Abstract
The purpose of the paper is to assess the impact of Airbnb, the company that makes it possible for people from different countries to hand over their property to strangers, on the hotel industry. It is known that Airbnb is the third by cost value private IT-company in the world as its value is $25.5 billion. It is estimated that flow of orders of rooms for the night to Airbnb may increase from 79 million in the current year to 500 million over the next five years (and up to a billion within 10 years). In general, from a financial point of view, the success of Airbnb has not yet greatly affected the hoteliers, but with the pace of development resource has the potential to become a nightmare for all the industry soon. Hotel loading rate remains stable. The main advantage, which hotels have compared to Airbnb, is that they are presented on such sites like Priceline or Expedia. Also, as tourists prefer to relax as locals, hotels can offer such opportunities. However, Airbnb and similar sites indeed affect the real estate rental market in large cities.
Introduction
The modern age of the Internet offers many opportunities for travelers. Various online services appear like mushrooms after rain, but only a few manage to win the love of users. Recently, the hospitality industry has faced rapidly growing threat. Airbnb is service, which impact on the travel industry for the past nine years has forced more than one hundred hoteliers to worry. It is only in the last three years, the estimated value of the company makes up over $20 billion, and the more people learn about Airbnb, the harder it becomes for accommodations to fight for the preservation of their positions. Airbnb is the third by cost value private IT-company in the world as its value is $25.5 billion (Winkler, 2015).
Analysts from Wall Street believe that Airbnb’s development will seriously alter the hospitality industry. According to the forecast of one of analytical companies, by 2025, a billion bookings of nights in hotels a year will be through this service. Such optimistic forecasts are made on the basis of information available to analysts. According to the data service users, on average, are more satisfied with their experience than traditional hotels – and this applies to both private travelers as well as representatives of the corporate segment (Verhage, 2016).
It is necessary to analyze different sources in order to define the impact of Airbnb on the hotel industry. The paper will pay attention to the company’s history, its growth, advantages of the service, the success of Airbnb form different perspectives and, of course, positive and negative effects on the hotel industry.
Findings and Analysis
The idea to create the company came from two roommates in San Francisco. To compensate for their own rent, they decided to lease out their living room in the loft for travelers on a “bed and breakfast” basis. Company’s name was due to service inflatable mattresses (air), which the boys gave to guests as a place to sleep. Sometime later, a brilliant idea turned into a half-billion dollars profit and millions of users, making Airbnb serious and potentially very dangerous competitor for the entire hotel industry. The main purpose of the resource is to offer a cheaper alternative to classic and individual hotels, and a key differentiator of Airbnb from other offers of overnight stay with breakfast is that the service does not involve mediation. That is, the beneficial owner is solely responsible for the leased housing, and potential guests have an open access to information about all the services, amenities and characteristics of the housing. Therefore, Airbnb raised to an entirely new level the concept of “feel at home” (Crook and Escher, 2015).
According to research conducted by CBRE Hotels, over the past year Airbnb service significantly expanded its presence in all the major hotel markets of the United States. Its users spent in 2015 for the rental housing around 2.40 billion US dollars (CBRE, 2016). The high growth rate makes this service one of the most promising and attractive for start-ups of our time investors. Sustainable business model (commission from the transaction) has allowed the company to obtain over the last year $900 million revenue (Winkler, 2015). An important role in this was played by hit of Airbnb into business incubator Y-sombinator, which helped to guide the development of start-up in the right direction. Currently, the service has more than 600 thousand of announcements from 34 thousand cities – from the cozy French villages to large American cities like New York (Airbnb Inc., 2016).
According to statistics, 2/3 of the members of the community have begun to use the service through the recommendations of others. This means that the increase in the number of offers and requests for reservations grows organically (Verhage, 2016). Creators say this as a distinct advantage, because it is possible to copy a website and business model, but impossible to copy the links between people. A big plus of Airbnb is the availability of options for audiences’ placements with different needs and financial capabilities. Here, people can rent a place in a hostel for $8, and a real medieval castle for $10 000 per day (Crook and Escher, 2015).
Figure 1. Airbnb User Satisfaction vs. Average Hotel Stay
Share economy in the face of Arbnb is important for local small businesses. The average traveler spends about 60% of his/her expenditure in the area of the city, where he/she finds accommodation – at hotel or apartments. Given the serious increase in bookings, revenue, which guests bring by booking of accommodations through Airbnb, may be important for the regions (Brown, 2015).
