New technology often changes the way in which people do business.
Sometimes it doesn’t.
AirBnB has been getting quite a lot of press, lately. But it may ultimately fall a bit short of changing the hospitality and tourism business.
It does, indeed, reach into the private accommodations market, a market not reached by other travel sites like Travelocity, Priceline, Expedia and others. Until 2011, the domain of Craig’s list and small regional travel sites, vacation rental sites and local tourism boards, AirBnB takes global and social lists of private accommodations in many towns and cities around the globe. AirBnB also helps market destinations, which also helps any local tourism board’s mission.
If you are not familiar with AirBnB, it’s part of the new collaborative, or sharing, economy via technology. People share their stuff with others for a small fee or in barter systems. Jeremiah Owyang, published earlier this month an entire piece on the sharing economy, “Report: Sharing is the New Buying, Winning in the Collaborative Economy”.
AirBnB provides the tools to connect people to people instead of people to hotel rooms. Rather than staying at a hotel, AirBnB users look for accommodation at other people’s homes or apartments or second homes.
The service provides the communication and takes care of the payments, runs a review system like eBay for buyers and sellers. You can get verified as a buyer as well as a seller and if you’ve stayed at a seller’s place before, reviews. After a few vandalism incidents occurred at apartments, AirBnB also started supplementing the host’s liability insurance. Most home insurance policies do not cover damages from commercial enterprise.
Recently published numbers for AirbnB: It has 600,000 units in the system in 34,000 cities, 192 countries. In 2013 AirBnB provided 10 Million stays in 550,000 units. The company’s revenue in 2013 was $250 Million dollars.
AirBnB is not alone, and has some serious competition in the sharing and collaborative segment, especially in Europe:
- Wimdu: 5 Million stays in 300,000 units
- HomeAway: 625,000 units listed
- Roomorama, 120,000 professionally managed properties
- HouseTrip 300,000 units, just made TNW UK Tech5
- HomeExchange, 55,000 homes, stay is free
- CouchSurfing, 7 Million members, 100,000 destinations, free stay
- VRBO, 575,000 properties, or
- OneFineStay for Luxury homes
A piece published last week in Fast Company, reports AirBnB Founder and CEO Brian Chesky teamed up with boutique hotel entrepreneur Chip Conley to map out AirBnB’s path to world domination in the hospitality industry, – wait – , no, world domination of the whole travel industry from door-to-door.
The infographic, created for Fast Company’s post is very revealing. It claims:
“Counting beds on offer, Airbnb is already the fifth-largest hotelier in the world, with unparalleled global reach. The startup, whose prices are at least one-sixth cheaper than its traditional rivals, expects to have 1 million listings by the end of 2014.”
This seems to be out of perspective, which was pointed out Cornell University Professor Bill Carroll, who explained to Fast Company, “Airbnb is not a lodging brand”.
Carroll is a professor at Cornell’s esteemed School of Hotel Administration and his research focus is economics and the travel industry.
So back to the Infographic statement: Why in the world would someone choose hotel brands to compare to AirBnB and not Travelocity or Priceline, the direct competitors for AirBnB?
Did Fast Company follow Brian Chesky’s lead?
“In January, when Airbnb CEO Brian Chesky learned that Marriott International, one of the largest hotel groups in the world, planned to add 30,000 rooms to its property portfolio in the coming year, he defiantly boasted, “We will add that in the next 2 weeks.” (Fast Company)
It’s quite a stretch comparing adding 30,000 listings on a website to the 30,000 units to Marriott will add to their hotels. It’s like a real-estate broker announcing to add another 1,000 houses to their listings is equal to a developer building 1,000 houses in a new neighborhood.
What surprises me is that the economic magazine Fast Company and its editors followed Brian Chesky down this rabbit hole. The New York Times reported AirBnB is looking at 400 million additional capital, putting its market valuation at $10 billion. This places it slightly ahead of Hyatt, whose market value is $8.4 billion and Wyndam Worldwide valued at $9.3 billion market value.
If you compare AirBnB with the Hiltons or Marriotts of this world in size as well as operations, it’s really like comparing strawberries to water melons. AirBnB’s average occupancy per unit is 18 nights per year, compared to a normal hotel average occupancy of 66.7% (example Marriott) or 244 nights per unit. And with just roughly 178,000 units the main Marriott Hotel brand, provided 43 Million stays and almost $6 billion dollars revenue in total. Compared to this giant of the hospitality industry, AirBnB $250 Million, is really just a drop in the bucket.
If you want to compare oranges with oranges, compare AirBnB to other reservations systems, like Priceline or Travelocity or Expedia, whose purpose is to find the best travel arrangements among the many thousand units they have under contract.
Using that line of comparison makes much more sense to celebrate AirBnB and other private-to-private reservation systems, a novelty with a lot of traction. Peer-to-peer is the new sharing economy.
Young folks have always stayed in cheap accommodations and have not been the target audience of the Hiltons, Marriotts and Starwoods of this world. It doesn’t mean that business isn’t threatened by AirBnB.
AirBnB is, for most industry watchers, a technology and innovation company. And its success will rise and fall with the ease of use of its website. It needs to be faster and more streamlined for both sites, guest and hosts.
Despite all the hype about AirBnB and the success stories told around the service, I was underwhelmed by the outcome. The first surprise, was that although I am fairly computer literate, pick-up on user-interfaces intuitively and know my way around a search filter, it was quite hard for me to figure out the relevant parameters and how to break down the number of units found to relevant numbers. I had to unlearn a few assumptions. Read more of my AirBnB booking experience here..
There is already talk of beefing up professionalism and standards. The more it develops the more it will look just like any other travel agency or property rental site and service.
When AirBnB gets into the professional league its hosts will be treated like other niche accommodation businesses, managing rentals and overnight stays. Licensing will become an issue as well as tourism taxes, insurance, safety and accessibility rules will apply. We have seen public safety agencies already becoming aware and so are landlords. Many apartment property rules don’t allow for subletting or only rentals twice a year. There are plenty of AirBnB horror stories out there to alert officials of various cities to the new service. Whatever standardization and convenience processes will come into place, many hosts will consider it too much trouble to go through to augment a second income.
But make no mistake, the hospitality industry as a whole and the booking services in particular have managed to stay way ahead of the technology curve and innovation. They are also the masters of convenience as hosts. AirBnB has a lot of catching up to do, to play in the big leagues.