Hospitality Wars: Airbnb vs Hotels

Chances are pretty slim that you’ve never heard of Airbnb… But in case you’ve been living under a rock, Airbnb is an online marketplace for arranging or offering lodging, primarily homestays, or tourism experiences. The company was founded in 2008 and became so popular, so quickly, that many began referring to it as an industry-disrupting platform. Airbnb has caused similar concern within the hospitality industry as Uber has within the taxi business. Afterall, they are both “aggregation” platforms, meaning that they’re main function is to connect service providers and consumers. According to The Atlantic, Airbnb is actually the second biggest “start-up” in the country after Uber.
Worrying about what kind of impact Airbnb is having on hotels is not entirely unwarranted. Check out these stats…

  • Research firm MoffettNathanson released a study stating that the share of American travelers using “private accommodations” like Airbnb quadrupled between 2010 and 2015.
  • In 2014, an assistant professor at Harvard and a postdoctoral fellow at MIT wrote a research paper titled, “The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb.” This paper states that in the 10 cities with the largest Airbnb market share in the US, the entry of Airbnb resulted in 1.3 percent fewer hotel nights booked and a 1.5 percent loss in hotel revenue.
  • According to a report from Morgan Stanley, 42% of Airbnb customers had replaced a traditional hotel visit with the digital service.

The funny thing is that although Airbnb has certainly made an impact on the hotel industry, the effects have been mostly positive, even for the hotels themselves. Here are the three most prevalent changes to the world of hospitality that Airbnb and other platforms like it, such as Vrbo and HomeAway, have caused since they hit the scene…

  1. There are more beds so we can all lay down our heads. During peak seasons, cities run out of hotel beds. It’s not uncommon to try and find a place to stay after a concert, sports game, graduation, or regional special event only to discover that all the hotels in town are fully booked. Because this is only a problem during specific times of year, it’s not profitable for hotels to just keep expanding. Sure, they could add enough rooms to meet the need during their peaks, but that would result in a lot of empty rooms (and wasted money) during the valleys.

What’s particularly interesting to think about is that the number of new hotels being built plunged after the Great Recession and the progress still hasn’t quite picked up steam yet. So, many Americans can afford to travel again, but the number of hotel rooms being offered to them hasn’t quite caught up to the number of people demanding them. This all means that sometimes people aren’t booking through Airbnb because they prefer it, they’re doing it simply because it’s their only option.

  1. Vacationing is now more affordable for more people. Another thing to keep in mind about busy seasons and hotels is that the general rule of thumb in the hotel industry has been to increase room prices as availability decreases. This is basic supply and demand, but because Airbnb has entered the scene and consistently offers travelers lower prices, hotels have to keep their own fluctuating rates in check in order to compete with the platform.

Those in the hospitality industry often try to argue that this is a negative effect because hotels traditionally earned their biggest margins when rooms were scarce because they had an excuse to jack their rates up. Making tourism accessible to more people, however, means the overall industry is being set up to thrive. So, although Airbnb’s pricing is most immediately a consumer benefit, the hotels that adapt their prices to compete with the platform and only spike costs when necessary are welcoming whole new groups of cliental through their doors. Plus, more and more cities are adding home-sharing regulations in order to keep Airbnb etc. in check as well and to make any negative effects on hotels less pronounced.

  1. Airbnb cracked the code when it comes to marketing to millennials. According to MoffettNathanson, half of Airbnb’s bookings are made by millennials. This might have something to do with how they market themselves, constantly using words like “experience,” “authentic,” and “intimate.” Plus, it helps that the bookings they offer are often genuinely unique. The good news for the hospitality industry is that a lot of hotels have also found success through imitating Airbnb’s strengths. Like all good disruptors, Airbnb is causing creative change within their industry, because hotels are not accepting defeat. They are instead evolving and expanding their business models and services, which is actually bringing them more business.

For example, hotels have always catered more to businesspeople, but with more types of people traveling for a wider variety of reasons, they’re starting to switch that up a little. Something that millennials love about Airbnb is that it lets them live like locals, even though they’re not! Because of this, savvy hotel companies have sought out locations that are within walking distance to restaurants, bars, and other local attractions, instead of just the airport.

Airbnbs tell a story about the community they’re in through the location, the decor, the extra offerings, and more. That’s what many hotels are (and those who aren’t should be) trying to emulate. Airbnb may represent the future, but it does not have a monopoly on the hospitality industry. It has simply leveraged preexisting weaknesses, so in response, hotels are making corrections and becoming stronger businesses. It’s actually kind of a win/win/win situation: for Airbnb, for travelers, and for hotels.

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