How Airbnb is Starting to Dominate the Hotel Industry

There are roughly 17.5 million hotel rooms in the world. Airbnb has over 2 million additional rooms available from independent homeowners and renters. This disparity could be interpreted in two ways. I believe hotels are here to stay. If we take that as fact, then it could be interpreted that Airbnb can’t compete at scale with hotels because they have approximately 8x the number of available rooms.

However, if we say that Airbnb could eventually delve into listing hotel rooms, then the upside for Airbnb is massive. Fortunately for Airbnb, almost 30% of traditional hotel inventory is held by smaller hotel chains and boutiques who are competing against the larger chains.

Want to know how Airbnb affects New Yorkers? Find out how Airbnb has become a game changer in New York City.

How does Airbnb acquire more supply to fuel its next wave of marketplace growth? Convince the boutique hotel market that they should list their room inventory on Airbnb. From there, Airbnb would be in a better position to convince larger hotel chains to also list their inventory on its platform.

Airbnb is a classic platform business model case study. It’s currently working to be the platform monopoly in local travel as it recently acquired a travel activities marketplace startup to add inventory to its own local activities marketplace. Airbnb will quite soon be the modern monopoly in authentic local travel and lodging.

Where does Airbnb go from there?

The home-sharing company should evolve into a B2B company that connects consumers with hotel owners and hotel franchises.

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To assess the feasibility of such an idea, it’s important to understand how the traditional hotel industry works.

Priceline bought Hotel Ninjas two years ago for an estimated $30 million. A week later, Oracle announced it was acquiring Micros for $5.4 billion, who owns the leading hotel property management system, Opera.

Think of Opera and Hotel Ninjas as the hotel inventory management system, like OpenTable for hotels. However, these systems are much more complicated than OpenTable’s software since they provide control systems for a range of other hotel offerings like room service, housekeeping management, concierges, billing, etc.

Airbnb poses a huge risk to hotels

The hotel industry is a franchise or platform business. Hotel chains lease out their brand to property owners in exchange for approximately 3% of revenue, on average. A hotel chain like Marriott has different brands of hotels: Marriott vs. JW Marriott vs. The Ritz vs. The Westin. Marriott has about 30 brands in total. Consumers don’t know the difference between them all, but hotel investors do.

A hotel investor buys the property and contracts with a hotel chain to operate the property and attract consumers to its brand, supposedly. However, that’s all changing thanks to companies like Expedia and Priceline. Consumers shop for hotels by looking at hotel reviews, star ratings, photos, etc.

The “brand” of a Marriott vs. a JW Marriott means a lot less in today’s market where consumers have similar base expectations for a hotel accommodation and are more driven by tangible measures like price and amenities, instead of the brand.

Who loses in all of this? The hotel investor. The “asset” (brand) they are investing in is becoming further and further diluted by hotels being greedy (Marriott owns 30 different brands) and technology disruption from the likes of Expedia and Priceline.

The hotel investor pays all the expenses to be listed on Expedia and Priceline and they pay all the fees for Oracle’s Opera system. The hotel owner then has to pay staff to import reservations from Expedia and Priceline into its in-house hotel management system. The hotel chain & management company just cares about making its 3% and selling more hotel franchises. The hotel’s property owner suffers.

Airbnb’s opportunity

It could enter the hotel property management software market and provide value to both the hotel chains (franchiser) and hotel investors (property owner). With a large hoard of cash, Airbnb could buy an existing software provider and discount the price of the software well below industry standards. This is called providing “single-user utility.”

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Why would the hotel investor want to participate? They get to make more money by having their rooms displayed on Airbnb’s site (which currently has a higher Alexa rank than both Priceline and Expedia) and they pay less fees by cutting out Oracle. Once proven successful at the boutique hotel level, hotel chains should jump on the bandwagon.

If hotel investors see the Airbnb hotel platform as more lucrative, a hotel chain that doesn’t use Airbnb’s software will be more expensive and, ultimately, less profitable to the hotel investor. The hotel chain dictates to the hotel investor/ owner which hotel management software to use, but ultimately it’s the hotel investor who pays the bills.

Airbnb might be the enemy to hotel chains for now, but these chains need to keep their hotel owners/investors happy or lose their management contracts.

The writing on the wall is clear to us. Airbnb will dominate the authentic local travel and lodging industry thanks to its superior network effects. The latest capital raise of $555 million has Airbnb acquisitions written all over it.

It should acquire a software company that enables it to become a B2B company for the hotel industry. Let’s not forget that Oracle’s current market cap is approximately $160 billion. It pays to win in B2B.

Want more startup market solutions? Here’s 7 Strategies for Solving Problems as a Startup.

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Alex Moazed

CEO & Founder

Alex Moazed is the Founder and CEO of Applico. Alex founded Applico in 2009 when he was 20 years old and funded the company with his own credit cards. Within the first three years, Alex led the company to become one of the largest app developers in the industry. Subsequently, Alex evolved Applico into the world’s first Platform Innovation Company, trailblazing a new type of consulting and engineering firm. In his role as CEO, Alex is laying the foundation for platforms to be the predominant business model of the 21st century. Alex is a founding board member of the Application Developers Alliance and a graduate of Babson College, Choate Rosemary Hall and Greenwich Country Day School.