How the short-term lodging rental sector is evolving

With the current trend towards creating a sense of place and embracing the local community among many boutique hoteliers, we caught up with Alan Clarke, CEO of HomeStay.com about how the short-term lodging rental sector is evolving.

by Piers Brown

Alan Clarke's previous e-commerce roles at McKinsey, Yahoo, and gaming giant Paddy Power - all focused on global technology platforms, and being an avid traveller, HomeStay seems a natural progression. "HomeStay is the e-commerce business that facilitates hosted travel experiences, connecting people with like-minded interests where technology is the catalyst," says Clarke.

Recently described as 'the next disruption in travel', and with boutique hotel commentators split on whether similar new alternative accommodation options actually impact on revenues and profitability within the sector, we were keen to discover more about this new player.

Airbnb has featured on these pages many times, credited for spearheading the emergence of the short-term rental market, gaining publicity for having a plethora of choice accommodation options, from serviced apartments to treehouses to lighthouses and igloos. It continues to drive consumer awareness of genuine alternative lodging options with or without the host present. What Airbnb tends to overlook however is the actual lodging experience, an area ripe for new disruption.

"Delta Partners (our investors) were excited about not just the product but the size of the opportunity - the home stay travel vertical had no platform until now, and we estimate it's worth around €10 billion in market size," says Clarke.

Home stays are clearly becoming more popular whilst evolving, with two million students globally using home stays for overseas study for instance, with a spend of nearly US$3 billion annually. Broad consumer demand for the hosted travel experience is also being driven by:

• Relocating professionals
• University housing needs for student overflow
• Solo travellers
• Small family holidays
• Retirees
• Tourists and other leisure travelers

"Our average length of stay is 12 nights and guests spend between one and 230 nights at hosts' accommodation. We've done lots of work understanding the nature of our customer with around 50 per cent being over 30 years of age. The business model is based on providing our hosts and guests value for money among like-minded individuals, and we take a 15 per cent fee from each host for every home stay booked," says Clarke.

As social travel networks including HomeStay, TripTogether and others gain popularity facilitating like-minded connections, and the choice of accommodation options expands, guests are no longer confined to hotels that can feel solitary, empty places at times, particularly when travelling alone. The choice of where to stay is much more of a 'social' decision making process.

Like Airbnb, Roomorama, Tripping and other disruptive short-stay rental companies, 'trust and transparency' to an already happening transaction overlayed by host and guest reviews continues to be an important pre-determining factor for the booking process. "We've just implemented host reviews, and guest reviews and a verification process will be arriving shortly," says Clarke. "It won't be long before we offer a Skype video calling option. We don't have blunt rules within our customer eco-system, we just aim to offer good incentives for guest and host to engage." Chip Conley, brand ambassador for Airbnb, calls it the 'generosity of spirit'.

These companies focus on embracing the behaviour of the individual, and making it easier for them to control and facilitate the capture of information that is necessary to get the results they're looking for, something the hotel sector is only just starting to get its head around. Because of the nature of the hotel owner today, the sector over the generations has lost many of the family owner mentality and is much more of a business - a different real estate asset class with higher risk and higher potential return, not necessarily conducive to the generosity of spirit which has diminished over years passed. There remain lots of exceptions within the independent boutique hotel sector. But with the influx of large hotel brands launching boutique and lifestyle offerings into the space, the latest being Hilton'sCurio lifestyle hotel collection, there is less flexibility based on brand standards, revenue and profitability targets.

What is clear with a closer look at short-term rental companies is a big push towards democratising hospitality and travel, and we're only at the start of the journey with developments in socially-connecting digital technology driving easier real life experiences.

Ironically, "the more digital we become, the more ritual we need," says Conley. "The more we're possessed by our URL websites and communicating through phones, communicating through texts, the more we need the IRL experience - the 'in real life experience'. There's a thirst for people to have that sense of connection," he says.

Homestay's connection in its purest form requires a host to be present and to add value. Value being defined by the traveller's desires: true engagement with the local community, language immersion, shared interests with the host - eg. cooking, sport, similar social interests etc...

Challenges in making the short term rental market more ubiquitous include the complex rules and many differing regulatory concerns often cited city by city and country by country. Current market fragmentation based on quantity and quality of often disparate providers and their approach to technology or not, as the case may be, is an inhibitor too. That said, when quizzed on satisfaction levels so far, Clarke states a healthy "85 per cent of our hosts and guests rate the experience as very good or excellent. Five per cent say the experience didn't fulfill their expectations." One wonders how that would compare to hotels on Trip Advisor? Now that's another story.

Boutique hoteliers keen to take a closer look at the short term rental market may wish to pay more attention to an established hostel sector that has been creating a sense of place and community for decades. 

Airbnb has hired boutique hotel pioneer

 Airbnb and the hotel sector – don't be an ostrich

by George Sell 

Don't ignore the implications of Airbnb for your business

Airbnb co-founder and CEO Brian Chesky

Airbnb has hired boutique hotel pioneer Chip Conley as head of hospitality

Enabling your guests to live like locals is a way of countering the Airbnb effect

A little over a year ago, I was at an industry conference when Airbnb was discussed, and the majority of people in the room hadn't even heard of it.

