What a Fully Digital Rival Like Airbnb Can Teach the Hotel Industry | 2016: How Big Companies Went Digital ⑧

The hotel industry needs to learn more than how to use the internet. It needs to ask why a rival in its own business — Airbnb — is already thinking about something completely different.

Traditional big companies are still working to reach young consumers, while digitalization is transforming supply chains and the competitive landscape. QDaily presents its 2016 year-end series on digitalization: over one month, 10 articles look at what large companies have won and lost in going digital. This is the eighth.

Look at the sales end of the business — the part the internet finds easiest to touch and change — and the hotel industry's shift to digital actually began quite early.

Find your customers online, then bring them offline for the experience: to use a slightly dated phrase, this is the textbook "O2O" model.

In the PC era, Trip.com Group called it "mouse plus cement." Even after the move to mobile, what hides behind the hotel industry's apps hasn't really changed.

Customers went from having to call or visit a storefront in person to searching on websites and apps;

then they weighed price, location, room type, reviews, and the rest to settle on the room they wanted. Somewhere in booking and paying, the hotel learned most of what it needed to know about your trip — so there was no more filling out long registration forms at check-in. As credit systems matured, more and more hotels dropped the deposit step too.

From the moment you arrive, the "service ethos" the industry has honed for centuries kicks in. A welcome at the front desk is part of the basic package; at higher-end hotels the in-room service is more elaborate. While you wait, someone adjusts the lighting and music in your room, sets out a handwritten welcome card and some fruit, and builds a warmth that feels a little staged.

Then come the in-room services. A wake-up call, dinner sent up, a bucket of ice, laundry taken away to be cleaned — all of it means a call to the front desk. But whether the service is fast and attentive is exactly where these small details reveal the hotel's caliber.

Then you check out and leave. The credit system does its work again: you may not even wait for the room inspection before settling the bill, because the system can decide you won't be walking off with anything.

Hotels have their own booking systems, of course, but unless you are redeeming points or are genuinely loyal, you probably still end up at an online travel agency like Trip.com Group. So the relationship between customer and hotel basically begins only at check-in.

Before you ever reach the hotel, online travel firms began offering more — the ride from the airport or train station, for instance. Once ride-hailing and chauffeur services emerged as their own lines of business inside the various mobility apps, airport pickups and valet parking became the kind of perk those apps liked to bundle into a deal.

But none of this scramble over fragmented consumer behavior had anything to do with the hotels. Sell more rooms, raise occupancy — that was what they cared about. The digital lives of their customers never seemed to interest them much.

In 2016, that changed. As consumer behavior on mobile shifted, it sparked all kinds of niche demand. The share Trip.com Group had taken kept splintering, and the era when you could earn a lot just by selling huge volumes of "plain-vanilla" products — airline seats, hotel rooms — was over. Mobile had shown the stronger hand, and anyone not working seriously at it now had no say.

The traditional hotel industry seemed to be slowly recovering its dignity after the first shock.

That fully digital rival, Airbnb, is arguably the reason the shift happened.

Hotels had grown afraid of drifting further from their customers, so their first move was an app of their own — a way to claw back the customer data that online travel agencies had skimmed off in the pre-arrival stage.

But in an earlier review of the apps of the major international hotel groups, we found that the very things the industry was proud of — tiered rates, loyalty programs, points systems — turned into a tangle of fare structures the moment they faced the customer directly. When people just wanted to save time and weren't fussy, the clear, plain rates from third-party platforms actually looked more trustworthy. And beyond booking a room, what these apps mostly offered was points management and a stream of promotional ads.

Marriott has consistently been one of the more aggressive players in digital experiments, which has kept it at the top of the hotel "digital IQ" rankings that the research firm L2 publishes each year, for two years running.

After acquiring Starwood Hotels & Resorts late last year, Marriott is not only merging the back ends of the two loyalty programs; both apps now support a "smart key" too. It has also built a "hotel lab" it can reconfigure at will to test new room concepts, along with a startup incubator that supplies various kinds of industry technology — and it has been rolling the most valuable results out to its own hotels around the world.

L2's hotel "digital IQ" ranking looks not only at how usable each brand's website and app are, but also at review-response rates, social-media activity, how well local travel information is woven in, and even use of new toys young people love, like Periscope and Snapchat. That is why W Hotels, the industry's standard-bearer for youth appeal, sits near the top year after year — and why the old-line luxury brand Mandarin Oriental, after adding richer local travel content to its site this year, climbed to third.

What the industry likes to talk about now is "digital transformation." Starwood's Aloft recently announced that it had given two of its properties, in Boston and Santa Clara, a smart makeover, tying the thermostat, sound system, and lighting into a single platform it calls "the world's first voice-activated hotel room." Every room has an iPad to control everything and to ask Siri for nearby attractions and restaurants. The brand had earlier added Apple TV to its in-room service, and since last April guests can unlock their rooms over Bluetooth with an Apple Watch; it has even run an emoji room-service feature.

