In the world of ‘what’s old is new again,’ Airbnb was positioned to flip the hospitality industry on its head by taking a radical approach: do exactly what hoteliers have been doing for hundreds of years, but package it up under buzzwords like ‘sharing economy’ and ‘peer to peer’, put a technology wrapper around it in the age of distribution and watch as the market swooned.
I once heard Kellyn Smith Kenny, the SVP and Chief Marketing Officer at Hilton, previously a marketing leader at Uber, respond to a question comparing the disruption Uber caused in the taxi industry to the disruption Airbnb was causing in the hospitality industry. Her answer (in my words) was relatively simple – where Uber was operating in a broken marketplace ripe for disruption, Airbnb, frankly, wasn’t.
I think most people agree the taxi industry was fundamentally broken. It operated as an anti-competitive marketplace driven by antiquated protectionist policies, medallion systems, and lobbies rather than efficiency and customer experience (and kudos to the power of the lobby as it continues to create headaches for app-based ride sharing across the globe). These market dynamics, not necessarily Uber’s technology nor positioning (especially given they weren’t first to market), were the most critical elements of the transformation that happened across the livery space.
Her feelings, and I believe it’s reflective of most industry leaders, including my own, were that the opposite is true in the hotel space. Ours is a highly competitive marketplace with a hyper focus on consumer experience. Hotel companies are constantly developing ways to drive customer satisfaction and product differentiation and it shows in the creation of new properties, the refurbishment of established brands, and the unbelievable amount of money being invested in personalization platforms masquerading as loyalty programs. It doesn’t appear that anyone thinks the hotel marketplace is broken. Investors certainly don’t, as new builds and room expansion continue at rates that would have seemed impossible only a generation ago. And consumers certainly don’t, as hotel occupancy rates have continued to rise.
So why the rush to anoint Airbnb as the natural disruption to the hotel space? The media latched on because it was new and shiny and everyone loves a good technology story. Their product was built with the emphasis on consumer interface over the actual product - the inverse of Marriott starting with a physical hotel and evolving over time to an industry-leading digital consumer interface. But a lot of the early buzz seems to have faded. Investors certainly did, but then they slowly realized an issue. They realized that Airbnb was at best a reincarnation of early hospitality companies going through the maturation phase from disjointed, inconsistent, and hard to secure individual locations to formally organized “hotels” at a very rapid pace, or worse, a glorified online travel agency (OTA) with a less desirable overall product portfolio than their competitors.
Airbnb’s problem today is that they’re solving problems that IHG solved decades ago.
I believe they realized this because Airbnb also realized this. It was new, and the concept was fantastic (just as the original concept of B&B’s were a great way to leverage underutilized space and create authentic experiences – of course, somewhere along the way people decided hotels were a better solution to the problem, and thus the evolution began, so…) but scaling it while guaranteeing quality standards, service standards, and especially security were proving to be difficult. In response, Airbnb dipped their toe in the traditional hotel space. Though they don’t call it that, I’m hard pressed to see the difference between a Residence Inn and an ‘apartment building’ developed exclusively for rental on Airbnb (outside the quality of service, of course). They’re exploring the meta-search, online travel agency model by leveraging their consumer base to redistribute traditional hotels on their platform. They’re carving out specific portions of their portfolio for specific functions – such as corporate housing or daily ‘business’ rental units (sounds a lot like Marriott’s brand strategy doesn’t it?).
Airbnb’s problem today is that they’re solving problems that IHG solved decades ago. How do you create secure, scalable, quality consumer experiences in a way that is also profitable for owners? You build Holiday Inn Express, that’s how. How do you build an engaging digital consumer experience? You do it by building Hyatt World and integrating the purchasing and on-property experience into a single application. It turns out Airbnb wasn’t so much disrupting anything on the hospitality side, they were literally recreating the wheel by starting with a very shiny block of stone. Given these challenges, I remain skeptical that Airbnb will disrupt the traditional hospitality industry in any meaningful way (and the growth statistics on hotels certainly support my skepticism).
To make matters worse, it appears the lead they (perhaps) once had over the OTA’s in distribution and product differentiation may have also been more appearance than reality. Both of the major OTA conglomerates (Expedia and Booking) distribute hundreds of thousands of ‘home rentals’ varying in size and scale from lofts to castles. Even Marriott, a hotel company with such an established user base it operates with advantages like that of an OTA, has integrated the sharing economy into their brand portfolio (as have Hyatt, Accor and many others).
So where does all this leave Airbnb? Well, they’re profitable, so while they may not have been the disruption engine they were originally forecasted, they have certainly carved out an attractive niche that appears to be more additive to the travel and leisure space than it was competitive. That said, the future of the company remains somewhat unclear given the leadership changes in late 2018. My guess: it picks one of two paths forward. Leverage its still semi-distinct portfolio of product to build out a true 3rd player in the OTA market by fully integrating the product it was (supposedly) destined to kill. This feels most likely as the decentralization of the hotel marketplace is what made OTA’s so profitable in the first place, and this problem is even more amplified in the distributed ‘home-sharing’ marketplace. Or they may double down on the reimaging of the future hotel in building out the Airbnb brand as a true ‘home away from home’ model similar to startups like Sonder, which a Forbes profile unironically referred to as ‘Airbnb-style Apartments’ being developed into a different kind of accommodation.
Regardless of the path they take, I believe two things:
- Hoteliers and their representative companies should be very proud of the consumer experience and marketplace they’ve built. It may not be disruption-proof, but it certainly proved to be much more resilient than many believed.
- Airbnb should pick a path forward quickly before the Sonders of the world ‘disrupt’ them just as the Marriotts of the world out-digitize them.
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