomeExchange network gives away to new members. Points-based exchanges are a way of house swapping that enables more flexibility than the traditional home swap. This type of system of home exchange points is analogous to an economic system. And as with any currency, it’s important to keep the right amount in circulation. You need enough points to keep them circulating, but not so many points that no one needs to earn more.
To get started, points must be added into the system. If no one has any, no one can earn any. That much is obvious. And as new members join, more points need to be added. You can’t have a system with 10,000 points circulating grow from 10,000 members to 50,000 members without adding more points in. The points will become too scarce. But you also don’t want a system with 10,000 members and 100,000 points. That means everyone has, on average, 10,000 points. No need to earn points by hosting when you have so many. But that’s a bit of an oversimplification because home exchange isn’t really about points, they’re just a placeholder for exchanges.
Why points overabundance matters
Home Exchange is fundamentally about swapping your home for someone else’s home. This is most commonly done with a direct swap. You come to my place while I go to yours. Points are introduced to the system as a placeholder when this simultaneous exchange isn’t convenient. I really want to stay in your home in Chicago in September, and you’ll be out of town during my visit. So I give you some points to stay in your home, and you can spend those points at another time to stay somewhere else.
If all members are only using points when they can’t find a simultaneous swap, and are open to hosting guests whenever their home is available, the number of points in the system won’t really matter. But hosting requires some work and some expense (cleaning, preparing the house, etc.). So people might decide they don’t want to host if they have enough points. And fewer hosts means fewer places to use points.
Optimizing the sign up bonus
HomeExchange gives points to everyone for signing up and completing their profile. This is a simple way to keep adding points into the system as new members join. But giving new members too many points creates a problem.
Think of it this way: If you are given 5000 points just for signing up with HomeExchange, and swaps generally “cost” 150 points per night, you’ve got 33 free nights. There’s not much incentive for you to host guests to earn more points. At least not until you’ve used up your 33 days of free lodging.
In reality they’re not giving out 5000 points. But they are giving out 1150 points for signing up. And another 100 for providing proof of your address and identity. If you get 10 friends to create accounts and send a message, you receive another 1250 free points. That’s 2500 free points without hosting anyone. That works out to 17 free nights in a lot of nice homes.
Last year there was a post on Quora asking “Which are the cheapest home rental solutions in France?” David Bucci, the Marketing Manager at GuesttoGuest (the company now called HomeExchange) responded on April 25, 2018:
“The cheapest way to find a vacation home in France is through the GuestToGuest website. It’s like a home exchange website, but you can also travel without having to host anyone at your own home. You can basically do a 1 week vacation and spend on average around 25EUR/trip.
“The company was founded in France and the largest selection of available homes can be found in France. All you need to do is sign up, fill out your profile, earn the complimentary GuestPoints, and use those GuestPoints to travel to another member’s home. No hosting required, until you finish all of your GuestPoints and you need to earn more.”
This response has since been deleted by Bucci, who continues in this marketing role at HomeExchange. He responded to member questions in a private Facebook group explaining that incentivizing members to try out home exchange by giving them some free points has proven effective at getting people to become dedicated house swappers. That first trial gets them hooked. And I think there’s some truth to this statement. We all know how hard it is to convince our family and friends (or even our spouses!) to try out house swapping. But after that first exchange they’re usually impressed and come back for more.
Still, with free points up front, people can game the system for free stays without ever hosting. This devalues the points members have earned by hosting. It’s hard to find a place to stay in some popular destinations. If people are using their free points to stay there and then never hosting, options are fewer for everyone else. Basically competition to spend points goes up, because there are more points in the system but there aren’t more hosts offering homes where you can spend points.
How many points is right number in a system like HomeExchange?
I’m sure economists could come up with good answers to this question. I’m not an economist, but I think the answer should probably be based on the average number of days that members host guests. For example, let’s say HomeExchange calculates that people host (for points) on average 10 days a year. And they find that the points value of a home averages 150 per night. Then the optimal number of points per person would be 10*150 = 1500.
My calculation means there aren’t points sitting idle in the system. 1500 is the number of points that are in circulation each year. You probably need a few more points than that, as travel is not evenly distributed throughout the year in all parts of the country. But that seems like a good starting point to me.
Any economists or other experts have thoughts on the best way to optimize this sort of system?