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Airbnb Is Buying HotelTonight: Here’s What That Means

Deanna Ting
Airbnb Is Buying HotelTonight: Here’s What That Means

Airbnb confirmed Thursday its intent to acquire hotel booking platform HotelTonight.

Terms of the deal were not disclosed, but reports of informal talks between the two San Francisco-based companies first surfaced in January. Sources later confirmed to Skift the price was $400 million-plus in cash and stock.

HotelTonight’s last funding round from March 2017 estimated the value of the company to be $463 million, and the company said it became profitable in April 2016. Its investors include Accel Partners, Battery Ventures, US Venture Partners, GGV Capital, Coatue Management, and First Round Capital.

Airbnb’s last funding round from March 2017 valued the company at $31 billion, and in November, the company reported “substantially more than $1 billion in revenue” amid talks that an initial public offering would be imminent. The company also said it was profitable for the second straight year in January.

In a press statement, Airbnb CEO and co-founder Brian Chesky said the purchase of HotelTonight was a key component of Airbnb’s desire to become a comprehensive travel marketplace.

“A big part of building an end-to-end travel platform is serving every guest, whether they plan their trip a year or a day in advance,” Chesky said. “Working with the incredible team at HotelTonight, we will offer guests an unparalleled last-minute travel experience that provides unique, memorable hospitality on every trip, on any schedule, at any time.”

HotelTonight co-founder and CEO Sam Shank said, “We started HotelTonight because we knew people wanted a better way to book an amazing hotel room on-demand, and we are excited to join forces with Airbnb to bring this service to guests around the world. Together, HotelTonight and Airbnb can give guests more choices and the world’s best boutique and independent hotels a genuine partner to connect them with those guests.”

The HotelTonight app and website, Airbnb said in the same release, “will continue to operate as they do today” and once the deal closes, which is expected by June, HotelTonight CEO Sam Shank will remain as the lead of the company’s boutique hotel category, reporting directly to Airbnb President of Homes Greg Greeley.

Two Ever-Evolving Travel Unicorns

When HotelTonight first debuted in 2010, it focused exclusively on enabling consumers to book last-minute, discounted hotel rooms on the same day of stay using its mobile app.

The app’s debut led to the formation of a number of imitators worldwide, even by the likes of online travel giants such as Booking.com, all of whom sought to launch their own same-day hotel booking platforms, but many of which could not compete with the superior user experience and design that HotelTonight had. Whereas HotelTonight’s app required just a few taps to book a hotel, Booking.com’s clone required dozens.

HotelTonight also pioneered offering location-based rates and having a chat-based concierge service for selected high-end properties.

In the years since it was launched, HotelTonight has evolved its product to enable desktop bookings, as well as elongating its booking window for stays.

In total, HotelTonight has more than 25,000 hotels in approximately 1,700 cities worldwide on its platform, but the booking engine specializes in a more curated, mobile-friendly approach to offering just 15 or so hotel choices to consumers without overwhelming them with too many options.

By contrast, Airbnb is known for facilitating private accommodations bookings that are often booked well in advance. However, the company noted “same-day bookings are now growing 2x year over year.”

Since its debut, however, Airbnb has also evolved its products to include tours and activities (Airbnb Experiences), as well as verified accommodation listings (Airbnb Plus), which are a far cry from the literal air mattresses first advertised by CEO Chesky and co-founder Joe Gebbia back in 2008. Most recently, Airbnb also announced the appointment of its first-ever global head of transportation.

Since February 2018, the company has also officially welcomed and encouraged boutique hotels to use its platform as a distribution channel, forming partnerships with companies like SiteMinder to make it easier for hotels to list on Airbnb.

Why This Deal Makes Sense: It’s About Scale and Technology

In many ways, the pairing of HotelTonight and Airbnb makes a lot of sense, but it’s also a rarity for Airbnb.

Airbnb is not overly acquisitive. Its most recent acquisition took place in January and involved a small booking site called Gaest that helps people book off-site spaces for meetings and event. Prior to that, the company’s largest acquisition to date was for luxury vacation rental site Luxury Retreats, for an estimated $200 million to $300 million in February 2017.

But buying a company like HotelTonight could accelerate the company’s expansion, especially as it prepares for an IPO and as it faces short-term rental regulation battles around the world that threaten its core business.

