By Mario Bauduin
The hotel industry is entering a pivotal moment, when conversations about the co-existence of Airbnb and hotels, and the opportunities it can provide, are essential in order for the hotel industry to continue to thrive. Consider Airbnb’s recent acquisitions of Luxury Retreats and social payments app Tilt. It’s evident the company is looking to establish a presence in both the luxury-vacation-home and group-travel markets. This is a significant move for Airbnb, but what does it mean for the myriad travel entities already established in both of these areas? There are many factors affecting the success of hotel-booking brands, including hotel brands themselves and third-party aggregators, and the effect that Airbnb poses to the industry overall is little more than a bump in selection variety.
More Airbnb Luxury Offerings Would Increase Luxury Flash Deal Sales
The hotel industry itself is experiencing a revolution right now, but Airbnb is less of a threat to hotel than it may at times seem. Airbnb’s recent acquisitions of both Luxury Retreats and Tilt are a good indicator of how Airbnb must expand its offerings in order to compete. Take a look at the acquisition of Luxury Retreats; it provides Airbnb with an opportunity to expand supply in resort markets where private owners hold some of the best vacation products money can buy. Luxury Retreats has an enviable footprint in resort destinations, including the Caribbean, Mexico, and Hawaii, giving Airbnb an even stronger footing in resort and city destinations, where Airbnb already has vast supply. The acquisition of Luxury Retreats and Tilt will impact luxury hotels in resort markets in a similar way to Airbnb’s effects on most hotel markets: value proposition. There are a variety of ways to perceive the value of luxury homes compared to traditional luxury-hotel rooms. The number of rooms provided versus an entire house; location; added services, such as personal chefs; and, most importantly, privacy are all incredibly valued and scrutinized factors in the luxury-vacation home market. So, when luxury homes offer the kind of experiences incomparable to those of a luxury hotel, such as complete privacy or a private chef, the hotel industry suffers. However, Airbnb’s new hold over more luxury-home rental properties does not mean the end for luxury hotel chains in the same locations.
Airbnb, with a boost from its Luxury Retreats acquisition, can now more easily compete with four- and five-star hotels in these locations. There are a substantial amount of private owners who own luxury beachfront apartments in the resort market. Therefore, four- and five-star hotels work more closely with third-party booking sites to even the playing field. Luxury hotels within close proximity to Airbnb lodgings often report challenges with maintaining rates. We first saw this when Airbnb posed a serious threat to the New York hotel industry, accounting for 2.9 million of overnight stays in New York in 2015. To counter this new competition, hotels and resorts began offering exclusive discounts through private-membership sites. Additionally, hotel brands look to partner wherever they can with online booking sites to diversify their offerings, which we saw when Expedia partnered with Marriott to launch packaging platform Vacations by Marriott utilizing Expedia’s technology.
More Selection Means Less Conversion
The vacation-homes industry is still very fragmented in terms of online distribution, and Airbnb's development abilities, along with its scale, put the company in a unique position to solve and improve this distribution challenge. Airbnb’s acquisition of Luxury Retreats improves the company’s position to distribute luxury homes, but it will not have a notable effect on conversion to sales. We already know the travel-booking sphere is inundated with choices and competitive pricing, with the average consumer visiting approximately 38 different sites before booking. However, studies show that reducing the number of choices available to consumers is the key to increased conversions. In 2000, psychologists Sheena Iyegar and Mark Lepper published a famous study in consumer psychology – known as “The Jam Study” – in which limiting the amount of choice to a consumer led to an increase in sales.
Crowded competition is not the only factor hindering conversion to sales on travel sites. Many modern travelers are seeking experiences they would normally not be able to find on their own, and thus are seeking the help of travel professionals. The role of the travel specialist has evolved in the past few years, as an increasing number of people plan specialty tours and seek to uncover the most underground or off-the-beaten-path attractions. To accommodate this shift in the industry, Airbnb has woven the idea of “living like a local” into the very core of its business model with the 2016 launch of Airbnb Trips, a new experience-sharing product that offers travelers a series of adventures and excursions.
Millennials Want an Easier Way to Pay
Now, let’s consider the acquisition of social payment app, Tilt, which will enable Airbnb guests to do two things: split payments for group travel and provide a mobile solution to raise money for travel. Tilt would, for example, streamline the process of booking, paying and splitting the cost of a bachelor party for 20 people at a private villa in Mexico. Improving upon the simplicity of splitting payments for groups of three or more may increase conversion on larger-ticket travel purchases. Ultimately, this would have a significant impact on Airbnb’s core product offering, as this type of functionality appeals to its primarily-Millennial user base. Take, for example, the popular money-transfer app Venmo, which grew 154 percent year over year in the first quarter of 2016. Combining a group-pay concept to the booking process is an opportune innovation for travel companies, and a notion I expect to see emulated by many different booking sites.
Airbnb’s acquisitions will certainly have an effect on the hotel industry in terms of diversifying options – especially as they relate to luxury offerings. An increase in competition, however, does not mean a decrease in bookings for hotel brands or OTAs. The hotel industry and subsequent hotel-booking sites should work to strengthen the loyalty of their pre-existing user base. Airbnb will continue to be a force in the travel industry, but not enough to eclipse the unique offerings of the many booking services available to today’s travel consumer.
