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This is where the world is leading us . . . You need to embrace it.
—SÉBASTIEN BAZIN, CEO, AccorHotels, to Skift
IN 1951, KEMMONS WILSON, a businessman and father of five living in Memphis, was pried away from his work by his wife, who insisted they go on a vacation. He piled the family into the car and set off on a road trip to Washington, D.C., to visit the national landmarks.
Disappointed with the subpar roadside motels they stayed at along the way, which had small rooms, uncomfortable beds, and added surcharges for each child, Wilson saw the opportunity for something better. By the time they arrived in D.C., he’d come up with an idea: to build a chain of four hundred motels across the country, all positioned along highway exits and each within a day’s drive of the next, that would be clean, affordable, and, most important, predictable: they would be standardized down to the last square inch, so that guests could expect exactly the same features no matter where they were. After taking meticulous measurements of every room the family stayed in during their trip, he came up with the ideal dimensions, and back in Memphis he had a draftsman draw up the plans. He happened to be watching a Bing Crosby movie at the time called Holiday Inn, and on a lark jotted the name down at the top of the plans. The first Holiday Inn opened a year later, in 1952, outside Memphis on one of the main highways to Nashville, and the following year he built three more.
They were indeed most predictable, clean, family-friendly (there were no surcharges for children), and readily accessible to roadside travelers. And they were revolutionary for their time. The idea took root, spread, and became a global brand, its hallmark being the fifty-foot roadside signs with the company’s logo. By 1972, Holiday Inn had 1,400 locations worldwide and had landed on the cover of Time magazine as “The World’s Innkeeper.”
Wilson wasn’t the only one with the idea. In Texas, a young man named Conrad Hilton had started buying up hotels in the 1920s during the oil boom. In 1957, J. W. Marriott opened the Twin Bridges Motor Hotel in Arlington, Virginia. Collectively, and along with a few others, they would usher in the era of mass-market, predictable, ubiquitous roadside motel chains, which was as disruptive an idea as the hospitality industry had ever seen. Previously, lodging had for the most part been limited to boardinghouses; small, independent motels; or expensive city hotels and grand vacation estates that were destinations unto themselves. But conditions were ripe for innovation: millions of GIs had returned from the war and started families, the postwar economic boom brought prosperity to a new and rapidly growing middle class, millions of households were still in wondrous awe of their new private automobiles and the mobility and freedom they afforded, and, thanks to President Eisenhower and the Federal Highway Act, the great era of interstate construction was well under way. Once a privilege of the wealthy, travel had been cracked open and democratized.
Wilson, Marriott, Hilton, and a handful of others were the hospitality industry’s first disrupters. They shook things up with their novel vision of what travel should look like, built great fortunes, and paved the way for today’s modern chain conglomerates.
Now, some sixty-three years later, in October 2015, a representative from the hotel industry’s newest disrupter stood on a stage before a group of hotel and real estate executives. “I am one of you,” Chip Conley assured the audience at the Urban Land Institute’s (ULI) Fall Meeting 2015, in San Francisco. “I’m evidence for the fact that you can teach an old dog a new trick.” The hotel entrepreneur–turned–Airbnb executive was addressing the audience with a talk on the history of innovation in the hospitality business, drawing from his experience as a two-time industry innovator himself: first as a boutique hotel entrepreneur, starting his Joie de Vivre hotel chain in 1987; and now as a top executive at Airbnb. He walked the audience through a modern-day history of hospitality disruptions, from roadside motels to so-called boutique hotels to the rise of short-term vacation rentals, or “home sharing.” His message for them: the hospitality industry has been disrupted many times before; the disruptions usually address some underlying need not being met; and, in the end, the big chains get on board and everybody wins. “Over time—and for those of you running big companies right now, this will make you feel better,” he says, “over time, the establishment embraces innovations that represent a long-term trend.”
The relationship between Airbnb and the hotel industry is complicated and has evolved over time. Airbnb has gone out of its way to say that it is not a hotel-industry disrupter and to paint a picture of benign coexistence. “For us to win, hotels don’t have to lose,” Chesky is fond of saying, and he and his team frequently dispense talking points to demonstrate this. Airbnb stays are longer than traditional hotel stays. Roughly three-quarters of its listings are outside the areas where the big hotels are located. It tends to draw larger groups. It is a different “use case,” in technology-industry terms. A large number of travelers stay with friends and family, “so if we disrupt anything, we might disrupt you staying with your parents,” Chesky had told the ULI crowd earlier in the conference’s program. And the company points out that the hotel industry had record occupancy rates in 2015. If Airbnb were truly disrupting the hotel business, how could that possibly be the case? “No hotels have gone out of business because of Airbnb,” Nathan Blecharczyk told the Globe and Mail. Chesky says he does not like the word “disrupter.” “I never was in love with the term, because I was fairly disruptive growing up in class, and that was never a good thing,” he said at the ULI event.
