The Case for Why Airbnb’s Foray Into Experiences Is a Fundamental Mistake
When you talk about experiences, you’re talking about bloodletting on all fronts. I don’t know of an online travel agency that is finding true success selling experiences.
Airbnb’s first attempt was to try to provide unique inventory, which is in its DNA. In my opinion, that strategy is madness. It misses the fundamental realities of the unit economics of the average experience provider.
I’m not talking about the Disney’s or the Big Buses of the world, but the actual human beings who take visitors to hang-glide, boat, hunt, ski the backcountry, and trek, for example. In other words, I’m referring to the 80 percent of providers who take, as a group, only about 15 percent of the total spending on activities.
Carl Shepherd
My opinion about why experiences has failed on Airbnb — and by most accounts it has, although only Airbnb knows the degree of failure — is rooted in the fact that Airbnb’s DNA and core market is the private shared apartment. And its conceit, like that of many entrepreneurs, is that Airbnb thinks it can take the learnings from one market and then apply it wholesale to another.
In the case of Airbnb, the company is mistakenly trying to apply learnings from its core homesharing market to that of experiences.
But the small activity/experience provider shares little in common with private apartment hosts. Thus the entire dynamic that made Airbnb successful, namely people renting their homes (a fixed expense) when they weren’t using them (for variable income) does not translate into the activities space — or for airlines or hotels, for that matter.
If you’re in business, you need capital. Hotels and airlines have huge capital commitments; they must distribute everywhere, and their constant challenge is reducing distribution costs by paying less for a customer. They must make a profit, as opposed to the average Airbnb host, who is offsetting expenses.
This applies to the typical owner of a second home. She is primarily interested in offsetting the cost of ownership and is willing to depersonalize the home to optimize the amount of cash to put toward the carrying cost. When capital is at risk, you’re in business.
Some 80 percent of activity or experiences providers are micro businesses, like the guy who is a backcountry ski guide in the winter, a hunting guide in the fall, a river-raft guide in the spring, and something else entirely in the summer. These providers make their living by selling their time, which is perishable. Time is their capital. They are focused on it: They have built their family’s lifestyle around it. It isn’t casual.
Airbnb focused on the “casual” experience provider just as it focused on the “casual host.” But while there are clearly millions of casual hosts, the hurdle to be an experience provider is higher. There is investment required — time to create the right tour, and the costs of boats, buses or hang-gliders.
Homes Versus Experiences
In other words, renting your home occasionally is not really a business, as much as some cities wish it to be. Being an activity provider really IS a business.
So, in my humble opinion, Airbnb is failing in experiences because it thought it could take the learnings from empowering primary home residents to “share” their home for cash, and empower the average Joe to become an entrepreneurial activity provider.
Most activity providers are, like airlines and hotels, using their own systems for their business. They want to hold the cash. They can’t withstand or reimburse last-minute cancellations.
So these activity providers are going to think twice before turning those functions over to Airbnb to manage for them. Just witness the debacle when Airbnb refunded travelers as the expense of homeowners.
While their core hosts — those who rent the home the live in — barely squawked, the professionals and the homeowners who have capital at risk, went ballistic.
Airbnb Experiences was hoping to build a long tail of experience providers who are bartenders, schoolteachers, or some other career as their main gig, just like they did with hosts.
That’s nice, but I don’t think the tail was nearly as long as they had hoped. That leaves Airbnb with the real businesses providing experiences, and in the end those businesses have many options, and they have too much at risk to forfeit control to a distribution channel.
Airbnb Losing Its Uniqueness
Covid-19 notwithstanding, the online travel agency model, too, has intrinsic problems. First is brand loyalty: I doubt that many people are so wed to an individual online travel agency’s brand that they would shop there and only there. They’ve trained their customers to buy on lowest cost, and that requires shopping.
Second is competition: As the online travel agencies became interchangeable, it was increasingly difficult to differentiate. It’s too easy to click away, and the same inventory is available on all online travel agencies at this point.
This is the big challenge for Airbnb as it moves closer to becoming a “classic” online travel agency. Right now Airbnb has highly differentiated inventory primarily in urban private accommodations. I think we can all agree that Airbnb dominates that segment.
But if Airbnb integrates hotels fully, then the uniqueness of their overall inventory takes a hit. As Airbnb broadens, it risks losing appeal.
For example, in traditional, non-urban, vacation markets, Airbnb is just one member of the crowd of purveyors of vacation homes, and Airbnb has to rely on traveler’s loyalty to their brand and experience.
Very few vacation homes are only on Airbnb, Vrbo or Booking these days: The majority use all distribution outlets.
This will, in my opinion, be exacerbated when Airbnb integrates hotels — it will be even less unique.
At this point, it is highly risky for Airbnb to pivot to compete directly as an online travel agency, and it needs to seriously think about whether its sharing model truly extends to the activity, experience provider because I don’t believe it does.
Carl Shepherd is a co-founder of HomeAway, and serves on the board of Hostelworld Group and TurnKey Vacation Rentals, among others. These are his personal views and do not reflect his board positions.
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