Why Airbnb Fails to Disrupt the Hotel Industry

Cost is the biggest barrier to scale in the hotel industry. It takes on average 2-3 years to build a hotel. The upfront cost for design, permits, and construction can range from $30M to $130M, depending on location and category. These estimates don’t even include the cost of the land. Since these numbers are publicly shared by nearly every hotel giant, it’s no secret how cost prohibitive it is to grow market share in the hotel industry.

Airbnb’s innovation is on the supply side. Anyone can list and monetize their room, apartment, or house with a few steps on Airbnb. The company’s business value is to serve as a trusted platform between travelers and hosts. Discovery, communication, and transactions between both parties all occur on Airbnb. Hosts set their own prices for their listings, provide service, and accept travelers in whatever way they see fit.

So why aren’t hotel executives scared of Airbnb? Are Hilton, Marriott, Hyatt executives all just pretending not to care publicly but freaking out privately in boardrooms? Are the hotel giants just too stubborn to evolve?

🎧 Audio Editing & Mixing: Sonalf

0:00 Intro
3:38 Hilton (Overview, Portfolio, Performance)
4:55 Marriott (Overview, Portfolio, Performance)
5:44 IHG (Overview, Portfolio, Performance)
6:14 Hyatt (Overview, Portfolio, Performance)
7:01 Wyndham (Overview, Portfolio, Performance)
7:50 The Rise of Airbnb
16:38 Why Hotels Don't Fear Airbnb
22:46 Platforms of Future Past

[ModernMBA]

0:00 Intro
1:22 Hotel Operating Model
2:19 Seasonal Business
3:11 Main Hotel Categories
3:38 Hilton (Overview, Portfolio, Performance)
4:55 Marriott (Overview, Portfolio, Performance)
5:44 IHG (Overview, Portfolio, Performance)
6:14 Hyatt (Overview, Portfolio, Performance)
7:01 Wyndham (Overview, Portfolio, Performance)
7:50 Rise of Airbnb & Industry Response
13:02 Supply-side Innovation
15:09 Outperforming at Scale
16:38 Why Hotels Don't Fear Airbnb
17:12 The Traditional Owner-Operated Model
19:52 Misconceptions & Historical Tradition
22:46 Relic of the Past
24:24 The Platforms of Future Past
25:09 Quantity is not Quality

[KageNoTenshi]

airbnb isn't messing with the hotel industry, they are messing with the housing prices,

[vwabi]

It went from "I'll rent out my house while I'm gone for some extra cash" to "I'm basically a landlord running a hotel service but without the service"

[ashish]

That Marriott guy nailed it. At one point maybe AirBNB was a threat when it was someone’s house, a personal unit where you were staying and it had its charm so you put up with the lack of service. But now most AirBNBs are purpose built, soulless units which still have inadequate service compared to a hotel. And now they aren’t even cheaper than the hotels with their absurd cleaning fees.

[thebadshave]

The magic of the airBnB model died the moment people shifted from using it as a way to get a little extra value out of a vacation home or duplex and started seeing it as a primary source of revenue. It was pretty cheap and homey initially. Once people got into making it a full-time source of income they just became property managers with usually zero of the skills and experience someone in hospitality would normally need to get anywhere near the master keyring.

[CanadaOtter]

I think the key thing is reliability, after taking a 12 hr flight I don't want to figure out how to get there and how to check in. And sometimes get ghosted by the host

[BillLaBrie]

It was fun when it started. Empty-nesters with spare bedrooms in nice, clean houses. Then the people who really shouldn’t be hosts heard it was a quick way to make a buck.

[JT.]

I was in Mexico few months ago and had a host come in and steal my stuff while i was away. Then he tried to Airbnb saying i stole stuff. Huge nightmare and what ensues was literally dozens of calls to Airbnb explaining the situation to numerous reps in the phillipines and now dealing with multiple insurence adjusters. It's been 3 months, my stuff is still stolen and the claims are still pending being arbitrated by a 3rd party insurance company. Never again.

[gpcheng]

Super interesting - as a woman who often travels alone for work or to visit friends, I prefer staying in a hotel (usually mid- or upscale) over Airbnb for safety reasons... especially if I'm overseas. Hotels have cameras, security guards, and 24hr concierge/staff if there's a medical emergency. While staying at an upscale boutique hotel in London, I realized the added benefit of just being friendly and greeting the concierge every morning (same man and woman duo worked the desk every morning) - my schedule changed one day and they asked me if I was ok when they saw me later; they realized my "normal" schedule and checked to make sure I was still checked in when they didn't see me; they were going to send someone check on me if they didn't see me at some point that day. I really appreciated their concern/service. I also heard enough Airbnb horror stories (there don't need to be a lot to make one worry) to make me worry about who has access to an Airbnb property, whether there are illicit cameras, and if there are allergy concerns (pets, cleaning products, laundry detergent, fabric fillers...etc). That said, I have stayed in Airbnbs in the past, but with friends - never alone.

[aneczka]

In my experience, Airbnb's "quality control" (or lack thereof) is incredibly subpar. Many hosts charge ridiculous cleaning fees and obviously don't clean the spaces either. I only trust super hosts at this point.

