How Will the Hospitality Industry Change in Five Years?

As we continue to barrel down the path of digitization, many of our daily activities are changing. This includes travel, and begs the question how will the hospitality industry change over the next five years? My premise is that the landscape will look significantly different in three ways: the category definition will change, the supply will expand for all players, and the competitive dynamics will continue to escalate.

(1) Definition — The government defines the lodging sector to include the traditional models of hospitality that you might expect: “hotels, motels, resorts, and bed and breakfasts.” The AH&LA says they support “hotel owners, REITs, chains, franchisees, management companies, independent properties, state hotel associations, and industry suppliers.” Clearly today’s definition of lodging fits the traditional models that have existed for decades or more. However, the definition we use in five years will look very different. Left on the outside of today’s definition are alternative categories such as timeshares, vacation rentals, and the sharing space represented by the ever-controversial Airbnb. As we see the options for places to stay expand, we can also expect to see the definition change to represent what is truly the lodging industry of the future: anywhere that one can stay, from a yurt to a penthouse condo to a traditional hotel room.

With this change in demand, we can expect to see two trends either start or continue in the industry.

(2) Supply expansion — As customers look to book a variety of lodging options, the industry players will move to reflect those demands; in other words, they’ll go where the money goes. Given the growth in the sharing economy lodging options, we can already see this trend happening today across major market players. Here are the three highlights you can expect:

• Hotels will move into managed properties: The major hotel companies already play in the timeshare or vacation rental markets. You have Starwood’s Vacation Network for vacation ownership (timeshares) and vacation rentals, Marriott offers the Marriott Vacation Club, and more; you get the picture. Most of the major companies also offer extended-stay hotels or corporate apartments. It’s just a small step (and one could argue a step that only involves rebranding) to offer managed apartments that are nearly identical to properties you might stay at when renting a place to stay for your Tahoe ski trip.
• OTAs will include managed properties and potentially shared listings: As consumer demand expands to include these properties, the OTAs will quickly try to expand as the intermediary in this market, as well. The major managed property players are likely to accept this, as the OTA platforms offer mainstream customer access that smaller companies dream of. In fact, we saw Expedia enter an agreement with HomeAway in 2013 to include listings. This effort never made it past beta and seems to be at the bottom of Expedia’s priority list based on this article. Additionally, Booking.com launched Villa.com in 2014 with a staggering 146K listings, many of which offer instant-booking capabilities. Although it’s too early to measure the success of this move, it’s one more step in the same direction. TripAdvisor’s acquisition of VacationHomeRentals.com in 2014 paired with their downstream integration as a meta-mediary (more on that in #2) reinforces the point. It may be a question of which OTA succeeds, but I would argue there’s no question at all which direction they will go.
• Finally, vacation rental platforms are working to build a more integratable platform and supply portfolio: As OTAs seek to meet consumers’ expanded booking needs, major vacation rental players will either choose to focus on a single-channel web-internal booking strategy (a booking made on the company’s website), or they will pursue multiple distribution channels, specifically OTAs. This was alluded to in an interview with HomeAway’s CEO in 2014 , saying that, “HomeAway is taking the rest of 2014 to develop a distribution platform to make a lot more vacation rentals available [through an online travel agent].”

(3) Competitive expansion — as the internet brings increasing access, price parity will be reached across platforms and competition between competitors in the booking funnel will only heighten. The detail needed here is less, as these two points are more apparent given recent industry moves.

• Competitors will integrate through the booking funnel: We already see players expanding across stages in the booking funnel for two reasons: a) to capture more of the revenue and b) to attempt to keep the guest in-platform or in-app in order to secure the booking through their platform. You can see this in two ways. The big trend for the past two years is the rise of meta-mediaries, or previously search engines that now let you book through their search results (e.g., TripAdvisor’s instant book). We can also see efforts from the major hotel and OTA companies to drive search to mobile apps, as apps are a mechanism to keep you in a single platform, instead of the typical 7–9 platforms used by customers through the booking funnel.
• Competitors will increase within and across product categories: Airbnb is the current market leader in shared listings… for now. Looking abroad, we see several successful Airbnb copy-cats in China and Latin America. We can also expect to see other, targeted short-term rentals (month-long+ leases) similar to executive apartments or extended stay hotels rise up as specific lodging options.

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These trends provoke a number of questions regardless which player you represent in the industry. I’ll touch on them at a high level here before diving into them in depth in later discussions:

• How will OTAs choose to integrate these listings? Will they own the inventory or not? How can the managed properties and shared listings move to an instant book model?
• How will this lodging option be offered across platforms? Will consumers seek for the listings to be integrated with more traditional options or will they seek out different searching channels, results, or platforms for such searches?
• If OTAs choose to integrate vacation rentals and shared listings into the search results, is there a differentiation opportunity for the other players to separate results?

Overall, we can expect a number of changes as the lodging landscape dramatically shifts in both the definition as well as the booking dynamics for the industry.