So just what is the "sharing economy" and how is it biting into hotel industry profits? According to the always-correct Wikipedia, the sharing economy is thus: "a sustainable economic system built around the sharing of human and physical assets. It includes the shared creation, production, distribution, trade and consumption of goods and services by different people and organizations."
So just what does that have to do with hotels? A lot, actually. And what does any of this have to do with sites such as Airbnb and HomeAway? A lot more.
An item on Boston.com this morning hits on this. And it's a tad prescient and scary. Remember the classifieds? Those small black-and-white boxes of information that appeared in the back of newspapers? Well, Craigslist put those out to pasture. (Of course, one could say that classifieds died with the slow death of print as an information medium, but that's another debate for another day.)
Oh, and how about bookstores? You remember Borders, right? Well, maybe not, since Amazon helped sink that company and continues to put bookstores out of business.
And what of Blockbuster? I think you know the answer. (Insert Netflix.)
So, back to the article on Boston.com. A trio of researchers at Boston University wanted to know this: Is Airbnb going to make Marriott and Sheraton go the way of Borders and Blockbuster?
Airbnb, the article writes, "is a pillar of the so-called sharing economy;" it facilitates short-term rentals between home owners with a guestroom (or a whole house or apartment) to spare and travelers looking for less expensive or homier alternatives to hotels. Since it began operating in 2008, Airbnb has reportedly processed more than 10 million bookings. That's 10 million reservatons that the hotel industry might have lost had Airbnb not been around.
In order to figure out what effect, if any, all those peer-to-peer transactions have had on the hotel industry, the researchers—Georgios Zervas, Davide Proserpio and John W. Byers—analyzed hotel revenue data in Texas from 2008-2013. They compared revenue data from Texas cities where Airbnb operates to cities where it does not (or had not yet started operating), and also compared revenue totals from different hotel segments.
The verdict: for every 1-percent increase in the number of Airbnb bookings, there is a .05 percent decrease in hotel revenue. They found that low-end hotels are especially vulnerable to being replaced by Airbnb accommodations, while hotels that cater to business and luxury travelers have less to worry about.
To read the entire paper, you can access it here.
For a further look at Airbnb, check this out.
Meanwhile, HomeAway, a competitor to Airbnb in the space, is doing just fine, too. It has come out with its third-quarter financials and they are rosy. HomeAway’s Q3 revenues grew 23 percent to $90.1 million, driven by a 23-percent increase in listing revenues to $75.5 million. Other revenues grew 25% to $14.7 million.
For the current quarter, the company expects revenues to be $85.5 million to $86.5 million with an adjusted EBITDA of $22.6 million to $23.1 million. Revenues for the year are projected to be $341.7 million to $342.7 million with an adjusted EBITDA of $98.3 million to $98.8 million.
HomeAway is also now working with the online travel agencies. Recently, it entered into an agreement with Expedia.com. As part of the agreement, Expedia users will be able to view HomeAway vacation rental properties on Expedia.com. As part of the pilot, scheduled for early this year, Expedia will carry inventory of HomeAway’s properties across the U.S. and Mexico.
So, what do you think? Are these sites a true threat to the hotel industry as we know it? Will they be like Amazon or Netflix? And what can the hotel industry do to prevent this? These are questions that need answering, and slowly will as the it further unfurls.