Last November Airbnb launched “Trips” to expand their model of unique accommodation experiences to what travellers do outside of their accommodation. This is a bold move from the vacation rental giant that reportedly booked over $12 billion of bed nights in 2016.
The experiences market is large and under-penetrated, particularly by online travel agents (OTAs), according to research provider Phocuswright, with just 3% of bookings coming from online intermediaries in 2016. In a market worth anything from $75 billion to $200 billion depending on your definition, it offers plenty of opportunity to a platform that can match suppliers with experience-hungry consumers. On the face of it, Airbnb looks like a natural fit. It has a large network to distribute experiences, its customer base is open to change and its funding capacity is the envy of the startup world.
Not so fast. Tours, activities or experiences have been around since the dawn of commercial travel. They’ve been packaged and sold for over 100 years and have been available for sale on the internet at least since 1995 when Viator (now owned by TripAdvisor) was launched.
While we applaud Airbnb’s endeavour and acknowledge that if anyone is to crack the peer-2-peer experiences market, it is likely them, but there is a growing graveyard of startups who tried something similar and failed. So, why is it such a difficult nut to crack?
For a long time now we have heard x for y comparisons in the technology industry. The template goes something like this: plucky startup aims to position itself in a new industry with a comparison to a company that solved something in a similar way in an unrelated industry. An example could be “New Company” is Airbnb for activities or parking lots or boats or whatever peer-2-peer product you can think of.
In terms of activities, we have seen this a lot over the last seven years since the publication of research provider Phocuswright’s 2010 report. Out of total funds raised for the sector in the past decade, at least 20% (42) went to peer2peer marketplaces. Notable companies included Gidsy (acquired by GetYourGuide in 2013) and Vayable. Indeed Vayable had a partnership with Airbnb in its early days to offer experiences to its guests.
The COO of GetYourGuide wrote an interesting article on the challenges several years ago. Essentially, peer-2-peer marketplaces function pretty efficiently with idle assets such as a spare room or parking space, where the supplier can go to work or spend time with friends and still earn money. A tour or an activity requires more time from the supplier, as they need to be available for bookings to match demand. This is difficult, as naturally non-professional guides work jobs or value their leisure time. Therefore, the quantity of supply required to match demand is a lot greater than in idle asset markets.
For example, say I offer a coffee tour of an up-and-coming hipster area of Dublin, D8. I might only be available 2 times per month to run this tour and those dates may not match when you the traveller are actually in Dublin. So, although you like the sound of my tour, you need another supplier like me to fulfil your demand. And unlike rooms, where I can transfer my demand to another available host, the variety factor of activities makes this more difficult. For instance, I might like yoga and you might like MMA, but we are both equally happy to rent the same Airbnb. Therefore the platform needs more suppliers in more verticals to adequately cover the demand of its customers.
In fact, Airbnb also encountered this problem. Initially, it was Airbedandbreakfast, the idea being that you were served breakfast by your host. A request by a host to let his apartment whilst he was travelling led them to tweak their model.
2. Existing routes to market
There are already established markets in the tourism sector for tour and activity suppliers, and these suppliers have long-established distribution channels such as concierge desks, travel agencies and, most importantly, direct offline business. Yes, people still walk up and pay in cash.
In terms of on-demand vacation rentals, prior to Airbnb there wasn’t really a market — other than staying with a friend or a locally approved guesthouse, your chance of staying in someone else’s home was pretty limited.
As an activity supplier, you have lots of options, from your local DMO/DMC, TripAdvisor listing, online travel agencies, or contracting with a large travel agent such as TUI to provide your services as part of their guests holiday package. So, unless I have no experience in the tourism sector, what additional value does Airbnb Trips offer other than an additional distribution channel at the margin?
Airbnb says it wants “unique experiences”, but how many of those can it offer? It needs some form of categories and products aimed at particular types of personas.
Straight up, the numbers in activities are large. According to Phocuswright, travel activities will be worth almost $200 billion annually by 2020. So, it’s not just a flight of fancy on Airbnb’s behalf — there is a large opportunity in this market. But, when you dig into the numbers, you start to see why no-one dominates activities with the type of consumer awareness of Airbnb in vacation rentals and Booking.com in hotels.
Firstly, tours & activities is a broad church: that $200 billion covers everything from spectator sports and concerts to a guided tour with a freelance guide. Watching FC Barcelona in Camp Nou does attract tourists, but it’s not a cornerstone of the holiday experience. So, stripping the numbers back a little, Phocuswright estimate that the activities market is worth about $75 billion in its stock segments tours & attractions. Still significant.
Now consider that 30% of suppliers in the industry earn less than $50k per annum. On the face of it that leaves a lot of part-time businesses that are ripe for offering experiences ideally tailored to the Airbnb model. A distribution channel that promotes differentiation is well-suited to this segment but this segment is extremely difficult to unlock.
It requires a large effort on behalf of the supplier to create the product and market it, a lot more work than keeping your spare bedroom clean to optimise your Airbnb listing. This is why most businesses on the supply and demand side of the tours and activities market have focussed on businesses above the $50k threshold. While living your passion on a daily basis is appealing, if it doesn’t pay the bills, how long will you keep at it?
If we sound like the experiences grinch, it couldn’t be further from the truth. We love Airbnb, we use it for business and our leisure time. We are also passionate about expanding the experiences sector and welcome Airbnb to the fold. We’d love Airbnb to become a strong distribution channel for our customers and, challenges aside, we’re cautiously optimistic that they have the capacity to succeed.
To do so needs more than a publicity stunt, it requires a long-term commitment to match the long tail of the market with consistent booking flow. That will require some hard choices on what to focus on, be it neighbourhood tours or food experiences. Otherwise, the potential choice is potentially too broad to maintain quality levels. A host that runs a tour a couple of times a year is unlikely to make Airbnb Trips a staple for its growing group of guests.
Matching Airbnb hosts with existing tour and activity suppliers could be exciting and has the potential to firmly position Airbnb as a distribution channel. Many peer-2-peer marketplaces have gone down this route to survive — if Airbnb followed a similar path they could open new markets for the much maligned long tail supplier.