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Airbnb disrupting hotels: It hasn’t happened yet, and both are thriving

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I've wondered how AirBnB could be getting such a gigantic valuation when I don't know anyone who seems to use it more than a couple times a year... and I know a LOT of people who have decided to stop using it. This article takes a shot at explaining.

Airbnb is claiming they will 10x revenue in 5 years:

Late last month Airbnb, the popular alternative lodging site and poster child for the “sharing economy,” closed a $1.5 billion funding round at a towering $25.5 billion valuation. One of the biggest privates rounds ever, the new money vaulted Airbnb into the upper echelons of the ultra-elite club ofbillion-dollar startups. Only two other venture-backed private companies—Uber and Chinese electronics-maker Xiaomi—have valuations that are greater. Airbnb, which helps people rent out their homes and spare rooms for short stays, is expected to top $900 million in revenue this year. By 2020, that figure is projected to increase more than tenfold to $10 billion. Airbnb’s listings and annual guests have soared as well, roughly tripling from 2013 to 2014.

To believe Airbnb is worth $24 billion you have to believe the casual stay market is big:

The most common explanation offered for this is that Airbnb and hotels serve fundamentally different markets. Airbnb, industry experts argue, is for the casual leisure traveler. The supply is less predictable, since it depends on the availability of each individual host, as are the specific amenities. Airbnb might be ideal for a family or group of friends vacationing in Europe, but it’s less well-suited for the McKinsey consultant who travels to Toronto each week and needs reliable accommodations. “So for leisure travelers, transient segments, Airbnb’s probably a pretty scary threat,” says Cathy Enz, a professor at Cornell’s School of Hotel Administration. “But there’s still meetings, there’s still conventions, there’s still groups of people. Typically that’s kind of a lower, corporate-negotiated rate, but that business clearly isn’t Airbnb’s.”

There’s evidence to support that statement. STR examined hotel occupancies in Austin, Texas, during the South by Southwest festival, in Louisville during the Kentucky Derby, and in Omaha, Nebraska, during the Berkshire Hathaway’s 2015 meeting. And as far as it could tell, people were still staying in hotels as much as ever, “despite the fact that the organizers of those events were actively promoting Airbnb,” Freitag says. On top of that, consider that San Francisco, the city where Airbnb was founded and remains headquartered, was one of the top-five-performing markets for hotels in 2014, with 84.1 percent occupancy and room rates that increased 10.9 percent. “Is there Airbnb activity in San Francisco? Yes,” Freitag says. “Does it have an impact? Maybe, but it’s really hard to tell.”

Airbnb, which did not respond to multiple requests for comment over several weeks, has done its best to propagate the idea that it doesn’t really compete with, but rather complements, the stalwarts of the hospitality industry. The company, in various economic studies, has found that roughly 70 percent to 80 percent of its listings are located outside a city’s central hotel and tourist district. Presumably it’s in Airbnb’s interest to keep up that impression as long as possible—the less hotels see it as threatening, the less opposition and regulatory scrutiny it’s likely to encounter.

That said, $25.5 billion ambitions aren’t so easily cloaked, nor does all the data support Airbnb having a negligible effect on hotels. A paper from researchers at Boston University found a “statistically significant decrease in occupancy rate and an even bigger decrease in hotel room prices” from Airbnb in Texas.

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