Given the explosive rise and powerful influence of peer-to-peer platforms, the Madrid conference also welcomed Rosario Silva, tourism industry expert and Professor of Strategic Management at IE Business School, IE University Madrid.
Rosario examined research into the sharing economy’s influence on the hotel industry in Spain, giving us food for thought as to how the language travel industry also might be affected.
Her presentation was broken down into five main topics:
- Characteristics of the sharing economy
- Key issues when managing sharing platforms
- Drivers that stimulate the sharing economy, plus positive and negative effects of these firms
- Research on the effect of Airbnb on the Spanish hotel industry
- New regulations in the Spanish accommodation sector
Characteristics of the sharing economy
A Price Waterhouse Coopers (PwC) report “The Future of the Sharing Economy in Europe 2016” has chronicled the spectacular rise of sharing economy firms in a very short space of time.
They describe five key sectors of the sharing economy as follows:
- Peer-to-peer accommodation: households sharing access to unused space in their home or renting out a holiday home to travellers.
Out of all the sectors, this sector generates more transactions and more value in the transactions. Looking at the global landscape, Europe has emerged as a “major growth region for peer-to-peer accommodation providers: the region now accounts for more than half of Airbnb’s global property listings.”
Rosario explained Airbnb’s boom: “By August 2016, eight years after its founding, Airbnb was offering more than two million listings in more than 190 countries and was valued at US$30 billion. That amount is almost as much as Hilton Worldwide and Hyatt combined (US$30.2 billion).”
- Peer-to-peer transportation: individuals sharing a ride, car or parking space with others. This is currently the largest sector in Europe and PwC predicts it will hold this title through till 2025.
- On-demand household services: freelancer marketplaces enabling households to access on-demand support with household tasks such as food delivery and DIY. PwC predicts that this “will be the fastest growing of the five sectors, expanding its revenues at roughly 50% per year to 2025, and overtaking peer-to-peer accommodation as the second-biggest sharing economy marketplace by revenue.”
- On-demand professional services: freelancer marketplaces enabling businesses to access on-demand support with skills such as administration, consultancy and accountancy.
- Collaborative finance: individuals and businesses who invest, lend and borrow directly between each other, such as crowd-funding and peer-to-peer lending. PwC forecasts that this sector “will also continue to grow strongly, overtaking peer-to-peer accommodation to become the largest sharing economy sector in terms of total transaction value by 2025.”
According to PwC, in Europe alone, these five key sectors of the sharing economy are expected to grow from €3.6 billion in revenues and a total transaction value of €28 billion in 2015 all the way up to €80 billion by 2025, facilitating about €570 billion of transactions.
And PwC says the growth “is only just beginning,” however they caution that “profitability has improved in many of the sharing economy’s most mature markets, but the sizeable current investment in customer acquisition will need to pay off in the next phase of growth in the sharing economy if platforms are to prove their sustainability.”
Key issues when managing sharing platforms
Of the critical management issues facing collaborative economy businesses, in addition to the need to create trust between strangers, these firms do not control the quantity and the quality of the assets and they rely on excess capacity in order to grow. Therefore, Rosario explains, “sharing economy firms are more likely to grow in industries with spare capacity.”
This lack of control over suppliers can hinder growth in certain markets. For example, Uber struggles to grow in Germany because it can’t find more drivers.
With regards to excess capacity, language school owners could consider how they could make use of their own excess capacity, much like universities rent out space in the summer. Another example is UK-based PopUp College, which marries FE providers with nearby branches of Costa Coffee and utilises the coffee shops for adult education classes after they have closed for the evening.
Drivers that stimulate the sharing economy
Rosario continued by sharing some of the factors that explain the growth of sharing economy firms, such as:
- Technology development: the Internet has allowed the rise of digital platforms that connect peers reducing the costs of searching, contacting & contracting.
- Social changes: the rise of social networks which provides a new form of trust, reputation; disillusionment with the culture of “excessive consumption”.
- Demographic changes: urbanisation.
- Economic crisis: high levels of unemployment, the need of extra income, little or no possibility to own assets.
- Environmental awareness: shift the focus from “ownership” to “access”.
- Industry level: spare capacity.
Although there are many positive effects of the sharing economy such as social (a fostered sense of community), economic (income generation of peers and cheaper services) and environmental (utilisation of spare capacity), a variety of negative effects exist as well.
