How the Sharing Economy Impacts Select-Service Hotels

Outer space may be the only place to escape the onslaught of the newly famous cadre of alternative lodging companies categorized as a part of the sharing economy, including but not limited to HomeAway (owned by Expedia), HomeToGo, Vacation Rentals By Owner (otherwise known as VRBO), Couchsurfing, onefinestay (recently acquired by Accor), FlipKey (owned by TripAdvisor) and, of course, the behemoth that is Airbnb.

Even those select service, limited service and all other hotels that primarily cater to the business crowd have largely escaped the direct impact on their occupancies and ADRs from this rapidly burgeoning section, it is only a matter of time before the alternative lodging industry starts to influence every hospitality establishment in every corner of the earth and becomes a direct competitor for your property.

On its most fundamental level, the sharing economy is changing the way consumers think about travel and how to go about reserving accommodations. So, like any new product added to your neighborhood, you must arm yourself with a thorough understanding of its strengths and weaknesses if you are to survive. For simplicity’s sake, we will narrow our discussion of the sharing economy to only Airbnb, which is the largest and most immediate in terms of impact for this new set of hospitality operators.

Understanding Sharing Economy Behavior Via Uber
Starting out as a niche taxi service reliant on smartphone geolocation technology, Uber is now far more than just a trendy accessory for millennials living in San Francisco or Brooklyn. Founded in 2009, it has already expanded to over 300 territories globally with a $66 billion (CNBC June 2016) valuation to boot. Even with an abundance of controversy pertaining to its usurious surge pricing at peak periods or its purported disregard for user data privacy, the fact remains that the company is now a household name across multiple demographics and many see it as an outright industry usurper.

Its business model offers the quintessential example of modern social currency whereby users can rate drivers and vice versa. But even with this extra layer of transparency, the reason for using Uber for all your transportation needs is that the company makes it too easy to even bother considering any other method. Once you’ve downloaded the app, you are two taps away from having a car at your door. No need to tell the driver where you’re going; it’s already plugged into his or her GPS. And no money or tip need be passed along at the end of ride because the system already has your credit card information.

The vehicle for hire industry clearly underestimated Uber by not immediately adapting to this newer, simpler paradigm of mobile-based transactions. The old guard’s response has been quite vocal – such as car horn protests in front of city hall – as they are seeing the value of their taxi licenses evaporate. But Uber is so entrenched now that there is no possible way consumers will accept regressing to the previous and slower practice of hailing a cab off the street or calling ahead, and then exchanging cash at the end of the trip. Uber has already won, whether the taxi companies know it or not.

Airbnb Is The Uber-Equivalent For The Accommodations World
Like most other alternative lodging providers, Airbnb is following the Uber model, and clearly making inroads into every aspect of hospitality. Starting out as a room-sharing service for backpackers or those looking for esoteric accommodation experiences, Airbnb is now completely mainstream. As more listings come online, the doors are opening for more travelers to find something they want, even in sectors previously deemed off-limits like business travel or the ultra-luxury market. In doing so, Airbnb is well on its way to supplanting its ‘millennials only’ image and becoming an accommodations distributor for every single person on the planet.

Similar to Uber, there’s been pushback and indeed Airbnb has been forced to comply with new regulations, largely resulting from its impact to the real estate market and less so to hospitality. Municipalities have started to realize that shortages of rental accommodations can adversely affect local businesses. Every time a rental unit is transferred to short-term use versus long-term availability, it reduces the gross residential rental vacancy rate. In many cities, these rates are already near zero, thereby increasing the cost of living and decreasing the desirability of the location for commerce. In the long run, this means lost jobs.

Here’s how local governments have already responded:

  • In several counties on New York’s Long Island, a minimum one month’s stay is required. Anyone advertising or listing on Airbnb (or an equivalent) is required to have a registration permit number assigned following a detailed property inspection.
  • In parts of Miami, a minimum six-month stay is now mandatory. Those offering anything less than that breadth are subject to significant fines.
  • Ontario courts have said that condominium management groups have the rights to ban Airbnb and its peers for all units within their jurisdiction. The judgement suggested a four-month minimum stay requirement. This ruling is also thought to provide jurisprudence across Canada, except for the province of Quebec.
  • Airbnb is cooperating with recent decisions in San Francisco, New Orleans and New York City that restrict property utilization.

To Airbnb’s credit, they are compliant with all legal requirements. Make no mistake, it is a well-run, well managed and highly professional firm with no intention of breaking any laws. It will collect fees on behalf of any level of government and duly supply data for tax purposes. Even though Airbnb is fighting these restrictions in court, the company wholeheartedly acquiesces to authorities because it knows that the longer it remains in operation, the more travelers will covert to using its platform instead of traditional hotels.

