Airbnb in the spotlight, but others on stage
15 DECEMBER 2015 9:57 AM
Airbnb has emerged as the hotel industry’s poster child (and public enemy No. 1) for the sharing economy. But is the attention justified amid a crowded landscape?
REPORT FROM THE U.S.—The American Hotel & Lodging Association does not discriminate in its fight to level the playing field between its members and the relentless horde of peer-to-peer booking platforms permeating the accommodations space.
“We don’t distinguish between any of them; it’s platforms that are facilitating the growth of illegal hotels,” said Troy Flanagan, the association’s VP of state and local government affairs.
And yet much, if not most, of the rhetoric filling the debate focuses on Airbnb in particular.
At hotel industry conferences, on webinars, in conference boardrooms, in media and anywhere the conversation covers the sharing economy, talk inevitably shifts toward this poster child.
Airbnb’s dubious distinction is well-deserved, sources said. With a market cap of $25.5 billion, it dwarfs not only other peer-to-peer players but the hotel industry’s largest chains. (Hilton Worldwide Holdings, for instance, had a market cap of $23 billion at press time.)
Airbnb also boasts the most annual bookings in its sphere of the sharing economy, maintains the biggest marketing presence, and is most vocal in the debate(s) around rules and regulations.
Airbnb has become so ubiquitous that, like Uber in the car-sharing sector, it now serves as a proxy for all peer-to-peer booking platforms at large.
“Sometimes you just start calling the dominant player what that industry is about. For example, Xerox and Kleenex are used interchangeably with copy machines and facial tissues,” explained David Kong, president and CEO of Best Western Hotels & Resorts.
Shine the spotlight on a single player, however, and you risk missing the others on the stage. And as sources acknowledged, the sharing economy is so much more than a story of one.
Sharing economy centuries old
Arun Sundararajan doesn’t like to pin a hard definition on the sharing economy. The space is fuzzy, with many different spheres flexing as they evolve. Rather, he prefers to ascribe to it certain attributes.
Moving away from exclusive ownership toward shared access is one of them. Another is a shift from getting things from companies toward getting things from other individuals through a peer-to-peer market or a sharing community.
Put more succinctly: “A blurring of lines between personal and professional in the provision of commercial services,” said Sundararajan, professor and the Robert L. and Dale Atkins Rosen Faculty Fellow at New York University's Leonard N. Stern School of Business. His current scholarly research focuses on peer-to-peer markets and the sharing economy across all sectors, including hospitality.
“Someone’s a hotelier, but not really. Someone’s a taxi driver, but only for two hours a week,” he offered as examples.
While Airbnb sits as a prime example, the consumer behavior behind it is by no means new. On the contrary, “the behaviors embodied in the sharing economy have been around for centuries,” Sundararajan said.
The executives behind savvy sharing-economy startups such as Airbnb know this.
“Home sharing has historical roots. In 1953—within a year of the first Holiday Inn sprouting in Memphis, Tennessee—the Swiss and Dutch Teachers unions created a home-sharing alliance so their members could find an economical way to travel while improving the understanding of a different culture,” wrote Chip Conley, Airbnb’s head of hospitality and strategy, in a 2014 HNN report.
Airbnb itself was founded in August 2008.
Life before Airbnb
Wyndham Vacation Rentals was founded in 2001, although its roots—specifically, the U.K.-based Hoseasons brand it acquired in 2010—extended back more than 70 years.
An arm of Wyndham Worldwide Corporation, WVR now manages more than 105,000 vacation rental properties in more than 550 destinations worldwide.
Gail Mandel, CEO since November 2014 (she’s worked with the company in earlier iterations since 1993), categorizes the company within the sharing economy, noting it enables private owners to rent their real estate to their peers. As such, Mandel has kept tabs on other would-be competitors in the space. That means she remembers life before Airbnb—before the tax controversies and reach for regulations, before the term “sharing economy” was even commonplace.
In particular, she remembers HomeAway, which was founded in February 2005 and now has a portfolio of more than 1 million listings in 190 countries.
“We were paying attention to it,” she said. “We were very much aware of HomeAway and what they were doing.”
WVR executives didn’t take any action at the time, however, because HomeAway was too small, too inconsequential. “They really were a classified ad giving opportunities for people to find other people.”
Best Western’s Kong remembers it, too—and other players like it. They were what the sharing economy should be about today, he said, “which is people with a spare bedroom or they want to rent out their vacation home for a while. It was small players. … At that time, it was a different kind of competition. We didn’t really look at them as direct competition.”
Steve Cohen didn’t consider the peer-to-peer model a direct competitor either. Now a VP of research and insights at marketing firm MMGY Global, he was working for Marriott International a decade ago. Occupying a bigger blip on his radar back then was Exclusive Resorts, which curates high-end housing for members.
“We felt like it was more a direct competitor because of the high-end nature of it,” he said. But when Marriott executives didn’t see any impact, they stopped paying attention, Cohen said.
A sudden shift in focus
Fast forward more than 10 years, and the sharing economy and the competition it now represents are atop the mind of most hoteliers.
So why the sudden attention and interest?
