Airbnb has taken over 15 million bookings since launch six years ago so it must be doing something right. The rules of the hospitality game have changed and the sharing economy is mainstream. But Airbnb is only a competitor to those hotels still fighting by old rules. While some hotel executives are in a panic over Airbnb’s model and how it is taking market share, others recognise a changed landscape that demands a fresh, new focus on positioning. They are fighting with a new set of rules.

A simple idea gone global

Airbnb is an immensely successful hospitality brand with accommodation offered across 190 countries. It’s already one of the largest market players, and continues to grow because of a relentless focus on design, usability and booking efficiency.

The idea could not be more simple: worldwide peer-to-peer accommodation rental via cloud technology. The Airbnb experience is seen as ‘authentic’ or ‘real’. And guests perceive it as high value: often getting double the space they’d find at a hotel but for the same fee.

The so-called ‘sharing economy’ became mainstream first with eBay (followed by Gumtree [UK] and Craigslist [US]), which put generalist buyers and sellers together at scale. Many niche or vertical industries have subsequently been disrupted by ‘collaborative consumption’ or ‘sharing’ upstarts. Car-sharing brands such as Greenwheels, Zoom and ZipCar are established; and specialist resale marketplaces exist for pre-owned fashion and even business investment (Kickstarter).

People have embraced the sharing economy with open arms and are comfortable using peer-to-peer networks to buy services, products and experiences.

Rapid growth powered by investment

Although Airbnb seemed to come from nowhere, in fact it mirrored the jet-propelled trajectory of many other tech start-ups:

  • It captured the zeitgeist and filled a gap in the market
  • Its objective was very aggressive growth based on the application of smart technology and investment to fund advertising
  • It has an executive team striving to create a brand its customers ‘own’.

When Airbnb launched in late 2008 no one outside its own offices could have forecast its impact on the hotel trade. But we sat up and took notice when Airbnb raised almost $120 million in venture funding in 2011. Things were getting very serious, and some hotel executives felt uncomfortable, even threatened. This year, a further $450 million investment (by TPG Capital) leaves Airbnb valued at around $10 billion, far bigger than many established industry brands.

Don’t panic. Airbnb will never own the hotel market. Its offering doesn’t appeal to all customers. But it will increase share, and, inevitably, some hotels will have to close. The losers will be those who take their eye off the ‘customer experience’ ball, or whose positioning is muddled.

“You have to stand back and reassess … from the consumers’ point of view. Consumers will do what they always do for all other purchases. They will look on social media, TripAdvisor and so on. They will … shop on price. If you are choosing between a regular hotel room and accommodation owned privately, the value proposition might be quite compelling from a consumer’s point of view.” Frank Croston, Partner, Hamilton Hotel Partners.

I fought the law and the law won

Some hotel executives argue Airbnb and its kind operate outside of the law. But hotels don’t have an inalienable right to all customers. While it is unrealistic for hotels to look to governments to protect them, there are genuine questions that need resolution around how ‘transient accommodation’ brands deal with local taxation and licensing.

Most territories operate a tourism occupancy tax or similar tariff that makes up a portion of every room fee. Visitors paying a hotel tax are contributing revenue to municipal services such as safe streets; street cleaning; the police and fire services; leisure centres and libraries. Critics say accommodation bought and sold in the sharing economy swerves these fees.

Airbnb counters that it has, in fact, started collecting and distributing occupancy taxes in some US states. Whichever way you look at it, Airbnb can expect careful scrutiny by hospitality lawyers as its story unfolds.

“My concern is that some of these businesses are run for profit but not necessarily with the assurance for the customer that they’re going to be safe, have a trouble free environment and, from a hotelier’s perspective, that these guys are paying their way, whether that’s local property taxes, income tax and so forth.” Russell Kett, Chairman, London Office, HVS

Airbnb customers are not cheapskates

According to research conducted by consulting firm HR&A Advisors, Airbnb guests outspend hotel guests overall, despite 79 per cent saying that ‘saving money’ is one reason why they choose staying in host apartments rather than hotels. Airbnb guests typically spend more, overall, because their stays are longer. For example, San Francisco tourists using Airbnb stay an average of 5.5 days compared to 3.5 for hotel guests. While hotels are not getting the benefit of these customer dollars, the local economy is.

Airbnb’s difference is the key to its success

Airbnb wins big because it has a highly engaged community, and that’s not just guests. Sure, travellers rate the accommodation they stayed in. The crucial differentiator is that vendors rate customers in return (indeed 70% of guests and hosts rate their experience!). It makes for a virtuous circle and builds trust on both sides of the equation.

Since, according to The Conference Board (a non-profit business and research organisation), travellers do most of their buying research online, long before any contact is made with a vendor, it’s easy to see how user recommendations and ratings on Airbnb play a big role in its success. 60 per cent of any buying decision is done before any direct contact is made with a vendor brand. Airbnb’s openness and transparency makes it the perfect market for buyers.

According to Chip Conley of Airbnb, hoteliers have nothing to fear from the ‘transient accommodation’ phenomenon, but much to learn: “More and more guests, especially millennials, want to ‘live like a local’ and connect with hosts who can become friends.”

Top tips for hoteliers

To stand apart from Airbnb — and maintain a workable margin — hotels need to strengthen their position in the minds of consumers. Here are some pointers:

  • Help guests find authentic, local experiences, the kind that they might not find in typical travels guidebooks.
  • Simplify your online booking procedure (look at Airbnb’s seamless process for ideas)
  • Work to build a community of users around your brand. Go the extra mile for them and give them every reason to sing your praises.
  • Leverage all your systems to bring a consistent experience to customers (arguably the one thing Airbnb cannot always control)
  • Emphasise how your hotel experience is different. Consolidate your position around corporate governance, duty of care, security, consolidated billing, quality of service, and high standards throughout

    Article by Ewa Maliczowska
    E: ewa@madisonmayfair.com

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