Shared-economy platforms like Airbnb have leveraged the use of big data to understand what its customers want. And if the hotel industry wants to keep up, brands and owners might need to readdress their business models.
In the short decade since Airbnb was founded in 2007, the startup has evolved into a lodging industry giant with a market valuation of $31 billion, surpassing the value of most major lodging companies that have been around for nearly a century.
Fundamentally, the lodging industry has been slow to respond to potential threats, particularly those that leverage new technology. Two decades ago when the online-travel-agency revolution started, several industry players viewed Expedia as a small, new entrant that wasn’t of any material consequence relative to the large brands.
Founded as a division of Microsoft, Expedia was able to leverage technology to create a revolutionary new way to research and book travel. In the decade that followed, Airbnb followed a similar mantra—they utilized technology to create an attractive user interface that allowed consumers to easily share and book homes at the click of a button, in exchange for a small fee.
Airbnb has experienced rapid growth since its inception, and today, as a part of a new $100-billion economy, its rate of growth surpasses that of any hotel franchise, and it doesn’t own any of the real estate! As of year-end 2016, according to STR, Airbnb had more than 3 million listings, nearly three times that of the post-Starwood-merger Marriott entity at 1.1 million. (STR is the parent company of Hotel News Now.)
A key factor contributing to Airbnb’s growth is the ease with which new inventory can be made available to the customer. Any local resident’s house or apartment can become a rental product. By contrast, owners or brands who want to expand in a particular market often run into challenges attracting capital and are unable to match Airbnb’s speed to market.
The chart below1 generated by CBRE Hotels’ Americas Research (CBRE) represents the magnitude (and corresponding threat) of Airbnb in each of the nation’s major markets as of 2015. Not surprisingly, increases in Airbnb supply negatively affect average-daily-rate growth. New York City, in which Airbnb comprises over 25% of hotel supply, experienced a revenue-per-available-room decline of 4.0% in 2016,2 due in no small part to the “Airbnb effect.”
With the launch of Airbnb for Business in July 2015, the business travel segment of the lodging industry, long considered a core competency of the hotel brands, is no longer insulated from shared lodging competition. According to Chip Conley, former global head of hospitality and strategy for Airbnb, the company garnered more than 3,000 corporate accounts in the first month following its launch. In 2016, Airbnb tripled its number of corporate accounts3 while also launching a platform exclusively for meetings.4
In December 2015, Expedia acquired HomeAway for $3.9 billion, making it a major player in the shared lodging economy and establishing itself as a direct competitor to Airbnb. The expanded company outpaces Booking.com as the largest lodging seller in terms of number of hotels, vacation rentals and apartments offering more than 1.3 million properties. Since the acquisition, Expedia has been working on making the listings bookable instantly, growing supply in urban city centers and top leisure destinations to make the site more competitive with Airbnb, and more fully integrating apartment inventory with Expedia’s hotel inventory.
Once fully integrated, the combined offering will become a one-stop shop to search and book hotel and apartment rentals, cementing Expedia’s position against the hotels brands. Customers will be even more motivated to comparison shop and consolidate their travel bookings on Expedia/HomeAway, which will offer a broader, more unique inventory pool than any hotel site. This poses a formidable threat to the hotel industry!
In an effort to mitigate the threats posed by these short-term rentals, the American Hotel & Lodging Association has been actively involved in regulating the use of short-term rentals in major markets across the country. AHLA’s efforts are centered on enforcing a level playing field through tighter regulations relating to tax collections, zoning and fire and life safety. AHLA’s efforts have paid off in major cities across the country, including New York, San Francisco and Chicago, which all passed new regulations in mid-2016 imposing restrictions and fines on short-term rentals.
While each of these legislations represents a very positive outlook for the hotel industry going forward, there is a lot that the hotel industry can learn from Airbnb in how it appeals to its customers.
Specifically, Airbnb provides authenticity in local experiences, meets the comforts of one’s home and provides human connection with locals, making for an experience that is unique to that customer and not replicable. Hotels should consider re-examining their long-standing policies—customers no longer want to be subject to a 3:00 p.m. check-in or a 12:00 p.m. check-out.
Airbnb provides flexibility and hosts work with guests to accommodate their check-in and check-out preferences. Similarly, not all customers are looking for the expansive amenities that hotels provide, and Airbnb is able to service the needs of consumers who don’t need those amenities at a lower cost. Airbnb aligns well with the millennial’s desire for discovery. While Moxy by Marriott represents a step in this direction, hotel brands will be well-served by putting a greater focus on differentiated, experiential travel.
The bottom line is Airbnb has successfully leveraged big data to provide guests with authentic, customized experiences versus cookie-cutter brand standard offerings. Hotels and brands that will succeed in this new era will be those that alter their business model to better cater to the needs, preferences and behaviors of their evolving consumer.
1PKF Hospitality Research, a CBRE Company
2Trends Report by CBRE Hotels
4Ting, D. (2015, November). Embrace disruption. Hospitality & Tourism Complete, 01484052
Anjali Agarwal, Executive Vice President of Asset Management, runs Chartres Lodging’s Asset Management discipline, responsible for maximizing value of the company’s $2.2 billion portfolio. In the past 11 years at Chartres Lodging, she has led several successful repositionings, turnarounds and exits overseeing all aspects of the investment. In addition, she has been involved in over $2.5 billion of transaction activity and $800 million in renovations. Prior to joining Chartres Lodging, she held responsibility for the Revenue Management of the South East region at Orbitz Worldwide. Her operations experience spans several years, brands (Hyatt, Marriott, Taj Group of Hotels) and countries including participating in the expansion of Marriott into India. She serves on the Board of Directors of the Hotel Asset Managers Association and the Association of Starwood Franchisees & Owners North America. She is a contributing author in several industry publications and regularly participates in speaking engagements including the Lodging Conference, Hotel Business and Cornell University's Leadership Development Program. She is a Certified Hotel Administrator and holds a Master’s degree with distinction from Cornell University’s School of Hotel Administration.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.