Airbnb: What is Next?

Only recently the understanding has emerged that Airbnb – and similar businesses – would be something big. There is now a consensus that, maybe unlike other initiatives coined as the “sharing economy”, the large scale use of residential housing for traveler accommodation will change the way we do business in the hotel industry. And if things were not clear enough, the company last summer raised 1.5 billion U.S.D. private funding for its further plans.

It is urgent to analyze and to interpret what is happening, not only for hotel companies facing a disruptive competitor, but also for cities, whose initial concern – loss of tourist tax revenues – now seems to be the least of their worries. Two European city destinations illustrate the different interpretations of the phenomenon. While Barcelona cracks down on unregistered tourist apartments with draconic fines, Amsterdam has embraced the “sharing economy” and has reached an agreement with Airbnb, in which the payment of tourist taxes is exchanged for a more permissive attitude.

About the “Sharing Economy”

Let us first get our definitions straight. Technological developments have led, in the last decades, to economic innovations and a profound socio-cultural impact. The free flow of information enabled people to create decentralized networks to share ideas, movies, music, services or even physical goods they no longer needed. Rachel Botsman, advocate of the “sharing economy”, used the example of a power drill – that in its lifetime will be used for no more than 12 minutes by an individual owner – networking allows us to save money and resources.

But that is not the goal nor the effect of every network. They also offer a platform for commercial activities. The following graph distinguishes centrally controlled versus “open” networks, and networks geared towards social benefits versus for-profit networks:

Do Not Turn Your Back on Innovation

Of course, the innovation popularized by Airbnb is not just the network model, but also experiential aspects of its offer: diverse types of accommodation, contact with locals, and “off-the-beaten-track” tourism. Its appeal reflects a consumer trend which hotels should not disregard. Kodak or the music industry constitute wise lessons about the risks of neglecting or just trying to outlaw innovations. Precisely the experiential aspects that attract Airbnb fans have also been picked up by innovative hotel brands as citizenM, Room Mate, Yays or Zoku.

What We Know About Airbnb

In our study we found that the information used to discuss Airbnb had often been published by the company itself. In its main destinations the company hires renowned consultants to conduct fairly standardized, survey-based research: the conclusion is in all cases that Airbnb had a positive economic impact, contributes to the spreading of tourism spend to peripheral neighborhoods, has beneficial environmental effects and supports the livelihood of non-traditionally employed people as free-lancers and starting entrepreneurs.

Now, there is one problem: we get the results but not the data. This means cities cannot measure or manage their visitor streams; nor can they verify the amount of taxes owed, even if there is an agreement. In fact, the Airbnb studies should at least partially be considered as a marketing instrument. The success of companies as Airbnb and Uber apparently benefits from their willingness to invest in this type of marketing and lobbying. In any case, their data control is a source of competitive advantage.

In the absence of data, reliable assessments of Airbnb’s impact are rare. The debate revolves around the issue whether Airbnb visits are incremental of whether they affect the market share of traditional hotels. In a well-known study, Boston University researchers demonstrated an important impact on the revenues of hotels in Texas, particularly Austin, already two years ago.¹ Merril Lynch analysts consider that a considerable part (43 to 67 percent) of Airbnb listings compete directly with the traditional hotel offer as they are not shared spaces.²  A report commissioned by the Spanish hotel industry contradicted every single aspect of the Airbnb studies: their offer is more concentrated in city centres than hotels, their guest profile coincides with that of hotels, while their spending and economic impact are considerably lower.³

These findings question the conventional wisdom that “Airbnb is bad for hotels but good for tourism”. But is it good for neighborhoods? If we create an additional – tourist – demand for residential housing, it can hardly be surprising that prices go up, as has been claimed for cities as San Francisco, New York and Barcelona. Especially if those who benefit are not just hipsters with a spare room, but commercial investors with “multilistings." According to the New York State Attorney, its share in New York is 36 percent; in Barcelona, this amounts to 60 percent with 2.5 percent of hosts controlling 30 percent of the apartments.⁴
 
Future Scenarios

The further development of this phenomenon will depend on two variables: in the first place, the evolution of tourism, and in the second, on how it will be regulated. Airbnb constitutes an incentive to innovate but leads to pressure in booming markets. In the darkest of all scenarios, we see a commercialization of residential neighborhoods, which in popular areas could start resembling timeshares.

In conclusion, hotels should consider incorporating some of the innovations brought by Airbnb, rather than trying to ban them. The phenomenon needs regulation, which should especially focus on two major problems: information ownership and commercial “multilistings”.