[michaelheliotis]

Airbnb is much more of a threat to the housing/rental market than it is to the hotel market, and by that I mean a threat to the people who rely those markets for residential accommodation, rather than being a threat to investors merely seeking to make a profit. There are plenty of career landlords buying houses to put on Airbnb and depriving owner-occupiers or tenants from access to those houses, because having Airbnb guests in the house for 60% of the time is often more profitable than having a tenant in there for 100% of the time.

Even during the pandemic and its lockdowns, when travel restrictions meant that the tourist market ostensibly dried up (the theoretical risk of renting out your property on Airbnb), in reality all that happened was that the tourists who were now stuck required extended stays and many Airbnb landlords were easily able to pivot into temporarily providing residential accommodation in order to keep revenue coming in at the rate of market rent (or near to it) for a tenancy. Then, once there were more short-term guests available, they could easily return to high-value short-term guests.

The threat of Airbnb is that it's increasingly forcing long-term tenants and prospective home buyers to compete with the higher cash holdings and spending capacity of tourists on holiday when it comes to who gets to stay in a given house. This wouldn't be such a problem if houses were plentiful and buyers/tenants could just look elsewhere, but many of the hottest destinations are in the middle of a housing crisis, and Airbnb is exacerbating the issue by removing houses from the residential for tourists who could otherwise be staying at high-density hotels designed and zoned specifically to cater for and accommodate them.

The video is absolutely correct in describing how existing hotel chains and Airbnb operate on functionally the same model and thus the latter isn't as much of a disruptor or threat so much as it's an ordinary competitor, but an important difference between conventional hotel chains and the Airbnb property network is the amount of land and real estate that they consume. Cities don't allow hotels to be built in limitless locations or numbers, and this along with operating expediency means that hotel franchisees are motivated to maximise the number of rooms a hotel provides in order to maximise the amount of profit they can make from that landspace. Moreover, nearly all of the time a franchisee is having to purpose-build the hotel, which provides new (or densified) accommodation to the city that typically has little impact on existing housing.

But the landlord "franchisees" of Airbnb don't operate under the same constraints, because they merely cannibalise properties from the rental/homeowner market and then integrate them into the hotel market. They can buy whatever and wherever with better capital and loan security than prospective home buyers (who already have to compete against rental investors), and every time a new listing for a full residence goes on Airbnb, that's another house gone that could be serving an actual tenant or owner-occupier rather than a short-term guest who could be staying at a hotel. And there's little reason for these landlords not to behave in this way because without regulation it's often so much more profitable to put houses on Airbnb (and then let them languish without occupants half the time) than it is to actually rent them out.

So, overall, while Airbnb isn't a threat to the hotel industry, it's certainly a threat to tenants and prospective home buyers so long as it remains unregulated. And unfortunately, most of the regulation that Airbnb has faced so far has all been about levelling the playing field with the hotel market that they compete with rather than with the housing market that they cannibalise in order to uphold and maintain their business model.

[titoslounge]

My friends had a 2 bedroom apartment in downtown Nashville for around 2200 a month. It got jacked up to 5, 700 a month. They forced everyone out to turn it into an Air BnB style hotel. The “apartment building” is now 95% Air BnB usage. That’s a hotel, not an apartment building.

This in turn messed with all the pricing algorithms used to price other apartments in the area.

[CitizenZero]

Not only did the last Airbnb I stayed at have a huge cleaning fee, but the owner also wanted us to do the dishes and the laundry. There were also a bunch of signs posted everywhere telling us what we could and couldn’t do. After that, I decided we would never do Airbnb again.

[KyrieFortune]

Airbnb was supposed to be a way for people having a spare room, like a guest room or the old bedroom of your kid now in college campus, make some money on the side. It turned quickly into people renting their whole side houses at the same price as many motels for a few days instead of months, messing with, say, people wanting to go to college in another town.

[Batmann]

All I know is Airbnb is no longer “cheap” or affordable. I’m going on a trip in about 3 weeks to a major west coast city. I did heavy comparisons on hotels and airbnbs in the area and there were actually pretty comparable. I’m not sure about the whole economics of it, but Airbnb has definitely gotten more expensive over the years. Especially those services fees and cleaning fees. I’d say the playing field is pretty even these days..

[AriannaAyers]

The last 6 ABB experiences I’ve had were horrible; from bait and switches, to properties that literally don’t exist, to booking an ABB only to find out it belongs to an unsuspecting family, and having to walk 2.7 miles to the nearest hotel…I’m 1000% finished with ABB. The prices can be much higher too, when you see all the tacked on fees.

[lopsidedteacup]

I never felt 100% safe when staying at an airbnb and trust me, i had my share of really bad hotels & hostels. But the reality is that you can never be sure who else has access to your apartment. At least when you're in a hotel or a hostel, there's a reception, security guards and cameras.

[MichelleTsang]

Was definitely thinking about how my next trip would be a hotel booking rather than an Airbnb because of the simplicity of a hotel. (Also free breakfast)

[alicelemieux]

i worked in a hotel last summer and let me tell you: people are still definitely willing to pay for overpriced hotel rooms. why? well the customer service is a big part of it, people at the front desk and staff that cleans and tends to the room is sometimes overlooked but it can for sure make or break a stay. we were consistently fully booked on saturdays with rooms double the price they should be, only because of the services offered

[dr.python]

Fun fact (may not be related):
During COVID in India the government paid money to Hotels to host government doctors, this way the doctors would feel comfortable working under those stressful conditions and the hotels could afford to sustain operations.