Airbnb Buys Luxury Retreats for $300M: What It Means for the Industry

Airbnb purchase luxury retreats platform acquisitions

Airbnb may be the dominant force in the booming vacation rentals industry, but that doesn’t mean that they don’t have competition. And, just like it works in most other industries, Airbnb saw a competitor with a complementary user base and bought out that competitor to increase their market share.

On February 16, Airbnb completed the acquisition of Luxury Retreats, a Canadian startup that replicates Airbnb’s business model for high-end homes. The deal is said to be worth around $300 million worth of cash and stocks.

airbnb luxury retreats acquisition private villas

 

Luxury Retreats has more than 4,000 properties in its listings, including Richard Branson’s island and Francis Ford Coppola’s villa. On top of the focus on high-end luxury rentals, the platform also offers a concierge service for its guests, offering them the ability to book private bartenders, chefs, masseuses, and the like.

This acquisition indicates more than just a statement of intent from Airbnb, it indicates the beginning of an unfortunate future for travel websites and hotels.

Three Steps Closer to Monopoly

This move by Airbnb would appear to have a threefold purpose. First, the home-sharing startup wants to expand its user base, and this acquisition would capture a high-value segment. Luxury renters have the available resources to travel more often and book more expensive properties, which provide greater margins.

If you’re looking for more content on booming startups, read my 7 predictions for startups in 2017 here.

Luxury Retreats is already profitable and the boost in marginal revenues will help to secure and bolster Airbnb’s profitability, which is a rather recent development. Shoring up the profits and meeting expectations will be crucial for when Airbnb goes public, which some speculate could happen in 2017.

airbnb luxury retreats acquisition purchase vacation rentals

 

Second, Airbnb is simply looking to move upstream and consolidate the market for vacation rentals. Purchasing Luxury Retreats will boost its market share substantially in terms of dollars spent, preventing startups from disrupting its success so far and making it increasingly difficult for established hotel chains to save themselves from Airbnb’s eventual monopoly over travel.

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Finally, this purchase could be seen as a Airbnb taking a swipe at Priceline (which has owned Booking.com for more than a decade and a bevy of other smaller travel sites) and Expedia (whose $3.9 billion acquisition of Airbnb competitor HomeAway took place little more than a year ago).

Both of these online travel agencies have made significant moves to gain a foothold in the home rental market in order to combat Airbnb’s rise, but it looks to be a long slog if they want to take down the $30 billion startup. Their growth rates aren’t anywhere close to Airbnb’s, and Expedia even missed their profitability expectations due to pumping money into HomeAway.

Hotels Are in the Hot Seat

The real losers from this acquisition are hotels. A paper from Boston University recently found that Airbnb had a noticeable negative effect on hotels in Texas. While this research focused on a dataset limited by geography, Texas surely can’t be a particularly unique segment of the US travel market, aside from the Alamo, of course.

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In fact, more research shows the hotels are forced to compete with an established Airbnb presence by lowering the prices, which naturally hurts their revenues. Hotels have huge overhead costs to handle (as opposed to Airbnb’s near-zero marginal costs) and operate with an archaic franchise model designed to apportion the heavy lifting to the hotel owners. As their market share decreases and profitability is increasingly threatened, these hotel owners will put more pressure on the chains (Marriott, Hilton, etc.) to deliver value.

Airbnb’s acquisition of Luxury Rentals specifically bodes poorly for luxury hotels. The opportunity to stay in an appropriately staffed villa that feels like a home offers much more appeal to wealthy travelers than a standard hotel.

hilton marriott aribnb luxury retreats acquisition

 

These hotel owners could be persuaded by market forces to consider working with Airbnb and sever their business ties with the chains, radically transforming hotels for good. Marriott and Hilton would never want this outcome, but aren’t doing much to avoid it. Their best play is to start adding value to the hotel booking process, which can be executed via digital transformation.

The hotel chains ought to build a platform that provides real transparency in their inventory and pricing, but also build out a concierge platform similar to the one developed by Luxury Rentals. In addition, the chains could band together to improve repeat bookings by creating a single sign-on portal and make rewards points transferable. With this marketplace strategy, the hotels can build a wall around their offerings and compete on price like before.

Here are more insights into the industry and 3 startups that are making a name for themselves.

Regardless, it’s looks like hotels are waging a lackadaisical fight with Airbnb, whose ascendancy has only been checked by political maneuvering and copycat competition, not true innovation.

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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.