For years, analysts have been talking about the disruptive impact of Airbnb’s alternative lodging solution to the hotel industry, but we think they are missing the point.

History Lesson
Amazon.com is one of the world’s largest retailers today, mentioned in the same breath as Walmart, Target, and every other retail giant.  Often, these companies are compared to Amazon instead of the other way around.  For the past decade, we take it for granted that “you can find it on Amazon,” but this was not originally the case.  In 1995, Amazon was launched as a bookstore.  They were evaluated as a bookstore and measured on the number of books offered and sold.  They were a disruptive threat to Barnes & Noble, Borders (remember them?), Hastings, and other regional and national giants in the space.  While there is no doubt that the book business was turned on its head by Amazon, this pales in comparison to the larger impact of the company on the broader retail market.

Like Amazon, Airbnb is being measured by the breadth of its inventory.  The site lists more rooms for sale than any of the largest hotel companies.  Booking data is not known, but site traffic now rivals that of Expedia and surpasses that of most of the big brands.

Like Amazon, Airbnb is having an impact to the hotel market.  Boutique hotels are feeling the pressure, and chain-scale brands are revisiting the amenities wars of the past (responsible for increasing the operating costs in the industry over the past two decades).  Even so, it is clear that the “spare room” lodging alternative will never be an appropriate solution to many of the stay occasions/reasons for travel which drive hotel revenues today.  There is a market for this offering, but it is not a universal one.

Airbnb as OTA
Retail site designers no longer try to build a better shopping process.  It could be done – just as you could redesign the layout of automobile controls to be more ergonomic – but the effort would be wasted.  Why?  Because Amazon.com has taught us all how to shop online.  Today, winning digital retailers work from the process diagram & flow used by Amazon.com and try to differentiate with product selection, content, service, or pricing.  Building an entirely new “add to cart/checkout” process simply causes confusion.

Airbnb is doing the same thing with millions of travelers each day.  They are teaching people how to shop for lodging and what services to expect in a democratized environment that creates comfort with a very uncomfortable concept (sleeping in a stranger’s home).  Adding traditional hotel inventory into this process will be simple and is a logical extension of their service offering just as Amazon was able to extend their offering to more and more adjacent categories in rapid fashion over their 20 year history.

It is no longer a question of whether hotel rooms will be sold on this new channel – it is a question of who will be first.  Independent hotels, seeking more affordable sources of demand and alternatives to high-cost, low-margin OTAs, will begin testing the channel within the next few months.  Smaller chains should follow soon after.  Within 18 months, we predict that one of the major chains will announce a partnership that includes listing significant inventory for sale on the site.  While this will not drive any new long-term share gains for hotels, the first movers will be able to capitalize on travelers who are intrigued by what they’ve heard about the core Airbnb service but simply can’t pull the trigger – fleeing to the safety of the tried and true bed-bath-TV combo of a traditional hotel room.

What is the impact?
Expedia and Priceline don’t really need this right now.  As we have covered before, they are deeply worried about the pseudo-OTA offerings of TripAdvisor’s Instant Booking and “Book On Google.”  I expect an ostrich approach from these wounded giants.  In the long run, I think Expedia should try to buy Airbnb, but it would not surprise me if it works out the other way around.

Hotel companies need to figure out which inventory they can use to test out this new channel.  Assessing the potential incrementality and cost per customer of every new channel is critical, but this cannot be done without active participation and aggressive measurement.

Independent hotel owners need to jump in with both feet.  First mover can be a short-term advantage, and figuring out this new channel before your local competitors can only help you over time.  Perhaps early adopter poster child, the Roger Smith Hotel, can once again lead the way?  Morgan hotels are another likely candidate, if only to keep up the PR momentum gained from putting the Hudson Hotel on Google’s platform at the very beginning.

Google and TripAdvisor can be expected to respond with a single word: “Welcome.”  Like every downstream booking channel, Airbnb needs sources of demand, and these two companies have cornered the market.

Del Ross is the Managing Partner at Noctober Value Partners, a strategic advisory firm specializing in revenue generation for consumer-facing businesses. Previously he has served as the head of sales and marketing for InterContinental Hotels Group.

Tags: airbnb
Photo Credit: Could hotel bookings be added to the Airbnb mix?