History Repeats Itself: Uber to Airbnb
Roughly one year ago, the taxi cab industry in Broward County successfully lobbied to have a restrictive county ordinance put into place that immediately banished Uber from the land in which taxis were profiting. The ordinance imposed chauffeur licenses, drug testing, and commercial insurance requirements on all Uber drivers. It is no secret that South Florida has abysmal public transportation, and taxis had, prior to the introduction of Uber, a geographic monopoly in place to capitalize on poor planning and inadequate mass transit infrastructure. And then, in one of the most beautiful forays of civil activism, the peer-sharing economy retaliated by immediately lobbying for the repeal of the ordinance, thereby making a spectacle of the proposed public “execution” of Uber. The county, giving in to public pressure, repealed the previously approved ordinance, allowing Uber to institute its own form of “self-regulation”. Uber was back; the people had won.
If Uber has taught us anything, it is that the peer-sharing economy is here to stay, and the voice of the populace is very loud. Like an on-deck hitter, the next mega-tech company in the peer-sharing industry, Airbnb, is already at bat, facing fastballs from the hotel industry and state regulators. At first, the hotel industry brushed aside any accusations that Airbnb was a competitor. The response from hotel executives was a conflation of denial and complacency. Nonetheless, Airbnb has become too big to ignore. In as little as nine years since inception, the company has gone from being worth nothing to a recent valuation of $30 billion (nearly $7 billion more than any other hotel company in the world), finally gaining credence, and backlash, from their indirect competitors.
Today’s Airbnb Challenge
“Winter is coming”, and when it does, people will head to Florida. But can they stay in lodging listed through Airbnb? In short, Airbnb is legal, “mostly”. In 2014, the Florida legislature adopted House Bill 307, codified as Section 509.032(7) (b) of the Florida Statutes, which provides that “A local law, ordinance, or regulation may not prohibit vacation rentals or regulate the duration or frequency of rental of vacation rentals.” The legislation states, however, that it does not apply to any local law, ordinance, or regulation adopted on or before June 1, 2011.
The hotel industry has lobbied local municipalities for help in dealing with illegal short term rentals. The City of Miami Beach, which has had an ordinance regulating and restricting short term rentals in place since prior to 2011, has taken advantage of the statutory exception and has increased its enforcement efforts, including drastically increasing fines for hosts of illegal short term rentals from $500 to $20,000 for first time offenders. Although some argue that by raising fines the City is essentially enacting a new law or ordinance restricting short term rentals, the Miami Beach ordinance was in place prior to the state legislation and the City’s position is that it is merely enforcing its ordinance. For now, Miami Beach hotels are attempting to combat illegal short term rentals through Airbnb and analogous competitors in any way they can, but it appears they may be losing the battle. New data from Moody’s is pointing a finger directly at Airbnb for a 3.3% drop in the revenue per available room in Miami and New York, stating, “We believe Airbnb is one of the drivers of the weak occupancy and [average daily rate] in New York and Miami.” The report did not cite Zika or the strong dollar as factors. Nationwide, CBRE Hotels’ America conducted research noting, “Airbnb demand is approaching 10% of traditional hotel demand in many markets, and also is claiming a growing percent of the demand in markets where Airbnb traditionally posed little competition.”
Miami is considered to be one of the top three markets for Airbnb, along with San Francisco and New York City. In New York, the hotel industry has lobbied the state to bring a lawsuit alleging that Airbnb is acting as an illegal broker, receiving commissions for real estate transactions without a license. Airbnb has defended the allegations by relying on the Communications Decency Act, arguing that a website cannot be held responsible for any posts made by a user of the website. Just as Facebook, Ebay, or any other website cannot be held responsible for discriminatory posts, fraudulent posts, or any posts that violate the law, Airbnb argues it cannot be held responsible for listings posted by users either. In essence, Airbnb argues that it is merely providing a platform for users to list accommodations. In response to Airbnb’s defense, cities such as New York and San Francisco have decided, instead of fining Airbnb, they will fine the hosts of illegal listings, a more insidious attack on Airbnb’s business in a hope to dissuade people from using Airbnb.
The Future for Hotels
Even though the peer-sharing economy is here to stay, this is not the end of the hotel industry. Hotels must adapt and be strategic in adjusting their core competencies to include more technological innovation with more of a focus on the experience and less of a focus on the lodging. Technologically streamlined service is something developers and managers must consider- as PricewaterhouseCoopers has stated in a report to the hotel industry , “[y]ou should be able to use your smartphone to: pick your room, arrange your check-in time, unlock the door, preset your room temperature, order extra pillows and blankets, gain access to the parking garage, stream music and video through the in-room TV, check menus at the hotel’s restaurants and make reservations, reserve and purchase preferred services from local retailers, order drinks poolside, book a spa treatment, reserve car service to the airport, and, eventually, check out…” Likewise, studies have shown the millennial generation places less emphasis on concierge service and more emphasis on common areas, entertainment and authenticity. Hotels should increasingly become more unique- bigger lobby bars, original artwork, specialized restaurants, nightlife and entertainment, localized experiences, and personalization for the guests.
Many analysts believe that luxury hotels may never be affected by Airbnb; the clientele booking rooms at luxury hotels do so because of the unparalleled service and amenities. But smaller hotels and boutique hotels are already feeling the hurt, “I see a direct correlation between our revenues going down and [Airbnb’s] going up,” says Vijay Dandapani, the president of Apple Core Hotels in New York. “We had continued growth until Airbnb.” For now, hotel developers need to be wary of these new peer-sharing competitors as the barrier to entry is low in new cities, and the existing model is strong. Conducting sound research, having distinguishing features or amenities, and appealing to higher end guests appears to be instrumental for continued hotel success.