Airbnb and the Hotel Industry

Hamutal Schieber | December 2015

The world’s largest provider of rentals, doesn’t own a single room.

Introduction• The following presentation aims to explore a disruptive trend for the

hotel industry: the Sharing Economy.• This trend affects the entire hotel ecosystem, including Online

Travel Agencies (“OTAs”), boutique hotels and hotel chains.• Another disruptive force in the industry is the penetration of “new

era” competitors such as Google, Amazon.com, Facebook and Apple to the travel & accommodation industry. This trend is not covered by this presentation.

Competitors - DefinitionsType of Competitor ExamplesOTA (online travel agencies), Meta-Search - leverage their search technology to aggregate travel search results for the consumer's specific itinerary across travel service provider (e.g., accommodations, rental car companies or airlines)

Expedia (inc. Hotels.com, Hotwire, Travelocity, Venere, and others), Orbitz.com (which has agreed to be acquired by Expedia), laterooms and asiarooms, which are owned by Tui Travel, Priceline etc. TripAdvisor, Trivago (Expedia)

Direct Booking: travel service providers such as accommodation providers, rental car companies and airlines, many of which have their own branded websites to which they drive business

Travel companies, inc. Hotels / Hotel Chains, Airline companies such as - Carlson, Best Western, Starwood, Accor etc. including joint efforts by travel service providers such as Room Key, an online hotel reservation service owned by several major hotel companies

Vacation Rentals - focuses on vacation rental properties, including individually owned properties

Airbnb, HomeAway

Online / e-commerce Google, Apple, Facebook, Alibaba, Amazon and Groupon

Intro: Hotel Industry Consumer Trends

• As described in detail on our latest Hotel Digital Marketing Trends, in order to offer value to consumers, travel industry competitors must understand what is driving consumers:

Personal Social

Value For MoneyConvenient

The travel consumers are increasingly searching for a tailored, personal experience

they rely on their social network and friends – as a result, we are witnessing a booming “sharing economy”

they are looking for the most convenient, instant experience, straight from their mobile, seamlessly moving between channels

they are looking for the best offer that would maximize the value they are getting for their money.

The Sharing Economy and Airbnb

What is “The Sharing Economy”?

• “The Sharing Economy”: a trend that stems from the consumers desire to access and manage assets without the interference of corporations on the one hand, and from enabling technology and the emergence of social media on the other hand.

• It mainly refers to digital peer to peer platforms, which allow people to share goods and services, acting as virtual matchmakers and lowering transaction costs. Examples include: Uber, Lyft, Lending Club and Airbnb.

• Per Goldman Sachs, Millennials are especially interested in access to products without the burdens of ownership.

• According to PhoCusWright’s Share This! Private Accommodation & the Rise of the New Gen Renter , 22 million adults stayed in private accommodation when traveling for leisure over the past year.

• This accounts for 17% of all US travelers.

What is “The Sharing Economy”?• Top funded start-ups in the “Collaboration / Sharing Economy”

landscape; Source: Jeremiah Owyang, Crowd Companies

What is “The Sharing Economy”?

• Some of the competitors operating in the sharing economy landscape, by Jeremiah Owyang, Crowd Companies.

• full picture: https://www.flickr.com/photos/jeremiah_owyang/15780762319/in/photostream/

Airbnb: Sharing Economy’s “Poster Child”

• Founded in 2008, Airbnb connects "hosts" with guests through an online platform – Airbnb.com.

• Though about two thirds of the listings are for an entire home, guests have multiple options, ranging from living room couches to shared and private rooms to even castles, tree houses, and igloos (source: nasdaq.com)

Airbnb: Success by the Numbers

• Airbnb recently secured $ 1.5 billion in VC financing, according to a valuation of over $ 20 billion.

• Since Airbnb's creation in 2008, it has hosted over 40 million guests across 34,000+ cities spanning over 190 countries. Currently, there are almost 2 million listings worldwide (75% increase 2014 – 2015) with about 25% of them in the U.S.

