Sharing economy 'is the future,' hoteliers say
02 OCTOBER 2015 8:00 AM
Executives Chip Conley of Airbnb and Kike Sarasola of Room Mate Hotels urged hoteliers to continue gravitating toward the sharing economy and reinvent the way they conduct business.
LONDON—If they haven’t already, hoteliers worldwide will soon enough realize that it’s better to join the sharing-economy revolution than try to fight it, according to two hoteliers who have embraced the concept.
“It is the future,” Kike Sarasola, president and founder of the 21-property Room Mate Hotels portfolio and founder of fledgling sharing-economy upstart BeMate, told attendees during this week’s Hotel Investment Conference Europe. “There is a niche for everybody. … We have to open our minds and listen to our clients. The client is changing.”
Chip Conley, head of global hospitality and strategy for sharing-economy behemoth Airbnb and the owner of 15 hotel properties, agreed, and said his own company is already trying to reinvent itself.
“You have to be willing to break your own model,” Conley said. “We are right now working on some ideas that literally would put us out of business. … (Continual reinvention is) the best lesson to learn.”
He pointed to the evolution of Netflix as an example of a company that reinvented itself to create a whole new market.
Hotel company executives are beginning to see the light, and perhaps the dollar signs that follow many sharing-economy platforms. Airbnb, which has a market cap that surpasses nearly all hotel companies, has met with the top six global hotel brands, according to Conley, and four of them have done “two-day immersions” at Airbnb’s headquarters.
“The likelihood we will brand our hosts’ homes under a global hotel company’s name is very, very small,” Conley said. “But I could see us doing other collaborative marketing relationships with them over the long term.”
Hyatt Hotels Corporation’s June investment in One Fine Stay, which rents owners’ vacation homes, could be the start of a trend, Conley said.
“That’s the first of many,” he said.
Venturing into new territory
Meanwhile, Sarasola and his three partners decided to venture into the apartment-rental space in a unique way. Launched in late 2014, BeMate invites apartment owners to be a part of a platform that is serviced by a nearby hotel. Services include an employee at the apartment’s location when a guest arrives, airport transfers, cleaning services and other hotel-oriented amenities, Sarasola said.
“The reality is over time the large hotel chains co-opt the disruptors, so there’s going to be some merging over time in a variety of ways,” Conley said, using the example of InterContinental Hotels Group now owning the once-independent boutique brand Kimpton Hotels. “Kike has been the tip of the iceberg in how hoteliers can embrace the idea of homes.”
Sarasola said he was approached last year by associates in Spain who said they wanted “to a strike on a company called Airbnb.”
Sarasola agreed to study Airbnb and said he eventually asked, “OK, why have I not used it?”
“I haven’t used it for different reasons; maybe I need more security, maybe I need more services,” Sarasola said. “I realized there was a niche there … so instead of fighting it, I said, ‘Let’s see if I can do something better.’”
The “something better” was clear to Sarasola when he discovered how many apartments near his hotels were listed on various shared-economy platforms, including Airbnb. Thus, the apartment/hotel pairing service was launched.
“It’s brilliant,” Conley said. “This is a great example of innovation. … The services of the hotel are needed by many of the travelers who stay in a home or an apartment, so it’s a very symbiotic relationship.”
BeMate is looking for hotel partners to add to the platform, Sarasola said.
“This is here to stay,” he said. “Me, as a hotelier, I had single rooms and double rooms; now I have apartments. … I tripled my portfolio with limited investment.”
The three-time Olympics equestrian participant said it’s important for hoteliers to act on their ideas—or get left behind.
“As hoteliers we already let reservations, bookings, just pass us; now we’re all stuck with all these big commissions,” Sarasola said. “This is a new way, a new trend and we should all accommodate ourselves and think how we can take part in this experience of the new way of traveling.”
Key issues in the forefront
The two entrepreneurs agreed that taxes and regulations are big issues in the shared-economy accommodations space.
“We’re trying to create sensible legislation around home sharing,” Conley said. “On the tax side it’s been more of an issue in the U.S. because hotel occupancy tax is a big part of it.”