But, of course, Airbnb is having an impact on hotels’ business. It sells rooms, by the night, to millions of people. It has grown like a weed. It has captured the imagination of the most important lodging-industry demographic: millennials. So the bigger Airbnb has become, the more hotel companies have seen it as exactly that—a disruptive threat, and one that gets to play by different rules. At the same time, they acknowledge that the company has tapped into something—some fundamental need that wasn’t being met—and they admire that about it. (“I take my hat off to them,” Steve Joyce, CEO of Choice Hotels, told an audience at the Americas Lodging Investment Summit in early 2016. “They saw an opportunity the rest of us missed.”) It all makes for a fascinatingly dynamic situation in which hotel companies are simultaneously funding the fight against Airbnb, cautiously engaging with it, and experimenting how to tap into the short-term-rental trend themselves, whether through trying out their own concepts, buying or investing in other companies, or establishing partnerships with one of the dozens of new start-ups that have emerged in the nascent “alterative accommodations” industry.
For the most part, the hospitality industry was late to see or acknowledge Airbnb as something it should pay attention to. Jason Clampet, cofounder of the travel-news site Skift, recalls meeting with the CFO of one of the largest hotel chains in 2013, who said, “What’s Airbnb?” when Clampet asked him about it. “They have not been at the forefront of this really until the last eighteen months, tops,” Clampet said in the fall of 2016. Most hotel executives maintain that Airbnb serves a different customer. “We’ve thought about it a lot. We’ve done a lot of research,” said Hilton Worldwide president and CEO Christopher Nassetta on an earnings call in late 2015. “I suspect over time investors . . . will see it for what it is, which is a really good business, but a business that is maybe not 100 percent but largely distinct from what we do, and that there is every opportunity for both of us to have really successful business models.” He said it would be hard for Airbnb to replicate the services Hilton provides. “I don’t think our core customers suddenly woke up . . . and said, ‘We really don’t care about consistently high quality products, and we don’t need service and we don’t need amenities.’ I just don’t buy it.”
Barry Diller, the founder of consumer Internet conglomerate IAC and chairman of online travel giant Expedia.com, told Bloomberg BusinessWeek in 2013 that he didn’t think Airbnb was stealing much business from urban hotels. “I think it’s serving people who didn’t travel because they were scared, or couldn’t afford it, or use it because it’s an antidote to loneliness,” he says. “A room in someone’s house is not as valuable as a room at the Helmsley.” The New York real estate developer Richard LeFrak also chimed in, telling the Commercial Observer, “It’s not like I’m going to stay at the St. Regis or somebody’s house.”
David Kong, the CEO of Best Western Hotels and Resorts, remembers speaking on a panel sometime in 2011 and being asked about the sharing economy. “I said at the time it was a niche play—that we can probably coexist and it probably won’t have too big an impact,” Kong recalls. “Since then it’s grown tremendously—it’s doubled in size every year.”
In 2015, Bill Marriott, the eighty-four-year-old executive chairman and chairman of the board of Marriott International, acknowledged that Airbnb had become a contender. “It’s a real disrupter for us,” he said, noting that Airbnb had more rooms available in Orlando than Marriott. “Anybody that owns a condo down there—and there are a lot of condos—they’re all renting it out on Airbnb,” he said. He acknowledged it was a good idea. “It’s a great concept,” he said, before adding, “You do get concerned about what kind of quality you’re going to get . . . The consistency is not there. You may want to bring your own towel,” he said with a chuckle.
The leaders of the hotel industry have engaged in a delicate dance with Airbnb. In early 2014, the CEOs or executive teams of four of the top six hotel companies separately visited the company’s headquarters for a day or day-and-a-half “immersion.” But the bigger Airbnb got, the more the relationship became cooler and more competitive. And while it’s true that hotels have had some banner years recently—the industry has been in a surging up cycle for the past several years that saw it hit record numbers for both occupancy and revenue per available room, or “revpar,” the industry’s key metric, in 2015—there are signs that the cycle may have reached its peak. Industrywide, supply began to exceed demand in 2016, and as of this writing, occupancy was projected to be flat or down for the year, with demand, occupancy, average daily rate, and revpar all continuing to slow in 2017. Things are particularly weak in New York, where performance has been soft for the past few years.
Much of this weakness is due to other factors, including a strong dollar and an oversupply in certain markets—particularly in New York, where the industry is in the middle of an unprecedented building boom (New Yorkers might have noticed shiny new hotels from affordable brands popping up on side streets in Manhattan and in Brooklyn in recent years). But increasingly the softness is also being attributed to competition from Airbnb. In a September 2016 report, Moody’s cited Airbnb’s “extracting demand from the market” as a factor in slower industry-demand growth. “Airbnb has and will continue to encroach on the business of the traditional lodging industry,” concluded a 2016 report by CBRE called The Sharing Economy Checks In. The report, which created an Airbnb Competition Index, found the impact to be highest in New York and San Francisco. “In New York in particular, we’ve seen very weak hotel performance since 2009, where occupancy came back in the city but lost their pricing power, and we think that can be at least partially attributed to Airbnb,” says Jamie Lane, senior economist for the firm.
