Airbnb at IPO part III: How meaningful are Airbnb’s competitors?

Airbnb has positioned and acquitted itself as THE alternative to hotels. Now, synonymous though it is with vacation rentals, Airbnb faces competition from other big budget companies. While the biggest threat to Airbnb’s revenue is a fall in reservations, the most likely driver of this scenario is competition. The strength of Airbnb competitors therefore carries big weight in the forthcoming Airbnb IPO.

The competitor threat to Airbnb

With its core revenue tied to booking commissions, Airbnb’s most relevant threat is a fall in these reservations. An affected climate, hosts electing to reduce costs by driving direct bookings, or hosts and or guests defecting to a competitor are three potential mainsprings of this threat. With the affected climate being realised universally and very few brands having the platforms to attract sufficient direct bookings to ignore the Airbnb market, that leaves Airbnb competitors as the biggest threat to revenue.

For years, Airbnb was the short term rental alternative to hotels, which the hotel industry demonstrated with endless lobbying efforts targeting Airbnb (none of which stopped Marriott, Hyatt, Accor and Choice from launching their own short term rental products).

Today Airbnb faces real competition in short term rentals from leading travel platforms. Expedia spent $4B to acquire VRBO and now includes this inventory as a core part of its lodging search. Last year the travel-giant announced a revenue uptick in vacation rentals, its fastest growing category. Booking.com meanwhile has made short term rentals a focus, from commercials that champion “hotels, homes, and everything in between” to  their CEO citing alternative accommodations as a “growth driver for years to come” and driver of 40% of bookings in the second quarter of 2020.

Airbnb competitor booking power

We can see in our first chart that Airbnb holds a clear advantage over its rivals in terms of number of trips booked. It also appears to have maintained this advantage throughout the crisis.
This data indicates that Booking has grown faster than Airbnb post-COVID, consistent with their larger marketing spend.

Yet, when we consider number of booked nights below, thus accounting for trip length, Airbnb has climbed above its competitors in year on year performance through the course of a troubled 2020. It currently sits more positively at -62% of 2019 nights booked in the same week.

Inventory utilisation (i.e occupancy per listing) increases as professional property managers add more channels. For professional property managers, inventory listed on all platforms generates the most demand (21 booked nights per month) of any distribution strategy.

However, Airbnb also books significantly more nights in a month per exclusive listing (16.5) than its closest rivals. Moreover, Airbnb exclusive listings achieve closer to the number of nights booked by listings on multiple platforms (17.2 on average). One can see why small PMs or hosts might forgo the complexity of managing multiple channels.

The graph above looks at how bookings are commanded by different distribution groups. Whilst a third of bookings are made on Airbnb-exclusive listings, 67% go to listings available on other channels. This leaves a large portion of potential revenue on the table, exposed to competition.

Airbnb competitor supply share

In addition to booking power, Airbnb controls the lion’s share of inventory and exclusivity. Over half of all entire-home inventory appears on Airbnb, two-fifths on Booking and one-fifth on Expedia.

Airbnb share of global vacation rentals supply compared with competitors

Indeed, Airbnb’s dominance over competitors is plain to see across global vacation rental markets. For every nation we analysed, Airbnb exceeded competition in listing number and exclusivity.

There is however a growing proportion listed on multiple channels. Airbnb supply exclusivity appears to be eroding a little in mature markets. In Europe and the US, Airbnb host exclusivity is still high (>50%), but there is a steady trend of hosts starting to also use other channels. In younger, faster growing markets like Asia and Latin America though, a greater percentage of hosts remain exclusive. Further, there is no evidence yet of hosts in those markets moving into other channels.

Different types of market are also represented very differently. While Airbnb’s dominance is pronounced in urban markets, it is markedly less dominant in the non-urban sectors.

Airbnb brand competition

In terms of traffic, Booking.com’s dominance is considerable, even considering Airbnb’s split domains. Whilst it has ground to gain in traffic, Airbnb’s command of direct traffic sets it apart as a brand.

With 68% of Airbnb traffic now coming directly, overall traffic has been only negligibly affected by Airbnb’s marketing cuts.

Airbnb hotel competition

Then there is Airbnb’s hotel opposition – each are potentially the greatest opposition to the other. Airbnb have built a staggering collection of over 12 million rooms, rivalling the might of even global hotels. Crucially, it now outpunches major hotel brands in terms of inventory size, as the pandemic recovery demand swings towards the vacation rental provision.

Airbnb vacation rental supply compared with hotels competition

Conclusions on Airbnb competitors

Airbnb enjoys an advantage in total listings and exclusivity over Airbnb competitors. Listing on multiple platforms is a successful and growing distribution strategy in established markets, and a dominant one for professional property managers. Logic dictates that the cross-listing trend will continue as professional managers play a growing role. So far however, a relatively small percentage of listings appear on more than one channel.

Airbnb competitors assert themselves better in non-urban supply, and this could start to take its toll as demand swings that way through the pandemic. Airbnb’s advantage in total listings also overstates its advantage in available listings. The more professional supply found on Booking or VRBO tends to have more availability throughout the year. 

More Airbnb unique selection does provide more consumer choice however, even if has limited availability. Airbnb competitors compete for supply, but also challenge for consumer demand. Whilst weathering the year on year losses, Airbnb reiterates a dominance in booking power over its rivals. Nonetheless, those competitors generate a more than meaningful fraction of Airbnb’s potential bookings.

Thanks to big investments and its position as the largest travel site in the world, Booking’s short term rental demand has grown quickly. Today, Booking.com generates ~70% of Airbnb’s stays in vacation rentals, and that business has grown more quickly since the onset of COVID.

Competitive dynamics will play a key role in the development of the short term rental market for years to come. Will Airbnb continue to enjoy exclusive access to unique supply or will a growing percentage of hosts list on their competitors as well? When hosts list on other channels, where will they price lowest, and will price variation encourage shopping around? Will consumers continue to view Airbnb as a category of one when short-term rental inventory is available on other channels?