After a spectacularly difficult 2020, today all of us in the travel industry have the chance to watch a successful sale of shares and stock market listing for Airbnb Inc. We thought it a good opportunity to look back on the impact Airbnb has had on the industry, good and bad, and look forward to the years ahead, where great things will certainly be expected by new investors.
Firstly the good. Founded in 2007 by two friends renting out three beds to fellow designers attending a conference in San Francisco, the initiative demonstrated to them that ‘experience’ and ‘communication’ were more valuable than the standardisation and reward schemes so common in accommodation. This pushback against the commoditisation of travel is at the heart of the brand appeal and the company genuinely enjoys the most remarkable properties in their listings, and naturally strives to improve the online experience. However the industry is uncomfortable both with their illustrative 3% (host) and 12% (guest) fee structure and the sense that as their brand strengthens, they can continue to increase their margin and market power at the expense of property owners. Many industries have seen their pricing power shrink due to the likes of Amazon.
Growth and Expansion Outlook
However, we don’t believe Airbnb has quite the same opportunity to expand into new markets as those giants, despite the considerable investment in product development ($976m in 2019 alone). This is because the home rental market has in turn been driven by the availability of mortgage finance, and appetite for multiple home ownership, stronger in some countries than others. This results in assets worth hundreds of thousands of pounds, owned by individuals, whose returns are driven by the 3% and 12% ‘marketing budget’ Airbnb charges. Experiences, whether they be woodland walks, restaurants, or Disneyland just don’t work this way: their operating leverage and marketing approach is varied by the amount of capital employed, not a simple reliance on Airbnb. With 2019 revenue of $38bn, Airbnb describes its global serviceable addressable market as $1.2 trillion for short stay, and $239bn for experiences. Global split of revenues at 40% for both the US and EMEA, 15% for Asia and 5% for Latam are consistent with an already mature, not fast growing business though and we believe new growth in countries or products will be harder to find, irrespective of technology investment.
Much play is made of the possibility of a rebound in bookings next year, particularly closer to home in a 50-500 mile radius. We suspect that customers in that category are more familiar with their destination, and would have a higher propensity to repeat visit and book direct. Like Facebook’s acquisition of Instagram for $1bn a mere two years after launching, we envisage Airbnb might make some rather desperate purchases of nascent brands to shore up its image in the next few years, and steadiness of the core platform rather than great things might be the outcome.