Figure 2. Aibnb Guests vs. Hotel Guests
According to estimates of Cowen Group Inc., the flow of orders of rooms for the night to Airbnb may increase from 79 million in the current year to 500 million over the next five years (and, as noted above, up to a billion within 10 years). However, that does not mean the imminent disappearance of the traditional hotel business. Its support must be travelers, who have business trips. A large number of people yet still prefer the old fashioned way to book hotels (Verhage, 2016).
Perhaps the main obstacle to Airbnb is all sorts of restrictions, rules and laws governing short-term rental housing. At the same time, it does not concern listed hotel industry. Consequently, despite the amazing pace of development of Airbnb, the hotel still enjoy much greater trust and support of the government, and also have a disproportionately large customer base, which generally allows hoteliers continue to control the market (Crook and Escher, 2015).
The main driving force of similar start-ups is the economy of the future, or share economy, when people start to give preference to other services of the same people, not companies. It is not just a burst of activity; it is a steady trend that is just beginning to gain momentum. In general, the secret of rapid take-off startup Airbnb is simple, and at the same time, brilliant: if the service helps people to save money and solve their problems – the success to become only a matter of time (Walker, 2015).
Regularities of the world market of tourist and recreational services is becoming increasingly competitive, explained by the saturation of many market sectors (e.g., beach holiday market) and the implementation of strategic plans for the expansion of tourism in many countries. According to the world ranking of competitiveness of countries in the field of tourism and travel by staff of the World Economic Forum, positions of separate country in the global market are determined by factors such as government policies and legislation in the field of tourism; environmental legislation; security; level of health care and sanitary condition; priority for the tourism sector authorities; air transport infrastructure; land transport infrastructure; tourist infrastructure; telecommunications infrastructure; price level; human resources; attitude of local people towards tourists; natural and cultural resources. The greatest development international tourism has received in Western European countries. It should be noted that international tourism, which is characterized by the fact that a significant part of the services is made with a minimum of place, plays an increasingly prominent role in the world economy. The tourism industry is one of the economic strikers, giving an impressive value added cost. Currently, medical and health tourism has taken a leading position among other forms of recreation. In the world, the idea of a healthy lifestyle is actively promoted and more and more people aspire to a harmonious state of body and soul. In difficult economic conditions, consumer interest in the SPA has its own characteristics, and sale of health and SPA-tours services – certain technologies (Walker, 2015).
Airbnb has been able to win political sympathy in cities such as Chicago and Washington, because the apartment owners obliged to register and pay taxes. Such a policy has worked in cities such as San Francisco and Portland, which are ready to legalize short-term rental apartments. However, the situation in New York is not so clear, because local laws require that the lease term is not less than 30 days, and room rates in the city are among the highest in the country (Newcomer, 2015).
Share economy has forced hotel brands remain in the shadows. If they make an attempt to criticize such a business model, then, of course, it will look like dinosaurs, stragglers from the realities of the new economy. And if the hotel did start to work in the style of an equity economy, such as, Marriott, offering space to work on the request, there is a great danger that the hotels themselves become part of the economy (Brown, 2015).
Some have suggested that part of the Airbnb’s success is a merit of the writer’s talent of company’s head Douglas Atkin. In 2004, he wrote the book “The Culting of Brands: Turn Your Customers into True Believers”. Atkin studied such iconic brands as Apple, Saturn, Harley-Davidson and jetBlue, and such real cults as the Unification Church and the Hare Krishna Movement. The goal was to create a guide for brands on how to attract followers in the spirit of worship, and, in general, to encourage companies to use the same form of loyalty, devotion and feelings of a single community. The same form of enthusiasm is easily noticed among Airbnb users, who believe they are helping to change the world. The problem is that it is rather difficult to change the view of consumers by traditional marketing methods because all actions of hotels will certainly be interpreted as an attempt to bring them to the “right path” (Strong, 2014).
Today, the best online retailers use the processes and schemes developed by Amazon.com, and differ only in the range of products, descriptions, services or prices. Creating a fundamentally new scheme of the process of “add to cart / place your order” is merely puzzling. Every day Airbnb does the same with millions of travelers. It teaches people how to buy a house and which services can be expected in a democratic environment. Initially unpleasant concept (sleeping stranger in the house) is not uncomfortable anymore. Adding to this process the possibility of options of traditional accommodation reservation in the hotel is simple and logical extension of the list of services, in the same way as Amazon easily expanded its product range by adding more and more related articles and to show tremendous growth in the twenty years of its existence (Walker, 2015).
