Home-sharing, especially through companies like Airbnb, is exploding in recent years. Users all across the globe are able to rent out their homes, apartments, condos, or even individual rooms to travelers everywhere, undercutting the prices of traditional hotels and providing a substantial alternative to regular hotel accommodations. With the meteoric rise of this type of home-sharing, there lies a true threat to the foundation of the traditional hotel industry. But is it enough to put hotels out of business?
Airbnb and its competitors are part of a large movement; a crowd-sourcing, sharing economy. Companies such as Uber and Lyft have already tapped into this type of market, and have threatened to put taxi companies completely out of business.
The key to crowd-sourcing success is a company’s’ ability to keep costs extremely low, while generating millions of dollars in revenue. Traditional hotel chains have lots of costs to deal with, from employee salaries to renovations and upkeep. Acquiring new property also costs hotels a good chunk of change, as property has to be either bought or constructed, as opposed to home-sharing companies which can expand its properties without cost. This means that hotel prices will always have to remain at a certain threshold, to maintain a profit margin. That’s a profit margin that Airbnb rentals simply don’t have to compete with, as all of the maintenance and upkeep costs fall on the individual owners of the rental units.
A True Threat?
Airbnb earned $850 million in funding last summer, after a company valuation of $30 billion. The company has seen explosive growth that has far exceeded its competitors such as hotel booking websites. But is this wave of the future an immediate and imminent threat to the hotel industry? The answer is not so clear cut.
Airbnb is certainly establishing itself in the market and earning itself a hefty payday in the process. But the fact of the matter is that posing a true threat to industry giants such as Marriott and Hilton is much harder than it may seem. This simply isn’t the same situation as ride-sharing applications, who can undermine taxi services just by offering lower prices.
The traditional hotel industry still offers perks that draw in guests which Airbnb has not matched, such as loyalty programs. These are particularly popular with business travelers, who can expense business stays and still reap the rewards of the loyalty program. Airbnb is making huge strides to take tourist clientele away from the major hotel chains, but has still yet to tap into a huge portion of hotel clientele, which likely accounts for why hotel revenues are still growing at a modest rate. If you’re a visitor touring Japan, you’re likely to consider Airbnb as a lodging option. But if you travel there on business, probably not.
The Future of Airbnb vs. Hotels
The way things are right now, the traditional hotel industry is not in any immediate danger. But there are some serious warning signs for hotel giants. Airbnb’s rapid growth is not something that can be ignored, and if it continues to expand at this rate, it will eventually be cutting into the hotel industry’s bottom line. If Airbnb finds a way to effectively draw in business travel customers, then the hotel industry will certainly be in trouble. Airbnb has a profit margin that is hard to argue with, and if they rolled out a business traveler-friendly platform dedicated to higher end rentals while offering a loyalty program, it could develop into the downfall of traditional hotel lodging as we know it. To survive in an increasingly competitive marketplace, hotels will soon be forced to adapt, and take a page out of their competitors’ playbook.