The sharing economy: Challenges and opportunities for hoteliers

October 30, 2017 •

4 min reading

The sharing economy: Challenges and opportunities for hoteliers

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One of the most critical developments shaking up the hospitality industry is the growth of the sharing economy. With transactions coordinated via the internet and occurring between private people, major brands in distinctive industries have felt the economic impact of these online resource sharing platforms. In recent years, this trend has evolved into highly profitable business models.

For hoteliers, grasping the opportunities and challenges that this marketplace presents can make the difference between success and bankruptcy. The conventional hospitality experience is being challenged and tested in ways unthinkable just several years ago. For hoteliers who embrace the technological advancements and understand the need to continuously improve upon the guest experience, this opportunity is well-timed and appreciated.

The opportunities and challenges

The sharing economy goes well beyond the hospitality industry. The rapid growth of this economic model is a global phenomenon and encompasses a wide array of goods and services. Companies such as Zipcar andUber belong within the ecosystem. Airbnb who paved the way in the accommodations sector of the hospitality industry has competition and no longer is the only player. HomeAway, Wimdu and 9Flats are also making inroads into the traditional hotel experience.

In the Internet of Things (IoT) era, while many consumers are still unaware of the sharing economy, most of them carry mobile devices and actively participate in online collaborations. Hoteliers are taking notice and adapting their offering to this new way of finding and reserving alternative accommodations.

Proof of impact

A recent Boston University study proved the impact of the sharing economy on the hospitality industry. The growth of the decentralized peer-to-peer online markets has developed into a viable and formidable alternative to traditional suppliers. The study found that each 10 percent increase in supply on Airbnb causes a decrease of 0.37 percent in monthly hotel revenue.

The study also found lodging that caters to business travel to be more negatively impacted than economy motels and hotels. As a result, many hotels in affected areas have responded with lower prices, certainly a benefit to consumers that do not participate in the sharing economy. The authors concluded that the sharing economy has reached a level to successfully compete with traditional hoteliers.

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Location, location, location

While GPS has been around for decades, the streamlining of mobile searches has improved greatly in recent years. Companies such as GoogleYelp and Apple have enhanced the mobile navigation experience to easily and quickly pinpoint precise locations.

Now in seconds anyone with a mobile device can access specific information about businesses, hotels, restaurants and the nearby amenities. Airbnb, Alterkeys, 9Flats, Flipkey are taking advantage and helping guests decide the most attractive location, not just the most attractive room.

This means that hoteliers must meet the localization services provided by the sharing economy and ensure that guests can find their facilities as easily. Foreign travelers appreciate individual local differentiators, and hoteliers must make value-added goods and services nearby a special consideration. Omitting this desirable information from the website can be the difference between a reservation or an empty room.

The competitive advantage in the sharing economy

For years, traditional hoteliers have relied upon canvassing tools and rate shopping to remain competitive. Today, the competitive edge goes beyond the best room rate, it means understanding the mindset behind consumers who actively seek out alternatives to hotel rooms.

Currently, the hotel sector is in a period of sustained growth. Average daily rate (ADR), occupancy, and revenue per available room (RevPAR) are showing strength. Advance reservation pace remains strong as well. Some hotel executives feel confident that the peer-to-peer marketplace will not destabilize traditional hotels. But not everyone thinks the same way.

Granted, it's unlikely that Airbnb will ever completely take over the hospitality industry, but arguably the industry should be taking it seriously," said Bill Carroll, Analyst at Cayuga Hospitality Advisors. Airbnb "is going to put out an additional supply of lodging rooms, and anytime you increase supply, holding demand constant, Economics 101 effectively means that prices go down. Airbnb is not driving demand, they're probably shifting demand from some other hotels.