2013 2014 2015

250

450

900

Airbnb Revenue in $ M

Airbnb: Success by the Numbers

Source: Skift 2015 (based on company filings for all except Airbnb which is self-reported)

Airbnb

Homea

way IHG

Hilton

Marriot

t

Wyn

dham

Choice

Hote

lsAcc

or

Starwoo

dHya

tt

1,200,000 1,100,000

722,575 715,000 715,000 600,000

500,000 480,000 348,117

156,875

Rooms/ Listings in 2015

Airbnb: Success by the Numbers

Source: Skift 2015 (based on company filings for all except Airbnb which is self-reported)

Hilton

Airbnb

Marriot

t

Starwoo

dAcc

or

Wyn

dham IH

GHya

tt

Choice

Hote

ls

Homea

way

27.6824

21.1

14.05 12.610.09 9.87 8.14

3.24 2.95

Market Cap / Valuation 2015 USD Billion

Airbnb: Success by the Numbers

A new report by Airbnb shows that, the summer of 2010, about 47,000 people stayed with an Airbnb host, compared to almost 17 million people stay at an Airbnb: X353 growth.

Airbnb’s Business Model

• The primary source of Airbnb’s revenue comes from service fees from bookings. Depending on the size of the reservation, guests are required to pay a 6% to 12% non-refundable fee. A more expensive reservation will result in lower service fees for guests.

• With every completed booking, hosts are also charged a 3% fee to cover processing of guests payments. When a reservation is booked, guests pay the service fee unless the host cancels or retracts the listing. If the reservation is altered, Airbnb adjusts service fees to accommodate users. Source: Investopedia, 2014

Airbnb’s Business Model

• While the company mostly targets younger individuals, it recognized growth in the business travel segment and begun focusing on business travelers as well. The new business product will include central billing and a dashboard for travel managers to track employee itineraries and spending.

• Hosts can now get a “Business Travel Ready” badge for their listings to make it easier for business customers which means that they have Wi-Fi, a designated workspace, an iron and hair dryer and a strict policy when it comes to cancellations - hosts can’t cancel less than seven days before the planned stay

Airbnb’s Business Model

http://www.wired.com/2015/07/people-business-like-airbnbs-better-hotels/

Airbnb’s Business Model

Is Airbnb Disruptive?

• Airbnb accounted for 2.9 million, or 7.8%, of overnight stays in New York (one of its key markets) in the latest fiscal year, compared with 33.9 million, 92%, of nightly rentals among hotels, according to the Hotel Association of New York City. Yet hotels brought in a larger portion of sales — 95 percent of gross revenue, or $9.4 billion, thanks to a higher average cost per room.

• In addition, Airbnb’s growth does not necessarily come at the expense of the hotel industry, as some of its visitors would not have considered to travel without the Airbnb option.

• However, the rentals market is most definitely disruptive: first, it creates a large number of new options for travelers, competing with hotels; second, competitors in the industry are courting luxurious segments such as business travelers and premium travelers.

Is Airbnb Disruptive?• An Airbnb infographic claims that many of the Airbnb travelers would

not have traveled otherwise, indicating that the company increases the pie – rather than taking a share of it:

How is Airbnb Disruptive?

• The vacation rental platforms are also disruptive to OTAs, as hotels may choose to use the Airbnb platform instead of OTAs to list their rooms. While typically charge hotels a 10% to 25% fee per reservation, Airbnb, by contrast, charges hosts a 3% fee.

• At the recent Revenue Strategy Summit, Mark Carrier, president of B.F. Saul Company Hospitality Group, described Airbnb as "a structural threat to our industry," citing its ability to undercut hotels on price during critical peak seasons.

• At the same event, McKinsey & Company analyst Ethan Hawkes predicted the company could rise from 1% to 9% of the $1 trillion global hospitality bookings market by 2020. (source: CNN, 2015)

Airbnb’s Reasons for Success

Airbnb: Key Success Factors

• Airbnb’s success stems from the fact that it meets the needs of the consumers, in particular the millennial consumer (born between 1980 and 2000):

1. Democratization (part of the VFM trend)2. Loyalty and Community (part of the VFM trend)3. Sense of Belonging (part of the Personalization

trend)4. Customer Empowerment – the micro entrepreneur5. Brand Building through content and engagement

Airbnb: Key Success Factors

Democratization (part of the VFM trend)• The company says it wishes to “democratize” services by

bringing them to the hands of the people. • The company claims that 81%of hosts share the home in

which they live, and that the travelers assist local economy. Therefore, staying with Airbnb is positioned as “a community which benefits local economies across the world by supporting residents and local businesses, and encouraging cultural exchange.”