And as recently as March 2013, a Euromonitor research report titled Airbnb.com Poses Only a Small Threat to Hotel Industry concluded: "The meteoric rise of Airbnb.com, booking more than 10 million nights since its inception in 2007, should not cause the hotel industry to worry about the vacation rental market. Both business models have co-existed for a significant amount of time without infringing on each other's growth. It is likely that vacation rentals will appeal mostly to leisure travellers with lucrative business travellers firmly loyal to hotels, thanks to corporate travel policies, loyalty programmes and the standardised experience a hotel offers. To compete for leisure travellers, hotels have advantages over the vacation rentals that they can emphasise to stem losses in the leisure traveller segment."

It's hard to imagine anyone feels that way now. Let's have a look at the Airbnb phenomenon to see quite how staggering its growth has been.

Airbnb's reach extends to more than 190 countries with more than 600,000 listings, and the site has accommodated 11 million guests since its launch in 2008. It had a record 250,000 guests in one night on New Year's Eve 2013.

And the expansion is unlikely to stop now, especially as the company is in advanced talks with investors over a $400 million funding round, led by private-equity firm TPG Capital. This could potentially value Airbnb at $10 billion, bigger than the likes of Hyatt Hotels ($8.43 billion) and Wyndham ($9.39 billion). Many financial analysts are convinced that an Airbnb IPO isn't too far around the corner.

In January, when Airbnb CEO and co-founder Brian Chesky heard that Marriott planned to add 30,000 rooms to its property portfolio in the coming year, he tweeted: "We will add that in the next two weeks."

As this extremely disruptive snowball picks up momentum on its journey, it is headed directly at the hotel sector. But many hoteliers are displaying a surprisingly relaxed, in some cases even bullish, attitude.

Christopher Norton, EVP of global product and operations at Four Seasons, says: "Our guests don't want the Airbnb feel and scent." Airbnb doesn't compete with the Four Seasons because its amateur hosts can't match the level of hospitality his hotel's professional concierges offer, and its customers expect a "level of service that is different, more sophisticated, detailed, and skillful." he says.

Richard Solomons, CEO of IHG, says: "We're trusted because we're highly regulated: If we open a hotel, we have food control, security, a building that is safe if there is a fire. In an Airbnb, you have no idea. If they're selling themselves as this big brand that's going to be bigger than Hilton and InterContinental Hotels they ought to be thinking about regulation and leveling the playing field."

Hilton Worldwide EVP Jeff Diskin has said that he "loves what Airbnb is doing," hinting that Airbnb customers are a completely different group from his own.

Bill Carroll of Cornell University's School of Hotel Administration has dismissed the "hoopla" surrounding the Airbnb phenomenon and says: "It's always going to be niche, constrained by how many people want to stay in an Airbnb type of experience." He compared staying in a stranger's home to the stable from the nativity story, joking: "That certainly wasn't a chain property!"

Perhaps those insulated from the immediate effect of Airbnb by operating at the very top end of the market or the security of being part of a huge multi-branded international group aren't overly worried. But I think they should be, and lower down the hotel food chain there is serious concern.

Vijay Dandapani, president of New York hotel chain Apple Core Hotels, says: "These guys are scofflaws. There's no reason why they should be subjected to a completely different set of rules than the legacy hotel businesses. There are some hotels here who are like ostriches and have their heads buried in the sand, but I am of the view that this is a full-blown threat."

Sean Hennessey, chief executive at hospitality consultants Lodging Advisors says that the budget hotel sector has been hit the hardest. In New York, for example, he said that 80 per cent of the Airbnb listings were for $200 a night or less. He estimates that the 416,000 Airbnb guests who visited New York for the 12 months ending in July 2013, cost the city's hotel industry about one million room nights.

The overwhelming sense I get is that the hotel industry hasn't fully grasped the implications of Airbnb, and doesn't actually understand it. But the same accusation can't be levelled in the opposite direction, since Airbnb hired former hotelier Chip Conley as its head of hospitality.

Conley is convinced that while the hotel chains ponder how to market themselves to the Millennial demographic, Airbnb has already got them in its grasp. He says: "I was a young guy in my industry when I started, and so a lot of the people who I know are older than me, and generally speaking my age and older are not the Airbnb market, but those people 55-60 years old in InterContinental or at Starwood or at Marriott are saying, 'How do we get those Millennials? Let's build up products for the Millennial generation.' And I guess my response is it already exists and Airbnb has captured that market. Our consumer data on this is phenomenal and Airbnb is in this Millennial generation market. We are clearly a dominant lodging brand in terms of how that generation sees us."

"We are somewhere in between an outlier and a disruptor," says Conley. "I think that the way we're disruptive is less in terms of sheer volume of how we affect the market. I will say this with candour, the way we affect the market is like an Austin, Texas, when South by Southwest happens. Prior to Airbnb being there, if you booked late, you had to actually drive an hour or an hour and a half to your hotel from Austin because there was nothing nearby. So there are markets like Austin during South by Southwest and lots of other markets that I cite where when there is a big convention in town, a big festival, or a conference, that city has a need for more rooms. Airbnb serves that need really well."

