As more customers opt for an Airbnb holiday, hotels are trying to adapt their model to provide a more personalised experience. But is the sharing economy really a threat to the hotel industry?
The sharing economy encourages greater transparency and, at least on the surface, seems like less of a corporate machination in comparison to hotels. For those seeking an authentic experience without the price tag, sites like Airbnb seem to offer a viable alternative. Airbnb’s annual profits (before interest and taxes and depreciation) are predicted to hit as much as $3.5 billion by 2020. While it’s essential hotels acknowledge the appeal of this new form of travel, they don’t necessarily have to shift to a similar model.
The appeal of peer-to-peer platforms
It’s no secret that today’s traveller craves an authentic experience. On sites like Airbnb, listed properties fulfil a unique role; they’re perceived to provide an ‘authentic’ taste of local life in a new city. For hotels, this is a problem. Millennial travellers will account for half the spending on business flights by 2020; it’s imperative hotels don’t write off their value.
There’s also been a shift towards greater travel self-sufficiency as improvements in data connection encourage visitors to explore locations in their own time. People want to return with stories of discovering the local culture in their own way, not of a handheld tour around a city. The accommodation available through peer-to-peer platforms provides a level of autonomy rarely seen in hotels, who (for obvious reasons) tend to encourage a kind of passive independence in guests. For instance, hotel rooms are less likely to enable guests to cook food in the room, wash clothes or workout, as this makes it less likely the guests will use the hotel amenities.
The growth of the sharing economy
Sites like Airbnb, although regularly described as disruptive – perhaps the most irritating business buzzword of the startup generation – aren’t particularly radical. Short-term holiday homes have existed in some form for over a century. Today, it’s how the property is that defines the key difference with yesteryear. The homeowner retains the rights of the landlord and the room-sharing site takes a ‘passive agent’ role. Airbnb, for example, operates on a simple, lightweight model, charging a 3% fee to the host and anywhere from 6% to 12% to the guest on the value of the booking.
Airbnb’s agility stems from its degree of separation from the actual property. The property is maintain by the property owner, so Airbnb has no need to dispatch ‘on-the-ground’ staff. This is essential to a business model spread over such a huge geographic area, but no help to established hotels.
For those in the hotel industry, the answer lies in streamlining the business model. The cost of designing, building, decorating and running a hotel is high. Meanwhile, leasing an existing building, and operating on a franchise model, provides a significantly more agile platform from which to promote a hospitality brand.
What can the hotels do?
The solution to pursuing potential guests lost to the sharing accommodation economy? It’s easy to say hotels should “begin to offer a more authentic experience,” but how do they do that without losing the elements of a hotel that people enjoy, such as room service and in-hotel amenities? Just as importantly, how can hotels offer the same level of geographic and financial choice as the sharing accommodation economy?
The answer is they don’t. Airbnb can expand the supply of rooms to keep up with demand without incurring the massive costs of hotel expansion, handing them a significant advantage. Sure hotels can offer a selection of rooms, but they can’t usually offer a range of different locations within the same city. Hotels should focus on emphasising the array of services they have on offer in-house, with special promotions designed to highlight the convenience of available amenities.
Many in the hospitality industry fail to realise that, because hotels offer a radically different experience to sharing accommodation, the two can exist alongside each other. That doesn’t mean hotels can rest on their laurels, however; they still need to respond to the changing needs of guests, but they would do well to remember why the hotel is still the leading choice for holiday lodging.
Identify your strengths
A recent report by Boston University revealed that “each 10 percent increase in supply on Airbnb causes a decrease of 0.37 percent in monthly hotel revenue.” But just because the sharing economy has blossomed in the past decade doesn’t mean the entire industry has to shift to a similar model. In fact, it gives the industry room to diversify, with some offering a high-end boutique experience and others a more natural, to-the-roots experience.
Part of adapting to new challenges is to accept shortcomings and focus on strengths. Hotels boast a wealth of strengths over their less organised, less regulated individual residences. Hotels must focus on highlighting the additional levels of service they provide over short-term lodging. Guests opting for hotels understand they can expect consistency over a ‘unique’ experience, and that’s exactly what hotels should deliver.
Don’t forget, many people still prefer hotels for the convenience and consistent standard they provide. Not everyone is looking to cook their own meals or ‘live as a local’.
Build brand trust
Despite their growing popularity, peer-to-peer platforms sit at a disadvantage to traditional hospitality institutions for a number of reasons. This is nowhere more obvious than in the inconsistency of the accommodation (and, on occasion, the host). Hotels have an opportunity to promote their rooms as a trusted standard. Hotels should be a home away from home. Clean sheets, hot water and a good night’s sleep should be a guarantee for every guest. Despite the fading relevance of ‘established brand reputation’ (thanks in part to the growth of OTAs), guests still expect high standards in hospitality.
For hotels, it’s imperative to build their own community culture through local marketing and reciprocal engagement. Corporate detachment is not a good look for a hotel brand in the 21st century. Businesses need to provide an open platform for guests to engage with the brand in an informal way. Social media can be a great area for this, but official hotel forums can also foster a sense of community that helps guests feel like more than just a room number. The ‘free democracy’ of the internet is only going to grow.
What does it all mean for the hotel industry?
Peer-to-peer platforms like Airbnb certainly infringe on the profits of the hospitality industry, but that doesn’t necessarily signal a death knell for hotels. The sharing economy grew from the values of trust and communities, but established hotel brands can emulate these values too.
Airbnb’s minimal regulatory controls mean trust and transparency (at least for the hosts) are essential ingredients. They might be based on different business models, but hotels would do well to remember just how far these attributes can take them.