The sharing economy—also known as the collaborative consumption or the peer economy—is disrupting many industries. The sharing economy is one where participants share products or services—such as cars or spare rooms—instead of individual ownership.
Sharing Economy Leader: Hospitality
Airbnb is the one of the pioneers of the sharing economy and seems to be a major disruptor in the traditional hotel/hospitality market. (Incidentally, one of the founders of Airbnb was a student of Nelson Repenning, Professor of System Dynamics and Organization Studies at MIT Sloan; Repenning mentions this in his innovation@workTM webinar, “Useful Does Not Always Mean Used”.) Airbnb rents lodgings in more than 34,000 cities in 190 countries and has served more than 17,000,000 guests. What was once thought of as a place to find vacation housing is now frequently used by business travelers as well; as of late July 2014, the company saw 10% of its revenue from business travelers.
One would think the hotel industry would be up in arms, worried, and reacting the way the taxi cab industry is to Uber and Lyft. According to Fast Company, however, the hotel industry is not overly concerned—or so they claim. The magazine quotes Hilton Worldwide EVP Jeff Diskin as saying he “loves what Airbnb is doing … [offering a more] home-like experience.”
Impact of the Sharing Economy on Hotels
It appears the actual revenue impact is minimal; one recent research report found that “every 1% increase in listings [on Airbnb] in a given market would result in a 0.05% decrease in quarterly hotel revenues.” While the revenue Airbnb is siphoning from hotels is having minimal impact, its rapid growth is still worth watching. As noted in Fast Company, “At the current rate of expansion, Airbnb … will soon surpass the InterContinental Group and Hilton Worldwide as the world’s largest hotel chain.”
The hotel industry is sending mixed messages about the competitive threat of Airbnb. While they are publicly quoted as saying they are not concerned, they are also exploring legislative options against shared housing services such as Airbnb. Currently there are many jurisdictions that are pursuing the company and its members/participants, because the basic premise of renting out a room or home violates local housing laws. Some of these efforts are being actively supported by hotel owners and chains. While the legislative approach may work on a country-by-country basis throughout the world, and on a state-by-state basis in the U.S., it does not address the issue of competing against the disrupters in the market. To put it simply, it tackles the symptoms, without curing the disease.
Perhaps a better approach for hoteliers to take is to heed the general advice Peter Weill, Chairman of the Center for Information Systems Research and MIT Sloan Senior Research Scientist, gave about competing against disruptors during the MIT CIO Symposium 2014, “The defense to disruption is to be great. You need to be great with the products and information you have; you need to offer a multi-product customer experience; and you need to understand how to use new platforms to deliver these products and services in a fun, friendly, and integrated way.”
For hotels, some of the answers may lie in delivering superior customer service, even if they are not a four-star property; to have that excellent experience extend from the room throughout the property; and to look into new platforms. For example, Marriott’s Six Degrees application (developed by MIT’s Mobile Experience Lab) allows guests staying at the same hotel to connect and “make the hotel lobby more of a social gathering place.
The hotel industry may, in fact, beat Airbnb and other sharing economy disrupters through legislation. If that’s the case, they may have won in the marketplace, but they will also have missed a huge opportunity to transform their own businesses.
Nelson Repenning is the School of Management Distinguished Professor of System Dynamics and Organization Studies at MIT Sloan, and Faculty Director of the MIT Executive MBA Program. He teaches in the Advanced Management Program, Business Dynamics: MIT’s Approach to Diagnosing and Solving Complex Business Problems and Implementing Improvement Strategies: Practical Tools and Methods at MIT Sloan Executive Education.
Peter Weill, Chairman of the MIT Center for Information Systems Research (CISR) and MIT Sloan Senior Research Scientist, teaches in the Revitalizing Your Digital Business Model program at MIT Sloan Executive Education.