Airbnb disrupting hotels: It hasnâ€™t happened yet, and both are thriving
Joyce Park stashed this in Tech biz
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 â€śsharing economy,â€ť closed aÂ $1.5 billion funding roundÂ 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 companiesâ€”Uber and Chinese electronics-maker Xiaomiâ€”have valuations that are greater. Airbnb, which helps people rent out their homes and spare rooms for short stays, is expected toÂ top $900 million in revenueÂ this year. By 2020, that figure is projected to increase more than tenfold to $10 billion. Airbnbâ€™s listings and annual guests have soared as well,Â roughly triplingÂ 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 itâ€™s less well-suited for the McKinsey consultant who travels to Toronto each week and needs reliable accommodations. â€śSo for leisure travelers, transient segments, Airbnbâ€™s probably a pretty scary threat,â€ť says Cathy Enz, a professor at Cornellâ€™s School of Hotel Administration. â€śBut thereâ€™s still meetings, thereâ€™s still conventions, thereâ€™s still groups of people. Typically thatâ€™s kind of a lower, corporate-negotiated rate, but that business clearly isnâ€™t Airbnbâ€™s.â€ť
Thereâ€™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 Hathawayâ€™s 2015 meeting. And as far as it could tell, people were still staying in hotels as much as ever, â€śdespite the fact that the organizers of those events were actively promoting Airbnb,â€ť 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. â€śIs there Airbnb activity in San Francisco? Yes,â€ť Freitag says. â€śDoes it have an impact? Maybe, but itâ€™s really hard to tell.â€ť
Airbnb, which did not respond to multiple requests for comment over several weeks, has done its best to propagate the idea that it doesnâ€™t really compete with, but rather complements, the stalwarts of the hospitality industry. The company, inÂ various economic studies, has found that roughly 70 percent to 80 percent of its listings are located outside a cityâ€™s central hotel and tourist district. Presumably itâ€™s in Airbnbâ€™s interest to keep up that impression as long as possibleâ€”the less hotels see it as threatening, the less opposition and regulatory scrutiny itâ€™s likely to encounter.
That said, $25.5 billion ambitions arenâ€™t so easily cloaked, nor does all the data support Airbnb having a negligible effect on hotels. AÂ paperÂ from researchers at Boston University found a â€śstatistically significant decrease in occupancy rate and an even bigger decrease in hotel room pricesâ€ť from Airbnb in Texas.