An oft-cited study in Texas led by researchers from Boston University found that Airbnb had caused a statistically significant decrease in hotel-room revenue, showing that in Austin, Airbnb’s presence had led to revenue declines of 8–10 percent for the most vulnerable hotels. The report found that hotels were affected disproportionately during high season by limited pricing power and that the impact fell mostly on lower-end hotels and on those that lacked conference facilities. “Our results suggest the risk to incumbent hotels from Airbnb as a market entrant is both measurable and increasing,” the researchers found.
An important way hotels make money is in so-called compression pricing: the ability to send rates way up in times of peak demand. Such nights make up just 10–15 percent of nights but are a critical source of revenue. One of the things about Airbnb that makes hotel executives cringe is that when a big event comes to town, its supply of inventory can expand instantly to meet the demand. Previously, travelers would have paid higher rates or gone as far out as they needed into the suburbs to find a reasonably priced room. Now, they can just turn to Airbnb. “The next time you go to a conference, you can ask a question: ‘How many of you are staying at an Airbnb?’” says Best Western’s Kong. “And you’d see more and more people raise their hands. So how can the hotel industry say it’s got no impact?”
Even for the hotel companies that are still seeing minimal impact on their bottom line, the thing about Airbnb is that however small its impact today, its growth rates, fed by its near-zero marginal cost and ability to expand into new markets almost overnight, mean that that influence will only grow. “Whatever our conclusions on the risks posed by Airbnb today,” reads a Barclays investor note, “we should be aware that the threat may be twice as significant within the next year alone, should this pace of growth continue.”
Over the past few years, hotel-industry executives, some behind the scenes and others more publicly, have joined the effort to push back against Airbnb. The hotel industry’s lobbying arm, the American Hotel and Lodging Association, has been an active participant in the opposition movement against Airbnb in New York and San Francisco. Hotel-industry executives and surrogates say they have nothing against home sharing, but they draw the line at so-called illegal hotels—those units that are dedicated to rental through Airbnb—and say that Airbnb should have to operate on a level playing field with hotels: its hosts should have to abide by industry standards for fire safety, for disease prevention, for compliance with the Americans with Disabilities Act, and in paying their fair share of taxes. Their disrupter, once a cute afterthought and now a heavyweight, has gotten this big, they say, largely on being able to expand totally unchecked, and it’s not fair. So while many in the industry have clung to the belief that the two don’t compete, that argument is becoming harder and harder to make.
Airbnb can’t completely say it’s not going after the hotel business, because of an area of expansion that aims at the hotel industry’s core: business travel, a lucrative segment of the market in which corporate clients are sticklers for things like the safety of their employees, because if something goes wrong, the employer is responsible. In 2014, Airbnb announced a partnership with the travel-expense-management service Concur to officially recognize Airbnb as a corporate-travel provider, and it has steadily built its program from there. In 2015, Airbnb launched a “Business Travel Ready” program, a credential program for entire-home listings that met certain reviews and responsiveness rates and that adhered to certain standards, like providing twenty-four-hour check-in, Wi-Fi, a laptop-friendly workspace, hangers, iron, a hair dryer, and shampoo. The pitch to hosts: they get a special logo that makes their listing stand out to a new large stream of higher-paying, professional, well-behaved guests; and they’re able to fill up empty dates or traditionally slow times on their calendar, since business travelers often book midweek and during slow seasons. “Ideal for any type of business trip,” the company’s business-travel site claims, touting extended stays, off-sites, retreats, and group trips.
By the spring of 2016, the company said it had some fifty thousand companies signed up. The vast majority of those were small to midsize businesses whose employees travel infrequently, but the company had also signed a few heavy hitters, like Morgan Stanley and Google. A few months later, Airbnb announced partnerships with American Express Global Business Travel, BCD Travel, and Carlson Wagonlit Travel—the heavyweights of the corporate-travel business, who handle the back end of so many companies’ travel-purchasing needs. These deals show a growing willingness in the business-travel world to recognize Airbnb based largely on the organic demand that corporate-travel departments were seeing bubble up from their employees. Carlson Wagonlit said its data showed that one in ten business travelers was already using Airbnb, and the figure rose to 21 percent for millennials. “It’s time for hotels to really, truly worry about Airbnb,” read a headline on the website Quartz when the deals were announced.
Conley says business travel will still represent a smaller percentage of sales for Airbnb than it does for traditional hotel companies, estimating it may grow to 20 percent of the Airbnb business. He points out that Airbnb’s business travelers are younger and their behavior on the road is different—they tend to stay longer, with an average stay of six days—which Conley attributes to the trend toward “bleisure,” or travelers blending leisure with their business trips. But Airbnb is also starting to make a push into meetings and events: Conley gave a talk at an events conference—a conference about the conference business—in which he pitched Airbnb as a way to personalize corporate travel, and suggested it could perhaps be a “peripheral player” in the meetings industry. And while the company hasn’t said much about getting into the wedding business, there’s a wish list of “ultimate wedding destinations” on the site, including, in the summer of 2016, a sixteenth-century stone house in the United Kingdom, a villa in Italy, and a “Ralph Lauren style ranch house” in Morongo Valley, California. None of them had a “wedding-ready” logo, but that may be only a matter of time.