• OTAs and hotels cope with this strategy by offering tie-ins with local services (such as: local gym access for a lower fee), and new pricing methods such as bids, last minute offers and reverse bids.

Airbnb: Key Success Factors

Loyalty and community• Airbnb’s referral program has changed

over the years as a result of a “trial and error” strategy.

• In 2014, Airbnb’s new referrals program has resulted in hundreds of thousands of nights booked by referred users in 2014, and referrals increased booking as much as 25% in some markets.

• Loyalty has been one of the focus areas for hotels in the past year, with mobile-based customized plans helping to attract customers.

Airbnb: Key Success Factors

Sense of Belonging (part of the Personalization trend)

Airbnb: Key Success Factors

Sense of Belonging • Part of Airbnb’s DNA is the idea that we are all citizens of

the world, and that every “home” is “our” home.• Hotels might suffer from a more distant image in

comparison. • However, through personalized offers, or tie-ins with

“sharing economy” initiatives such as social meetings and dinners, hotels can overcome this barrier. It also might serve the hotel’s differentiation, to position the hotel as an ex-territory, not necessarily connected locally.

Airbnb: Key Success Factors

Customer Empowerment – the micro entrepreneur• According to the Airbnb, a host’s average annual income per

listing is $ 7,770.• The company, and other apartment rentals companies, have

recognized that the secret to success lies in their ability to draw the best properties, in the best locations.

• The fight over great properties manifests not only in pricing changes, but also in the tools that companies have been offering hosts, to better market and manage their apartments.

• Hotels cannot, apparently, help people make money. However, OTAs may adopt the same tools as a solution offered to hotels and other service providers.

Airbnb: Key Success Factors

• At its Airbnb Open conference, Nov. 2015, Airbnb announced a few new tools to help hosts from pricing to making sure guests have everything they need.

• A Host Assist feature for easy key management – smart locks to send virtual keys, and lockboxes to hide physical keys (currently in Paris).

• It is important to mention that the company is adding smart pricing in order help set a price for the listing, according to demand.

• According to Tech Crunch, Smart Pricing is going to be a progressive rollout.

Customer Empowerment – the micro entrepreneur

Airbnb: Key Success Factors

Customer Empowerment – the micro entrepreneur

Airbnb: Key Success Factors

Host’s tools include an Apple Watch up, to manage the process

Airbnb: Key Success Factors

Brand Building through content• The company’s content strategy is a best-in-class story.• Airbnb uses photos, videos, print magazines and social media, to

spread inspiration regarding locations and hosting / travelling experiences.

• The company uses content to connect its community, but also to build trust and to inspire more people to travel, even if they did not plan to or if they are on a budget.

Challenges & Competition

Airbnb: Challenges

• Airbnb’s growth is not a smooth sail: the company has encountered many problems along the way, and still has to overcome challenges, including:

1. New, niche-oriented competitors are beating the company at its own game

2. Lack of trust among consumers and hosts3. New business models emerge4. Becoming Customer-oriented: empowering the

owner, not the consumer5. Regulation6. Consumer backlash due to apartment price hikes

Competition | Family Focus - HomeAway

• The most prominent competitor for Airbnb is also the oldest competitor – Homeaway, with its family of companies including VRBO, VacationRentals.com, Homelidays, Ownersdirect, Abritel, Travelmob and others.

• Only entire homes qualify to be listed on HomeAway, as the company believes in offering “The whole house. The whole family. A whole vacation.”

• HomeAway used to charge homeowners an annual fee of between US$349 and US$999, but did not receive any further income per booking. It has switched to an Airbnb-like pay-per-booking (PPB) model early 2014, taking 10-20% per booking from hosts. It has further announced that it will start charging guests an average of 6% per booking, although specific details are not yet known.

• The company was recently acquired by Expedia, in the latter’s attempt to enter the rentals market.

