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The Looming Battle of the Travel Titans

Though many years behind the Google-Apple rivalry, a monstrous showdown is looming between Airbnb and Online Travel Agents (OTAs). Some of these OTAs are hybrid platforms that facilitate the transaction, but don’t really control the inventory (Expedia and Priceline), compared with OTAs like Hotel Tonight and Sabre, which are true platforms and do have inventory control.

As Airbnb grows, it is expanding into their business in addition to other segments in the travel and hospitality ecosystem.

Travel bookers will be feeling the heat from Airbnb quite soon, if they haven’t already.

Initially, Airbnb was found to have no significant effects on the traditional hospitality industry, producing negligible effects on hotel bookings. However, that trend has started to shift against hoteliers in the past couple of years. A handful of studies are cropping up that highlight Airbnb’s presence negatively affecting the local hotel chains.

Additionally, Airbnb launched its Trips initiative a few months ago in its effort to capture an upstream market: local tourism. When guests stay at an Airbnb listing, they can also book services from local people that provide curated experiences unique to the locale.

Trips will almost certainly see Airbnb do battle with concierge services and established tourism firms as it either replaces or prices out the competition. While OTAs haven’t yet found success in this area despite several attempts, Airbnb’s focus on community aligns much closer with its expansion into local tourism. 

The War for Expansion Is Already Lost

With South America and the Asia Pacific region lagging behind the U.S. and Europe in terms of online penetration, the bulk of the growth in the online travel market is going to come from these regions as they catch up over the next few years.

Expedia and Priceline will focus their efforts on capturing this growth by expanding their operations internationally, which will be a costly linear endeavor.

Meanwhile, Airbnb won’t need to invest as much capital into this race because its model is easier to scale. While traditional OTAs need to build relationships with their suppliers over typically long periods of time, Airbnb only needs to launch its platform in a new country and then encourage new users sign up to list their homes.

Due to these differences in business model, Airbnb has already been able to leapfrog Expedia with a presence in over 190 countries, compared to Expedia’s 75.

Instead of investing only in growth operations, Airbnb can focus on building new functionalities to reinforce its ecosystem and move closer to becoming the definitive one-stop shop for travel. Trips is a strong step in this direction. Booking the travel itself (which is in the works) or preparing a corporate offering seem likely next steps for the company.

This disparity highlights two key problems for OTAs: profitability and independence. OTAs essentially need to buy growth and almost entirely rely on consolidated third parties – hotel chains, travel aggregators – to generate their inventory. If an OTA fails to create a partnership with one of these entities, it loses a large chunk of inventory that is effectively irreplaceable. When an Airbnb host exits the platform, it only loses a single unit at a time and can replace it with near-zero marginal costs.

Just look at the expenditures for paid search traffic to understand the depth of the disparity on growth costs:

 

Airbnb spends far less on user acquisition than do its OTA competitors.

Get Ready for a Fight

As Airbnb continues to grow its highly scalable business, it will continue to step on the toes of hotel chains and OTAs like Priceline and Expedia, making more enemies along the way.

Expect to see more deals like Expedia’s acquisition of HomeAway and more conflicts between Airbnb and local municipalities lobbied by hotels, like the debacle in New York City. The old players will likely resort to old tactics, like wielding political influence or buying up a savvy startup.

If anyone hopes to beat Airbnb, which seems increasingly unlikely with each passing quarter, that player will need to pursue radical digital transformation and aggressively pursue building a platform. There is no other way.

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