NATIONAL REPORT—Opinions vary in the industry on the recent announcement by Airbnb that it has signed an agreement to acquire last-minute hotel-booking service HotelTonight.
Revealed earlier this month, Airbnb explained that the move would accelerate its work to build an end-to-end travel platform that serves everyone; meet demand from—and for—boutique hotels; and support its home hosts. Once the acquisition is complete, Sam Shank, co-founder and CEO of HotelTonight, will report to Greg Greeley, Airbnb’s president of Homes, and lead the boutique hotel category.
The move didn’t surprise Cindy Estis Green, CEO/co-founder of Kalibri Labs. “It was clear Airbnb was moving into the hotel space,” she said. “It has to do that with the heavy competition it is getting in short-term rentals from the OTAs; it seemed inevitable that Airbnb would expand its offerings. It already signaled a move into boutique and independent hotels last year and needs to have a robust offering to satisfy and expand its consumer base.”
She doesn’t see this as Airbnb’s only move in the space. “I anticipate it will continue to challenge the legacy OTA market position,” she said. “It is doing this by offering a broader experience—destination services, transportation—and Airbnb will try to meet travelers’ needs beyond accommodations. It’s how they can win against the legacy OTA model.”
The move was also no surprise to Michael W. Nixon, chief development officer/president, Expotel Hospitality. “It did not come as a shock to me,” he said. “While Airbnb started off as—and remains—a disruptor in the hotel industry, it has struggled lately to maintain the easy path to wealth that it started on. To me, it signals that its technology and thought patterns want to stay in the accommodations business, but Airbnb knows it has to change how it does that.”
Although the move didn’t shock Nixon, that doesn’t mean that he thinks it’s the right one. “I see the whole thing as a bit of a desperate act on the part of Airbnb,” he said. “Bad press about substandard accommodations, video recording equipment in some owners’ units and the pressure from the hotel industry and state regulators for Airbnb owners to comply with the same lodging requirements as everyone else have probably hit their pockets pretty hard.”
Robert Habeeb, president and CEO, Maverick Hotels and Restaurants, added, “The purchase of HotelTonight signals a further incursion into the traditional hotel space by Airbnb.”
While Airbnb has said the HotelTonight app and website will continue to operate as it does today, Habeeb noted, “[If] a hybrid [platform] emerges offering both hotel rooms and alternative accommodations, that could present a challenge for hotels as they compete for value-conscious consumers.”
Remarking on how this will affect the industry, C.A. Anderson, senior managing director, The Plasencia Group, noted, “There are so many dynamics at play in acquiring customers in the hotel space—OTAs, the proliferation of segmentation among the big brands, Airbnb, and so on. Customer acquisition is one of the top objectives among players in the lodging arena. With the acquisition of HotelTonight, Airbnb is strengthening its ability to reach a broader group of travelers and is providing them an even greater diversity of options—the end-to-end travel experience, as they so often say.
“The acquisition of the HotelTonight platform will allow Airbnb access to some of the supply previously locked away from their access, such as rooms in branded hotels,” he continued. “This purchase also plays directly into its IPO strategy of providing a more expanded and diversified lodging platform for future investors. This move is of significant benefit to the hotel owner and traveling public, and is a bit of a poke-in-the-eye to traditional brands and OTAs.”
Robert Cole, founder of RockCheetah and a Phocuswright analyst, views the move as a win for both sides of the purchase. “An acquisition by Airbnb is probably the ideal exit for the HotelTonight team,” he said. “Certainly, it looks like a win for Sam Shank as he will be leading Airbnb’s boutique hotel division—especially with the prospect of Airbnb going public.”
From a tech perspective, the move makes sense for Airbnb to Kyle Killion, founder of Suiteness, a platform that lets guests book suites at luxury hotels. “I’m somewhat surprised that people aren’t pointing out that Airbnb recently stopped using React Native for its mobile apps and, because of that, it needs a lot of talented mobile developers,” he said. “From Airbnb’s perspective, HotelTonight is a goldmine for acquiring developer talent.”
Cole agreed. “This move allows HotelTonight to potentially access an even broader audience of its prime millennial demographic and get access to a vast amount of data and technical expertise that was previously beyond its reach,” he said. “While the Airbnb team could easily replicate the HotelTonight user interface, they now avoid the brain damage associated with acquiring hotel supply and building out new business processes.”
The move will also allow Airbnb to now compete on the same playing field as traditional hotel booking sites “without subverting its branding or alienating its clientele by adding complexity,” he said.
Green said the move could have an upside for hotels. “On one hand, the added competition can be good for hotels,” she said. “It will give Expedia and Booking.com a run for their money and could potentially force some downward pressure on the commission rates.”
But, she added, there is some risk. “However, it is still a third party that is trying to intermediate between consumers and hotels, which is a risk to hotel owners and operators. Just like the OTAs, the business model depends on getting consumers to come back to their site to book their next trip—not to return to a hotel where a consumer has a good experience. They are likely to compete with hotels for direct bookings in the same way the OTAs do today.”
Killion said that Airbnb will now have a decision to make in terms of how it structures commissions. “There is a race to the bottom for hotel commissions,” he said. “It happened with flights where the commission went to zero, so agencies focused on hotels where they still got 10%. Airbnb is moving in on hotels and setting the commission around 5%. The HotelTonight acquisition will accelerate its growth in hotels, but it will also give them access to higher-commission (approximately 20%) last-minute bookings.”
The planned Airbnb IPO means that the company needs to have higher margins, but it also needs higher growth, he said. “I don’t know if Airbnb’s plan is to make all commissions the same at 5% or if it will have a sliding scale based on booking window, but here is how I see both scenarios playing out: If it sticks at 5%, hotels can feel smart because they are acquiring customers for half the price that they used to,” he said. “What hotels miss is that their branding is practically nonexistent on Airbnb. But when it comes time to negotiate with other OTAs, they are going to point out the traffic they are getting at a really low rate. This would be the biggest shift in the industry because everyone’s margins will be compressed.”
If Airbnb stays with sliding margins, it gets “more money for selling distressed inventory for hotels and keeps its regular margins for regular booking windows,” said Killion. “Airbnb adds more hotels to its catalog because it now has a dedicated sales team in the space, but it doesn’t put that much pressure on the industry. Ask yourself: ‘Will Airbnb be able to add hotel inventory as fast as Booking.com has been able to add vacation rental inventory? I think the answer is no.”
For Rob Stephens, co-founder/general manager of Avalara MyLodgeTax, a provider of lodging tax compliance automation software, the acquisition of HotelTonight is further indication that the short-term rental and hotel markets are converging—and, to him, that is a good thing. “These companies are responding to traveler needs and demand, so why not have multiple options for travelers on the same website, whether that’s a luxury hotel, short-term rental or a value hotel?” he asked. “Increasingly, hotels and hotel platforms will be competing with short-term rentals on the same platforms. The more you get travelers to your site, the better for everybody. Short-term rentals need to be compliant and there’s still some work to go there, but leaders like Airbnb and HomeAway are working to meet compliance and regulatory requirements as they evolve in markets across the country.” HB