The fast-growing P2P lodging marketplace is clearly eating into the business of hotels and, according to some arguments, is even starting to impact property values. It should come as no surprise then that a backlash is stirring in both the U.S. and Europe.
When Marion and her husband first rented out their City of London apartment through upscale vacation rental service onefinestay, her husband, in particular, was sceptical. “The first time was very difficult,” she says. “I had to really persuade him to do it. He was worried that something would go wrong.”
Fast forward three years, and not only has all gone smoothly, but the service has generated a handy second income stream for the couple — and all without their having to lift a finger. “They send in this wonderful cleaning crew, who sort the place out and set it all up,” says Marion, who asked that her last name be withheld. “By the time it’s ready there are all these fluffy white towels everywhere. All we have to do is literally just leave.”
onefinestay occupies the exclusive top tier of the travel accommodation rentals marketplace (properties on the website range from $250 per night for a small one-bed to $2,000 per night for a “luxury townhouse”), while San Francisco-based Airbnb, the best-known peer-to-peer (P2P) lodgings marketplace, rents out properties for as little as $30 or less a night. Helping a growing constituency of flat owners like Marion augment their incomes has allowed these companies to thrive. Airbnb has raised over $100 million in venture capital and has a valuation of $2.5 billion.
Indeed, businesses like Airbnb, which currently offers accommodation in 34,000 cities in 192 countries — and the over 333,000 listings it boasts worldwide — are starting to have a serious impact on local economies. The service “has become an economic leviathan in New York City,” according to Crain’s New York Business. About 30,000 New Yorkers are signed up as hosts, and last year hundreds of thousands of visitors paid a fraction of the cost of a hotel to stay in the city an average of six nights. That kind of demand is expected to generate around $1 billion in local economic activity in 2013, reports Crain’s.
The fast-growing P2P lodging marketplace is clearly eating into the business of hotels and, according to some arguments, is even starting to impact property values. It should come as no surprise then that a backlash is stirring. On May 20th, New York officials determined that a man who rented out part of his NYC apartment on Airbnb for three days should pay $2,400 for violating the city’s illegal hotel law, despite Airbnb stepping in on the host’s behalf.
The city argued that the apartment “may only be used as private residences and may not be rented for transient, hotel, or motel purposes,” according to press reports.Airbnb provided legal defence to the host in question — Nigel Warren — in the hope of clarifying the legality of its listings in New York. Losing the case could set a worrying legal precedent as lobby groups both in the U.S. and abroad press either to make vacation flat-sharing illegal or ask that those that rent out rooms apply for licenses.
The P2P holiday rentals marketplace is also hitting roadblocks in Europe. Lobbied by the hotel industry, the authorities in several major destinations including Amsterdam and Berlin (home to Airbnb rivals 9Flats and Wimdu) are said to be mulling laws designed to clamp down on so-called ‘illegal’ accommodation for tourists. These include publicly-owned properties sublet illegally or landlords who rent out residential buildings as unlicensed hotels or B&Bs. The impact could have a chilling effect on the online marketplace.
“Strangely enough the places where we’re coming up against [regulatory] problems are the ones where the hotel lobby is quite strong,” quips Arnaud Bertrand, CEO of London-headquartered HouseTrip, a holiday rental booking website aimed at families. “There is an issue in Berlin at the moment, where they want to pass a new law. What the hotel lobby is trying to argue is that the increase in prices in Berlin real estate is because of short-term rentals — but that’s absolutely not true. The website with the most properties in Berlin [Wimdu] has about 2,800 of them — but there are about three million homes in Berlin, so [our industry] can’t possibly be moving the price. We need to make the Berlin authorities understand that — and that we’re good for the local economy.”
The clip-board army of regulators is not the only enemy the P2P accommodation services market faces. The bigger long-term threat is likely to come from what might loosely be characterized as incumbent industry fight-back. According to onefinestay co-founder and CEO Greg Marsh, what he terms “the broad and shallow end of the market” — the waters in which Airbnb, in particular, fishes — needs to start bracing for more competition. “I think the greatest competitive dynamic in the broad and shallow end is going to emerge around well-established travel brands entering that market — because they will not find it difficult to acquire supply very cheaply,” he says. “Whether that’s Expedia and Priceline and others, all of these guys are going to end up in a competitive bun-fight [with the online players]. In the long term it will play out over marketing prowess and brand profile — and if Airbnb has done enough to build its brand incumbency before those major brands enter aggressively, they may well have a very exciting sustainable proposition.”
