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Is Airbnb Launching The Era Of The Travel Ecosystem?

Article by: Tim Dunn, Isobar US Strategy Director

It’s been another busy year of record-breaking for Airbnb, and the once-plucky start-up has continued to make its ambition clear.

Revenues are still piling up, with Fortune magazine claiming them to be at around $900 million. The world’s best-capitalized start-up has also taken on yet more funding, with an estimated $1 billion secured this year to value the company at a cool $30 billion, according to research firm CB Insights.

And then there are the product expansions: Trips and Places has taken the notion of harnessing the local expertise and smarts of their hosts, and providing more of a wrap-around experience for the intrepid traveler wanting to really get under the skin of their destination.

Perhaps of even greater consequence is the announcement that Airbnb is to start selling flights as part of their holistic travel offering.

We could be getting close to a scenario where Airbnb becomes the only app you need to book your entire travel experience. With flights, accommodation, guides, friends and entertainment all lined up, they could be eating a huge slice of the travel pie. This presents an obvious parallel to the ecosystem approach taken by the likes of Apple. They started with shiny devices that gave them many years’ advantage over their competitors and were able to leverage that lead into industry-defying shifts into music, publishing, gaming and more.

Creating an entire ecosystem for travel has obvious implications for the company and for its competitors. First, they are going to go up against smart and savvy operators with many years in the game such as Expedia and Priceline, who will be no pushovers. And secondly, they will be entering a space with razor-thin margins, many of which are shaved further thanks to Google mediating their discovery. And finally, in a mature market such as air travel, there is not much of an opportunity to differentiate. The search-and-book experience has been optimized to a fine art by existing OTAs, and with dependencies on core booking engines, there’s little or no room to improve further.

Also, when it comes to selling travel, there is no “undiscovered pot of gold” that exists – unlike the one they discovered when they freed up people’s homes as vacation opportunities.

But there are risks for those who try to take on an entire ecosystem, as Apple has experienced. Individual product extensions can damage the whole brand. Where the quality of devices once made Apple unique, Google’s Pixel can now justify a claim to be the world’s best phone. And even in an area such as music, where Apple reigned supreme for over a decade, a slight let-up of focus has allowed Spotify to dictate the technology and user experience, forcing Apple to follow suit.

Could similar issues of distraction and dilution affect Airbnb? Just as some consumers have not taken to some of Apple’s services, such as News or Apple Music, can Airbnb expect to disrupt years of habits and loyalty that have been carefully nurtured by the OTAs and airlines?

Is the take-on of even more investment going to feel like a millstone around their neck, ratcheting up pressure to sustain what had previously been handsome margins on the home-share business, which air travel will never match? Investors tend to expect a path to margin growth in return for their dollars, not margin erosion.

And perhaps more importantly, will Airbnb’s biggest asset, the brand equity that has been developed by its community, be eroded if it becomes “just another big travel aggregator?” History is strewn with the corporate remains of businesses that once “did one thing really well,” and thought that magic would rub off on anything else they tried.

While only time will tell how the flights business will perform for Airbnb, perhaps, to avoid some of the inherent risk, they might look at product extensions closer to home that will still build an ecosystem, but build it closer to their core proposition of authentic vacations and the community that makes them happen. Though more modest, the ecosystem could easily accommodate some of the following: hardware for hosts such as connected keycard and remote locking systems; networks of cleaning and maintenance people to support hosts (as their main rival in China, Tujia, does), or even use their experience in generating robust peer feedback systems to build a babysitter network into Airbnb. Because who doesn’t want to free themselves of their kids for at least one night of their vacation?

This article was originally published in MediaPost.

12/27/2016

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