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Airbnb now, and where It’s going

In this article we’ll examine the current state of Airbnb, its impact on the market, and where we think it’s going.

While the shared accommodation business has been around for a while, it was the explosive growth of Airbnb that caught the attention of the traditional hotel business. The shared accommodation market, which includes players like HomeAway, VRBO and Airbnb, is expected to grow about 15 percent by 2020.

Airbnb recently completed the notable acquisitions of Luxury Retreats and Tilt, and seems poised to widen its grip on the travel market.

It’s largely assumed that Airbnb has taken marketshare away from hotels, but it’s not clear that they compete head to head with hotels, and if so, what the impact is. There are many reasons for this, but mostly because:

  • it’s hard to measure with any accuracy the amount of revenue eroded from competitors,
  • the impact varies significantly between markets,
  • it’s not an apples-to-apples comparison, because they’re different products,
  • and data from Airbnb may not reliable because they’re self-reporting.

The most visible impact they’ve had on traditional hotels in bigger markets appears to be around compression nights, where occupancy is above 95%. Multiple studies show that there was a noticeable drop in compression nights YOY between 2015 and 2016 in larger markets. This is having an impact on the bottom line for many hotels, as they’ve traditionally relied on compression nights to pick up the slack for periods with less demand. And it’s not hard to see why short term accommodations would have the upper hand here; it’s a lot harder to build more hotel rooms than it is to sign up a few empty bedrooms.


The long term strategic goal of Airbnb is to position itself as a travel company that provides services end-to-end, rather than being pigeonholed as a middleman for empty rooms. And as the business matures, we’re starting to see it diversify. They’ve recently launched two products – curated trips (“Trips”), and a program where hosts serve as a local guide (“Experiences”). They’re also experimenting with a revenue sharing model with developers, and even built their own design studio to create their own spaces. So they’re definitely infringing on hotels as they looks to further diversify and disrupt traditional businesses. It’ll be interesting to see what gets traction, and what impact it’ll have on the hotel business.

Regulatory Environment

The success of Airbnb has also spawned a host of new social and regulatory issues for cities – especially those with high rents and low stocks of long term rentals. Long term rentals are being pushed into short term rentals as owners chase higher returns; the effect being higher rents and lower vacancy rates. We’ve see this first hand in Vancouver (where we operate), a city with already grappling with a very low vacancy rate also exacerbated by an influx of foreign investors parking their money.

The approach in dealing with regulatory issues for Airbnb has been scattershot. As its effect on rental markets become more acute, their strategy has been to shape public opinion through advertising campaigns touting its economic benefits. And in some instances they’ve negotiated directly with cities and voluntarily removed larger operators with multiple listings who are essentially running hotels, and by collecting hotel taxes to put them on a more even playing field with those in the traditional market. But these concessions don’t change the fact they’re distorting the long term rental market in favor of owners, and eroding the qualities of communities by replacing long term tenants with transient visitors.


So how should hotels deal with Airbnb? Focus on the things you’re good at that Airbnb is not – things like quality control, service, personalization, and communication. How are these advantages being leveraged in your marketing strategy? Are they being communicated to your guests?

Larger chains have put a lot of energy into memberships and incentives to drive more direct bookings away from OTAs, and these are strategies that also work well against Airbnb.

Also, focus less on the travellers who prefer a shared accommodation because they’re more authentic. It’s tough for a hotel to be “more authentic” than a spare bedroom in a trendy part of town that comes with local tour guide. Or consider families who prefer a house to a connected hotel room. Focusing on the right kind of guests in your marketing strategy – whether they be through personas or campaigns – will yield a more engaged audience with a higher conversion rate.

The future of Airbnb

The neighbourhood hosts and unique experiences programs are a step in the right direction as Airbnb transitions to a full fledged travel company. Though I suspect they’ll be hemmed in by the limitations of a sharing economy. There’s a lot riding on hosts, and the lack of homogeneity will likely create uncertainties. But these programs squarely addresses something that’s been on the top of mind for travellers in recent years: authenticity. While the word authenticity has been bandied about incessantly among hoteliers and travel businesses, achievement remains elusive. You can’t really fake authenticity; people are too savvy.

One glaring weaknesses of Airbnb is the review system. Reviews in Airbnb are artificially inflated, and tend to skew positively. This is because Airbnb fosters a personal connection between its guests and hosts, which makes it harder to leave a negative review. The more interaction there is between the host and guest, the greater this effect. It’s simply human nature to avoid being an asshole. Reviews on traditional peer sites like TripAdvisor or other OTAs provide more utility because they’re honest. The simple solution is to personalize the reviews so they are anonymous. But it appears that at this stage the concerns around valuation outweigh the long term harm caused by the unreliability of the reviews.

Looking at the bigger picture however, there’s nothing definitive out there that shows Airbnb is taking business away from hotels. And you can certainly make the argument that the success of Airbnb is a case of increasing the size of the pie.