The Lodging Revolution Begins With One Customer, Says Priceline CEO

These are times of upheaval in the lodging industry, online and offline.

Just consider what’s going on. TripAdvisor, which is starting to become a force in hotel bookings, is aggressively adding Airbnb-style apartment rentals for owners anywhere on the planet. Airbnb, which already offers everything from rooms to condos and yurts, is starting to onboard professionally managed vacation rentals.

Hotel chain Hyatt recently invested in and partnered with luxury home site Onefinestay and the two feel their accommodations’ offerings are complementary. Hotel-power Expedia this week began adding vacation rentals to its sites in France and Germany.

Rio de Janeiro-based Hotel Urbano acquired short-term rental site House of Rio to meet the needs of travelers where demand outstrips hotel availabilities.

Meanwhile, Booking.com, which already offers 767,000 hotels, apartment hotels and vacation rentals, if you count about 60,000 under renovation or in the pipeline, is, like TripAdvisor, beginning to add Airbnb-type homestays.

It’s All About the ‘One Customer’

Priceline Group CEO Darren Huston articulated the dynamics of what’s going on across the industry in detailing how Booking.com takes the view that it’s all about the varied and ever-changing needs of “one customer.”

We have no inside information but it’s clear that these evolving customer trends show why one day Airbnb will branch out beyond its sharing economy roots into offering hotel bookings, too, as some hosts already do informally.

Because it all starts with the customer, and the demand that is driving this whirlwind of change.

During the Priceline Group’s second quarter earnings call August 5, Huston answered a question about how the company can balance adding vacation rentals as aggressively as it is doing without cannibalizing its core hotel business.

“Yes, and in terms of the vacation rentals [being] incremental or not, our general belief is, first of all, it’s one customer,” Huston said. “And either a customer is just a consumer or they’re a business person and a consumer. And they take a number of trips every year, and every trip has a different rationale.

“And if somebody is a hotel booker on three of their trips, they may be on a trip with their family and become a vacation rental booker. We want to be able to provide all of those instances and all of those scenarios through Booking.com so they become comfortable with that, rather than in the past, they feel if I need a hotel, I go to Booking, and if I need a vacation rental, I go to company X, Y or Z.”

Adapting to and Shaping a Trend

We’ve all heard about and discussed the so-called “bleisure traveler,” the one who travels for business and then tacks on a leisure weekend at the end of the trip.

That trend is picking up steam and Huston argues that Booking.com is not only adapting to it but is also helping to shape it.

“The markets have traditionally been very different because the nature of the markets were very different,” Huston said. “But more and more over time, and I think we’re partly shaping that, and I believe that’s ultimately going to be the outcome, the markets get a little bit mixed because a person says, ‘Hey, I’m going to Barcelona or I’m going to Rio de Janeiro and I need to find a place to stay.’ It’s a very common question asked, ‘Where am I going to stay?’ And relative to that scenario, we want to provide them an option.”

Huston sees a use case where a business traveler ends up staying in an apartment because of soaring average daily rates around an event, conference or other period of peak demand in a city. And it will all “coalesce” over time, he said.

The More Options the Better to Retain That One Customer

“And by having more optionality in that, you can drive incrementality because the person may not find quite the right thing on a site that has a more narrow set of options,” Huston said. “But on a broad set of options, maybe they have a certain price range and a certain thing they’re looking for we’ll be able to satisfy that. Or in a market like San Francisco or New York, if ADRs (Average Daily Rates) in hotels are really high, maybe a business person ends up in an apartment. Or if you’ve got a big event on like the World Cup or the Olympics where everything gets sold out, having all of this incremental supply offers more beds that people can sleep in.

“So I think about it, if today the market is very different between the vacation rental buyer and a hotel buyer. Over time that’ll only coalesce to become a more similar market, because all it is human beings looking for a place to stay. And I think that’s generally the case that we’re seeing on our site.”

These trends don’t mean that the characteristics of hotel or vacation rental stay are uniform, Huston pointed out.

“Now certainly vacation rental stays are generally bigger groups, they’re generally longer length of stay, slightly higher ADRs, relatively good take rates,” Huston said. “There’s all these fundamentals that reflect the market of today. But I do believe that those things will continue to change. And I think just like B&Bs used to be a very different thing than hotels, I think over time accommodations will become more similar than less similar because it’s the same customer.”

Booking.com is the largest hotel-booking site in the world and over the last decade it has wielded great influence over online travel, and even turned other online travel agencies into converts.

Booking.com is playing a role in the lodging revolution these days, too, but there are also larger forces at work this time around.