There are many reasons for the change in travel accommodations over the past 10 years. Fads have come and gone, hotels have changed, and sharing economy rentals have gained in popularity.
So what gives? Why has a concept that has been around for awhile now only started to catch on? It is no secret that renting out your home can be lucrative, that is why many people have been running bed and breakfasts for several years without the help of HomeAway, VRBO, or Airbnb.
Why has this new sharing economy rental craze all of a sudden be so disruptive to the multi-billion dollar accommodation industry? We’re now at the point where hotel corporations have felt the need to get in on the action with companies like OneFineStay (Accor Hotels) and Love Home Swap (Wyndham Worldwide).
In this piece, I am going to break down why I feel the idea of sharing economy rentals are not only here to stay but will eventually usurp the global accommodation market.
Companies helping with the distribution of sharing economy rentals have been around for several years. Interhome has been in the rental business since the mid-1960s. VRBO was one of the first companies to put vacation rentals online in an easy to search format. VRBO did that in 1995, before being bought by HomeAway in the mid-2000s. By then the sharing economy rental industry was at full blossom.
With millions of sharing economy rentals readily available online and around the world by the end of the 2000s, how did Airbnb happen?
Airbnb grew to become the behemoth it is today after being started during the great recession of 2008. People were losing their homes, losing their jobs, losing everything. It is a no-brainer that a company that allowed people to rent out parts of their home to strangers would catch on. But why is it Airbnb and not one of the other hundreds of companies doing the same thing that is now worth almost $30 billion dollars?
Airbnb makes their bread and butter in urban areas. HomeAway is a great company and they now have plenty of homes in urban areas, but Airbnb was believed to be the first company to facilitate private room sharing economy rentals in urban centers. Traditionally HomeAway was a great place to find homes in vacation destinations such as the beach or in the mountains. It was such a novelty that you could rent a room in downtown Manhattan on Airbnb and pay a fraction of what it would cost at a hotel in a comparable location.
Hotels Don’t Stand A Chance.
Hotels are not able to match the simple convenience that is provided by a sharing economy rental. People can save over $1000 on a weekend and the only trade-off is the location might be slightly worse than a city center.
The basic cost associated with a home is going to be there whether or not you decide to rent out your home. That being said hotels are reliant on occupancy in order to cover those costs. A sharing economy rental host or owner simply does not have the same need to cover the cost as a hotel which allows these hosts to be price their rooms significantly cheaper than a hotel. Lawrence Zhou Co-Founder of Renthop predicts “Vacation rentals will topple hotels in the next 10-15 years, reshaping the hospitality industry.” He believes that sharing economy rentals will stimulate partnerships in housekeeping and maintenance, which will allow gained experience and creativity to go mainstream which will eventually dominate the industry.
This is why hotels have started to branch out. These people are businessmen, they’re not stupid, they recognize the market is shifting and are smart enough to move along with it. What have they come up with? OneFineStay, Oasis, Love Home Swap. These companies offer all the benefits of a hotel in the comfort of a unique home. These homes are professionally manicured and treated as a luxury space. The service is fantastic and the support is even better. Hoteliers are taking all the experience they have accumulated over the last hundred years and putting it into sharing economy rentals. But can they survive? The size of the luxury market is not as large as the overall hotel market. Which means they will be competing for a much smaller prize.
So what can we expect next from the sharing economy rental landscape? According to Michael Joseph, CEO and Co-Founder of Invited home, “In 10 years, the vacation rental industry will be akin to today’s hotel industry, transformed by consolidation, professionalization, and ubiquity. What is now a largely fragmented model of independent players will undergo a wave of mergers.” Several big companies are going to enter the market and make a claim for your business. The current biggest are Airbnb and Expedia who owns HomeAway. Will we see any other major players join those two or will they start purchasing up any major competition they might encounter?
We are now at a between the old and new disruptive way of doing things. It will be very exciting to see how the sharing economy rental industry plays out.