Is Airbnb in danger of being disrupted by itself?
When a couple of guys had a go at inflating some air beds and inviting complete strangers into their homes to test and validate a value proposition, no one could have imagined that only a decade later the business would be worth an estimated $38 billion (£29bn).
Airbnb is a phenomenon that continues to grow. It allows bookings in more than 81,000 cities, across 191 countries. It had a stunning 117 million guest arrivals in 2017, with this forecast to hit 164 million this year. I use it regularly when I travel and the “trust” element between myself, as the guest, and my host is part of the magic ingredient that holds it all together.
Airbnb is cash positive with projected revenue figures for 2018 sitting at a staggering $3.8bn. A true success story in the tech and investment world. But, this comes with its own challenges.
The big challenge for me is this: Airbnb started off, like most tech companies, doing things cheaply and leanly. But as it has grown, those who generate its income – the hosts – have created Airbnb businesses, which have seen prices rocket. I was always certain of getting a decent Airbnb anywhere in the world cheaper than a standard hotel room. That has now changed and my Airbnb experience is costing a lot more.
Essentially, Airbnb is a disruptive business model, which was part of the secret to its success. By disrupting hotels and bed and breakfasts, Airbnb opened up a new seam of overnight accommodation that was cheap and cheerful. But, seeing opportunities to make money from either empty properties, buy-to-lets or their own homes, hosts have now shown that the model may be in danger of being disrupted itself.
Anyone who owns a hotel will tell you the costs involved are not to be sniffed at. Staff wages, insurances, business rates, health and safety regulations, laundry fees, lift maintenance and utilities at comflex, mercial rates all add up. Airbnb hosts have none of this legislation and hassle to worry about. No need for expensive public liability insurance, business rates and complying with smoke detector hard wiring. This means they should be able to undercut hotels and offer guests better rates. At least, that was my understanding of the whole gig. I pay residential or mates rates, instead of commercial rates – right?
But, as all business models evolve and things change. And not for the better, as far as I can see with my Airbnb bookings. Bookings that I was able to make a couple of years ago for, say, £45 per night have rocketed to £80 per night. Across the globe at places from San Diego, California, to our own capital city, Airbnb hosts are now coining it in. One example of this is the cleaning fee. I was recently charged £15 in cleaning fees. The demand is obviously there, as is the loyalty to the Airbnb app. So, is it now time to level the playing field?
Cities the world over are catching onto the Airbnb hosts who, some may argue, are profiteering, while others feel they are simply responding to a need. Add to this the shortage of properties for first-time buyers that Airbnb hosts exacerbate and cities have their work cut out. In time, they may legislate to address the number of Airbnb rentals, the insurance needed and the rates to be paid.
Like every wax and wane of new technology adoption, I am now back to booking hotels online again. There are decent offers to be had and, as a result of the Airbnb revolution, hoteliers have had to up their game and improve their offering. And, guess what? My cleaning fee, insurance and guaranteed good night’s sleep are all included in the price.
I wonder if another new start-up will enter the market and get back to basics to challenge Airbnb. A sofa bed and a toilet, a clean towel and a friendly welcome. All for £25.
I’d go for that. And so would a lot more of us who enjoyed the purity of the initial Airbnb offering.
Jim Duffy MBE, Create Special.
I could always get an Airbnb cheaper than a standard hotel room. That has now changed