The hospitality industry & The sharing economy
Nowadays, in many industries the traditional way of doing business is disrupted by technological advances. The internet, for example, creates transparency in a market and gives consumers more bargaining power. The same applies for the hospitality industry. Since the industry contains many players, competition is fierce.
Traditionally, consumers would go to a travel agency in order to book their flight or hotel, nowadays they can easily go online and see the many options with corresponding prices, which increases competition. Another important factor that causes changes in the industry is the trend of people always seeking for the best experience. Customer loyalty is a thing of the past due to travellers who are always in need of a unique, tailored experience (UK Essays, 2013).
To satisfy this need in the market, digital platforms such as Airbnb emerged. These platforms are part of the so called sharing economy; the economic activity where users are given temporary access to a service provider’s otherwise underutilized asset, service, or skill (DHL, 2017). The online, user-friendly platform of Airbnb enables individuals to share spare space such as rooms of flats with one another. It appeals to a wide variety of travellers with different kinds of budgets and offers the unique, local experience that they are looking for. Sharing platforms, such as Airbnb, offer a new way of traveling that have disrupted the traditional hospitality market (Lehr, 2015).
Before the emerge of sharing economy platforms, the hospitality industry was considered to be a vulnerable market; the industry offers opportunities to make a lot of money which makes it attractive to attack. Moreover, the market is easy to enter due to digitalization in the market, which reduces costs of entering. These low entry barriers made it easy for substitutes like Airbnb to make their entrance. Existing players find it difficult to defend their market, since their not acquainted with the new phenomenon of the sharing economy (Granados, Kauffman and King, 2008).
Nevertheless, there are also a numerous downsides to sharing economy platforms such as Airbnb. A weakness for example, is the lack of operational control of the organisations and illegal listings which can cause bad publicity or tight governmental regulations which narrow the opportunities in the market (Lehr, 2015).
For the future we expect existing players in the hospitality industry to bring everything into play to deliver a unique, tailored experience for their customers and really exceed their expectations. Big players in the hospitality economy will shift more towards the experience economy. The small payers, however, will keep struggling with the fierce competition of sharing economy platforms. We recommend existing players to implement a digital strategy (e.g. Big Data insights) to keep up with their competitors.
As for the sharing economy platforms, we expect them to grow as well and might even combine their forces in order to create an even better, personalized experience for customers. Yet, we expect regulations to be even more tight and recommend sharing platforms to also engage in other ways of doing business such as big data sharing.
• UK Essays. November 2013. The Tourism Leisure And Hospitality Industry Tourism Essay. [online]. Available from: https://www.ukessays.com/essays/tourism/the-tourism-leisure-and-hospitality-industry-tourism-essay.php?cref=1 [Accessed 22 September 2017].
• Granados, N., Kauffman, R.J., and King, B. 2008. How Has Electronic Travel Distribution Been Transformed? A Test of the Theory of Newly-Vulnerable Markets. Journal of Management Information Systems 25(2) 73-96.
• Lehr, D. D. An Analysis of the Changing Competitive Landscape in the Hotel Industry Regarding Airbnb. Master’s Theses and Capstone Projects (2015). From: http://scholar.dominican.edu/cgi/viewcontent.cgi?article=1189&context=masters-theses
Hey Christine, thank you for your interesting post! I was reading it and I would like to add something to it. You write about recommending existing players to implement a digital strategy to keep up with their competitors such as Airbnb. However, are they not already doing that by offering their rooms not only on their own website, but also by offering them on websites such as Booking.com and Expedia? By bundling, these online travel agencies create a platform on which users can choose from a large collection of accommodations. Isn’t this quite similar to Airbnb? Or do you suggest a different digital strategy for existing competitors?
Thanks for the blog post Christine, I found it very informative. I believe the best way for small incumbents, to cope up with the fierce competition, is to cooperate with each other. You wrote they are recommended to implement a digital strategy. However, if they have not implement a digital strategy by now, they will not even be capable of surviving amongst their competitors. Solely by cooperating, small enterprises could form a force against their biggest competitors like Booking.com.
Regarding the downsides of Airbnb you wrote about, I would like to add the fact that there are certain changes in legislation in response to Airbnb all around the world. For example, in New York a bill passed already in June 2016 which made it illegal to rent an entire home for less than thirty days (Hajibaba & Dolnicar 2018, p. 123). In my opinion, regulatory institutions try by these means to “control the damage” of Airbnb.
References:
Hajibaba, H., & Dolnicar, S. (2018). 11 Regulatory Reactions Around the World. Peer-to-peer accommodation networks, 120.