Competition | Family Focus - HomeAway

Competition | Family Focus - HomeAway

Competition | Family Focus - HomeAway

Competition | Family Focus – Kid&Co• https://www.kidandcoe.com/

Competition | Premium - OneFineStay

• Launched in 2010, OneFineStay.com is a home rental agency for luxury homes in London, Los Angeles, New York and Paris with an average market price around $2 million.

• Recent industry news indicates Hyatt Hotels participated in a $40 million investment in the business.

Competition | Premium - OneFineStay

• Onefinestay aims to offer the consumers that which Airbnb lacks: personal service, and a quality signature.

Competition | Customer Focus - Flipkey

• Flipkey is owned by TripAdvisor. • It should be noted that Flipkey specifically targets offers to those that

manage 5 or more rental properties. This website focuses on the property owner with empowering tools, to help the host succeed: business analysis tools for 5 or more rentals including ROI analysis, automated listings, expert advice, unlimited photos, verified reviews, global exposure, analytics and special offers.

The website also lists the relationship with TripAdvisor as a point of attraction to both consumers and hosts.

Competition | Customer Focus - Flipkey

Competition | Hotel Services - BeMate

THE WELCOME YOU DESERVEOne of our City Mates will await your arrival to guarantee everything is at your complete satisfaction and to assist you with every question or need.Currently available in Madrid, Barcelona, Málaga, Florence and Amsterdam, coming soon everywhere else.

https://www.bemate.com/

Competition | Vacation Rental Aggregator

• http://alltherooms.com/

Regulation

• Cities are beginning to pay more attention to the sharing economy’s poster child. In some cities, Airbnb is already not allowed due to lease restrictions against subleasing an apartment, homeowners association or co-op board rules, or lack of proper zoning and permitting for what is essentially an "illegal hotel" (a residential property with three or more units that are leased for a period less than 30 days).

• Airbnb has tried to respond both via marketing & PR, but consumers are already starting to understand the difference between a regulated hotel, and a random apartment.

Trust | How Airbnb Builds Trust

Documentation

• Professional photographs – and later, videos

Social Networks

• Airbnb Social Connections (launched in 2011) leverages users’ social graphs via Facebook Connect

Communication

• Blog and social media are used to respond to stories and explain how the company handles the situation

Reviews

• the website features reviews and ratings for both hosts and visitors

Infrastructure

• An open phone line

• $1,000,000 Host Guarantee

Industry Strategies & Focus Areas

Hotels Respond to the Airbnb Threat• Hotel chains are beginning to recognize to the potential threat of the sharing

economy, and particularly Airbnb, especially ever since Airbnb had announced that it will try to attract more business travelers – the bread and butter of many chains.

• Main strategies used by hotel chains:

Provide a Better Experience

• Utilizing the same competitive tactics designed to compete with OTAs

• For example, focusing on the entire experience; incorporating loyal programs; digital check ins; concierge services; etc.

• Offer budget stays – with hotel amenities.

Leverage the platform

• Apartment rental platforms provide another source to drive visits to the hotel’s website.

• Hotels may choose to target specific segments such as families through this platform.

Differentiation

• Hotels might actually want to leverage that feeling of ex-territory instead of considering it as a disadvantage.

• In addition, with vacation rentals, hotels should emphasize the amenities, trust and security that they offer the guests.

M&A

• Hotels and OTAs have turned to deals in order to win a share of the vacation rental market – such as Expedia’s acquisition of HomeAway or Hyatt’s investment in OneFine Stay.

Hotel Strategies: Marriott• In addition to offering Netflix on its guest rooms, Marriott is trying to

approach millennial, social consumers with a new, more affordable model, “Moxy”, currently tested in Milan and New-Orleans. http://moxy-hotels.marriott.com/

• The concept, designed in collaboration with Ikea, aims to offer young travelers the services (and bar) they expect from a hotel – for a lower price.

Hotel Strategies: Marriott• Taking a note from Airnbnb on approaching this

consumer segment, the Moxy concept uses content marketing, with a web series with a “quirky” and humoristic attitude. http://moxy-hotels.marriott.com/whats-up/do-not-disturb-atthemoxy

Hotel Strategies: Marriott• To emphasize its advantages over Airbnb, the concept communicates its

hotel services and the lucrative Marriott loyalty program.

