On value and trust-Airbnb's impressive IPO debut

A friend of mine recently asked me what I thought about the Airbnb share price. I noted that while I was glad that is showed confidence in the short term rental industry I felt it was greatly over valued. My basic premise wasn't that I didn't think the world of short term rental wasn't of massive and growing value (it certainly is). Just that the role that OTAs play in it is greatly over valued (ask any hotelier or vacation rental manager and they will bend your ear at length on this subject). In the long term I think the OTAs are going to need to provide the folks they advertise for, far more value for what they charge. For Airbnb specially, they will also need to build (if not re-build) trust with this most valuable part of their core business.

IMHO, OTAs just aren't bringing enough value to hotels and property managers. The OTAs (when times are good) make record profits for being what amounts to ad agencies, when the people on the ground who provide all the value struggle in those best of times (i.e. hotel and property managers). Ask anyone where the lowest wages are (because profits aren't usually insane) and they will tell you it's the hotel industry where margins are thin and growing thinner (even without considering the pandemic). While there are exceptions, it's hard to really thrive when you have to account for a 15-20% fee just to have people find your properties.

Not all OTAs are equal though. At the last Europe vacation rental conference I attended (pre-pandemic), B.com presented all the items from the last conference that vacation rental managers wanted to see improved. This allows those using B.com an easier time in distributing their inventory with them and add more value for them. The B.com presenter explained everything new they added, based on those suggestions from a year ago, and why they hadn't gotten around to making all the changes. It was meant to solicit feedback, it was meant to build trust that they cared about those who managed the most valuable part of their business equation (the inventory). Airbnb then went on stage and showed a video of Airbnb experiences and didn't really take suggestions but deflected anger from the crowd. After that VRBO talked about virtual reality tours as a feature they had added (the majority of vacation rental managers were certainly not clamoring for this tool). Two out of 3 OTAs were clearly out of touch with their core audience and only one was trying to build trust (i.e. we listen and actively respond to what you need).

Add to the trust issue, that Airbnb consistently throws their property managers under the bus. At the beginning of the pandemic they refunded money to guests despite the non-cancelation/refund policies of their hosts resulting in class action lawsuits. Most recently they did it again (theguardian.com/us-news/2021/jan/13/airbnb-cancel-washington-dc-biden-inauguration). While it makes short term business sense to cater to the audience that really pays them (the guest), in the long term this doesn't engender trust from those that put their homes, rooms and hotels on these platforms. In the long run, trust in your partners and the value you provide to them, will dictate how these partners decide to spend their hard earned advertising dollars.

I say this not just because I've grown to really love property managers (although I do). It's because the people that add all the guest value that Airbnb builds their brand on (it's an experience brand after all) are increasingly growing to distrust them. A guest's stay is made or broken as a great experience with great service by hoteliers and PMs (not Airbnb). It's built with timely responses by those who will greet them and make sure they enjoy their stay. When you go public, most people can't see this dynamic, as it's largely invisible. Which is why I'd personally bet on B.com over the long haul.

That's not to say I don't think B.com needs to add a lot more value for what they charge as a relative percentage. It's just to say that in the long run, when it comes to building company value, trust in those who contribute to 50% of your business model needs to be a core company focus. Nothing Airbnb has done to date has demonstrated that they are genuinely interested in building trust with those that supply them their inventory. Let's hope that new shareholders can get them to understand that need (since the privately held shareholders obviously couldn't).