“What’s different here is that it’s scaling to the point it’s becoming a mainstream commercial activity. That’s why we’re paying so much attention to it now,” Sundararajan said.
Fueling the rise of the Airbnbs and HomeAways of the world is a fundamental shift in consumer behavior, sources said.
“It’s being completely led by millennials who travel differently, are more likely to spend money on experiences than on things,” Cohen said, citing MMGY research.
Whereas a hotel in the central business district once defined a city visit, now many guests are looking for accommodation that lets them live like a local—often off the beaten path in neighborhoods that are anything but touristy, Cohen said.
More than two in 10 travelers (23%) stayed in a vacation home rental as an alternative to a traditional hotel/resort during the past two years, according to MMGY’s “2015 MMGY Global portrait of American travelers” study. Nearly four in 10 (39%) expressed interest in staying in a vacation home rental as an alternative to a traditional hotel/resort during the next two years.
“With that said, there will always be a gap between those (who) have done it and those who would have liked to do it. … It’s an aspirational thing,” Cohen said.
But don’t brush off the data, he stressed. “You’d better pay attention, because you have 40% of people who say they like to do it and go away from your offering with another offering.”
That intention—real or aspirational—has translated into exponential growth for the sharing economy.
Approximately half (46%) of Americans reported engaging in the peer-to-peer economy in 2015, according to a nationwide consumer survey commissioned by the Travel Technology Association and the Internet Association. That number is up 144% from the 19% of Americans reported by PricewaterhouseCoopers in December 2014.
Airbnb alone is projected to book 80 million roomnights in 2015, up from 40 million in 2014, according to a Reuters report.
Rachel Botsman, an author and consultant on the sharing economy, pegged the future combined market value of peer-to-peer accommodation rentals at $80 billion by 2020.
Research from PwC projects a 31% compound annual growth rate in the sector from 2013 to 2025. (The company also forecasted the potential value of the five main sharing-economy sectors—crowdfunding, online staffing, accommodation, car sharing and music and video streaming—at $335 billion by the same year.)
“Right product, right offering at the right time,” Cohen said. “And that’s why you’re hearing about it so much now.”
The ascension of Airbnb
Airbnb’s product and offerings seem particularly ripe for the time, which explains the platform’s astronomical rise, sources said. Such success also explains the increased scrutiny.
“What makes Airbnb notable is they have expanded this to a scale where they are comparable to a large hotel chain in terms of the volume of rooms they are provided,” Sundararajan said.
You become much more difficult to ignore at that size and scope, he continued. That’s why so many within the hotel industry are calling for government intervention.
The market can self-regulate in a lot of ways. If a hotel is dirty, for instance, guests will complain publicly online, and other guests are far less likely to visit. The government need not regulate linen thread counts and laundry detergents and number of stains on the sheets, Sundararajan said.
“Regulation is necessary when markets fail,” he said. “If you believe in markets, you have to believe in regulation because markets are never perfect. You have to have an entity that’s constantly monitoring them and making sure the things that aren’t naturally provided by the market that society needs are provided through regulation.”
This can take many forms, Sundararajan said. Safety is the obvious example.
A guest probably won’t blast an accommodations provider online for not having working smoke detectors. Most probably would never notice. It’s only after a fire has happened that working smoke detectors matter, but by that time it’s too late, he said. That’s where the government must step in.
Other examples include things such as taxes.
“There’s a logic for why hotels pay taxes. If we agree the same logic applies to Airbnb hosts, we conclude Airbnb hosts should pay taxes of some form,” Sundararajan said.
The existing regulatory framework to manage the above (and more) is an incomplete patchwork at best, sources said. Many municipalities still are struggling to wrap their arms around the issues. That’s bred public debate in some places—debate in which Airbnb itself has played a very public role.
In its home market of San Francisco, for instance, Airbnb spent $8 million to squash a ballot initiative that would have put strict restrictions on the city’s short-term rentals, according to campaign contribution filings.
The AH&LA’s Flanagan said other platforms haven’t been thrust into the political spotlight in part because they have different operating models.
“Airbnb, to distinguish it from the others, is more about handling the transaction between the host and the guest. Because of that, it’s really revolutionized and facilitated a huge uptick in the volume of illegal hotels on more of a nightly basis as opposed to some of those pre-existing platforms that were more about advertising and connecting families with longer-term vacations,” he said.
Kong and Mandel noted other distinctions as well.
“Airbnb has basically changed that whole model. They have a lot of commercial listings, people who have condo buildings and instead of renting them out for the month or a long-term leisure,” Kong said.
“(Airbnb) has shaken up the marketplace,” Mandel said. “They’ve found a different approach to going in and sharing people’s primary residence. We’re in the business of sharing secondary residences, vacation homes.”
The culmination of all these things—the success and visibility and controversy and marketing clout—has propelled Airbnb into its own tier, one where the brand almost becomes synonymous with the sector that occupies it.
“They have a unique ability for their brand becoming a verb for something to do, like Googling,” Flanagan said. “That comes along with being the dominant player in the market.”
Representatives from Airbnb declined to be interviewed for this report.