Hotel loading rate remains stable: at the moment it is on average equal to 65% in the US, but Morgan Stanley employees of the company say that the front has a few more years to grow. In the US and Europe, utilization rate should rise to 67.6% at the end of 2015, 68.6% - in 2016, and 69.1% in 2017. Load level is considered to be a measure of performance of the hotel market. Historically, equity securities hotels dropped in price from 12 to 15 months after the occupancy rate reached the highest mark. Employees of Morgan Stanley argued that at the earliest, when it happens – from 12 to 18 months from now. In the US, where the load level is lower than in other developed markets, this occurs later – for approximately two years. Even then it takes at least another year, while there is a noticeable drop in the securities, which should provide an additional safety cushion on the requirements of shareholders and fears about Airbnb (Morgan Stanley, 2015).
The main advantage, which hotels have compared to Airbnb, is that they are presented on such sites like Priceline or Expedia. OTA (online travel agency) remains the most popular way of booking rooms among travelers, and, it is unlikely that Airbnb will generally appear in the lists of sites like Priceline due to the concern about information security and privacy. The fact that only 13% of respondents said that they used other tenancy sites, including VRBO and HomeAway, also presupposes the existence of a potential niche non-hotel type of property that can hold back the adoption of the company’s service by users (NASDAQ, 2015). In the less popular cities among tourists, the share of apartments placed at Airbnb in relation to the total number of housing is low enough for the free rent. For example, in Austin only 6% of apartments is rented through the internet service, and in Nashville – 3%, while in New York – 18%. Moreover, the impact of Airbnb on the rental market is uneven, even in big cities: in some areas, as a rule, popular for tourists, the share of apartments handed over Airbnb is extremely high, in other service cannot actually affect the rate (Morgan Stanley, 2015).
Figure 3. Channels for Booking Accommodation
Airbnb would cover a large share of the OTA market, and hotels would pay lower commissions to get clients. These agencies usually charge a commission of 12% to 18%. However, the standard commission of Airbnb is 3%, and it might be of material savings on the traffic and the cost of bringing one customer, and would give hotels more leverage to negotiate with the OTA (Morgan Stanley, 2015).
Most of the proposed by Airbnb facilities are outside the traditional areas of hotel (Crook and Escher, 2015). This means that people, who definitely want to be in the center of events, will be more likely to look for the hotel, located near major attractions and popular holiday destinations. Therefore, in considering a marketing campaign, it is important to not forget to include the regular publication of posts about upcoming events and major events taking place near residents.
Also, hoteliers can take advantage of the following information. According to Airbnb own research, about 91% of the users prefer to travel to live “like a local” (Crook and Escher, 2015). That is, the vast majority of Airbnb’s users see themselves not so much as the tourists, namely travelers. So, for its target audience the hotels have to create content, which would have disclosed priceless insider information about the best and not very well-known local attractions, restaurants, parks and bars.
Thus, properly filed information is half the battle. Airbnb may well boast of such skills, namely reliable, beautiful, high-quality photos of apartments, convenient filter selection by country, city, type of property and free on specific dates. Hotels should transfer these advantages in the plane of the existing hotel businesses to increase the presence of property on the Internet. It is necessary to make sure that hotels properly line up a communication strategy in all areas, including social networks.
Conclusion
Airbnb started as a site for the cheap rooms and apartments for hipsters. Today, it captures the segment that is most cherished by the hotel owners: the rich and business travelers. Airbnb takes advantage possessed by social media. Airbnb offers many different options for the premium segment, which should cause alarm for many hoteliers.
One of the most tangible benefits of Airbnb is a low cost of living, so the stock offers, or simply reduced rates for rooms will necessarily play in hotels’ favor. Thus, by its appearance Airbnb, of course, violated the established industry status quo, and it would be very interesting to watch the development of events in the near future (NASDAQ, 2015). The main objective of independent hotels is not to get lost in the hustle and bustle. It is recommended to try analytical approach to the actions of competitors and closely monitor their successful and unsuccessful actions to be always one step ahead.
Therefore, the ease of Airbnb has already been appreciated by investors: even taking into account the high costs at the time the apartment for short term revenue is significantly higher than the long-term lease. Even if such an apartment will be idle without the tenant two months of the year, its yield will be 6-7%, while the long-term lease will bring only 3-4% per annum (Winkler, 2015). Airbnb and similar sites indeed affect the real estate rental market in large cities. At the same time, the activity of the locals and the authorities will likely lead to the fact that the laws will in due course governing the use of such services and tax payments for their users.
References
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