The sharing economy has come to the lodging industry, as white-hot startup Airbnb aims to become the world’s largest hospitality brand. Along the way, the $10-billion short-term-rental company is raising questions and challenges for meeting planners and travel managers.
Once upon a time there were two guys living in an apartment in San Francisco. Recent college graduates searching for employment, they were broke. They kicked around ideas for starting a business and came up with this: Why not blow up a couple of air mattresses and rent them out to conference attendees who can’t find or afford a hotel room in San Francisco? After experiencing some success, they recruited a friend to build a website for their company, which they called Airbnb. Seven years later, the three guys — Brian Chesky, Joe Gebbia, and Nate Blecharczyk — are among the world’s youngest billionaires. Read More: How the Collaborative Economy Is Changing the Industry
It’s a startling rags-to-riches story even among Silicon Valley’s many startup tales of wonder. Here’s an enterprise that in less than a decade grew from an “air-mattress B&B” into a global online marketplace for short-term home/apartment/room rentals with listings for more than 600,000 options in 192 countries. Rentals run the gamut from castles to villas to bedrooms in suburban homes and downtown lofts to tree houses and houseboats. For each booking, Airbnb receives a fee from the host and the renter, and so far the company has handled more than 6 million transactions. With its recent valuation of $10 billion, Airbnb now tops the $9.5-billion valuation of 50-year-old Hyatt Hotels, which has 550 properties worldwide.
Many different factors have fueled the company’s meteoric rise — travelers seeking value is only part of the story. Airbnb’s adroit positioning as a community that, according to its website, “connects people to unique travel experiences” has won it a devout following, particularly among Millennials looking for out-of-the box lodging alternatives and opportunities for more immersive and social local experiences. Then there’s the sharing economy. Peer-to-peer sharing, whether it be a car, a home, or a parking space, this year will put $3.5 billion directly into people’s wallets, according to Forbes. Kindled by stagnant wages and slow job growth, the sharing economy is expected to grow 25 percent this year.
The question is, apart from having gotten its start as alternative lodging for convention attendees, what does Airbnb have to do with meetings? Isn’t it mostly an option for adventuresome vacationers? Why would conference attendees opt for Airbnb? Here’s one big reason: supply and demand. Just ask Warren Buffett, who recently told 38,000 attendees coming to Omaha for Berkshire Hathaway’s Annual Shareholders Meeting to use Airbnb to avoid “price-gouging” by area hotels.
“Omaha, of course, cannot size its hotel supply to the Berkshire meeting,” Buffet said in a Newsweek article. “That’s why we called on Airbnb as a sort of flex supply, because we want to increase demand … and because we heard so many complaints about hotels requiring a three-night minimum, which I think is pushing it too far for a one-day event.”
APPLES AND ORANGES?
Not surprisingly, the lodging industry has not welcomed Airbnb with open arms. The American Hotel & Lodging Association (AH&LA), which represents 52,000 properties nationwide, has vowed to fight Airbnb tooth and nail, recently launching an effort to work with state and local members to push back against short-term-rental companies. “We have been hearing a lot, particularly from our smaller members, about Airbnb,” said Vanessa Sinders, AH&LA’s head of government affairs. “We are all for fair competition, but with Airbnb, there is no level playing field. If you’re going to act like a hotel, then you need to be treated like a hotel, subject to the same safety, security, accessibility, regulatory, and tax laws.”
Whether Airbnb hosts should be subject to the same regulations as hotels and other lodging facilities is hotly debated in destinations around the country. Regarding lodging taxes, Airbnb has worked out agreements with authorities in San Francisco and Portland, Oregon, to begin collecting taxes on behalf of its hosts. (Airbnb’s corporate headquarters is in San Francisco, while its operational headquarters recently opened in Portland.) Airbnb CEO Brian Chesky has said publicly that hosts should pay local taxes but that the logistics of Airbnb collecting them is complicated because agreements have to be worked out in each municipality.
While AH&LA seeks a level playing field with Airbnb, not every hotel group sees the company as competition. Hyatt Hotels CEO Mark Hoplamazian said in an interview with Yahoo! in June that Airbnb is fundamentally a different product than his branded properties — Airbnb is a virtual marketplace, not at all equivalent to brick-and-mortar hotel companies. Moreover, customers should have “clarity around what you’re getting with Airbnb, what it includes, and what it doesn’t include,” Hoplamazian said. “I don’t mean services either. I’m just talking about safety, security — those kinds of things.”
Christie Hicks, senior vice president of global sales for Starwood Hotels & Resorts Worldwide, calls Airbnb another in a long line of hospitality-industry disruptors. “In an industry that’s changing constantly, especially in the last five to 10 years, I don’t think it is productive to be obsessed with disruptive forces,” Hicks said in an interview with Convene. “But we should be very aware of what is being offered to the market and what we as hotel operators need to do to ensure our offering is what customers want and need.” Starwood’s strategy is to “focus on our brands and on delivering a personalized experience to every guest,” Hicks said. “Startups like Airbnb offer deals to bring guests to the front door, but then guests are left on their own. Starwood is leveraging technology, including mobile apps, to bring guests to our front door, and then we leverage our high-touch culture to give them a full end-to-end experience.”
But Airbnb is moving rapidly to offer an experience that is more hotel-like, hiring Chip Conley as head of global hospitality. Something of a disruptor himself, Conley is one of the early introducers of the boutique-hotel concept. In 1987, he transformed a seedy motel in San Francisco’s Tenderloin district into The Phoenix, the first in Joie de Vivre Hospitality’s portfolio of 50 unique, funky, and hip hotel experiences. (Boutique hotels now outperform all other hotel segments in revenue per available room.) Among the changes Conley has brought to Airbnb since coming on board last year: the creation of hospitality standards for hosts aimed at making the guest experience consistent in baseline areas such as cleanliness, safety, and guest interaction. Aiming to make rentals as easy to book as a hotel room, Airbnb now has an “instant booking” option for 41,000 properties, with the ultimate goal to make every listing instantly bookable.
Another sign of change: After several high-profile cases in which rental properties were damaged and security and safety issues were raised, Airbnb began providing hosts free insurance covering property loss or damage up to $1 million. Additionally, there is now a 24-hour customer-service hotline, a task force to review suspicious activity, and a requirement that all Airbnb guests have to go through a detailed, verified ID process before booking. And Airbnb’s home-safety program now includes free smoke and carbon-monoxide