Hotel Strategies: Hilton• Chris Nassetta, CEO of Hilton Worldwide, said in October 2015 that

the company is not worried by Airbnb, as this is an entirely different segment in hospitality, that Hilton is not pursuing – i.e., budget travelers. However, with Airbnb’s pursuit of the business traveler segment, we expect to see Hilton communicating its ultra-convenient offers to this segment, such as the Hilton HHonors app.

• Through the Hilton HHonors app, guests can plan their trip, reserve and choose their room, order in-room items and check out.

• Digital Key enables frequent guests the option to bypass the hotel check-in counter and access their rooms, as well as any other area of the hotel that requires a key, directly via the Hilton HHonors app. Hilton Digital Key is currently available at 17 property hotels.

Hotel Strategies: IHG• In order to compete, IHG

is sharpening its big data utilization, to offer better rewards to its loyal customers. It is also strengthening its digital presence, and invests in a mobile experience.

• For example, IHG has recently launched a new top-tier membership category for its IHG Rewards Club loyalty program called “Spire Elite.”

IHG Investor Presentation, 2015

Hotel Strategies: IHG• In June 2015, IHG launched a series of mobile and in-hotel digital

technology pilots:

Mobile Check In and Check Out:guests can manage their stay via their mobile device, including confirmation of arrival time and SMS notification of when their room is ready.

Mobile Folio:allows guests to view their hotel bill in real time on their mobile device, before receiving their final bill during Mobile Check Out

Hotel Strategies: IHG

Mobile Room Key Technology:gives guests the opportunity to bypass the front desk when checking into their room.

IHG Guest Request:A service which allows guests to make a request instantly through the IHG® App. 

iBeacon technology: Beacons placed in the lobbies and restaurants of our hotels recognize IHG® Rewards Club members using the IHG® App in close proximity. They then send information to the guest’s smartphone, including personalized notifications and offers relevant to their stay. The pilot is being implemented in a selection of hotels in China.

Hotel Strategies: Sheraton• Sheraton announced a major change to the company’s hotels, with the

Sheraton 2020 plan designed to adapt the hotels to their local surrounding, bringing in local designers, so you won’t walk into every Sheraton in the U.S. or China and have the same look and feel.

• Food and beverage will be based on local ingredients as well, through a new initiative called “Paired” that plays off the fresh market concept with unique parings of local ingredients.

Hotel Strategies: Boutique Hotels

• Boutique hotels, marketing a unique experience, might be the accommodation’s industry segment that is most at-risk.

• In order to turn a threat into an opportunity, Boutique hotels now listing rooms on Airbnb to fill vacancies.

Everyone’s Goal: “Entire Trip”

• Hospitality companies are targeting the entire trip, aiming to accommodate the various needs of the traveler. Through this, companies can offer a better experience and more convenience, and they can also find new growth.

• One of the key technologies for companies in this regard is the smartphone: Hilton, for example, considers the smartphone as the consumers’ “remote control” for the entire travel experience.

• In this field, OTAs have taken the upper hand, since they have planned the trip (rather than the accommodation alone) from the start. However, major hotel chains have already stated that they are concentrating on the traveler’s entire trip as well.

• Airbnb has said in an interview to Fast Company in 2014, "Our business isn't the house - our business is the entire trip.” Indeed, the company is well positioned to leverage its community to offer additional peer-to-peer services.

Current Competitors’ Focus Areas

Business Travelers

Families

Individuals

Airbnb

HomeAway

Hotel Chains

Boutique Hotels

Kid & Co.

Millennials Older Travelers

Millennials Older Travelers

OneFineStay

Strategies by Focus AreasMillennials Older Travelers

Business Travelers

Families

Individuals

All-Mobile Experience

Afforda-bility

Social experience

Loyalty

Concierge apps /

Services

Personaliz-ation

Millennials Older Travelers

Thank You!

The research was conducted by: Hamutal SchieberSchieber Research | Market Research & Competitive Intelligence www.researchci.com | hamutal@researchci.com Executive Summary. For the full research - please contact Carmelon Digital Marketinghttp://www.carmelon-digital.com