"It was the fact that this was an area that we were not in," Diller told CNBC's "Squawk Box" a day after the deal was announced. "We are in every other area of travel."
"Alternative accommodations is a $100 billion-plus category. It's one of the fastest categories as far as coming online," Expedia CEO Dara Khosrowshahi told CNBC's "Squawk on the Street" in a later interview.
Along with its namesake site, Expedia's portfolio of travel websites includes Hotels.com, Orbitz, and Travelocity. Expedia was spun off in 2005 from IAC/InterActiveCorp, where Diller is also chairman.
"We [at Expedia] are actually strategically complete now. This was kind of the last area or piece along the way," Diller said.
The additional distribution provided by the family of Expedia sites will be a great boost for HomeAway's more than 1 million paid listings in 190 countries, HomeAway co-founder and CEO Brian Sharples told "Squawk on the Street."
"At the end of 2014, we said by the end of 2016, everything on our platform would have to be online bookable," Sharples recalled, saying the effort is a little more than halfway there.
He also said, "We are shifting to a model where we're going to start charging both travels and owners. We're actually going to reduce owner fees. We're going to add a travelers' service fee. That's going to create a lot more revenue."
HomeAway focuses on vacation homes, not just people looking to rent their primary homes because they're out of town like Airbnb.
Expedia's Khosrowshahi said he believes the HomeAway model will be less of a regulatory hot-potato.
Airbnb just prevailed on a bitter San Francisco ballot measure that would have capped private home and room rentals at 75 nights a year and imposed fines on unregistered units. It was rejected by voters on Tuesday, with 55.1 percent opposing and 44.9 percent in favor.
The cash and stock purchase price of about $38.31 per share of HomeAway represents a 20 percent premium to Wednesday's close. In late-morning trading Thursday, shares of HomeAway were up 25 percent.
Sharples said he feels the Expedia transaction delivers the best value for shareholders.
"This supply has existed for a long time. But between HomeAway and certainly Airbnb, [they have] expanded supply pretty enormously all over the world," said Diller.
"That does have an effect [on hotels], but I do not think it is in any way going to invade truly the hotel experience, either commercial business or leisure hotel business."
All of the different properties of Expedia have "cross competition" among themselves, he said. "Whether they take business from each other or create new business is immaterial to us."
Diller said Expedia "invested massively" in technology in recent years, which enabled the travel company to go after HomeAway. "We've been looking at HomeAway for years now, and we had always thought this was an area that we should get into."
He said Expedia did not set out to be a serial acquirer. "We began to take opportunity wherever we could find it" in a step-by-step process.
"We've always believed at IAC and Expedia that the smartest thing to do was to disrupt whatever we can, including our own businesses," Diller added.
IAC is behind such brands as Ask.com, About.com, video-sharing service Vimeo and Match.com, which is preparing for an IPO.
Diller said he's not allow to talk much about the Match IPO, but did say, "We start a roadshow in a week or 10 days." He also feels all the pieces are in place to gear for the dating site offering, which is expected to be out in "two or three weeks."
Over a decades-long career, Diller has held many other lead roles at companies including, Paramount Pictures, Fox, and the QVC shopping network.
— Associated Press contributed to this report.