Airbnb’s IPO marks a milestone in the travel industry and consumer internet as a whole. By redefining traveler expectations and establishing a new type of lodging, Airbnb built the second most valuable travel company in the world in just a decade. Their example as a “sharing economy” company catalyzed a generation of venture-backed companies.
For us at Transparent, Airbnb serve as a lodestar. Our mission is to establish the data source of record for short term rentals, so making sense of their business has been a motivation over the past five years. Now, as public market investors consider investing in Airbnb, we want to share observations on key questions facing the company.
Airbnb IPO part I:
Who are today’s Airbnb hosts?
While the precise alchemy of Airbnb’s success is a mystery, its host community is surely a huge ingredient.
Airbnb defined the “sharing economy”, teaching travellers that instead of a cookie-cutter hotel in a sterile tourist district, they could experience life anywhere with welcoming local hosts. Moveover, these Airbnbs were 30% cheaper than a hotel and came equipped with better space and amenities.
For many years, this experience was exclusive to Airbnb. Hosts joined as effective Airbnb franchisees. Over time, the composition of Airbnb hosts evolved. A generation of entrepreneurs identified the arbitrage between long-term residential leases and the revenue from Airbnb rentals. Unlike legacy Airbnb hosts, these professional operators sought to maximize revenue by distributing inventory as widely as possible.
Professionals raise the floor, reducing the frequency of Airbnb horror stories; professional managers also lower the ceiling, eliminating transcendent moments that establish the brand. So who exactly are Airbnb hosts today? And how do they impact the brand? Most importantly – what does it mean for Airbnb at IPO?
- Shared accommodations comprise just 20% of current Airbnb listings.
- The majority of Airbnb listings now come from professional managers.
- The more listings managed by an individual host, the more likely they are to list their inventory across multiple channels.
- Individual hosts deliver the best guest experience.
- Airbnb enjoys the most listings and greatest exclusivity across every country.
Airbnb IPO part II:
How powerful is the Airbnb brand?
Without question, Airbnb has built a leading brand of our time. Capturing the hearts of consumers requires a vision, not just a business model, and travellers worldwide have bought into Airbnb’s vision to “belong anywhere.”
Brand matters in the travel industry thanks to Google’s stranglehold over search. Airbnb stands alone as the one travel company that has not relied on Google. Two-thirds of its visitors come directly to Airbnb, a dramatically higher share than the rest of the industry. The power of these consumer relationships was illustrated when Airbnb eliminated their marketing spend; website traffic was largely unchanged. Instead, customers that previously came through paid campaigns instead came directly to Airbnb.
But while Airbnb’s brand has carried the company to this pinnacle of success, how powerful a growth engine will this continue to provide? Will Airbnb continue to enjoy a unique brand position and keep attracting new demand as it broadens its offering and faces more direct competition? How strong is the Airbnb brand? What is their current demand mix? The question of how Airbnb is growing is fundamental to their IPO.
- Airbnb enjoys a huge direct traffic advantage, but competitors’ marketing investment over the summer enabled them to grow traffic faster than Airbnb.
- Even as Airbnb has reached enormous scale, it continues to attract new customers.
Airbnb IPO part III:
How meaningful are Airbnb’s competitors?
Airbnb has become synonymous with short term rentals. For years, Airbnb was the short term rental alternative to hotels.
Today, in addition to those hotels making competitive forays, Airbnb faces a real challenge from travel platforms. Expedia spent $4B to acquire VRBO and Booking has also made short term rentals a focus; their CEO citing alternative accommodations as a “growth driver for years to come”.
These rivals compete for access to supply. While Airbnb enjoys an advantage in total listings, listing on multiple platforms is a dominant distribution strategy. Listings distributed on every channel generate 31% more bookings per listing than those exclusive to Airbnb. It stands to reason that this trend will continue as professional managers play a growing role.