onefinestay’s market (“the deep and narrow end”) is a little less crowded, he says, primarily because of the far higher per-night prices it charges — due to the full service it provides, ranging from a loaned iPhone to a staff member welcoming guests with front door keys. He says: “Really our main competitors today are the large, upscale hotel chains — the Sheratons, Hiltons, Four Seasons and Hyatts — because those are our guests’ alternatives when they arrive in a city, as there aren’t really other vacation rentals at our price-point.” He adds with a touch of trepidation. “At least not today.”
onefinestay, which expanded into New York in May 2012, will shortly announce that its service will roll out into two more cities in the second half of the year. “We’re fairly advanced in our development, but we’re not talking publicly about which cities we’ll be in,” says CEO Marsh. “Suffice to say they are the kinds of world cities — spanning Europe and the U.S. — which you’d expect a business like ours to prioritize.” (Marsh may not be revealing his hand, but it’s worth noting that the company’s website is currently soliciting interest from potential hosts in Paris, Berlin, Rome, Chicago, Miami and LA.)
Other key players in the space are rapidly expanding internationally, too — particularly in Europe. In January 2012, Airbnb opened seven offices across Europe, including in London, Paris, Barcelona, Copenhagen, Hamburg, Berlin and Milan — with plans to increase its European footprint still further. “We’ve been opening across Europe primarily to be closer to our existing community,” explains Airbnb’s co-founder and Chief Product Officer Joe Gebbia, a scheduled speaker at Le Web London 2013. “What we’re trying to do is foster a community and with over half our hosts in Europe, the only way to do that is to be close to them.”
Airbnb faces home-grown competition from HouseTrip and Berlin-based Wimdu, the Rocket Internet-backed P2P booking service frequently described as an “Airbnb clone.” Bertrand says that while the European market is highly competitive, he believes there is more than enough room for further expansion.
“Our formula is all about opening new destinations and adding supply,” he says. “There are an estimated three million potential rental properties out there in Europe alone. We only have 205,000 properties — which is why we believe there’s still huge opportunity for growth in Europe.” For example, adds Bertrand, HouseTrip is hugely under-represented in UK holiday destinations such as Cornwall, Devon and the Lake District. “Somewhere like Cornwall is extremely popular. [But] we only have something like 200 properties there, when there are thousands out there — and huge demand from UK guests,” he says.
Despite the set-backs and expected turbulence ahead, burgeoning demand in the holiday rentals marketplace is testament to a broader picture — providing further evidence, if any were needed, of the resilience of the P2P economy model that is booming across verticals from financial services to auction sites and car-sharing to vacations.
Asked to explain its success, Airbnb’s Joe Gebbia puts it down to recognition that “access is greater than ownership.” He says: “We have finally recognized that ownership is a false promise made by brands of yesterday. Take the example made famous by [social innovator] Rachel Botsman: the power drill. Now think about the ownership of a power drill. According to Rachel, the average power drill in America is only used for 12 minutes for its entire lifetime, which, when you think about it, isn’t surprising — because what we really need is not the drill, but a hole in the wall.”
Key P2P Lodging Players
HQ: San Francisco
Key people: Nathan Blecharczyk (CTO and co-founder), Brian Chesky (CEO and co-founder) and Joe Gebbia (CPO and co-founder)
Active locations:192 countries
Model: 6-12% service fee on bookings (plus a host service fee to cover payment processing)
Investors include: Y Combinator, Greylock Partners, Sequoia Capital, Andreessen Horowitz, DST Global and Youniversity Ventures
Number of properties listed: 333,000 listings in 34,000 cities globally
Key people: Arnaud Bertrand (CEO and co-founder), Junjun Chen (CFO and co-founder) and Stephen Wiesener (CTO and co-founder)
Active locations:170 countries
Model: Hosts are charged a 10-20% commission on bookings
Investors include: Index Ventures, Balderton Capital and Accel Partners
Number of properties listed: 205,000 in 15,000 destinations
Key people: Greg Marsh (CEO and co-founder), Demetrios Zoppos (COO and co-founder), Tim Davey (Head of product and co-founder) and Evan Frank (co-founder and GM, New York)
Active Locations: London and New York City
Model: “We agree a fixed nightly rate with our hosts. We then charge a variable amount to guests on top of that, according to seasonality and length of stay.”
Investors include: Index Ventures, PROfounders and Canaan Partners.
Number of properties listed: “Over 1,000.”
Key people: Arne Bleckwenn (co-founder), Hinrich Dreiling (co-founder)
Active Locations: 100 countries
Model: 6-12% commission (although there are special offers and arrangements with certain hosts)
Investors include: Rocket Internet and Kinnevik
Number of properties listed: 150,000 properties