Beat ’em and Join ’em

The ability to provide a rich selection of goods and services for potential customers has aided the rapid growth of peer-to-peer platforms. Airbnb, one of the most successful of these, defines itself as “a social website that connects people who have space to share with those who are looking for a place to stay.” Because of its rapid growth and popularity since Airbnb’s launch in 2008, hotel industry leaders worldwide have been attempting to answer the Airbnb vs. hotels challenge.

What impact will the homeshare service have on the hotel industry? With each Airbnb vs. hotels discussion comes a variety of responses and platforms, some accusing Airbnb of unlawful practices and others praising Airbnb for its innovative platform.

Any supply, whether it is apartments, hotels, villas, B&Bs or private rentals, affects hotel supply and subsequent demand. From a consumer’s standpoint, now is a great time to find and book whatever kind of lodging one may be looking for because of the multitude of options. The desired type of lodging depends upon the purpose of the consumer’s travel, and location and price have an impact on hotel demand as well.

At present, Airbnb is reported to account only for 1 to 2 percent of entire hotel demand, but Airbnb’s greatest effect on that demand is seen in large, popular cities such as Los Angeles, New York City, San Francisco and Chicago. In these cities, according to AHLA reports, Airbnb cuts into 5 to 7 percent of hotel demand.Taxes are a controversial issue in the debate over vacation rentals, with hoteliers complaining that most homeowners who rent via Airbnb have an edge because they don’t pay them.

Previously, homeshare platforms took advantage of one of the tax code’s best freebies: a provision allowing people who rent out their homes fewer than 15 days a year to pocket the income tax-free. However, this is starting to change because once hotel industry leaders caught wind of this exemption, they began to take steps to eliminate it.

airbnb vs. hotels

Hotels have to pay taxes and so should those on Airbnb, the argument goes. As those on Airbnb haven’t been paying taxes, home renters are able to competitively enter the market and price many hotels out of it.

This tax exemption is being protested in many large cities where Airbnb demand is higher. Cities like Chicago and San Francisco are trying to make changes in order to enforce tax payments for home renters. Currently, the city of Chicago takes 4.5 percent of a hotel room charge, which Airbnb has agreed to collect from its renters, but Chicago hotels also pay the full 16.4-percent hotel tax, including money that goes to the state and other taxing bodies – taxes Airbnb hosts don’t pay. Many cities worldwide have yet to make any tax changes and Airbnb hosts are able to run businesses and supplemental incomes tax-free.

In media reports including interviews with its executives, Airbnb implies that its hosts mainly use the platform for supplemental income and only rent out rooms part-time. The American Hotel and Lodging Association’s research and data analysis show otherwise. Their analysis revealed an obvious trend from two overlapping groups of hosts; multiple-unit operators who rent out two or more units, and full-time operators who rent their unit(s) 360 or more days per year. AHLA found that these two groups of hosts generate a large amount of Airbnb’s revenue each year.

“We support the rights of property owners to occasionally rent their homes to earn extra income,” the AHLA has said. “But we share the concerns local residents have expressed about the growing number of commercial operators who are using sites like Airbnb to run multi-unit, full-time lodging businesses without any oversight.”

Nearly 26 percent of Airbnb’s revenue in 14 of the nation’s largest cities came from users that listed properties for rent full-time. Forty percent of the company’s revenue in 14 of the nation’s largest cities is generated by these multi-unit operators. AHLA has said closing the “illegal hotel loophole: is the only way for state and local governments to protect communities and ensure a fair and competitive travel marketplace.” Their analysis was conducted by John O’Neill, professor of hospitality management and director of the Center for Hospitality Real Estate Strategy in the School of Hospitality Management at Penn State University. The tax debate will continue to escalate as Airbnb settles into the hotel industry.

airbnb vs. hotels

In a way, Airbnb could almost be viewed as an online travel agency, its beginnings like those of Expedia or Airbnb’s effect on the hotel industry has been analyzed and debated multiple times, but what of Airbnb’s effect on OTAs? As Airbnb continues to add more lodging and homeshare options, it will grow in capacity and influence relative to other OTAs. These OTAs don’t pay taxes on the properties listed but they do collect taxes from the hotels that use their sites to gain bookings. One solution to the tax debate could involve Airbnb collecting taxes from hosts in order to level the playing field between hotels and private rentals

What makes Airbnb unique is its aura of being new, fun, easy and different. Airbnb has done a wonderful job at branding itself as a unique accommodation option for travelers. This, along with its homeshare platform, has helped Airbnb distinguish itself from the many independent hotels and branded chain hotels.

Hotels, especially independents and boutiques, should take the Airbnb lesson to heart. Hotels can embrace their independent standing and promote local culture and authentic experiences. Instead of sticking to popular tourist attractions, provide suggestions for neighborhood cafes and sights off the map.
Airbnb has utilized the powerful tool of human connection. Airbnb is more than just a host site, it is a travel community. Many travelers become friends with their Airbnb hosts. Independent and boutique hotels can utilize this tool of human connection by hosting social hours in the lobbies or offering more personal connections with employees. Independent hotels also should be on as many channels as possible to drive more bookings. Travelers that are looking for accommodations on Airbnb are typically those that also seek out independent hotels.

Airbnb provides a wonderful platform for hosts to list properties. The online site, the mobile site and app are very user-friendly and appealing, though Airbnb does not offer any type of soft brand benefits for its hosts. Airbnb also does a great job at providing transparency for its users. Airbnb offers large amounts of information about the host, the location, surrounding attractions and the homeshare property. Many users find the transparency in information refreshing, and reliable, though others consider it slightly discriminatory in terms of host selection.

Such issues don’t pertain to a boutique solution that handles – better yet, resolves – a host of issues. This boutique hotel solution suite applies to all types of accommodation options including B&Bs, home rentals and hotels. In addition, its marketplace platform is unique in that it offers solution packages for all types of lodging industry offerings rather than just nice accommodation options. Also, it includes hotel soft-brand benefits such as marketing, education and training and guest loyalty programs, with RevPAR solutions and advanced CRS. In both its breadth and depth, it offers a great combination of Airbnb’s founding principles and the structure of hotel brands.

There are many future possibilities for hotels and Airbnb to work together. While Airbnb doesn’t promote itself to hotels, it has been a great channel for many hotels to grow supplemental income. Airbnb offers a great platform with a unique customer. As is the case with any new company, Airbnb is exploring the market and what it means to enter the hospitality space. This always comes with some challenges, but Airbnb is laying the groundwork for many other complementary companies that support this growing hotel economy. All in all, it’s important for all platforms in the lodging industry to understand that different players are entering and will enter the market. It’s up to your hotel to decide to embrace and grow with the changes, or stall progress because of them. It’s also up to your hotel to choose the right partner.

As the hospitality industry is constantly changing, Airbnb will quickly need to settle disputes that dog it, particularly the tax issue. While the argument is ongoing, independent hotels should try to implement Airbnb’s successful business practices while continuing to focus on business development and reaching new guests. Many new players are bound to emerge and every type of accommodation option, whether an OTA or boutique hotel, will need to learn from all the others. In addition, it will have to learn to distinguish itself in order to succeed and increase guest loyalty.

By Pamela Barnhill, President & COO, IHT, IBC and IVH Hotels

This article initially appeared on Hotel Business Review