Another industry favorite is robots. Hilton is testing a robot concierge at a hotel in Virginia this year; Crowne Plaza, under InterContinental, has brought in a similar robot called Dash; and in New York, Yotel is known for its robotic luggage room.

But for now most of this still looks like a digital gimmick — the way the hotel industry, facing the fully digital rival Airbnb a year ago, could only start by copying the eye-catching marketing.

The "non-standard lodging" idea that Airbnb introduced drew serious attention from hotels this year. A recent Morgan Stanley survey found that nearly half of Airbnb's demand now comes from people who would otherwise have stayed in hotels; without Airbnb, the number of hotel guests would have been 9% higher. Airbnb has also pushed deeper into business travel: the share of business travelers willing to use Airbnb at least once on a trip rose from 12% last year to 18%.

The industry's answer over the past year has been to buy up, within its means, as many Airbnb-like boutique hotels and home-rental businesses as it can, or to launch similar sub-brands.

The busiest on this front this year has been the French group Accor: it paid 35 million euros for 25hours Hotels, a boutique chain of just seven properties; announced a hostel-like new brand, Jo&Joe and acquired the British short-stay rental company Onefinestay, essentially a luxury Airbnb.

But is that as far as the hotel industry can go?

In tinkering with all the new technology, channels, and marketing tools, the industry must also have realized that the ultimate point of going digital is to attract young users.

It needs to learn more than how to use the internet. It needs to ask why a rival in its own business — Airbnb — is already thinking about something completely different.

A year ago, when people debated the competition between Airbnb and the hotel industry, the question that drew the most attention was still something like "number of rooms." Data from the industry research firm STR Global shows that Airbnb can now offer more than 2.3 million listings across nearly 30,000 cities worldwide, growing even faster than it did two years earlier. That is more than twice the combined room count of the world's largest hotel group, the Marriott-plus-Starwood combination.

And after its latest funding round, Airbnb's $30 billion valuation passed that of Hilton, the most valuable name in the hotel business — a moment many saw as a landmark.

Just as the industry was worrying that Airbnb would pose an even bigger threat, it found that what Airbnb wanted to do was already far from traditional hospitality.

Airbnb decided to add two brand-new services on top of its core short-stay listings — Experiences and Trips — and remake itself into a fuller "travel platform."

In the future, Airbnb plans to keep folding travel services into its app: restaurant reviews and reservations, flight booking, even road-trip navigation. As with its original short-stay business, Airbnb won't provide these itself; it wants to build a platform where travelers and service providers find each other.

Whether these new products will work is for the market to decide, but Airbnb has at least sent an important signal:

If traditional online travel agencies could grow to their current size simply by moving the offline sales process online more efficiently — taking a cut of each transaction — then what happens if you take all the resources of the travel and hotel industries, reorganize them into new products, and slot them inside the "lodging" model Airbnb has already made work? Does that mean a far bigger market is about to appear?

This looks like a leap clear out of the frame in which Airbnb was squaring off against traditional hotels just last year.

It is moving further and further from the rival that traditional hotels had defined. That should let the industry breathe easier — but it may also be the seed of a bigger problem.

As we noted earlier, the core of the traditional hotel industry has always been the "room": online travel agencies, search engines, mobile apps, mobile payment — every digital piece is only an improvement, extension, or supplement to the offline service. What the guest ultimately enjoys in person is still everything inside the hotel, inside the room.

Airbnb has flipped that thinking. Its core — or rather its most essential business — is organized around people: finding your room is only the start of the trip's service. The exchange between guest and host, the local resources the host can tap, the good things guests turn up on the ground — all of it becomes part of the Airbnb experience.

Put another way: for a hotel, the guest walking in may be the result. For Airbnb, getting that person there may be only the beginning.

This people-first way of organizing things has, of course, brought Airbnb some trouble. Professional landlords on the rise, clashes with local laws, and the slow pace at which it has reached business travelers are all problems the platform has run into.

But a "complete travel experience," and the complete consumer-behavior data behind it, is a prize that both users and Airbnb are glad to see grow. It is also, as we explained in another piece, why travel agencies that began as online services have, over the past year, moved into ground operations.

The hotel industry is not actually weak at thinking around people — it is just boxed in by the physical space of the "room." W Hotels was arguably the first to break through here: by hiding the front desk and turning the lobby into a community space, it draws people together. Plenty of hotels are now copying it.

What else might the hotel industry imagine for its digital future? At least the direction of "serving people" is probably right. The question is whether it can change how it sees the problem.

Cover image from Wikipedia and Good Free Photos