{"id":18797,"date":"2016-11-18T15:42:45","date_gmt":"2016-11-18T20:42:45","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/the-time-when-the-hospitality-industry-encountered-sharing-economy\/"},"modified":"2016-11-18T15:43:16","modified_gmt":"2016-11-18T20:43:16","slug":"the-time-when-the-hospitality-industry-encountered-sharing-economy","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/the-time-when-the-hospitality-industry-encountered-sharing-economy\/","title":{"rendered":"The time when the hospitality industry encountered sharing economy."},"content":{"rendered":"

Hospitality Industry<\/strong><\/p>\n

The hospitality industry is a healthy one, it experienced overall growth in 2015 and continuing positive performance in 2016. RevPar (Revenue per available room) increase as well 6.6% and the trend is expected to continue in 2016 at 5.8% [1]. Hotels, however, are starting to experience first-hand the disruptive force of the sharing economy, force on which companies like Airbnb have been building their success.<\/p>\n

Sharing Economy<\/strong><\/p>\n

Sharing economy is built among others on the idea that unused value is wasted value. Information Technology and Social Media now enable the opportunity to connect people in need of those resources that would otherwise be idle with the individuals holding the extra capacity [2]. Airbnb was the first mover in the peer-to-peer hospitality market and since its debut in 2008 has been growing to estimate over $10 billion now exceeding the evaluation of hotel chains like Hyatt. [3]<\/p>\n

Airbnb Value Proposition<\/strong><\/p>\n

Airbnb vision is to offer access to a community for home renting. Affordable staying is undoubtedly a significant portion of value proposition for Airbnb. A report from ShareBetter indicates that renting and entire home on Airbnb costs on average as much as a hotel room in 20 big US cities. [4]<\/p>\n

\"\"<\/a><\/p>\n

The below chart highlights cost difference between hotels and Airbnb in 22 cities worldwide. Airbnb is the cheaper option in 16 cities. [5]<\/p>\n

\"airbnb-vs-hotels-difference-by-city\"<\/a><\/p>\n

Additionally, Airbnb positioned itself as a provider of a unique experience, the one that corporate hotel cannot offer. Airbnb mission is to open the door not only to a home but to personal connections, cultures and experiences.<\/p>\n

Hotel VS Airbnb<\/strong><\/p>\n

CEOs of major long-established hotel chain have been downplaying their new competitors, despite offering less flexibility and facing higher costs. [6]<\/p>\n

Marriott International CEO Arne M. Sorensen said: \u201cWe don’t think it’s a significant factor in terms of impacting our business today, and are optimistic that it won’t become one, but we’ll have to watch it and see.” [6]<\/p>\n

HVS hotel management however, paints a slightly different picture. According to their estimate<\/p>\n

hotels lose approximately $450 million in direct revenues per year to AirBnb. Number of room booked on Airbnb currently estimated at 2.8 million is expected to increase to 5 million per year by 2018. The impact has been significant on the hotels workforce, 2,800 jobs have been lost, corresponding to $200 million in income for hotel employees. [3]\u00a0<\/strong><\/p>\n

A study carried out by Boston University built a model to determine the impact of Airbnb on hotel revenue in Austin [3]. The impact is significant: 8-10% decrease in hotel revenue. The most affected hotels are lower-priced ones and those not catered to business travelers. Additionally, Airbnb competition affects hotel pricings during peak of demand. Hotels, historically able to adjust their prices up in periods of high demand are now facing the threat of oversupply and their ability to raise prices has been impaired.<\/p>\n

Hotels\u2019 slim edge<\/strong>\u00a0<\/strong><\/p>\n

Hotel still hold competitive advantage in key areas [7]<\/p>\n

    \n
  1. Consistency of quality<\/strong><\/li>\n<\/ol>\n

    Customer expectation are usually consistently met by hotel chains. Airbnb could close this gap by improving quality of their review and learning customers\u2019 taste and behaviors. Given the huge amount of data is collection, this goal seems easily at reach.<\/p>\n

      \n
    1. Reward programs<\/strong><\/li>\n<\/ol>\n

      Hotels encourage guests\u2019 stickiness through their reward point system. That\u2019s applicable especially to business travelers who tend to enjoy a consistent experience, enhanced by premium services. Furthermore, reward points can be later spent on leisure travel, contributing to a positive cycle for the hotel chain. There are, however, no barrier for Airbnb to implement a similar system and enjoy its benefits especially once in the business segment.<\/p>\n

        \n
      1. Business travelers<\/strong><\/li>\n<\/ol>\n

        Business travelers contribute to a large percentage of their revenue and offering a steady and forecastable income flow. Consistency of quality and reward programs plus relationship with corporate still make hotels the preferred option for non-leisure travel. However, hotels might make a fatal mistake ignoring the potential threat (think Uber in the transportation industry). Recently launched airbnbbusiness<\/em> is the company first move to test the water in the segment leveraging convenient locations, great amenities and affordable price [8]<\/p>\n

        Next steps<\/strong><\/p>\n

        Hotels are facing new threats and their response so far has been either denial or pressure on establishing a regulatory framework. Similar strategy has been adopted by the transportation industry and so far, was not able to stop Uber and similar services from spreading.<\/p>\n

        I believe hotels should accept the reality of a changing environment and put together an internal strategy to address the changes rather than relying on regulators. Maintaining their corporate accounts will only be a start… Blackberry taught us.<\/p>\n

        (784 words)<\/p>\n

         <\/p>\n

        Sources:<\/p>\n

        [1] https:\/\/www.cloudbeds.com\/articles\/hospitality-industry-trends-to-watch-in-2016\/<\/a><\/p>\n

        [2] https:\/\/en.wikipedia.org\/wiki\/Sharing_economy<\/a><\/p>\n

        [3] http:\/\/cs-people.bu.edu\/dproserp\/papers\/airbnb.pdf<\/a><\/p>\n

        [4] http:\/\/qz.com\/779121\/airbnb-vs-hotel-cost-comparison-you-can-rent-an-entire-home-on-airbnb-for-the-price-of-a-hotel-room\/<\/a><\/p>\n

        [5] https:\/\/www.busbud.com\/blog\/airbnb-vs-hotel-rates\/<\/a><\/p>\n

        [6] https:\/\/www.washingtonpost.com\/news\/wonk\/wp\/2016\/02\/26\/hotels-dont-actually-appear-to-be-that-scared-of-airbnb-yet\/<\/a><\/p>\n

        [7] https:\/\/www.yahoo.com\/style\/airbnb-backlash-8-reasons-why-hotels-are-still-127008329517.html<\/a><\/p>\n

        [8] http:\/\/blog.airbnb.com\/belong-anywhere\/<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

        Sharing economy is disrupting the hotel industry. 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