Over my long career in hospitality, I’ve see many trends come and go. Few have rattled the industry like the home-sharing phenomenon. Here’s how the dominant brand, Airbnb, has challenged the hospitality industry status quo in three important ways.
1. Their business model is brilliant. Airbnb simply created the digital infrastructure necessary to allow willing sellers and willing buyers to conduct business with each other. And, like all other channel intermediaries, Airbnb makes their money by taking a cut of the transaction revenue. It’s not a new idea, nor is it a new application of that idea. It is exactly the same business model as Expedia and others.The channel intermediary model requires far less investment than building out the equivalent physical inventory and is far more profitable because Airbnb has no costs associated with building, cleaning, maintaining or renovating the inventory.
2. They have scaled at an incredible speed. Second, Airbnb was able to rapidly ramp their “inventory” of rental “spaces” and as of March 1 had more than 6 million listings. That is more that the six largest hotel companies in the world. Combined.
In the “traditional” hotel model, it would take decades and hundreds of billions of dollars of investment in real estate to achieve that scale. It would be difficult if not impossible to scale that quickly with a typical “brick and mortar” model because the financial viability of the incremental projects would soon become questionable.
Airbnb does not have to build anything. Nor does anyone else. They simply use existing inventory and put it into the marketplace.
Airbnb became a considerable force virtually overnight. Any available “room night” in any market is a competition for demand into that market. So the introduction of 6 million of them, every night, is indeed a considerable implication. At a minimum, it is helping to satiate demand in high-demand markets and during high-demand periods, limiting the ability of hotels to drive rate.
3. They have a room for every traveler. There are a wide variety of Airbnb hosted arrangements. In essence, just as all of the major hotel franchisors have a range of branded products from economy to luxury, so does AirBnb. There is an Airbnb “product’ to suit every traveler’s needs. And thus AirBnb impacts all segments of the industry.
Most of the traditional brands became successful because they offered a safe, known, and consistent choice. The brands were designed to be highly standardized and were quite successful as a result. Travelers wanted the reassurance of the “familiar” when far away from home. As travelers change their “travel personas” and seek more unique experiences that reflect the locale and put them into closer contact with the local cultures, Airbnb is a natural fit. While hotel companies attempt to “evolve” to meet this changing dynamic of localization, it takes time because it requires significant capital investment. It is also risky because today’s trend is tomorrow’s yawn. Airbnb simply signs up local hosts and lets the free market work its magic, connecting willing sellers and willing buyers.
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