Do you run a hotel, or a hotel booking website or service? In that case, you have probably heard about the sharing economy, and the impending threat of AirBnB, an online service that allows homeowners around the world to rent out their apartments to travellers for low rates.
Other instances of the sharing economy are services that allow freelancers to earn money by becoming part-time cab drivers, grocery delivery personnel or do other jobs in their spare time. In fact, even the ubiquitous bitcoin, now both valuable and infamous for being the choice of many unsavoury characters, is a product of the sharing economy — bitcoins can be “mined” or generated by letting out your idle computer to large computing projects across the world.
Services like AirBnB and Uber have been accused of violating the local laws of cities they operate in, and disrupting traditional ways of catering to demands like short term accommodation or cheap taxi transport
The sharing economy has both been welcomed and criticised — services like AirBnB and Uber have been accused of violating the local laws of cities they operate in, and disrupting traditional ways of catering to demands like short term accommodation or cheap taxi transport. However, they have provided much-needed or extra income to many, allowing for utilisation of otherwise idle resources like empty apartments and cars lying unused, while at the same time providing consumers options that are cheaper than conventional services. For example, renters on AirBnB often offer whole apartments that are cheaper than a single hotel room. Naturally, this must have had an adverse impact on hotel bookings, and hence revenues, but quantifying the exact impact is harder than it looks.
A complex game is being played out, posing a serious challenge to researchers trying to estimate the true impact of AirBnB on hotel revenues
Imagine you are the owner of an apartment. You live in a posh locality, and will be away from home for a week. Now, while you don’t really need the money, you decide to let out your flat to a stranger for this duration. There are pros and cons to your decision — unlike a hotel, you are not aware of how to deal with a potentially errant guest, especially when you are away. Now, the tenant has a similar conundrum — is he willing to sacrifice the 24×7 amenities and on-call service of a hotel for a large apartment at a cheaper cost? AirBnB mitigates some of this risk with a ratings system. Both owner and tenant can rate each other, and thus warn future people doing business with them (app-based taxi services in the sharing economy adopt these dual ratings system as well).
A trade-off clearly exists on both sides, and this is further complicated by the hotel industry, whose players react to such freelance landlords by tinkering with their own pricing, amenities and other promos. Further, AirBnB and hotels could attract very different types of customers, with inherently different preferences. Thus, a complex game is being played out, posing a serious challenge to researchers trying to estimate the true impact of AirBnB on hotel revenues.
It is unlikely that the hotel industry and the professional services it offers, like laundry, in-room dining, restaurants, etc, is unlikely to be completely disrupted any time soon
Recent research by Georgios Zervas, Davide Proserpio and John Byers addresses this question, by analysing data consisting of both hotel taxes as well as AirBnB listings in Texas over a long period of time. After controlling for a lot of the factors described above, their econometric model discovers that a 1% increase in Texas AirBnB listings causes a 0.05% drop in hotel revenues.
Is this a minor or a large disruption? This probably depends on the hotel chain, and its annual revenues.
The sharing economy is a dynamically evolving system, and services like AirBnB may gain further acceptance among consumers as time progresses. But chances are that the hotel industry and the professional services it offers, like laundry, in-room dining, restaurants, etc, is unlikely to be completely disrupted any time soon.
This column is intended to showcase interesting academic research in marketing. The technically oriented reader is encouraged to read the original research articles cited in the column.
Prithwiraj Mukherjee is Assistant Professor of Marketing, IIM Bangalore. Views are personal.
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