It’s hard for Airbnb to say it doesn’t pose a challenge to the hotel industry business at large, given all this. But one of the things that the industry should fear the most is how much Airbnb’s users seem to like it. Goldman Sachs commissioned a survey of two thousand consumers to measure attitudes toward peer-to-peer lodging, and while overall familiarity with the concept was relatively low, those familiar with it rose from 24 percent of respondents to 40 percent of respondents from early 2015 to early 2016. About half of those who were familiar with the sites—not just Airbnb but also HomeAway, FlipKey, and others—had used them, and, if they had stayed in such accommodations in the last five years, the likelihood they preferred traditional hotels was cut in half. Even if they’d used these sites to book fewer than five nights, the researchers found, the consumers polled experienced this “dramatic shift in preferences,” and the researchers said they found it notable that people tended to “do a 180.”
This, of course, isn’t the first time the hotel industry has been disrupted. As Conley’s talk to the ULI pointed out, in the 1950s the very idea of a mass-market chain was disruptive. But even since then, he went on to say, the industry has weathered plenty of upstarts. In the 1960s, a few entrepreneurs in Europe came up with a novel idea that merged leisure travel with the burgeoning interest in owning real estate: the notion that you could buy a piece of property as a “right to use” instead of outright and that, in this way, your vacation would be something you “owned” instead of rented. This new model caught on and soon spread to the United States; the modern-day time-share industry was born; and, after some time, the big hotel brands entered the market.
In 1984, Ian Schrager and his business partner in Studio 54, Steve Rubell, introduced a new hotel concept when they converted an old building on Madison Avenue and opened the Morgans Hotel in New York. Focusing on design and social spaces above all else, the hotel drew a chic crowd and quickly became a “scene.” On the West Coast, Bill Kimpton had pioneered a similar concept with Kimpton Hotels, converting unique properties into small hotels with a focus on design and the atmosphere of the public spaces.
Kimpton added locations across the country, Morgans launched spin-offs—the Delano in Miami and the Royalton in New York—and Conley soon made his own early entry with Joie de Vivre, starting with the Phoenix, a run-down hotel in San Francisco’s Tenderloin neighborhood that he relaunched with a sort of rebellious, rock-star attitude, targeting touring musicians.
Conventional hotel chains balked at boutique hotels, but the sector outperformed them, the new breed of individualized, high-design hotels speaking to a new generation of travelers for whom the social and aesthetic appeal of a property was a huge draw. “I think that what we started is the future of the industry,” Schrager told the New York Times at the time. “If you have something unique and distinctive, people will beat the doors down to come to it.” Soon the hotel chains followed; in 1998, Starwood created the pioneering W brand, and many others quickly entered the scene. Most recently, Marriott partnered with Schrager himself to develop a new brand called Edition, a collection of four properties so far (with more in the works) that are hip and high-design and look nothing like your standard Marriott.
In recent years, another big threat to the hotel industry has come from the rise of online travel agencies, or OTAs—websites like Travelocity, Expedia, Priceline, and Orbitz, that allow travelers to access discounted rates across multiple brands on one site. For years, these upstarts represented only a small piece of hotel chains’ business, since they charged hefty commissions for access to their large distribution platforms. And since they handled the booking process, they got to “own” the direct relationship with the customer, which the hotel companies were loath to let go. But in the wake of 9/11, when people stopped traveling, the third-party booking sites and their massive platforms became an easy way to fill rooms, so hotels fed them more of their inventory. It’s been hard to get that business back—hotels are now waging big ad campaigns to convince travelers to book directly—and over the years the OTAs gained leverage to demand better terms. Today, Priceline is now bigger in market value than Marriott, Hilton, and Hyatt combined.
But, as disruptive as they were, the OTAs were not providing a competing place to lay one’s head at night. So, while plenty of other consumer-service sectors have gone through the threat of replacement by Internet entrants, as Goldman Sachs pointed out in the report about its survey results—think Amazon and Walmart, or Netflix and Blockbuster—so-called peer-to-peer lodging, as best exemplified by Airbnb, marked the first time the hotel industry was faced with an actual alternative accommodation to hotels. “Airbnb has had a more radical impact on the travel industry than any other brand in a generation,” says Skift’s Jason Clampet.
The Disruptive Online Home-Sharing Entrepreneurs of . . . 1995
Of course, Airbnb was neither the first nor is it the only service of its kind. As Chip Conley pointed out in his talk to the ULI, in the 1950s the Dutch and Swiss teachers’ unions established a home-swapping practice so that teachers could enjoy affordable travel to one another’s countries during the summer. But the modern-day, online short-term-rental industry traces its roots to the mid-1990s, when, for one thing, Craigslist started to gain traction as a place to list a home or apartment, whether for travelers or subletters, just as it became a place for listing almost everything else under the sun.