HotelTonight has been a potential acquisition target for a number of Airbnb’s main competitors. In 2015, according to The Information, Booking Holdings (then known as Priceline) had looked into buying it. China’s Ctrip has also been reported as a potential suitor.

Former Airbnb CFO Laurence Tosi reportedly favored growth via acquisitions, while Chesky has tended to show a preference for organic growth, and that difference of opinion, some argued, eventually led to Tosi’s departure from the company in February 2018.

Airbnb has reportedly considered building its own HotelTonight-like product previously, but buying the actual company ensures a more seamless, more accelerated integration that makes it easier for them to add more hotel inventory to the company’s already more than 6 million accommodation listings, as well as own the intellectual property of a platform like HotelTonight that caters to last-minute bookings.

Not only that, but Airbnb reported there is tremendous demand for more boutique hotel product on its platform, and more of those properties have signed onto its platform as well. The company said “in 2018, we more than doubled the number of rooms available on Airbnb in properties that hosts categorized as boutique hotels, bed and breakfasts, and other hospitality venues like hostels and resorts” and noted that Airbnb guests are “booking three times as many nights with boutique hotels in 2018 compared with 2017.”

Hotel inventory is also relatively easier for Airbnb to add than professionally managed vacation rentals, which are another important and crucial market for Airbnb. Vacation rental inventory is much more fragmented, and vacation property managers use many different distribution channels for unique accommodations, but that hasn’t stopped the company from attempting to offer more tech support to entice more professional hosts to use Airbnb.

Furthermore, it’s not clear whether Airbnb has met its year-end 2018 goal of having 75,000 homes in its Airbnb Plus product. Having more product that serves as a bridge between home stays and hotels is a crucial part of the company’s “Airbnb for Everyone” strategy, which aims to broaden Airbnb’s reach as a super brand of travel.

Traditional Hotels Versus Boutique Hotels

Kayak co-founder and CEO Steve Hafner said in January that he wasn’t surprised Airbnb had held informal talks with HotelTonight.

“Everyone in this space has poked around at HotelTonight,” Hafner said. “Why should Airbnb be any exception? The appeal is obvious: millennial brand, mobile-first, [and a] nice toe in the water for traditional hotel accommodations.”

But that’s the catch, too. With HotelTonight, Airbnb not only inherits a solid hotel booking platform attuned to same-day bookings, but one that advertises both more traditional and conventional hotels, as well as the boutique and lifestyle hotels that Airbnb has historically touted on its platform.

In a release about the deal, Airbnb emphasized that HotelTonight’s inventory leaned more heavily toward boutique and lifestyle hotels, as opposed to the “mass-produced hotels” found on online travel agencies such as Booking.com or Expedia, as Chesky has noted previously.

“HotelTonight is rooted in the same kinds of hospitality properties we have welcomed to the Airbnb community, and these boutique and independent hotels contribute the majority of HotelTonight’s business,” the statement reads, suggesting the company is likely to stick to its current hotel standards.

In January, when rumors of a reported acquisition were announced, Shank said “90 percent of our revenue comes from boutique hotel and independent properties.”

If and when this deal closes, will those non-boutique or non-lifestyle or non-independent hotels be allowed to be listed on Airbnb.com?

Adding traditional hotels to the Airbnb platform will indeed give the company a numbers boost. While Airbnb has more than 6 million private accommodations listings, its nearest rival, Booking.com, has a total of 28.3 million hotel and private accommodation listings.

However, it would also chip away at the community-based culture that the company has worked so hard to build and market over the past 11 years.

There are arguments to be made that what Airbnb is doing is a natural progression for any company — especially one in travel and one that is preparing for an IPO: that it’s only natural for it to offer people more variety of options and choices.

If Airbnb does, however, change its perspective on allowing traditional hotel inventory, that might be viewed as creeping commercialization, and diminishes one of the primary distinguishing factors between Airbnb and its online travel rivals.

What This Means for HotelTonight

Airbnb said that HotelTonight will continue to operate as it has been, but it’s also assumed that the acquisition will provide interesting synergies between the two companies.

For one, Airbnb could decide to add some of its hotel-like private accommodation inventory from Airbnb Plus onto the HotelTonight platform, or even create a separate category on HotelTonight for shared accommodations. It may even decide to add some of Airbnb’s inventory from Airbnb Experiences, although it could be a challenge to handle same-day bookings of peer-to-peer led tours and activities.

