Destinations can benefit from AirBNBs bursting bubble

Economic sustainability is the first step

The stakeholders served by the online travel agents such as Tripadvisor, Airbnb, Priceline and Booking.com include OTA staff and management and their investors, tourism businesses and, of course clients but also local communities, destination organizations, governments and trade associations, – and everybody is first looking for an economically-sustainable solution to a $trillion-driven new ‘industry’

According to the latest reports, it looks like Airbnb’s star in particular is on the wane. Travelex recently reported that only some 4% of Americans are considering Airbnb for their next holiday. This is a startling figure seeing that general trade figures indicate both that Airbnb is looking at 10% of the marketplace and that they expect to double bookings to 80 million worldwide this year. Even then it all adds up to only $2.2 billion of sales.

Moreover local councils and industry groups are now on their case in a big way. In UK the British Hospitality Association is trying to get Airbnb to be more transparent, accede to health and safety regulations and get property owners to pay full taxes.  SEE

In the US voices are asking if Airbnb will go the way of Napster HERE

How does all this sit with an expected market capitalization of around $25 billion, you may ask?

For that matter what about Priceline (the holding company for Booking.com, Priceline, Agoda, kayak, rentalcars ond opentable) – how does their market capitalization of $54billion stand up against their gross turnover of about $9billion a year?

Or Tripadvisor (who have now been revealed in their true colours as a red in tooth and claw OTA ) with a market cap of $10billion of and gross turnover of $1.4billion a year

You may think that there is another game at play, with no regard for real world economics.

You may be right, but you may also consider that there is a much bigger game in play.

The formula for each OTA is pretty much the same. They list tourism businesses, promote their lists to the general public and charge the tourism businesses between 15% and 25% for any business the get for them. They capture the data of potential guests and use it in their marketing, before, during and after booking. Generally they insist that the prices the tourism businesses charge on OTA sites is not undersold by the business owners themselves.

The reason that they are all powerful is that they are great at global PR, and that (in the eyes of the tourism businesses) they have bought the marketplace by spending massive amounts in web marketing – also, from the point of view of accommodation providers, they are an easy option to sell accommodation.

And another massive reason that they are powerful is that they don’t have to abide by the same rules of business that their clients (the tourism businesses, or the tourists for that matter) have to.

The OTAs are big money/web businesses owned by big money tech investors who cover the marketplace.

And one thing that they all have in common is their massive expenditure on web advertising. Priceline, for instance, is said to spend upwards of $2billion a year with Mr Google.

So let’s follow the money. The client pays the hotel, the hotel pays the OTA, the OTA pays Mr Google and the client’s data stays with the OTA.

Tech investors don’t usually only back one horse (or company) so an investor may well have interests in Priceline, Tripadvisor, Airbnb, Google and Facebook, so it would be very satisfying to see money in these companies circulating from one to the other making each company worth even more as the billions revitalize each profit and loss account in turn.

But, because every game of smoke and mirrors must ultimately end in reality, it is worthwhile looking at the situation, where it may lead and how destinations – the real homes of sustainability – may ultimately benefit.

In a vision of a sustainable tourism world, both empowered destination communities and visitors would benefit from tourism. Tourists would probably travel less and spend more in the destinations helping to sustain destination cultures, their societies, their built and natural environments. This whole activity would spawn good jobs and training for all. And not only the tourist’s money would sustain the destination – the reverence and appreciation which tourists would have for the destination’s beauty and history would make locals have more pride in their homes and their communities, empowering them in turn.

Which one of the stakeholders in the current tourism boom should be in charge of, and drive this activity – OTA staff and management and their investors, tourism businesses, clients, local communities, destination organizations, governments or trade associations?

Clearly the only groups with ‘Skin in the Game’ are the local tourism businesses, local communities, local governments as represented by destination organizations.

But they haven’t got $billions? Why not? Because their tourism businesses are spending said billions with the OTAs – thus not only wasting their seedcorn, but also losing control of the millions of transactions with THEIR guests, and their future opportunities.

Of course this will change. There was a time, not long ago, when OTAs didn’t exist and there will be a time, not too distant, when they will be superceded by yet another ‘Disruptive Innovation’.

The question for destinations is how this innovation can be destination-driven rather than destination-drained.

This will be the subject for SustainableTourism2016

Valere Tjolle

@ValereTjolle http://[email protected]