Around that same time, Dave and Lynn Clouse, a married couple living in Colorado, needed to rent out their ski condo in Breckenridge, which they’d bought as an investment property, and they started a website they called Vacation Rental by Owner, or VRBO.com, to list it. At the time, vacation rentals were handled in a fragmented manner, either by local real estate brokers, in special-interest travel magazines, or by expensive classified ads or 1-800 numbers. The Clouses’ idea was that people should be able to transact rental deals between one another directly. Dave Clouse put together a rudimentary database in their basement, got some of their friends to come over and help out, and soon they had a website (the Internet was still in such early days that they called themselves “webmasters”).
At the time, it was a disruptive idea; most people still used hotels for vacations, and the nascent industry drew people passionate about the anti-establishment “by-owner” idea and even “rent-by-owner advocates” who espoused the benefits of this new way to travel. (Sound familiar?)
By the mid-2000s, VRBO.com had grown to sixty-five thousand properties and twenty-five million travelers per year. Vacation rentals by owner had grown from a subset within the travel industry to being much more mainstream, international interest was booming, and there was more demand for vacation rentals than the Clouses could handle without first making big investments in technology and marketing. So in 2006, they sold their company to HomeAway, an upstart founded a year earlier by Brian Sharples and Carl Shepherd in Austin, Texas, with the goal of consolidating these fledgling worldwide vacation-rental sites under one roof.
HomeAway went on to build a hugely successful business, its roll-up strategy allowing it to scale from sixty thousand listings to the more than 1.2 million that the company has today. Like VRBO, HomeAway traditionally focused primarily on second-home rentals. Having bought up every significant player in the industry, HomeAway drew significant funding, raising more than $400 million before going public in 2011.
These sites served a healthy and growing market for years, functioning largely as online bulletin boards, where an owner advertised a space and managed his or her relationship with would-be customers. Payments were handled between buyer and seller directly.
When Airbnb came along, it was different in a few significant ways. It had a more user-friendly interface than anything that had come before it. It brought the owner and customer together in a new, more intimate way, showcasing home renters’ personalities and displaying their homes with magazine-worthy photography. It was a self-contained system that handled everything: payments, messaging, and customer service. It had a sophisticated technological back end that benefited from all the novel breakthroughs coming from Silicon Valley’s new golden age—cheap and powerful cloud computing, fast horsepower, sophisticated searching and matching. And, perhaps most significantly, instead of focusing on vacation destinations in resort areas, it focused on cities. Despite the attention paid to the treehouses and tepees, Airbnb’s actual invention was that it was an almost entirely urban phenomenon from the very beginning, taking root with millennial travelers who were city-focused and millennial hosts who wanted to monetize their small urban apartments.
While it’s expanded well beyond that, in 2015, 70 percent of Airbnb’s full-home listings were studios, one-bedroom, and two-bedroom units, according to Airdna. So for the first time, short-term rentals were no longer just the big homes in lake, beach, or mountain destinations. They were in the apartment right next door in the heart of every city around the world. That’s what made the platform grow so fast, and it’s what makes the company so threatening to hotels. But it’s also why so many people who were initially drawn to Airbnb, both on the host side and on the guest side, weren’t customers of another vacation-rental site who switched; they were an entirely different kind of customer.
After dismissing it for so long, the hotel industry slowly started to confront its Airbnb Problem. Executives started talking openly about it at industry events. At the 2016 NYU International Hospitality Industry Investment Conference, a series of CEOs took the stage and, referring to the “second phase” of Airbnb, pointed out why it wouldn’t compete and cited the hotel industry’s strengths—that hotels were people- and service-focused, that there would always be a customer for hotels, and that the hotel industry just needed to double down on its strengths. (Skift described the CEOs’ reactions as “surprisingly tepid and generic, especially compared to the rabid consumer excitement surrounding Airbnb.”)
Some, though, said the industry needed to take note. Javier Rosenberg, COO and EVP of Carlson Rezidor Hotel Group, the parent of Radisson Hotels in the United States, told the audience that while Airbnb’s customers may be different and more leisure-focused, there was something to study in its success: “What’s working is the ‘home concept’ of Airbnb and this thing about being somebody’s host,” he said. “The true host and the service he or she provides welcomes you with a smile, really takes care of you for five, six, seven days—how do we, from a leadership perspective, how do we bottle that?”
