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Archive | November, 2012

Is the Hotel Industry Dead?

Today I had the chance to hear from a past executive of a major travel and hotel booking site. It was interesting to learn how he built an Internet company starting as early as 1991 with some genius strategies (90 day float, affiliate programs). He clearly knew this vertical very well with 30+ years of experience.

After his presentation, I wanted to hear his thoughts on the future of the industry with the growth of Airbnb and similar services. When asked, he cut me off to let me know that Airbnb is in a different market than hotels. He argued Airbnb is for bargain shoppers who “sleep on couches and share rooms”, not for more serious travelers (even though ~20% are business travelers). He said Airbnb has too many unknowns for people to actually use the service (only 10 million of them).

The conversation defines the Innovator’s Dilemma in the travel industry (Mark Suster does a much better job describing the concept here). The incumbents view travel startups as not having the inventory and ability to scale. The startups will focus on a new subset of customers that they can give a better deal (average of $117 per night compared to $188 for hotels). As the customer base grows, others will realize the service of Airbnb might be enough to replace the hotel experience for a fraction of the cost. At this point, the incumbent can either cut prices and follow the lead of the new player, or raise prices and add features to appease their customers. Both lead to failure.

http://www.bothsidesofthetable.com/wp-content/uploads/2010/11/Innovators-Dilemma1.jpg

Again, this exec had over 30 years experience, so I wasn’t about to argue with him. But when I left, it was clear that Airbnb will not just keep disrupting the industry, but they still aren’t even viewed as a threat. Startups overtaking incumbents are inevitable in any vertical, maybe the time is coming for the hotel industry.