New Insights into Airbnb

“How we travel has changed because of Airbnb,” says Makarand Mody, a School of Hospitality Administration assistant professor of hospitality marketing. Photo by Jackie Ricciardi

When was the last time your hotel put fresh-picked strawberries and some cream in your room fridge to help get you through a busy day exploring? Ahh, right, never.

But it’s precisely that sort of small personal touch that’s a big reason why Airbnb is starting to take a bigger bite out of the hotel industry’s bottom line, says Makarand Mody, a School of Hospitality Administration assistant professor of hospitality marketing, who is turning out reams of research about Airbnb’s success by looking at it from the traveler’s point of view.

The main takeaway from his research: travelers just have more fun traveling if they stay at an Airbnb rather than a hotel, and now hotels are beginning to borrow some of the individual touches and local flavor that make the Airbnb experience unique.

Founded in 2008 by two industrial designers who were sharing a San Francisco apartment and needed help making their rent, Airbnb has turned the idea of “renting out your spare bedroom” into a business with a reported revenue of $2.6 billion in 2017, becoming a disruptive factor for the hotel industry worldwide.

“How we travel has changed because of Airbnb,” says Mody. “When you travel to a destination and stay at a hotel, how you experience the destination is different than how you experience it when you stay at an Airbnb.”

San Francisco-based Airbnb provides an online peer-to-peer market where travelers are connected with hosts trying to rent out a room, an apartment, or a whole house, much the same way Uber connects passengers and drivers. With more than four million listings, Airbnb takes a small percentage of each transaction, bagging as much as $93 million in profits in 2017, according to Fortune. While traditional hoteliers initially brushed Airbnb off as serving a different customer, it has already taken a slice out of the $208 billion a year US hotel industry.

Mody and colleagues studied 10 US cities to see whether Airbnb was having an economic impact on hotels, and they found a consistent negative impact on key hotel performance metrics. Annual occupancy rates, revenue per available room, and average daily rates were all down, by an average 2 to 2.5 percent, since Airbnb was founded in 2008. Although early studies showed no problem for the Boston market, Mody now estimates that Boston hotels lost approximately $5.8 million in revenue to Airbnb in 2016 alone, the last full year of available data.

Mody’s research, conducted with a handful of regular collaborators, also shows that travelers experience a destination differently when using Airbnb. Normally there are four main drivers of nonbusiness travel, he says: entertainment, education, aesthetic (such as scenic beauty), or escapism. But Airbnb offers four more dimensions to the experience: localness, community, personalization, and what Mody calls serendipity. He found in surveying travelers that Airbnb consistently outperforms hotels on all eight of those factors: “It was more entertaining, they learned more, it was more local, and it was a more communal experience.”

Localness and the sense of community come from interactions with the hosts, including written or verbal advice on the best local restaurants, shops, and attractions. “They’re bringing this local insight that only someone who lives there would have,” he says. Also, Airbnbs tend not to be concentrated in the typical tourist zones, but spread throughout the community and off the beaten path.

“When you go on the website to look for accommodations, Airbnb tries to make recommendations like Netflix, based on where you’ve stayed in the past,” Mody notes. “But you’re generally surprised in some way by what you get, sometimes positively and sometimes negatively.”

And as for personalization, Mody himself has stayed with people who’ve done things that hotels have stopped doing. “I stayed with a couple in San Luis Obispo, Calif., and they had a handwritten chalkboard that said, ‘Welcome, Makarand and family.’ They grew strawberries in their own backyard, and they’d stocked their fridge with strawberries and cream and a few other things to keep us going the two nights we were there. Very small touches, but they really enhanced our experience of that place.”

Responding slowly, but with muscle

Mody often collaborates with former SHA colleagues Tariq Dogru, now a Florida State University Dedman School of Hospitality assistant professor, and
Courtney Suess-Raeisinafchi, a Texas A&M University assistant professor, along with Xinran Lehto, a Purdue University professor of hospitality and tourism management, and Lydia Hanks, an FSU Dedman School of Hospitality associate professor. With one or another of them, he has published several articles in leading industry journals over the past three years, including SHA’s Boston Hospitality Review, the Annals of Tourism Research, the International Journal of Contemporary Hospitality Management, and the International Journal of Hospitality Management.

Currently Mody and graduate student Monica Gomez (SHA’19) have an article in the Boston Hospitality Review on the Airbnb challenge. With his research and their own in hand, hotel chains are responding to Airbnb, as big corporations tend to, slowly but with muscle. He found examples where hotels were trying to use these four additional dimensions by adding experiences outside the guest room, bringing music or artists into their public spaces, redesigning those spaces, connecting to local dining and entertainment, and adding community events to their guest rewards programs.

A native of Mumbai, Mody worked with Hyatt Hotels Corporation in Mumbai as a trainer and with India’s premier airline, Kingfisher Airlines, as a quality analyst, as well as in the market research industry. He earned a master’s from the University of Strathclyde in Scotland and a PhD from Purdue.

He has been asked to speak at the Hospitality Sales & Marketing Association International (HSMAI) academic insight series by the association’s Boston and national chapters. In June he spoke to an HSMAI meeting in Houston with more than 100 revenue managers from hotels and destination marketing organizations. “They are, obviously, curious about how Airbnb is affecting their business,” says Mody, who also advises the group’s SHA student chapter.

“Our members consistently cite crowd-sourcers like Airbnb as one of the most disruptive forces impacting the industry,” says Juli Jones, vice president of the HSMAI, which includes sales, marketing, and revenue managers in the lodging industry.

Airbnb is not just a budget option, Mody notes. Airbnb and its few small competitors go all the way to the top of the luxury market, including some $750-a-night units in Boston’s Fenway. “It’s not just a cheap couch or spare bedroom anymore,” he says. No wonder people are building and buying units just to rent them out. In Miami and one or two other cities, there are entire condo buildings that are 100 percent for Airbnb rentals. In some cities there are as many as 300,000 units available.

Neighbors—sometimes annoyed by parking and noise problems—and municipalities have reacted in a variety of ways. Some communities, such as Portland, Ore., see the benefits of attracting travelers who might not otherwise come to town, and so simply opt to tax Airbnb hosts much as they do hotel rooms. Boston, on the other hand, is among cities enacting more restrictive regulatory requirements, including allowing Airbnb rentals in multiunit housing only if there is an owner-occupant. This week, Airbnb sued the city of Boston in federal court to block new regulations set to go into effect January 1. Cambridge already has a strong set of regulations in place.

Mody and his colleagues have also studied the attitudes of residents of towns with thriving Airbnb sectors—which is to say, most towns these days. “We found that, surprisingly, the overall reaction to Airbnb is more positive than negative,” Mody says. “People say, ‘It makes our destination more attractive for people to visit, and visitors bring in jobs and money.’ Those perceptions were much higher than negatives like noise and parking problems or rental prices going up.”

Lines are blurring. At the same time, Airbnb is moving more and more into other parts of the travel industry, even adding select hotel rooms to its inventory and planning to create a loyalty program of its own.

“It is changing and shaping traveler behavior and expectations worldwide,” HSMAI’s Jones says. “The more industry players can learn and understand about these disruptors, the better prepared they are to adjust and evolve.”

She says that Mody’s “research gives hoteliers a way to frame and think about these issues and connect their pricing decisions to decisions that shape the guest experience at their hotels. Pricing, branding, and guest experience are rarely operating in step with one another today. This research outlines the importance of linking them more closely.”