Hotels and the 'Sharing Economy'
By Matthew Faull, SVP Of IT & E-Commerce, Swiss-Belhotel International
E-Commerce and the ‘sharing economy’ has allowed the common man to make money out of services or assets that previously lay dormant generating nothing. This can be through renting out the spare bedroom in your house or taking paying passengers in your personal car.
Although this sounds like a small business, the power of massive online cloud systems has allowed ‘sharing economy’ enabler companies like Uber, Lyft and AirBnB to grow from zero to multibillion dollar companies over a relatively short time span. AirBnB supposedly made a profit in the range of 100 million dollars on 1.7 billion dollars of revenue in 2016. This is an amazing growth for a company that only started 8 years ago.
The big question is not “Will this affect the hotel industry?”, but by “How much and when?”.
STR has conducted studies using data supplied to them both by hotels and AirBnB. Their conclusion was that there had been an impact, but not as much as many people think. The data used was from 2013 to 2016 for the following cities: Barcelona, Boston, London, Los Angeles, Mexico City, Miami, New Orleans, Paris, San Francisco, Seattle, Sydney, Tokyo, and Washington, D.C. This data pointed to an impact, but indicated that AirBnB appeared to be taking incremental guests that perhaps would not have travelled if they had to stay in more expensive or limited hotels.
My personal belief is, this is just the beginning and the impact will be much bigger in the near future.
E-Commerce and the ‘sharing economy’ has allowed the common man to make money out of services or assets that previously lay dormant generating nothing.
The online ‘sharing economy’ is only 10 years old. The hotel industry has been around for hundreds of years. From 2014 to 2016, AirBnBs room inventory has grown 127 percent. During the same period the hotel inventory grew by three percent. The argument by hoteliers in the past was that the AirBnB guest was not the same type of person as a hotel guest. They thought people would shun this accommodation due to safety and security concerns. Well taxi drivers thought passengers wouldn’t be comfortable getting into a person’s private car. Look at what happened to them.
How have these ‘sharing economy’ companies grown so quickly? Fantastic marketing and by quickly creating and taking advantage of new technology including rating systems, mapping systems, great Smartphone apps and of course through cheaper or better perceived value pricing.
If a ‘sharing economy’ company is selling a studio apartment next door to your hotel for the same rate or lower, it is a competitor.
The ‘sharing economy’ companies are also working hard to make major inroads into the corporate market. Corporate finance loves the reduced price and being able to verify where the employee went when they charge the company for a car ride.
Inroads are also being made in the corporate accommodation sector. Business accommodation on these websites must meet certain facility requirements. If your property meets these requirements, then it will be exposed to the quickly increasing list of businesses and corporate signed up to these websites. In 2016 business travellers only make up 10 percentof AirBnBs bookings, however the number of companies signed up to book with AirBnB tripled over the same period.
For those hoteliers to who think it's all just doom and gloom, it is not. The ‘sharing economy’ is both a competitor and an opportunity. For example – hotels are already using ‘Uber’ and ‘Lyft’ buttons on their websites and apps to make it easier for a guest to order a car from or to the hotel. Some hotel companies are already re-inventing their websites and apps to market their hotels as a destination and experience, rather than simply a room. Especially those chains marketing themselves as ‘Lifestyle Hotels’.
Will the ‘sharing economy destroy the hotel business? No. The accommodation inventory just isn’t there.
However will the ‘sharing economy’ change the hotel business? Absolutely. Hotels will need learn what the ‘sharing economy’ is doing for their guests and adapt. Just as ‘sharing economy’ hosts are learning from hotels.