Airbnb or no Airbnb, the hotel companies were already well under way in reshaping their businesses to win over millennials, their new massive customer base whose habits and tastes are so markedly different from those before them. For the past several years, almost every major hotel chain has been hard at work cooking up new brands targeted at the younger set. Along with the Edition partnership with Schrager, Marriott has also launched Moxy, a global chain of stylish, affordable hotels for young, budget-conscious travelers (Marriott calls them “Fun Hunters”), and AC Hotels by Marriott, a more sophisticated, city-based chain. Hilton has launched two brands, Tru and Canopy, and is said to be considering launching a new chain of “hostel-like” hotels for the younger demographic. Best Western has two new chic boutique hotel brands, GLō for its suburban markets and Vīb, a “stylish urban boutique hotel.” Almost every hotel company is adding details and touches it thinks will win the millennial over, whether it’s keyless entry, streaming content, charging stations, partnerships with brands like Uber and Drybar, or, in one unique attempt, emoji-only room service.
Hotels are seizing on the same consumer shifts that propelled Airbnb and are now marketing themselves as anything but standardized and routine. Royal Caribbean’s latest ad campaign touts, “This is not page three of the guidebook,” while Shangri-La Hotels and Resorts encourages its customers to “leave boring behind.” In the spring of 2016, Hyatt announced the Unbound Collection by Hyatt, a selection of independent, high-end hotels that would retain their own names, the idea being that each would bring its own unique story and “rich social currency” to the collection. It noted that future Unbound properties could include nonhotel products, like river cruising and other experiences, as well as “alternative accommodations.” “It’s a collection of stays, not just hotels,” Hyatt CEO Mark Hoplamazian said in announcing the new brand.
Hoplamazian has also overseen an effort to bring more “empathy” back into the experience for guests, stripping back procedures, policies, and scripts. It’s revamped its check-in process, for example, to be less computer-focused and to include more face-to-face interactions. Hoplamazian also put in place a mandate to “unleash [employees] and let them be who they are,” doing away with grooming standards, encouraging employees to dress and look how they want (within reason), and instructing them to go “off script” and to feel more free to be themselves. The goal, he says, is to “bring humanity back to hospitality.”
In mid-2016, when the boutique-hotel industry gathered at the annual Boutique and Lifestyle Lodging Association’s annual investment conference in New York, its original disrupter, Ian Schrager, took the stage and told a crowd of hoteliers that they should be worried. “Airbnb is coming from your kids,” he said, adding that it was a major threat to the industry, whether or not the industry wanted to address it. His comments inspired the association to form an official Disruption Committee to figure out how the hotel industry can innovate and adjust to compete.
The most dramatic thing hotel companies have done so far is to test the waters of short-term rentals themselves. Hyatt was the first mover, when in the spring of 2015, it took a stake in onefinestay, a UK-based, fast-growing upstart focused on short-term rentals with added services at the very high end of the market. While Hyatt’s investment was small, it marked the first time a hotel company acknowledged that peer-to-peer accommodations were legitimate; headlines called it the “clearest sign yet that a major hotel operator sees home rentals as a viable business.” Around the same time, Wyndham Hotels, parent of Ramada and Travelodge, took a stake in another London-based start-up, Love Home Swap, a subscription-based home-swapping platform; and InterContinental Hotels Group forged a partnership with Stay.com, a site based in Norway that offers recommendations for travelers from locals.
In early 2016, Choice Hotels said it would partner with vacation-rental-management companies at a handful of destinations around the United States to launch Vacation Rentals by Choice Hotels, a new service that would provide an alternative to traditional hotel rooms. “It’s a huge business,” said CEO Steve Joyce at the time. “We don’t have to get much of a share to do really well.” Marriott has not made a move into short-term rentals, but in mid-2016 it announced the creation of a new collection of urban time-shares called Marriott Vacation Club Pulse.
The most forward-thinking hotel company so far has been AccorHotels, the French multinational hospitality chain and parent to hotel brands Sofitel, Raffles, Fairmont, and others. It is most notable for its aggressive push into the sharing economy. In February 2016 it announced it had taken a 30 percent stake in Oasis Collections, a Miami-based high-end start-up that bills itself as a “boutique hotel” twist on short-term rentals. On the same day, Accor also announced an investment in Squarebreak, a French short-term-rental start-up. A few months later it made its biggest move yet, acquiring onefinestay outright, for around $170 million. The deal was small for Accor, but it was significant in that it was the first validation that so-called alternative accommodations had a place in a traditional hospitality-brand portfolio. Accor CEO Sébastien Bazin was candid about the changes such companies were bringing to their industry: “It would be absolutely foolish and irresponsible to fight against any new concept, offer, or services like this, let alone fighting against the sharing economy,” Bazin told Skift. “This is where the world is leading us. All of those new services are very powerful and very well implemented and executed. You need to embrace it.”
There is in fact now a cottage industry of short-term-rental start-ups. Whether started before or after Airbnb, the category now includes dozens of other companies: Roomorama, Love Home Swap, Stay Alfred, and many more. Some were scooped up by the travel industry’s giants—TripAdvisor’s FlipKey and HouseTrip, Priceline’s Booking.com—and in the fall of 2015, Expedia paid $3.9 billion for industry veteran HomeAway and its 1.2 million–plus properties listed.