Rosario explains, “Airbnb has been accused of driving up property prices and disrupting communities. The large number of apartments rented out on Airbnb and other short-stay rental websites are bringing more and more tourists to the central areas of large cities. Tourists are replacing the population residing in the neighbourhood, reducing local housing options.”
Research on the effect of Airbnb on the Spanish hotel industry
Over the years, Rosario has conducted research on Airbnb and the hotel industry in the top 63 tourism destinations in Spain. She has analysed data from January 2010 to November 2015.
According to the National Statistics Institute, in 2014 these 63 cities received over 54.37 billion travellers, which accounted for 62% of the total tourist volume in Spain during that year.
In the 63 cities, Airbnb grew from 43 listings in 2009 to 6,271 in 2012 to 43,361 listings in 2015. Barcelona and Madrid have the most listings (18,784 and 11,433 respectively, as of June 2016) compared to 2,914 in Seville or 1,524 in Alicante.
Her research also examined pricing, finding that the average price of a double-bed hotel room is €64 per night. Rosario acknowledges that this average price will be higher in busy seasons and it will depend upon the quality (star rating) of the hotel.
Meanwhile, these were the average prices of Airbnb listings across those 63 cities in 2015:
- Property €99.39
- Bed €35.24
- Double-bed €70.49
Her research has shown that Airbnb’s popularity is not due to price. Instead, tourists are drawn to the service due to softer factors such as the ability to establish a social connection with a local host, or the positive image associated with using Airbnb, or the fact that travellers increasingly want a unique property, not a homogenous hotel room.
“These factors create new value for accommodation providers.”
Additionally, Rosario found that in some cities, Airbnb is creating demand and increasing the size of the market at the higher end of the quality spectrum. So boutique and luxury hotels are able to increase their prices further due to higher demand.
Another benefit is that now, due to Airbnb, every region in Spain needs to regulate tourist rentals, so the quality is improving overall.
Moreover, not everyone has seen Airbnb as a threat. Rosario highlighted a new business on the Spanish scene: “The founder of the Spanish hotel chain RoomMate, Kike Sarasola, saw Airbnb’s popularity as an entrepreneurial opportunity for his hotel business. In 2014, Sarasola launched an online platform called BeMate. The site allows luxury property owners located within a 15-minute walk or five-minute taxi ride from a RoomMate hotel to put their property up for short-term rent. Guests would book it online, check in at the RoomMate hotel reception, get the apartment keys and then use all the hotel services while staying in an apartment.
Later on, Sarasola included a personal concierge in the services provided by BeMate. This personal concierge receives the guests and is available 24/7 by phone or email to help clients to find a babysitter, organise transfers or make a reservation in a restaurant.”
New regulations in the Spanish accommodation sector
For an industry sector as ripe as peer-to-peer accommodation, Airbnb still has several hurdles to tackle – regulations being one of them.
In June 2013, the Spanish government ratified a new rental law which significantly replaced the Law for Urban Rents of 1994 (LAU) that used to regulate all type of rentals. The new law excluded touristic rentals and delegated the task of regulating this market to the 17 regional governments. However, at the end of 2016, only 11 of them had published a decree to regulate touristic rentals.
In those regions without specific regulations, owners could still rent out their property for short-term accommodation under the original LAU, but in this case, the law did not permit advertising the property anywhere (online or offline) as tourist accommodation.
The new regional laws sought to protect the hotel industry from unfair competition. Most of them effectively introduced a restriction for touristic rentals by private individuals. For instance, property owners had to register their properties to obtain a license, and the majority of regions banned the rental of individual rooms (except for Andalusia, Asturias and the Basque Country).
Reactions have been severe. The Catalan government was the first to punish Airbnb with a €30,000 fine for illegally commercialising short-stay apartment rentals not listed on the Catalan Tourism Register. One year later, Barcelona’s council froze new licenses for all tourist lodgings (hotels, hostels and apartments) and in August of 2016, the council closed 256 illegal apartments.
The full impact of government regulations on the health of Airbnb remains to be seen, however one thing is clear, the company isn’t slowing down. As with most disruptors, the language industry is faced with two choices: beat ‘em or join ‘em. And so it is up to us to find creative ways to join forces with peer-to-peer models like Airbnb – to partner, not perish.