Outsiders figure out what's wrong with an industry and rightfully disrupt it. Then they learn that the disrupted industry does things a certain way for a reason. It doesn't mean Sonder's overall strategy is wrong, but that's a lesson it is learning.
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Editor’s Note: Every Wednesday, Executive Editor and online travel rockstar Dennis Schaal will bring readers exclusive reporting and insight into the business of online travel and digital booking, and how this sector has an impact across the travel industry.
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Sonder hopes to disrupt the hospitality industry by greatly reducing the costs of operating a hotel, but it is expanding its sales team to do things the brands do — offer corporations negotiated rates and attract groups.
“This is a major area of opportunity for additional demand generation, as most hotels depend on business and group travel generated through a sales team,” Sonder stated last week in its annual financial filing, which summarized its 2021 performance. “Our sales team will focus on driving additional group and business travel demand to complement the organic group and business travel that we already convert.”
A typical hotel generates 10-15 percent of its demand from contracted rates, the company said. Sonder has almost none of this business now, and plans on attracting business travelers for short-terms stays through deals with travel management companies like TripActions and Egencia. Sonder added that it intends to “target all business travel, including group transient and corporate extended stay.”
Sonder’s guests are mostly leisure travelers today.
“Groups are a substantial revenue source for most hotels, representing another largely untapped growth opportunity for Sonder,” the company said.
Sonders’ two co-founders started their careers as outsiders to the hospitality industry with business and finance backgrounds. The company, which runs a hybrid business offering short-term rentals through online travel agencies and its own platforms, and operates hotels, said it hired “several seasoned industry experts who understand how to capture the best of traditional hospitality, while leaving room for innovation in the areas where traditional hospitality has lagged.”
In other words, innovate on tech and design where traditional hotels fall short, but tap into their traditional revenue streams where possible.
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Sonder is focused on signing high-end properties in popular destinations to generate attractive property-level economics, but to build its business Sonder has chosen to employ a large number of people relative to its revenue. This could potentially cause friction with its bottom-line targets.
Consider the chart below on employee numbers and productivity based on revenue generation at Sonder, Vacasa, Booking Holdings and Airbnb.
Short-Term Rental, Online Travel Agency, Hotel Employee Productivity 2021
Source: Public filings/Skift
Sonder in 2021 had 1,600 employees, and its financial filing indicated it plans on expanding its sales team in 2022. Each of Sonder’s 1,600 employees generated just $145,000 in revenue on average in 2021, while Vacasa’s revenue per employee for its hefty 8,200 people on staff was even lower at an average of $108,000. Booking’s 20,300 employees each produced around $542,000 on average last year, while Airbnb’s 6,132 staffers accounted for a nifty $978,000 per employee.
It is vital to point out that each of these companies — Vacasa, Sonder, Booking Holdings, and Airbnb — operate very different businesses so employee comparisons only go so far.
Vacasa, like Airbnb, earns commissions from owners or hosts and fees from guests, but Vacasa, unlike Airbnb, manages these properties, as well.
The press and others often lump Sonder and Airbnb into the same category. But Sonder, which generated 52 percent of its 2021 revenue by selling its wares on Airbnb, Booking.com, and Expedia, disparages short-term rentals as unreliable and increasingly considers itself a hotel operator. Sonder expects its portfolio of hotels to swell in 2022.
“A smaller, but growing proportion of Sonder’s portfolio consists of hotels where we have partnered with independent, unbranded hotel property owners to convert existing properties into Sonder-branded hotels, putting a modern spin on the traditional hotel, with inspiring design and tech-enabled service,” Sonder stated in its financial filing. “We believe hotels will make up a more substantial percentage of our portfolio by the end of 2022.”
Sonder doesn’t expect to stop with independent and unbranded hotels, but said it hopes in the future to operate resorts, and other types of properties not currently in its roster.
Like Airbnb, Booking Holdings offers short-term rentals, but Booking handles many more hotels than does Airbnb, and offers flights, ground transportation, vacation packages and cruises, too.
Consider from the chart how labor-intensive Sonder, which runs hotels albeit in a scaled down tech-focused way, and property manager Vacasa were last year. Both Sonder and Vacasa consider themselves tech-forward companies despite their ample payrolls.
When you compare Vacasa and Sonder in terms of the revenue generated per employee, Airbnb and Booking have trim payrolls. That’s tough to say about Booking with its 20,300 employees but it is indeed true in terms of revenue generation. However, Booking’s 20,300 employees at the end of last year compared to just 6,132 at Airbnb, which saw its employee ranks be far more productive.
As a younger company, Airbnb pays a lot more in stock-based compensation to motivate its employees than does Booking, and that’s a major factor in why Airbnb wasn’t profitable in 2021.
However, from the productivity standpoint, and in terms of the profit potential, the Airbnb and Booking side of the short-term rental, hotel and online travel agency ledger seems a lot more attractive than the Sonder and Vacasa segments with all of the cleaning inspections, and property and hotel management that they have to do.
Another factor to consider is that the employee productivity numbers in the chart do not take into account companies’ use of contractors, who are not employees. Airbnb, for one, has traditionally used an ample number of contractors. And Booking Holdings in 2022 shed a substantial number of call center employees when it outsourced the work to a partner.
Meanwhile, it appears that Sonder and Vacasa will both be fattening up their employee rosters aplenty in 2022.
Rob Torres Leaves Google to Turn Around Expedia’s Ad Business
With Google having pledged to eliminate third-party cookies from its Chrome browser by the end of 2022, first-party data, the kind that Expedia Group collects from customers, became much more valuable. Rob Torres, who oversaw Google’s travel ad business for more than 15 years, returned to former employer Expedia and started running Expedia Media Solutions on Monday, vowing to help Expedia figure out the first-party data business. Skift
App-Only Hopper Tests Web Booking
App-only Hopper is testing hotel bookings on its website but it has limited functionality — no earning or redeeming the company’s Carrot Cash, for example — compared with the Hopper app, the company said. The usually just informational Hopper website on Monday also had a temporary landing page to feature an app promotion.
MakeMyTrip Ups the Ante in Fintech Services
TripMoney, MakeMyTrip’s fintech business, made a majority investment in India’s BookMyForex, which offers currency exchange and prepaid cards in multiple currencies. Expect India’s MakeMyTrip to roll out some of these services to its customer base, and across its Goibibo brand, as well.
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Tags: advertising, airbnb, booking, booking holdings, business travel, corporate travel, Dennis' Online Travel Briefing, expedia, fintech, future of lodging, groups, hotels, labor, makemytrip, online travel newsletter, property managers, Skift Pro Columns, sonder, vacasa