Earlier this month, the New York Times reported on a concerted effort by the hotel industry to use regulations to attack Airbnb. Per the Times, a hotel industry trade group, the American Hotel and Lodging Association, took credit. The group counts Marriott International, Hilton Worldwide and Hyatt Hotels as members.
Hotel brands are going up against competitors who have much more favorable cost structures and unit economics.According to documents obtained by the newspaper, Airbnbâs regulatory struggles in the last year were the result of a sustained campaign by the hotel industry against the platform and its hosts. (In hotel industry jargon, they were lobbying against âshort-term rentalsâ and unregulated âcommercial operators.â) While these efforts may yield short-term results, they wonât stall the inevitable changes coming to the hotel industry. No matter how hard the hoteliers press, these trends are driven by economic realities and market conditions that no amount of lobbying will undo.
The legacy business model of hotel brands is increasingly looking like just a sub-scale platform business with worse economics.This means accepting the reality that platforms already dominate the hotel industry and will continue to do so. On one side, you have online travel agency (OTA) platforms Hotel Tonight and Booking.com, as well as the semi-linear models of Expedia and Priceline. On the other, you have platforms like Airbnb that are unlocking new sources of inventory and competition. Hotel brands are going up against competitors who have much more favorable cost structures and unit economics. The legacy business model of hotel brands is increasingly looking like just a sub-scale platform business with worse economics. Large hotel brands and chains wonât improve their long-term position doubling down on their legacy business models. The typical digital transformation playbook of layering over mobile apps and connectivity on top of their existing business models will not be enough. Marriott, the largest hotel brand in the world, has about 1.2 million rooms, with another 200,000 in development. In contrast, Airbnb has nearly 2.5 million listings. Thereâs no reason that Marriott shouldnât be operating on the same scale. In so doing, it would also significantly improve its valuation and multiple with investors, who value the market power and defensible network effects that large platforms enjoy.
Hotel brands need to embrace platform innovation before it's too late.Airbnbâs trajectory looks like a classic case of disruptive innovation, where the competitor attacks from below while incumbents try to retreat up the value stream. Rarely does this work out well for the incumbents and hospitality seems to be no exception: Airbnb is already making moves to capture the business travel market. To succeed, hotel brands need to embrace the most fundamental type of digital transformation: changing business models via platform innovation. Hotel industry incumbents have established brands with consumers, very successful loyalty programs and significant distribution and technological infrastructure. By opening up these resources to third-party hotels and providing more inventory transparency, these brands could transform themselves into true platforms. If the chains donât capitalize on this opportunity, someone else will, whether its Airbnb or one of the OTAs. In this world, hotels will continue to see their share of the travel pie shrink as alternative lodgings become more popular and the market power of OTAs continues to grow. While regulatory lobbying may help slow down this shift, it canât stop it. The change is driven by the underlying economics of the travel market and of the ability platform businesses to erode the competitiveÂ advantages of their linear competitors. The declining fortune of hotel brands is by no means inevitable. If the modernize and transform their business models, these companies can continue to thrive well into the 21st century.
Platform InnovationRead more