Becoming The Establishment

Last week it came out that Airbnb was launching something that seemed eerily similar to a managed hotel.

To summarize, they are partnering with a development firm to launch something that is more tightly managed under the Airbnb brand.

This is basically what most hotel chains do in the first place, Marriott, etc. don’t actually own most of their hotels, but they develop them jointly and usually just attach their brand and management.

I’ve observed a similar transformation with Uber, Amazon & Netflix.

Uber now has set fares, more guarantees, the ability to tip drivers, and stricter background checks. They and Lyft are partnering with Hertz and other car rental companies to manage fleets. And Lyft Shuttle and various Uber initiatives look eerily similar to traditional buses.

I wouldn’t be surprised if farther down the line they start even owning cars and have full time employees (in fact, in some markets, Uber drivers are paid an hourly rate regardless of the number of trips they do, so this has already started). In fact, many Uber competitors actually do own fleets: Gett and Taxify, two Uber competitors in London, both own London blackcab or minicab companies with thousands of vehicles, that they purchased AFTER they developed their apps, not before, which is an important distinction.

Amazon disrupted the traditional brick and mortar retailer, only to 20 years later, circle back around and start opening up their own bookstores and grocery stores through the Whole Foods acquisition.

Netflix, HBO and Hulu disrupted cable packaging but are starting to look eerily similar as they start getting bundled into various phone plans (Netflix has a deal with TMobile), and become bundlers of content themselves.

There is a pattern of companies that disrupt a major industry eventually circling back to a strategy that is less disruptive and more a technology enabled version of what’s already been done.

They initially use a gap in the market to explode and get massive adoption.

As they reach the limits of this business model, they use the capital, technological proficiency and the loyalty they’ve gained to move more and more into our lives and erode the advantages of the traditional model by doing the things that they still do don’t scale as quickly

Hotels still have advantages over Airbnbs as anyone who has ever had a missed connection with a host will tell you. Traditional public transportation on regular schedules, or other car services willing to quote you a flat rate without surge pricing and guarantee a pickup, or car services with drivers who know where they are going, still have an advantage over Uber (albeit, a small one, probably the smallest advantage of all the examples in this article). Going to a corner store when you need olive oil right now is still better than Amazon.

But as they move more into direct competition with the traditional alternatives, doing exactly what they do instead of providing a more efficient substitute, in all these cases there is a distinct technological advantage they are bringing to the traditional battlefield.

Amazon will have a huge advantage over any traditional grocer in stocking their shelves, knowing what consumers want, and melding the online and offline worlds.

Uber’s international brand, customer service, dispatch, payment and tracking technology is exponentially better than what you’d find on any traditional bus line or taxi. So even if they move away from a 1099 contractor model and into a traditional managed fleet model, they will have a huge advantage.

Airbnb will likely minimize the overall costs of a managed hotel by having all key pickup and dropoff be virtual or through an app, and not pay any online travel agency fees (which can be as much as 20%) because their brand is strong enough.

In many cases, this is tech that the industry is working on. Taximagic was around before Uber, Safeway and other supermarkets obviously have technology to tell them how to stock their shelves, and the hotel industry has been testing out online and mobile checkin features for a while. They are just farther behind and not as competent.

In the end many of these companies recognize that there is a limit to their disruption, and if they want to keep growing, they have to move from trying to outflank their competitors to just storming the beach with technology a couple generations ahead of them.

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