There is also competition for consumer demand. Thanks to key investments and its position as the largest travel site in the world, Booking’s short term rental demand has grown quickly. Today, it generates ~70% of Airbnb’s stays in short term rentals, and their category 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 lists on multiple channels, where will they price lowest? Will consumers continue to view Airbnb as a category of one as alternative choices and rates emerge? Ultimately, how dangerous is Airbnb’s competition ahead of their IPO?
- Airbnb controls the lion’s share of short term rental listings and today a relatively small percentage of listings appear on multiple channels.
- Airbnb supply exclusivity has eroded a little in mature markets but held steady in emerging markets.
- The number of bookings per listing increases as property managers add more channels.
- Airbnb’s inventory advantage is most pronounced in urban markets.
- Airbnb generates the most bookings but other platforms have vibrant channels and are growing quickly.
Airbnb IPO part IV:
How well has Airbnb adapted from its sharing economy origins?
A hunger for innovation and growth has driven Airbnb since its inception. Not content with creating a new category of lodging, it has sought to redefine other aspects of travel; and these moves could be critical to Airbnb continuing to assert itself in the industry.
Even prior to COVID-19, Airbnb recognised the demand from flexible professionals to live and work in anywhere. In 2019, they acquired extended stay and relocation specialists Urbandoor and invested in corporate housing brand Zeus Living. And the pandemic has been rocket fuel for the trend of using short term rental inventory for longer term stays – the average length of Airbnb bookings is up 50%. Driven by greater professional flexibility, long term stays are poised to drive growth into the future.
Announced at its 10-year anniversary event in 2018, Airbnb Plus developed a brand standard and an Airbnb-approved aesthetic. Just as Marriott loyalists know what to expect in a Courtyard, guests can trust the quality and consistency of these listings. Two years later, the program has yet to achieve scale. Against a goal of 75,000 listings by year end 2018, the program now has about 20,000 listings.
Airbnb Experiences are perhaps the most significant attempt to expand Airbnb’s offering. Because these unique local activities are only available on Airbnb, they provide another way to differentiate the Airbnb brand. Experiences also further cement host loyalty to the platform with an additional source of income.
- Unlike accommodation hosting, experiences are largely an individual-driven product.
- Experience hosting is a more challenging business than accommodations.
- Experiences are an almost exclusively urban phenomena.
Airbnb IPO part V:
How well has Airbnb reacted to the COVID-19 Crisis?
Finally, we have assessed how Airbnb have handled what is hopefully the greatest challenge ever to face the travel industry. While there was not much chance of thriving in 2020, a measure of how Booking, Vrbo and Airbnb have survived speaks volumes for their resilience and adaptability.
As the decline in booking demand hit, Airbnb retained its booked nights best, going from bottom of the pile year on year, to top. It has also maintained a dominance in number of trips booked.
And what about positioning for new, emerging demand? Pandemic restrictions and realities have driven guests to prioritise differently. Airbnb has the highest proportion of urban stock, which is a disadvantage in the current demand swing towards rural locations. Airbnb also retains the second highest share of domestic trips amongst its competition, which stands it in good stead, but it has seen one of the lowest % increases in domestic trips, year on year. However, Airbnb’s likely saving grace during this crisis has been its focus on longer stays.
As dedicated observers and advocates of the short term rental industry, we are thrilled to see Airbnb reach the IPO milestone and be valued at tens of billions of dollars by the public markets. The short term rental industry can no longer be dismissed as “alternative accommodations.”
Through our analysis, we aim to shed light on how the strength of Airbnb’s brand and attempts to expand and evolve help to describe its value. Moreover, how Airbnb’s host supply and guest demand have survived and thrived against the competition. How Airbnb progresses in these areas will surely dictate its continued success.
With our mission to provide the data source of record for the short term rental industry, we are eager to track Airbnb’s progress and follow the evolution of these questions. If you are interested in learning more about short term rental data , we’d be happy to see how you might leverage our work.