Is AirBnB changing the distribution model for hotels?
AirBnB has for years now been an iconic disruptor in the hospitality industry, with impacts on the traditional distribution model.
Just this year, they announced the deployment of a platform specifically for hotels, but it is not clear exactly what this means for the future of hotel distribution. The way it works is simple: hotels can list their accommodations on the app alongside other listings through a third party distributor. With the reach and substantial user base of AirBnB, this platform could mean major change.
Below we will outline how this new system works and outline what it means for the hotel distribution model.
There are two models at play here, the agency model and the merchant model.
In the agency model, the hotel is charged a commission for each booking. This rate is 3% to 5% with strict cancellation rates. Commission is not charged for included taxes in order to compete with the other OTAs. This does compare decently well to other third parties like Expedia or Booking.com. Customers are given the actual price and no fees are hidden from them on the app.
In the merchant model, the client pays upfront and AirBnB pays the hotel their share afterwards. In this model, a markup of between 5% and 15% is added as a service fee. This is the amount kept by the app. Unlike in the agency model, the hotel does not control the final price. The final price is determined by AirBnB, who sets the service fee.
What makes this model a bit different is how upfront AirBnB is about the service fee. This is different from traditional third party booking engines. The markup, as it were, is itemized for the customer’s review in the merchant model. This allows the customer to know what the hotel is charging and what AirBnB is tacking on.
So what does this mean for the hotel industry? It indicates a few clear impacts.
If the service continues to grow, the brand value of listing on AirBnB could be very high. As its popularity increases, getting listed on its pages could be a significant boon to hotels.
It could streamline booking. Unlike other players, AirBnB does not require an actual contract. This means it can quickly develop a network of thousands of hotels quickly without contracting through a commercial network or negotiating contracts with individual companies.
The commission is rather low for the hotel. This helps figure out a good price on the app, competing with other OTAs. Lower cost channels lead to better end-prices for consumers, comparing more to direct sales than high-cost OTAs.
Finally, the service fee is rather groundbreaking for an industry in which clients are generally responsible for costs produced by the channel. This is new ground for the hotel industry, so we will have to continue watching.
In a surprising twist, the end of price parity has not come at the hands of state regulations nor a movement by hotel owners. Rather, it was AirBnB itself which brought about this development. This makes sense, as an app like AirBnB is most suitable model with the greatest potential to bring about this disruption and innovation. It also foreshadows much desired cost reduction, placing the responsibility for charges with the client. This means hotels lose control over the final price. These changes reflect the power of third party apps to change things up in the hotel sector.