Lodging is a $1 trillion dollar global industry, of which
Airbnb has a small but rapidly growing slice. It takes years to build a new
hotel; yet without pouring an ounce of concrete, Airbnb reportedly has grown
its revenue 55 percent year over year. To explain this growth and predict its
broader impact, the lodging industry is seeking ways to compare Airbnb to
hotels. A September study from STR produced excellent analysis but narrowed
down Airbnb inventory in New York City to only those “units competitive with
traditional hotels.”
Squeezing Airbnb’s content to fit traditional lodging-value
propositions raises two very key issues: Is an Airbnb listing really a “unit,”
and who defines “competitive” amenities? These questions are closely
related—and a lot like online dating in two ways.
“Units” are a measurement of static content, but Airbnb’s
marketplace network creates inventory dynamically.
Much the same way people create or modify dating profiles
based on their immediate needs, Airbnb’s network generates or even shrinks
inventory almost on demand, with what the Los Angeles Times calls a
“near zero marginal cost” phenomenon. Hotels take years to plan and build,
while hosts on Airbnb can respond dynamically to trade shows, weather and
economic changes. In reality, Airbnb benefits from two networks that work in
concert: Airbnb’s platform network, with its low marginal costs, and the market
network of high value, underutilized capital assets that some people call
homes. In finance terms, this is asset redeployment at its finest, or as Harry
Campbell called it in a Forbes column, “arbitrage.”
Feel like you’ve been in this dating relationship before?
Probably because this model has been tested by hundreds of companies that use
self-service technology to create massive crowdsourced economies of trust:
Yelp, Twitter, LinkedIn, eBay, TripAdvisor and—yes—many of those online dating
sites. If people are willing to spend so much time selling a few used toys on
eBay, how could there not be a way to generate cash flow from such
capital-intensive items like airplanes, boats, vehicles and houses?
While hotels carefully weigh the cost and benefit of
construction growth, Airbnb inventory grows organically. This allows Airbnb to
invest most of its capital resources in building better relationship software.
Today, you can create a dating profile and make dramatic
changes on demand.
Online dating profiles don’t just get created; users
actively adapt their personal branding and lists of “amenities” in the dating
market. Hairstyles are modified, bios are tweaked and yoga photos are swapped
with CrossFit workouts. This isn’t just new inventory; this is specialization
within niche markets. A traditional hotel carries a branded set of amenities
and rules that prevent local, unbranded customization. But Airbnb has 27,000
unique properties just in New York City, each with its own specialized brand.
More than anything else, online dating brought
specialization to matchmaking. Much like dating, finding the right hotel
experience is very personal. A hotel has to guess, often years in advance, what
kind of bed you want and what color of carpet looks best. On a dating site, if
you suddenly find an interest in men with beards, just swipe to the right.
Pretty soon, the market will respond and more profiles will appear with beards.
How about men with red beards who wear glasses and enjoy the opera? I have full
confidence such “inventory” exists, owing to the specialization effects of
large, diversified inventories. The users decide which profile amenities are
most important and most available. The dating site simply builds the platform.
This decentralized, market-based approach is amazingly efficient.
Successful online dating sites don’t boast about their
content. They boast that the volume of their content creates specializations
their platform can use to discover highly customized relationships between two
profiles.
Yes, there are a lot of stereotypical, Up in The Air-style
business travelers still seeking long-term relationships with premium hotel
brands. However, not all dating profiles look like George Clooney’s character
in the film. Statistically, for every two Clooneys, there is one profile of a
business traveler that doesn’t fit the typical mold. Perhaps that’s why one in
10 bookings on Airbnb are for businesses, according to Bloomberg. Annually,
that’s 4 million room nights on Airbnb for business travelers seeking a
different kind of relationship.
Even if Airbnb’s growth slows, it will have a major impact
on general lodging services and prices. For decades, hoteliers have been
creating their own “dating profiles,” writing their own bios and loading their
own photos. But in the end, that’s just one profile for one hotel. In a numbers
game, Airbnb still will capture significant market share. The start-up will be
able to do this not because it is cheaper or family friendly or any other catch
phrase of the day. Airbnb will grow because its marketplace platform allows
inventory to be any and all of those things everyday and yet be something
completely different tomorrow.
Follow Isaac @isaacbowman