"What that means is that it affects not occupancy so much, but it affects compression and the potential to premium price at a hotel as much as they used to. So that's probably where we're a little bit disruptive in a negative way for the hotel business. On the other hand, for the city, it's actually a good thing because the fact that people are not having to drive an hour or an hour and a half each day at the end of a conference or festival is good because it means people are staying in town spending their money," he adds.

The hotel sector has tried to reassure itself that there are certain areas where they are relatively immune to the impact of Airbnb, particularly business travel and the serviced apartment/extended stay sector. But the upstarts are even knocking on those doors.

Airbnb is actually among the fastest growing accommodation options on expense reports submitted by travellers who use the automated Concur system, which processes $50 billion worth of expense reports a year for 20,000 corporations. Concur executive vice president Mike Hilton says his customers' use of Airbnb has quadrupled every year since 2010 and is on track to hit $1 million this quarter. "That's still a very small share, but if you look at the trend line, it's not too many years away from getting into multiple percentage points. This is starting to become a meaningful alternative for business trips," he adds.

On extended stay, Brian Chesky said only last week: "Ten per cent of our business is long-term stays, and it's growing. I could easily see that being 15 to 20 per cent. Airbnb is even better than the competition on stays of 30 days. Try staying at a friend's house for 30 days and see how they feel. Try staying at a hotel for 30 days and see how you feel."

Chip Conley sees this as a significant growth area for Airbnb: "In some cases we're competitive with the hotel business. In some cases, we are creating new opportunities for people to stay, and stay longer. Our average length of stay is 5 to 5-1/2 days where in most markets the average length of stay is less than half that," he says.

Of course not everything is rosy in the Airbnb garden - the very nature of its model as a facilitator rather than a property owner or manager means it has little control over what actually happens outside the virtual world. There has been a spate of gleeful news stories in the US about properties being used for orgies, and how the site is a favourite with New York prostitutes who save $2,000 a week by taking clients to Airbnb apartments rather than, ironically, hotels.

But the biggest challenge for Airbnb is regulation. It is the biggest gripe for hoteliers that they see an unfair advantage when it comes to taxes, health and safety and so on. It's not a level playing field, they say.

And in many cities, the regulators agree. San Francisco - Airbnb's home town - is worried about landlords who are taking apartments off the market or evicting tenants to rent them out full-time through Airbnb and others, as well as buying multiple units to do the same thing. David Chiu, of the San Francisco Board of Supervisors wants to make sure that, in a city with a shortage of housing that is sending rents through the roof, "short-term rentals aren't cannibalizing our housing stock".

The Board is looking at passing new legislation next week which will mean locals can only rent out their primary residences, or the property they live in at least three-quarters of the year (275 days). Anyone who lives in a building with two or more units and wants to list it on Airbnb will have to apply to be in the city's registry of approved hosts; to remain in that database, the person will have to keep records showing that their property has insurance coverage of at least $150,000 and that they've been collecting taxes from their guests for the city coffers.

Airbnb has had similar issues in New York, particularly over tax. But it is moving quickly to respond. The company is working on getting two bills passed next month that would allow it to collect the 14.7 per cent hotel tax and pass it on to city and state authorities. If successful, it aims to roll out its new tax collection tool across New York State by July 1. It also plans to collect hotel taxes on behalf of hosts in at least two other cities, San Francisco and Portland, Oregon.

It's clear to me that Airbnb and its ilk are a massive threat to the hotel sector. But like every threat it also offers opportunities. And in my view the boutique hotel sector is in prime position to capitalise on the way Airbnb is changing the way people travel. Boutique hotels could be seen as representing the middle ground between the big chains and an Airbnb apartment, offering security and standards as well as local character and service. If business travellers are looking at alternative options - it's a big leap to go from a known and trusted brand to a stranger's apartment in a new city. But a boutique hotel can offer a more experiential stay, offering the benefit of their local knowledge as well as a perceived safety net.

Getting involved with the local community is one of the big selling points of Airbnb, and boutique properties can offer this in abundance. Michelle Wohl, VP of marketing at reputation management specialist Revinate, says: "Alternative accommodation websites like Airbnb appeal to travellers looking for authentic and unique experiences. Instead of sticking to popular attractions and guide book-endorsed restaurants, these travellers seek out neighbourhood eateries and sights off the typical tourist trail. Many seek hosts who can provide them with a taste of local life. Hotels also have an opportunity to provide a glimpse into living like a local. Staff can be encouraged to offer up neighbourhood knowledge and give guests advice on popular hotspots. Little touches like local microbrews and wines in the minibar or rotating exhibits of local artwork in the lobby can add to a distinctive and immersive experience."

Make no mistake, Airbnb has huge implications for everybody in the hospitality sector. Look at it as a way to rethink what you do and make your property better. Just don't get caught with your head in the sand.