Some new entrants are starting to offer their own twist on the concept, evidence of the kind of segmentation that starts to happen when a bold new idea becomes more established. Onefinestay was the first to get significant traction. Founded in 2009 by three friends with backgrounds in tech and business, the company created its own niche in high-end, high-touch short-term rentals (it’s often described as “the posh Airbnb”). Would-be hosts have to apply to have their residences accepted (and need to meet certain standards, like a certain number of wineglasses on hand and a certain thickness of the mattress). Each of the properties in its collection is visited by the company’s staff in advance of any booking and given a luxury makeover: it’s cleaned and de-cluttered, the bed linens are replaced and appropriately anonymized and staged with fluffy duvets and high-end bed linens, and shampoo and soap are provided.
The company, which bills itself as the “unhotel,” deploys employees to greet customers at check-in and offers white-glove treatment on the ground, including a personal iPhone to use during their stay, a twenty-four-hour remote concierge, and room service delivered by a network of providers. This high-service model isn’t as scalable, since every property needs to be approved and then given its luxury patina, so for now its 2,500 listings are available in only five cities; but, like Airbnb, it has grown largely by word of mouth.
In 2006, Parker Stanberry was living in New York City and had just been laid off from Miramax Films in the wake of its split from Disney. He decided to move to Buenos Aries for three months and needed to find a place to stay. After going through a clunky process involving real estate brokers and Craigslist, he found a place, but once on the ground there, he found himself missing a level of service, in particular the personalized touches and lively bar and social scene that a boutique hotel provided. He came up with the idea for Oasis, a business that would bring the elements of a boutique hotel to the world of short-term apartment rentals. Airbnb didn’t exist at the time, but Stanberry’s approach was different; it was smaller, did not involve peer-to-peer hosting, and was more service-oriented, with a staffer on-site to check guests in and out, member “clubs” accessible nearby, and free passes to SoulCycle and the like. He calls the model a “deconstructed boutique hotel” (or, as he describes it in comparison to Airbnb, “removing some of the uncertainty with great stuff layered on top”). Oasis now has two thousand listings in twenty-five cities—its prices start at around $120, so it offers more of a broad range than onefinestay—with a goal of reaching one hundred cities. (It lists many of its properties on other sites as well, including Airbnb and HomeAway.)
Oasis has had some successes: during the Summer Olympics in Rio in 2016, the company housed groups from Nike, Visa, and the BBC. “They can come to us and say to one central point of contact, ‘We need thirty midlevel units for staff, fifty high-end for VIP retailers, and a few villas for athletes and CEOs,’ ” Stanberry says. “And we can do that.” He acknowledges that there is a “gold rush” for short-term-rental sites in the wake of Airbnb’s success. “It’s pretty easy to raise $1 to $3 million in a Series A and give it a whirl in San Francisco or London,” he says. “But to actually build something that’s differentiated enough and scale it is harder.”
Another just-launched hybrid: Sonder, the relaunch of a previous company, Flatbook, which bills itself as a “hometel,” a short-term rental with the touches of a hotel. Like the others, it takes aim at what it sees as a flaw of inconsistency with larger short-term-rental sites (i.e., Airbnb). It recently raised $10 million in funding. New twists on hotels, too, are emerging, companies like Common, a model of flexible, shared housing with outposts primarily in Brooklyn; and Arlo, a new hotel brand that calls itself “homebase for urban explorers.”
It’s all part of the rapid mainstreaming of the fast-growing category of “alternative accommodations,” and plenty of players in the hospitality industry want in on it. There are many ways to slice it, and in a curious number of these cases, the websites’ designs, friendly voices, and review systems all bear an uncanny resemblance to Airbnb. But the idea of something that’s not your father’s hotel room has taken hold. “It’s a really relevant and growing space in the accommodations pie,” says Stanberry of Oasis. “And there’s no question it continues to grow.”
Of course, there will always be a market for hotels, even a robust one. Many people would never be caught dead staying in someone else’s home or apartment, no matter how high-end the service. Marriott’s Arne Sorenson observes that one reason Uber has taken off is that the level of quality it offers is dramatically higher than that of a taxi, which can be “awful” and, in many cities, hard to find. “In the hotel business,” he told Surface magazine, “I still think we can deliver better service, so we don’t have quite the same risk.” David Kong, CEO of Best Western, points out the many things hotels provide that Airbnb can’t: the lobby, a social gathering space; a staff member to greet you; the ability to call the front desk and request an extra blanket or have something fixed if it’s not working. “You can only find that in a hotel,” he says.
A former colleague of mine for whom travel has been a lifelong passion swears off anything related to staying in someone’s home. “I want a place that’s bigger than my own apartment, with crisp white sheets, a big TV, and really good air conditioning,” she says. And she adores room service: “I love how they roll in the cart, the vase with flowers, everything.” If she has a noisy neighbor or something doesn’t work, she likes knowing she can call the front desk and they will send someone to fix it or give her a new room. I can see her point: when I can afford the splurge or when my company is paying the bill, I love staying in upscale hotels; there’s a reason the Airbnb host I stayed with in Georgetown referred to me as the “Four Seasons lady.” And while Nike used Oasis for some of its travel needs during the Olympics, Stanberry points out that the company also booked plenty of hotel rooms, essentially commandeering one of the city’s hotels for its workers.
