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During this project, we have examined how Airbnb and Booking.com disrupted the accommodation industry.
In 2005, large players such as Travelocity, Hotels.com (owned by Expedia) and Orbitz dominated the accommodation industry. They all had one thing in common: They focused on the merchant model.
Let’s take Hotels.com as an example to explain this model:
- Hotels.com only lists hotels of which it rents rooms in bulk for low wholesale prices. Hotels.com pays for these rooms in advance.
- When a user visits Hotels.com and books a room, the user pays Hotels.com with a markup of 20-30% of the wholesale price.
The main reason most online travel agencies use this model is that it enables them to combine accommodation in a complete travel package.
However, disadvantages are:
- Hotels cannot control their own prices.
- Large capital and paperwork is necessary when signing on a new hotel.
Booking.com disrupted the industry by swapping the popular merchant model by the agency model. When a user books, (s)he does not pay Booking.com. Instead, (s)he pays the hotel directly. Upon each reservation, Booking receives a commission from the hotel.
Advantages (compared to merchant):
- Hotels are able to take back control on their own price, because the commission it needs to pay Booking.com is far less than the markup that a merchant charges.
- com can increase its offering of accommodations without large investments or paperwork.
With the agency model, Booking.com broadened its scope. Next to offering large hotels and apartments, they were able to offer villa’s, B&B’s, hostels and pensions, each serving a niche market. So did Booking.com cover all niche markets?
AirBnb shows this is not the case. It makes use of a concept called “home-sharing”. People are able to list their properties for free on AirBnb’s digital platform.
An important aspect of this sharing economy is the review-system. Airbnb’s platform has relatively low entry barriers. This is why AirBnb uses a dual-review system on which both guests as the hosts can review each other. This review-system is critical to maintain the customer relationship with both parties.
The strengths of Booking.com and Airbnb are:
- Both firms have very strong brand names.
- They operate from a 24/7 digital platform.
- They can expand their offering quickly without using much extra resources.
With regards to weaknesses, similarities are:
- There is a strong power of buyers. Both platforms are very reliant on their users and in this digital age, switching costs are very low.
- AirBnb has the weakness of having to deal with regulation issues. Regulations, about renting out homes for commercial use vary between cities.
We believe that the home-sharing market will keep growing. Despite the fact that Airbnb has a monopolistic position, it is always possible that another player (for instance Booking.com) enters the home-sharing market. Especially because of Booking.com’s size and brand name it could become a threat to Airbnb. Booking.com only needs minor changes in their technology to enter this market, which means Airbnb needs to stay alert.
IS Group 1
Anto Colic 375863
Sascha Oosterbaan 306190
Silvan de Graaf 382581
Eric Hartsema 356419