The Basis for Airbnb’s Success Is Its Website
I know you love your branded website, and I suspect that you’ve spent thousands on it. Frankly, though, it pales in comparison to Airbnb. Not only does it have a booking engine that shows you all upfront costs, but it also fluidly integrates comments from its own users – again, social currency. The commentary and descriptions of the rooms being sold read like a storybook by people who truly care. They are not just selling; they are trying to make your travel more exciting. Moreover, their presentation is seamless on mobile, tablet or a laptop computer.

Unlike when you try to make travel plans via the traditional route, Airbnb is a ‘one stop shop’. When you are contemplating booking a room, you don’t research your options through some third-party review agency such as TripAdvisor, but directly with members within the Airbnb community, constituted of both the users as well as the purveyors of the product. This provides a level of confidence in the buying decision that is very difficult to match. The site even reports on how long it took for the buyer to post the rating. Confidence is reassured at every step of the sales funnel.

Ever visit a city for the first time and not sure where you are staying relative to where you want to visit? Airbnb integrates a map functionality directly into every search that’s as easy to use as Google Maps. You can see all participating properties and instantly select based on location and availability. This makes the interface both logical and intuitive. You’ll end up searching the full range of accommodations just for the fun of it, especially when you browse in the thousand-plus-per-night range.

Lastly, Airbnb has effective pricing transparency which reveals the complete rate breakdown of guestroom charge, cleaning fees, taxes and commission. We all like to feel as thought we are getting a bargain and with Airbnb you see the net price along with all add-ons. Just imagine if your own hotel’s booking engine showed the net rate, then the housekeeping fee and the third-party commission.

Airbnb Has Inroads Everywhere
Yes, you can still find some low-end rooms or shared lodgings. In fact, the low to middle ranges – the supposed ‘bottom feeder’ customers – comprise a good portion of what’s out there. But Airbnb’s listings also stretch up to multi-bedroom homes and into some of the world’s most exclusive locations.

It is its premium segments that will eventually encroach upon the established hotel market. If a cardinal rule of the upper echelon of travel involves the creation of vibrant and exceptional experiences for guests, then Airbnb has this in spades. Not part of a branded property, each selection is unique, conveying the personal stylings of each individual homeowner or renter.

Along these lines, consider the baby boomer market. Airbnb might be a table name for them, but for many it still holds the perception as a couch-surfing enterprise. As this demographic looks for more profound experiential vacations to satiate its extra free time made possible by retirement, Airbnb offers a badge-generating and bragging rights alternative to hotels. In other words, why stay where everyone else has stayed?

What Should You Do?
First and foremost, study Airbnb’s website as well as every alternative lodging inscribed in the opening paragraph. Learn all you can about these operators in a general sense and, more specifically, the properties that are being offered in your vicinity. Make observations about the positives and negatives of each website’s user experience. Understand the price points that you are competing against and see where you stand. I am not advocating that you change your pricing structure or your amenity packaging. Rather, I am encouraging you to understand these new sharing economy competitors, treating them with the same respect and acknowledgement as other properties in your comp set.

Second, take a good, hard look at your own website. Try to understand how the interface ‘talks’ to your audience and the convenience factor. See how friendly it is to use and navigate as well as how many clicks it takes from arrival to confirmation of booking. Torture test it on a mobile device. Additionally, ask the same from your web agency. Encourage them to learn from Airbnb and make recommendations as to how you can enhance your site’s profile and sociability. Then run, don’t walk, to properly fund the necessary work to make your site’s user experience friendlier.

Third, work with your local hotel association. The goal is to create a fair and level playing field for everyone – identical taxes paid by both guests and hosts, and the same inspections for health and safety. Importantly, it also means that commercial Airbnb operators need to comply with any licenses, workplace standards and other requirements that your hotel operation must follow such as OSHA or ADA. Remember, you’re not arguing for some sort of tax reduction or special favor, only equal treatment for every business in the accommodations sector.

Fourth, actively monitor possible changes to the municipal or state code. When community hearings are scheduled, ensure that the hotel sector is effectively represented. If this means attending yourself, so be it! You might even consider becoming more media active by finding a local spokesperson. Talk about the role of the traditional hospitality industry in supporting local commerce and social activity. Be sure to identify the total number of jobs from all properties in your comp set, how these support the local community and the impact of additional competition. If prompted, argue for minimum stay requirements of at least a week.

Much as the Uber example has demonstrated, the sharing economy and all hospitality enterprises following its paradigm are not going away. They are only bound to grow. Hoteliers are used to competition, but it must be fair. It behooves us all to recognize our responsibility to ensure the sharing economy’s full compliance before irreversible damage is done.

(Article by Larry Mogelonsky, published in Today’s Hotelier on March 1, 2017)

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