Likewise, Airbnb could decide which or all of the hotel inventory HotelTonight has is appropriate to advertise on Airbnb.com.

And there are also implications to consider in terms of the differences in commission models to be used and whether both will move toward a single policy. HotelTonight takes a 15 to 20 percent commission from hotels, and limits the booking window for the inventory. Airbnb’s standard commission structure involves charging hosts, hotels included, a commission fee of 3 to 5 percent and then charging anywhere from 5 to 15 percent in fees to the Airbnb guest, per booking. Online travel agencies such as Booking and Expedia often charge independent hotels commission fees that can be as high as 25 to 30 percent per booking.

The more curated approach that HotelTonight takes in terms of what it shows to users is also something Airbnb may eventually adopt, too. A common complaint among Airbnb users, and one that Chesky himself noted in February 2018 during the launch of Airbnb Plus, is the fact that it can be a challenge to filter and find the right homes because there are an overwhelming number of choices presented to users.

That HotelTonight also has its own loyalty program is something Airbnb can build upon as it continues to work on its own loyalty program as well. The concierge services that the HotelTonight app provides could also prove to be a useful technology for Airbnb to incorporate as a part of its loyalty strategy, or even as a customer service tool.

As for HotelTonight’s leadership, it appears Shank will remain. Airbnb did not disclose information about any cost synergies or allude to any downsizing of HotelTonight’s employment numbers, but a source on background said only three HotelTonight executives’ roles would not be continuing.

What This Means for Hotels, Booking, and Expedia

If you’re an independent or boutique hotelier, this acquisition is likely good news: Airbnb is yet another distribution channel for them to consider and, hopefully, will be even easier with which to connect.

And even for traditional hotel brands such as Marriott, Hilton, Hyatt, or IHG, Airbnb is increasingly becoming a welcome competitor to the online travel duopoly held by Booking Holdings and Expedia, which owns the VRBO and HomeAway brands.

In January, Best Western CEO David Kong told Skift he is paying close attention to Airbnb as a possible distribution channel if the company does indeed decide to open up its platform to all hotels, and not just boutique or lifestyle ones.

“Yeah, I’ve been very reluctant. This might open it up,” Kong said. “Contrary to what they say publicly, they have featured a lot of hotels, that are not necessarily boutique hotels, and you’ve got to recognize the power of that platform, the traffic that it has. So, regardless of how much the industry is fighting Airbnb in terms of homesharing, you’ve got to recognize that platform drives a lot of traffic and at some point, we might have to work with them like an OTA [online travel agency].”

In August 2017, Hilton CEO Chris Nassetta said that Airbnb’s transformation into more of an online travel agency is a “good thing” for hotels because it forces the other companies like Expedia and Booking.com to be more competitive.

What This Means for Airbnb Hosts

With this acquisition, Airbnb will likely find itself in a similar situation facing the major hotel companies: the more inventory, or brands they add, the more at risk they are of cannibalizing their owners/hosts’ business and alienating those owners/hosts in the process.

Airbnb, however, claims that the opposite effect is taking place on its platform.

“Boutique hotels,” the company writes, “are helping to bring new guests to Airbnb and making our community larger and stronger.” The company said nearly 90 percent of guests who first used Airbnb to book a hotel room and then returned to Airbnb for a second trip would wind up booking a home instead of a hotel.

“Boutique hoteliers and Airbnb home hosts both offer incredible, local hospitality precisely because they live in and are connected to the communities where they welcome guests,” boutique hotel pioneer and Airbnb advisor Chip Conley said. From 2013 to 2017, Conley served as Airbnb’s global head of hospitality and strategy, and was hired by Chesky to strengthen its hospitality offerings, as well as ensure better quality of homes. “Airbnb and HotelTonight joining forces will make it easier for guests to find these kinds of unique, amazing places to stay and is a natural next step that will benefit everyone in the Airbnb community.”

When Airbnb Plus debuted in February 2018, touting quality-assured homes, San Francisco-based host Ivan Abeshaus told Skift he viewed it as “backwards, short-sighted, and definitely not part of a ‘host-led world,’ whatever that means,” referencing an expression used by Chesky during the product launch.

As all companies that continue to grow, and to eventually become public, Airbnb is, in many ways, balancing its past with its future, and the addition of HotelTonight to the company is no different, but it will certainly impact how the company builds itself into that end-to-end travel and experience platform it aspires to be.

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