In January, when Airbnb CEO Brian Chesky learned that Marriott International, one of the largest hotel groups in the world, planned to add 30,000 rooms to its property portfolio in the coming year, he defiantly boasted, "We will add that in the next 2 weeks."
The explosive growth of Airbnb, the online service which enables hosts to rent out their homes or spare bedrooms, highlights how much of a threat the startup has become to the traditional hotel companies, which are now trying to figure out ways to compete in the sharing economy. At the current rate of expansion, Airbnb, which boasts 550,000 listings in 192 countries, will soon surpass the InterContinental Hotels Group and Hilton Worldwide as the world's largest hotel chain. And, in yet another sign of Chesky’s ambitions, the Wall Street Journal reported that Airbnb is in advanced talks to raise a massive round of funding that would value the company at $10 billion—a valuation higher than even Wyndham Worldwide’s and Hyatt Hotels’. No wonder the hotel players have been so eager to snipe at Airbnb’s offerings.
"They’re selling themselves as this big brand that’s going to be bigger than Hilton and IHG," Richard Solomons, CEO of InterContinental Hotels Group, told me recently. "I keep reading about it in the press, so they might be rushing to an IPO, and trying to add some dollars to their price."
A source familiar with the talks who asked to remain anonymous confirmed the Journal's valuation estimate, indicating that Airbnb’s funding round could range between $400 million and $500 million. As we detailed in our profile of the company published this week, Chesky aims to transform Airbnb into a full-blown hospitality brand, one capable of providing a streamlined end-to-end experience for its travelers. The company recently hired Chip Conley, the innovative founder of the Joie de Vivre boutique hotel chain, as its global head of hospitality, and it plans to roll out a slew of services to make staying at an Airbnb as comfortable as staying at a hotel, including cleaning services for its hosts. Airbnb has even tested an airport-transportation service similar to Uber and Lyft. "Our business isn't [renting] the house—our business is the entire trip," Chesky says. "There might be an opportunity to democratize a lot of the services that the Four Seasons provides." This injection of capital would give the company breathing room as it continues to expand its offerings.
What makes Airbnb especially appealing to investors is its low overhead. In the sharing economy, where any person can list his or her own property for rent online, Airbnb can lay claim to being the world’s largest hotel chain—without owning a single hotel. The company doesn’t have to worry about the high turnover rates of bellhops and front desk clerks like hotels do, and it doesn’t have to concern itself with real estate prices and franchise partnerships. "We don’t pour concrete," Chesky says. "We don’t manage the hotels." Even in a down economy, when consumers typically travel less, some analysts believe Airbnb’s frequently lower prices will make it a more attractive alternative to hotels.
But not everyone believes in Airbnb’s potential. Bill Carroll of Cornell University's esteemed School of Hotel Administration says there’s too much "hoopla" around the service, and contends Airbnb will never be able to deliver as consistent of an experience for guests as hotels do. "It's always going to be niche, constrained by how many people want to stay in an Airbnb type of experience," he says. Carroll compares staying in a stranger’s home to the manger Joseph and Mary stayed in according to the Bible, joking, "That certainly wasn’t a chain property!"
He’s not alone in his thinking. "Our guests don't want the Airbnb feel and scent," says Christopher Norton, EVP of global product and operations at the Four Seasons. Norton says that Airbnb doesn’t really compete with the Four Seasons because its amateur hosts can't match the level of hospitality his hotel’s professional concierges offer, and its customers expect a "level of service that is different, more sophisticated, detailed, and skillful." (Diana Oreck, VP of the Ritz-Carlton's leadership and hospitality training center, told me she's never even heard of Airbnb.)
Solomons, the IHG chief, believes it comes down to a matter of trust and safety. "We’re trusted because we’re highly regulated: If we open a hotel, we have food control, security, a building that is safe if there is a fire," Solomons says. "In an Airbnb, you have no idea." City officials in New York and San Francisco are already sparring with Airbnb over whether it ought to be taxed and regulated in the same way as hotels. "If they're selling themselves as this big brand that's going to be bigger than Hilton and InterContinental Hotels," says Solomons, "they ought to be thinking about regulation and leveling the playing field."
Chip Conley, the Airbnb hospitality head, anticipated this type of criticism, which is only likely to increase if Airbnb’s valuation continues to soar. "What we are is hard for [the big hotel chains] to fathom," Conley says. "They've want to figure out how to create the new brand for the millennial generation but they haven’t gotten it right. They don’t understand the generation that has spawned [Airbnb], and they don’t understand the technology that’s driving it. From their perspective, it’s like, ‘Wait a minute, you don’t offer room service?’"
Chesky, smartly, strikes a more diplomatic tone when challenged by folks like Solomons. He strongly disagrees with the "subtext that Airbnb and the hotel industry are going to war," and indicates he's friendly with a number of executives at the traditional hotel companies. He huddled with some of them while in Davos recently, and says, "I left those meetings imagining that I will be able to have a cordial relationship with some of the leaders of those companies. They expressed interest in me in visiting their offices and even speaking to some of their leaders about innovation and creativity. Because they kind of view me as someone who understands this next generation of travelers."
Indeed, not all hotel players view Airbnb as a competitor. Hilton Worldwide EVP Jeff Diskin told me he "loves what Airbnb is doing," implying the company is going after a different market, with Airbnb's customers seeking a more "home-like experience."
Still, such a conciliatory sentiment may represent good PR more than truth. The fact is, as Conley has said before, many hotel executives view him as the "Darth Vader" of the hotel industry.
When I point this out to Chesky, he jokes, "Well, maybe that's what they say [about me] when I'm not in the meetings."
To learn more about Airbnb's challenges competing with the hotel players, check out our profile of the company and its CEO Brian Chesky.