December 14, 2020

When It Comes to Industry Disruption, Who’s Doing It Best? (Guest Commentary)

DISRUPTIVE SUCCESS: A winning student paper in Ryan Patel's Global Leadership class looks at Airbnb's unique success.

The following piece was chosen as the winner of an in-class essay competition in Global Leadership, a new transdisciplinary course taught by Drucker Senior Fellow Ryan Patel.

The authors are Elizabeth Paulson (below, left), a Positive Organizational Psychology and Evaluation master’s student, and Meera Patel (below, right), an MBA and Public Health master’s student. In light of Airbnb’s recent headline-grabbing IPO, Paulson and Patel’s commentary couldn’t be more timely.

MAKING THEIR CASE: Paulson (left) and Patel (right)

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The hotel industry is at a watershed moment of change, and one of the companies that is leading that change is Airbnb. Founded by Brian Chesky, Joe Gebbia, and Nathan Blecharczyk in 2008, Airbnb is a house-sharing platform that is disrupting the hospitality and lodging industry. Airbnb provides customers with a streamlined experience for booking vacation homes for travel or for work.

What does that streamlined experience look like? Though it is described as an “American vacation rental online marketplace company,” Airbnb does not own homes, apartments, and cottages but instead “acts as a broker and takes commission on every house that is rented… Renters can select homes or apartments on the basis of location and the money they want to pay.”

Many describe disruptive innovation as “an innovation wherein an existing market is disrupted, and a new market is being created.”  In Airbnb’s case, that translates into an unparalleled experience, including personality, knowledge, and a fair price. Airbnb is more competitively priced than many hotels and provides users with an experience that feels personal and unique. In 2014 alone, studies showed that “Airbnb reduced hotel profits by up to 3.7% … and generated a total welfare gain of $137 million dollars.”

Why is this happening?

Younger generations want an experience that feels tailored for them. Shifting demographics reflect shifting needs about what the hotel industry should provide–and what they aren’t doing. Yes, hotels do have advantages in offering meeting spaces, lobbies, bars, and ballrooms to guests. That’s a good benefit for customers who are attending work conferences or events related to business. Today, though, there has been a surge in Airbnb’s usage because of its comfort, affordability, and safety.

The hospitality industry’s struggling to keep up with Airbnb and its innovations.

Especially during COVID-19, many individuals view Airbnb as a safer alternative to traditional hotels because of minimal or non-interaction with staff and hosts. With Airbnb, consumers participate in a contactless check-in and check-out system, and that makes them feel safer knowing that only their family is occupying that space. Looking ahead, we believe that Airbnb will continue to outcompete its peers in this regard.

We also predict that the hospitality industry won’t be able to keep up with Airbnb as it continues to offer consumers new and exciting features. The company’s use of weekly offers and monthly discounts provides another incentive for consumers, especially if they need to stay somewhere for a long period of time and are looking for some cost savings.

Finally, there’s another benefit of the Airbnb model that people tend to overlook: Airbnb consumers are positively contributing to a local community whenever they choose to pay a local homeowner for lodgings instead of large corporations like Hilton, Hyatt, and Marriott.

As we’ve come to learn in Professor Patel’s class, successful disruption is not just about conducting business in a completely new way: It has to create value on many levels that’s meaningful to consumers. That is certainly true in Airbnb’s case. In every respect, this company has managed to incorporate elegance, comfort, convenience, and safety so that guests and consumers can have authentic and unique experiences.