Signs that the sharing economy has matured, and is now facing the competitive pressures of an established accommodation marketplace, are growing.
Poster child Airbnb is facing growing losses, and facing an unrelenting degree of regulatory pressure. And, with the demise of the Hostmaker business in Europe, come signs that sharing economy support businesses are struggling to find profitable growth routes. A wave of mergers is now expected, as a result.
At Airbnb, a barrage of fresh challenges continue to appear. The group’s revenues continue to grow, reportedly up 32% year on year, but losses have grown too, as the company spends heavily on promotion, ahead of a promised 2020 IPO that would raise funds for further expansion.
But the regulatory onslaught continues. The latest battering comes from authorities in the Netherlands, where a successful court case has pointed out that Airbnb has, for some considerable time, been operating in contravention of a Dutch law that prevents a middle man from taking a fee on both sides of a deal. Local media suggest the court decision could open up the platform to a raft of claims from any consumer who has booked Airbnb accommodation in the country since 2015 – with up to EUR200m in booking fees due for refund.
European Union officials have also agreed a deal with online platforms Airbnb, Booking.com, Expedia Group and Tripadvisor to obtain data on short stay bookings across the continent. The Eurostat agency will publicly share numbers of nights booked, and guest numbers, across municipalities.
“For the first time, we are gaining reliable data that will inform our ongoing discussions with cities across Europe on how to address this new reality in a balanced manner. The Commission will continue to support the great opportunities of the collaborative economy, while helping local communities address the challenges posed by these rapid changes,” said EU commissioner
At Hostmaker, the company was forced into administration after failing to find new funds or a friendly buyer. The platform, which was established in 2014, had attracted GBP23m of funding in two rounds; backers included Thai developer Sansiri and Hong Kong investor Gaw Capital. The service was sold as a support for landlords, helping them to manage short term lettings across a range of online marketing platforms, including Airbnb.
In 2018, Hostmaker’s fortunes looked assured, as it signed to partner with Marriott on a home rental trial in key European cities. But they faded, after the successful trial led Marriott to opt to build its own infrastructure as it rolled out its Homes & Villas Collection. The group also struggled with promotional campaigns that drew criticism for appearing to encourage buy-to-let residential landlords to switch their assets to short term use instead – potentially flouting London’s 90 day per annum restriction on such rentals.
The pressure on platforms is also being felt more widely. Specialised OTA Hostelworld recently reported 2019 earnings down 2% at EUR80.7m, and ebitda down 9%. It is now looking to M&A for growth, acquiring two Australian companies during the year. And group CEO Gary Morrison said the platform would expand its offerings to a broad range of experiences: “With the group’s deep knowledge of experiential travellers built up over 20 years, our trusted brand, and a loyal and relevant customer base, I believe we are uniquely positioned to help both our existing customers and new experiential travellers.”
And a study from UK consumer champion Which? found that consumers are often losing out, by booking accommodation through OTAs such as Booking.com and Expedia. A survey it carried out suggested that, in 8 out of 10 cases, a consumer would get a better deal by booking hotels direct, securing either a cheaper rate or a superior package such as inclusive breakfast. But such deals are usually only available by calling – the organisation pointed to the enforcement of rate parity clauses in the UK, as one reason why competition is more limited online.
HA Perspective [by Chris Bown]: As an industry awards judge, I have seen plenty of new startups emerge in recent years, to support the sharing economy. Whether it’s holding keys, or delivering freshly pressed sheets around a capital city’s short lets, most have relied on scaling to sufficient volume, to cope with crippling fixed costs. Now is the time for the shakeout, and only the strong and truly innovative will survive – or those who successfully find merger partners to create the scale and cost efficiencies they need.
Meantime, Airbnb has passed maturity in some markets. Ever more listings mean short let prices fall, and those who enjoyed the initial ride – and even bought properties specifically to rent on Airbnb – suddenly find their margins eroded. The platform is agnostic about the volume of listings – every one of which can potentially earn them a fee. At least the planners can influence the number of hotels a city permits.
That IPO is looking further away than ever.
Additional comment [by Andrew Sangster]: How much trouble is Airbnb in? Short answer: A lot.
When Airbnb launched it had two secret sauces that enabled it to grow despite the stiff competition in the online travel marketplace.
The first secret sauce was its ability to tap into new supply that had previously been all but invisible to most bookers or not even being let out. This unique offer has now largely been caught up with by rival booking platforms, notably Booking Holdings and Expedia.
At Booking Holdings, the alternative (that is non-hotel) accommodation business recorded revenue of USD3.1bn in 2019, growing by 14%. Alternative accommodation is around 21% of overall revenue and there are 6.3 million listings on the website.
At Expedia there has not been such a successful growth but the Vrbo brand in the US is now entering a growth phase and is now (almost) all on the main Expedia site and increasingly on Hotels.com. The HomeAway brand which is used in Europe looks likely to face the chop with Expedia saying that international spending is going to be cut.
So Airbnb faces significant competition in its domestic US market from Expedia and even more competition from Booking internationally.
The second secret sauce was Airbnb’s ability to get people booking directly rather than arriving at its website via Google. (It’s confusing when I discuss an intermediary having direct bookings but bear with me!)
When Airbnb launched it aggregated supply, the myriad different types of accommodation, and sold that to consumers. It was the flip of what the previous wave of aggregators had done: which was to aggregate supply (charging those high commissions in the process) and then sell this to demand, consumers.
The Airbnb fee structure reflected this approach: hosts were charged just 3% and guests had to pay between 6% and 9%. Now, increasingly, Airbnb is pushing hosts and particularly mainstream accommodation providers, to list by not charging consumers a fee and instead picking up a 14% or so tab directly.
In other words, Airbnb is now just another aggregation platform that will, ultimately, depend on Google. At Booking there has been a big push to move away from Google and it claims that 50% of room nights are now booked directly on its own website. Expedia lags but is attempting the same strategy.
The challenge for Airbnb is that its strength is in the less profitable long-tail of accommodation. Booking has a similar volume of property listings in this sector but this only drives a fifth of its revenue.
It costs a similar amount to service a one room apartment as a 200-room hotel. Even with all the digital cost savings this will still matter.
Airbnb is not doomed but it could well end-up as number three or four in the OTA channels (I’ve not mentioned Ctrip which is of course a huge player in the world’s fastest growing travel market, Asia).
There was an opportunity for Airbnb to reach out and grab traditional hotel accommodation providers but that was missed, perhaps five years ago.
It will probably list as it needs a currency to pay out long-standing employees and early stage investors. But I suspect it will list in the shipping sense thereafter.