But there’s no question the hospitality landscape is changing before our eyes. One former hotel-industry top executive who says he, too, was initially dismissive of the threat posed by Airbnb and its ilk, says in hindsight he now understands why. “I superimposed my own forty-something personal preferences,” he says. “What about the sheets, the mattress? How would I get the key? I had all the fears of an older person.” The younger generation, he says, has grown up without the fears and biases that he had—and has known only a world with Airbnb in it. Young people are “Airbnb native” in the same way they are “digital native”; for many in this group, staying in a chain hotel room is as foreign as talking on a landline, walking into a bank branch, or watching a television show at the actual time it airs. “Airbnb educated an entire generation,” the executive says. And the company’s hand becomes even stronger, he says, the more it’s able to use its data to accurately predict and deliver exactly what its consumers want. “I would not bet a cent against Uber or Airbnb,” he says.
A Future of Partnerships
What may end up happening is that the big hotels will set up more partnerships with short-term-rental sites for collaborations that offer the best of both worlds. Some of this experimentation has already happened. Before Accor bought onefinestay and back when Hyatt was still an investor in the start-up, the two companies tested a pilot program in London where onefinestay guests were able to store luggage at the Hyatt Regency London—the Churchill—if they arrived before check-in, and to use the hotel to shower, work out, or have a meal. Room Mate, a novel chain of low-cost hotels in Europe and the United States, also offers a collection of “handpicked apartments,” but guests who choose that option can use the hotel as a sort of concierge center: they can pick up their keys at one of the hotels, then head to the apartment, and even order room service and elect how frequently they want the place cleaned during their stay. Many in the industry see this as a legitimate model for more widespread adoption going forward.
One area in which lodging-industry analysts are already pushing hotels to get closer with Airbnb is distribution. Airbnb has become a robust marketing platform that reaches millions of eyeballs; some hotels already see it as a way to attract guests. Globally, there are more than three hundred thousand homes or spaces classified as professional hospitality providers or actual bed-and-breakfasts on its platform, and Chesky says he is open to this kind of traffic on Airbnb, as long as it provides the right kind of experience. “We want B and Bs,” he says. “We’re open to some boutiques. I do want small businesses and professionals to realize there’s a place for professional hospitality on Airbnb.”
But for some hotel-industry leaders, this would be like sleeping with the enemy. Best Western CEO David Kong, who takes a cerebral but firm approach to the issue of Airbnb, says this would be a serious mistake, akin to repeating the one the industry made by becoming too reliant on OTAs. In a blog post about it, Kong wrote, “Celebrated author and playwright George Bernard Shaw said, ‘Success does not consist in never making mistakes, but in never making the same one a second time.’” (Kong and Chesky might be surprised to discover they share an affinity for quoting George Bernard Shaw.)
The relationship between the two parties is likely to become more tense. Airbnb still says it wants to befriend hotels and that it doesn’t really compete with them. But that friendly-sounding language is at odds with its business model, which as early as the DNC in Denver in 2008 had crystallized as a platform where travelers could book a room in someone’s home as easily as they could book a hotel. And the more it evolves, the more its business has gotten closer to hotels, whether it’s business travel or a feature like Instant Book, which lets travelers book a room instantly—just as rooms are booked on hotel websites—instead of waiting for approval from the host.
From the beginning, the Airbnb founders talked about encouraging their hosts to deliver “seven-star service,” going well above the hotel industry’s five stars. During his fireside chat with Sarah Lacy back in 2013, Chesky laid out three reasons people stay in hotels: a frictionless booking experience, knowing what they’re going to get, and services. He addressed them one by one: Airbnb, he said, was going to become more and more frictionless; it would be able to deliver a more consistent product over time; and “every one of those services is something that somebody in a city could do.”
One of the company’s very early mottos was “Forget hotels.” And at one point in 2014, while testing out a concierge program, Chesky had flowers delivered to his girlfriend, Elissa Patel, with a note that said, “Dear Elissa, Fuck Hotels. Love, Brian.” It had become an inside joke between them after a friend had suggested changing the original motto and was not meant for public view, but a photo appeared on the Internet and got some attention. (Some industry watchers were simply relieved to finally see some proof of actual conflict. “It’s about time the Airbnb vs. hotel industry beef got real,” commented the real estate website Curbed. “This is the rivalry of our time.”)
There is one other saying that you hear inside Airbnb’s halls. It’s a quote often attributed to Gandhi that Chip Conley recited on his first day, back in 2013, when he addressed four hundred employees, and it must still be oft repeated, because at least three executives recounted it to me when I brought up the question of competition with hotels. “There’s this great quote from Gandhi,” they begin. “‘First they ignore you, then they ridicule you, then they fight you—and then you win.’”