Airbnb – sharing technology effect
By: J. David Chapman/December 22, 2016
We have owned a nightly rental cabin in the resort town of Red River, New Mexico, for almost 15 years. It has provided us a unique blend of business and affordable family vacation opportunities.
We have been able to manage this business opportunity ourselves with the help of Vacation Rental by Owner. My guess is many of you reading this column have used VRBO to book housing on a recent vacation, and even prefer these accommodations to standard hotel rooms.
The emergence of the sharing economy, enabled by multi-sided technology platforms, has given travelers another option when choosing local accommodations.
Airbnb is a provider of travel accommodations and a pioneer of the sharing economy, serving over 30 million guests since it was founded in 2008. The company rose to prominence as a way for renters and homeowners to list spare rooms or even couch space to out-of-town visitors, or to rent out their apartments or homes when they leave town. Airbnb remains a private company, but with a valuation over $10 billion it now exceeds the value of well-established global hotel chains like Hyatt. This makes me wonder what effect these platforms are having on the traditional hospitality industry.
Apparently, I am not the only one wondering the financial effect of Airbnb on the hotel industry. Recently the Hotel Association commissioned HVS Consulting and Valuation to conduct a research study and report detailing the effect of Airbnb on hotels in the New York City market.
HVS estimated that hotels lose approximately $450 million in direct revenues per year to Airbnb in the NYC market. During the one-year study period, 480,000 hotel room nights were reserved while 2.8 million room nights were booked with Airbnb. HVS estimates this to increase to 5 million per year by 2018.
Confirming the HVS study, Boston University found that Airbnb results in a 13-percent impact on revenue in a city such as Austin, Texas. Clearly, the vacation rental site has diminished the demand for traditional hotel rooms and there is now empirical evidence that the sharing economy is making inroads by competing with, and acquiring market share from, incumbent firms.
I wonder if these hotel executives are still hailing a cab, or if they utilize sharing technology and ride with Uber.
Dr. J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).