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.
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.
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.
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 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.
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 uniqu1e, 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 detectors, with the goal that all listings will have them by the end of the year.
DISRUPTION VS. EVOLUTION
When it comes to destination marketing organizations, the response to Airbnb for the most part has been to wait and see if the regulatory and tax issues can be worked out on a local basis. Where those issues have been resolved — such as in Portland and San Francisco — the response has been positive. “We look at companies like Airbnb as part of the evolution of the travel industry,” said Joe D’Alessandro, president and CEO of the San Francisco Travel Association. “Travelers are demanding a different kind of experience, and we have to figure out how to meet that demand.” Airbnb rentals help alleviate pressure on hotel supply for many San Francisco citywide meetings, D’Alessandro noted, particularly when delegates are younger and more Internet-savvy. “Airbnb is not for everybody,” he said. “Most people want to be in the hotel block, so it’s not a case of replacing hotels.”
D’Alessandro sees a day when Airbnb and meeting planners will work together, possibly by providing some kind of incentive or coupon for attendees who prefer Airbnb’s options or who can’t get a room in the hotel block. “Airbnb is a new entity and a new way of doing business,” he said. “Our industry tends to respond fearfully to what is new, as was the case with online travel companies. The same thing happens over and over again. We should learn from our past.”
Jeff Miller, president and CEO of Travel Portland, agrees. “All of us should be thinking about how we can partner with Airbnb in ways that benefit the meeting, the destination, and the attendee,” Miller said. “How can we take advantage of the opportunity?” That said, while Miller doesn’t think Airbnb represents a threat to the room-block model, one potential pitfall for some groups, he said, could be “not being able to retain enough hotel rooms to help pay down the convention center and other parts of the meeting. This is something we worry about.”
Michael Gehrisch, president and CEO of Destination Marketing Association International (DMAI), points to the complexities and bigger questions posed by the rise of Airbnb. “From DMAI’s point of view,” he said, “we strongly believe that anyone providing accommodations needs first of all to comply with state and local laws. Those laws as they pertain to Airbnb and companies like them are in a state of flux right now in a lot of locations. That said, we also believe that any organization that promotes travel, benefits the destination, and brings a new dimension to the traveler’s experience is a good thing.”
In terms of room blocks, Gehrisch says that Airbnb is positioned to play a growing role in attendees booking outside the block — at a time when planners increasingly are finding it harder to get the number of rooms they would like for their events. (Soaring demand and flat supply is expected to make 2014 a record year for hotel performance, according to PKF Hospitality Research, with that trend continuing in the same direction over the next several years.) Gehrisch points to stats showing that hotel demand is being driven by transient travel, but wonders if some of that demand isn’t coming from attendees who can’t get — or don’t want — a room in a group’s convention block and are opting for Airbnb rentals. It’s a question that DMAI will delve into in a white paper, scheduled to be published this fall, that looks at the potential implications, disruptions, and opportunities that the sharing economy presents within the travel and tourism industry, particularly the lodging sector.
Meanwhile, the more philosophical question that Airbnb pushes to the fore for the industry, Gehrisch said, is “how can we build the connective tissue around our events, around our hotels, and individual destinations?”
‘BIG, GLOBAL, AND GROWING FAST’
For high-draw events like the London Olympics, the World Cup in Brazil, SXSW in Austin, and Nashville’s Country Music Fest, millions of visitors have found accommodations through Airbnb. Last year, 10,000 people stayed at Airbnb rentals for the New York City Marathon — a number that undoubtedly will jump this year following the announcement that the company is a sponsor.
Just how many meeting attendees are using Airbnb is anybody’s guess. While hoteliers and DMOs have plenty to say about the startup, Airbnb doesn’t appear to be on the radar screen of too many planners — even though attendees are definitely using the service, especially for citywide events for which hotel prices are high or availability limited. One planner who has given thought to the subject is meeting facilitator and designer Adrian Segar, who earlier this year wrote a post on his Conferences That Work blog about Airbnb as a lodging alternative for attendees.
“As a meeting planner, I understand the reason for room blocks, and as an attendee I will use them whenever I can,” Segar said in an interview. “But I also think we are going to see more and more attendees in the next five years opting for Airbnb for a variety of reasons — maybe they want to have a different kind of experience, or they want to bring their families, or they just can’t get an affordable hotel room. Room blocks for smaller meetings may be more vulnerable, but outside certain corporate meetings, I think the Airbnb factor is going to creep into all conferences. We may have to rethink room blocks and how we plan accommodations and secure meeting space.”
Expense reporting for Airbnb went from zero two years ago to $1 million as of May 2014 — although that still represents only 1 percent of market share.
Business travelers are already using Airbnb at an “eye-popping” clip, according to findings by Concur, the expense-management-software company with 22 million customers worldwide. Expense reporting for Airbnb went from zero two years ago to $1 million as of May 2014 — although that still represents only 1 percent of market share. That percentage is set to rise. In late July, Airbnb announced a new program for business travelers, with a section of its website devoted to professionals seeking a place to stay while away on business, focused on homes and apartments that offer features such as Wi-Fi and Internet access. Airbnb is also partnering with Concur to link its accounts with Concur’s TripLink service, which companies use to manage travel expenses. Salesforce, Evernote, Eventbrite, and Lyft have already signed up to tap Airbnb’s new business-travel program.
“Companies that we deal with are starting to look with a great deal of interest at Airbnb,” said Yon Abad, director of hotel solutions for transient travel at Carlson Wagonlit Travel, the Minneapolis-based business-travel-management company whose clients include one-third of the Fortune Global 100. “Airbnb’s inventory is big, global, and growing fast. We’re seeing more corporate travelers opt for this, although it’s still typically outside approved channels. Airbnb provides several advantages: It can save money, and it’s especially popular with people who travel to the same destination all the time, or who want the comforts of home for long trips.”
There is huge potential for Airbnb to be an option in corporate travel-management systems, Abad said, but there are significant hurdles to overcome, including accountability (does it rest with Airbnb or the host?), and safety and security considerations. “I’m sure Airbnb is working on how to address these challenges so they can meet the rising demand,” Abad said. “This is a trend that is going to grow — not because companies are pushing it, but because travelers are.”
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