The company didn’t set out to have taxes and regulations be a thorn in its side when it launched in 2007, Conley said. Its rapid growth and embarking on uncharted territory has led to the issues, but it wants to pay its fair share of government fees. The city and state of New York could collect $65 million a year in taxes from Airbnb if it allowed Airbnb to gain status as a tax collector, Conley said.
Conley said the average Airbnb host in big cities has a 20% occupancy rate each month.
“The average host only does it part time,” Conley said. “If somebody has to comply with full government regulations and they’re only doing it six days a month, they probably won’t do that.”
Sarasola, meanwhile, said there has to be a middle ground.
“It’s part of our industry’s terrain everywhere. We have how many regulations to open a hotel?” Sarasola said. “The same apartment building, the same specifics across the road has zero regulations in many cities.”
Sarasola said deregulating the hotel industry to some degree while regulating the apartment industry to a certain degree is something that must be addressed.
Room Mate listens to consumers
Madrid-based Room Mate Hotels, launched in 2005, has 21 hotels in operation—including properties in Miami, New York City, Madrid, Barcelona and Istanbul. It has 14 hotels in the pipeline.
Each of Room Mate’s hotels has the name of a fictional friend with a specific décor and personality, and Sarasola said the properties fall into the “4-star, affordable luxury” category.
The company does things differently than many hotels because it recognizes what consumers want, such as serving breakfast until noon, having late check-outs and not charging for Wi-Fi, Sarasola said.
“What I do know is what I do like and don’t like,” Sarasola said. “It’s those kind of things that you have to start doing and changing.
Hospitality is only part of the equation, he added.
“We are in ‘happytality’ because we make our clients happy,” Sarasola said. “We have to keep on looking, innovating and seeing things. Go with the flow.”
Under the hood of Airbnb
Conley, the founder of Joie de Vivre Hotels (now a part of Commune Hotels & Resorts’ portfolio), joined Airbnb two and a half years ago.
The average length of stay at an Airbnb dwelling is twice as long as an average stay at a hotel, Conley said. The average stay for a business traveler with Airbnb is seven days. There are 50 million hosts and guests on the Airbnb platform—between 10% and 15% of them are business travelers.
The average rate at an Airbnb unit is 30% to 40% less than the average rate at a hotel, Conley said.
Conley said Airbnb’s platform is succeeding in part because the hotel industry is behind the curve when it comes to four key areas:
- Travelers want to live like a local—they want a localized experience.
- People want to optimize digital technology. “The hotel industry is awful at innovating around technology for all kinds of reasons,” Conley said. “One of our success factors is creating a seamless and beautiful digital experience.” He said the company spends a lot of time studying the digital trends in China because what is going to be popular in the West in five years is happening now in China.
- People want a la carte services. “They don’t want a package of services—they want to be able to choose what they want,” Conley said.
- Knowing its customers’ tastes beyond what a concierge or front-desk person at a hotel would know. “This is the future disruptor,” Conley said. “We need to know our customers. Our technology needs to know their tastes so you can put a five-day itinerary together for them with suggestions on things to do. That’s the future for us. We’re not an accommodations company; we’re a travel company, and over the next few years that’s what we’ll evolve into.”
Conley said Airbnb has a system of nine hospitality standards that hosts must adhere to or be taken off the platform. He said many of the standards are enforced by the reviews that guests and hosts complete.
“The No. 1 thing we have going for us (is the review system),” Conley said. “If 20% of our guests in a hotel fill out survey after they stayed, I’m happy. At Airbnb, 70% to 75% of our hosts and guests review each other.
“The reality is the sanitizing platform we have is guests and hosts reviewing each other,” Conley said. “Because our community is so active and passionate, that helps us a whole lot. … Generally, we wouldn’t have gotten this big if people weren’t having a good experience.”
Conley said reviews only can be given by guests who complete their stay. Reviews from both the guest and host appear on the site at the same time, he said.
The company has 1.7 million listings on its website and on average there are 300,000 Airbnb guests staying in someone else’s home each night, Conley said.
But despite all of the success Airbnb and the rest of the sharing economy have experienced, hotels will not become extinct, according to Conley.
“At the end of the day hotels will continue to exist, and there’s a really good use case for why hotels exist—a two- or three-night business traveler on the road is often better suited in a hotel than they are in an apartment,” Conley said.