Airbnb and the Hotel Industry

The hotel industry has grown accustomed to disruption. With the rise in adoption rates of digital technology, including internet connection and mobile phones, new competitors arrived, pitching the consumers outstanding offers: view all hotels for a desired destination, by price or consumer ratings; choose your price; etc.

This new type of competitors – Online Travel Agencies (OTAs), drove a transformation in the hotel industry. It became clear that consumers now have the choice and the power, and competitors must adhere to this reality and offer more information, choice, convenience and other added values if they wish to win.

Yet, as the connection between the consumers and themselves grew due to the growth in social networking and the change in perceptions towards temporary ownership in general, the consumers began to adopt new models that not only disrupt hotels, but also OTAs themselves. This trend, known as the “Collaborative Economy”, refers to the consumers’ desire to access and manage assets without the interference of corporations, and mainly refers to digital peer to peer platforms, which allow people to share goods and services, acting as virtual matchmakers and lowering transaction costs.

Airbnb is one such matchmaker, founded in 2008 to connect “hosts” with guests through an online platform – Airbnb.com. Though about two thirds of Airbnb’s listings are for an entire home, guests have multiple options, ranging from living room couches to shared and private rooms to even castles, tree houses, and igloos.

The company has traditionally targeted millennials, who are keen to search for adventures for a lower price, and refer to their social network for sharing commodities. Airbnb’s approach relied on the sense of belonging “anywhere”, and providing a “home” rather than a “room”. The company successfully utilized a content strategy that exposed the consumers to various exotic locations, made affordable thanks to the platform, and ensured that the hosts continue to choose this platform for listing their properties, by providing better management tools, including intelligent dashboards, apps, and reviews on the guests themselves. It had also invested in building a community that had nurtured brand ambassadors.

This strategy proved successful, and the company posted a tremendous growth in revenue over the years and was recently valued over $ 20 billion. But while Airbnb might be the “poster child” of the collaboration economy, this type of accommodation has been booming altogether, and according to PhoCusWright (June 2014), 22 million adults stayed in private accommodation when traveling for leisure over the preceding year, or 17% of all US travelers. New and established competitors started to target niches and unmet needs, including family-oriented vacations (HomeAway.com) and luxury stays (OneFineStay.com).

Hotel companies were, at first, skeptical regarding the scope threat that this type of competitor holds towards them. They kept touting the hotels’ consistency, safety, amenities and services as prime differentiators, leaving Airbnb to try to catch up through local service tie-ins and through an investment in guests’ safety, not to mention that Airbnb has encountered legal difficulties in several markets, being subject to local regulations.

However, this has changed recently, with Airbnb’s announcement that it is now pursuing the lucrative business traveler segment, with data and management advantages such as central billing and a dashboard for travel managers to track employee itineraries and spending.

Hosts can now get a “Business Travel Ready” badge for their listings to make it easier for business customers, meaning that they have Wi-Fi, a designated workspace, an iron and hair dryer and a strict policy when it comes to cancellations – hosts can’t cancel less than seven days before the planned stay.

It seems that this strategic turn has made hotels more aware of the threat, which Airbnb and other rental competitors hold. In reaction, hotels try to offer a better deal overall, compared to vacation rentals: better loyalty programs; better service (mobile integration and concierge apps for example); a focus on the entire experience, etc. Hotels also try to respond to those strategies with similar offers: for instance, Marriott launched an affordable concept for millennials called “Moxy”, and Sheraton plans to adapt its hotels locally in terms of design and menu. In addition, hotels and OTAs have turned to deals in order to win a share of the vacation rental market – such as Expedia’s acquisition of HomeAway or Hyatt’s investment in One Fine Stay. Hotels, with boutique hotels in particular, also found that they can actually benefit from yet another marketing channel, through which they are able to list their rooms.

As disruption in the industry continues, hotels must define their path: their identity, their added value towards the consumer, their ability to empower the consumers on their journey. Whether hotels choose consistency over local adaptation; premiumization over affordability; individuals over families; or any other way – they have to decide how to execute this offer so that it benefits the consumers, and put the consumers in the center of their strategies.

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