To Airbnb and beyond: Digital transformation in hotels & hospitality
Travel and tourism is one of the world’s largest industries. Global international tourism is currently valued at over 1.2 trillion USD. 1.24bn people arrived at a foreign destination in 2016 – a number which has almost doubled since 2003. The industry is fast-growing and full of opportunity, with a lot of revenue on the table from holidaymakers in the US and beyond.
Travel and tourism is one of the world’s largest industries valued at over 1.2 trillion USD. 1.24bn people worldwide left their homes and arrived at a foreign destination in 2016 – a number which has almost doubled since 2003. The industry is fast-growing and full of opportunity, with a lot of revenue on the table from holidaymakers.
In the US the number of domestic trips taken by leisure and business travelers is expected to surpass 471m by 2020 with a growing proportion of these trips being booked online.
Technology has been as disruptive in this industry as any other, as we found out at the Aviation Festival earlier this year. But while airlines might be feeling the pressure, the hospitality industry has been turned on its head by one young upstart…Airbnb.
The Airbnb Effect
Frequently held as the poster child of digital transformation, Airbnb’s meteoric rise to success was an early case study for the disruptive potential of the internet.
Originally named AirBed & Breakfast when it was founded by Brian Chesky and Joe Gebbie in late 2007. The company was created to connect ‘hosts’ with a spare room (or AirBed) with travelers looking for a cheap place to stay. It satisfied a need and they rapidly grew their userbase – first in the US, then beyond. Today, they manage 3m+ listings in over 65,000 cities in 191 countries, serving over 200m customers.
For those who were happy to sacrifice the ‘premium’ experience offered by hotels in exchange for flexible booking, central locations and a cozy room for the night – the value of Airbnb was clear. And for residents with a bit of extra space, it promised a welcome source of secondary income.
But their rise to dominance was far from a certainty. They had to build trust in their brand from day one. Without it, objections – about safety, security, feasibility – from hosts and guests alike, could easily have spelled the end of the platform.
The importance of customer experience
Jonathan Golden, Former Product Director at Airbnb, recently wrote a piece about his time with Airbnb in early 2011, when they had just 10,000 reviewed listings (compared to over 3m today). He details some of the challenges he faced attempting to start an online marketplace from scratch. The full article is well worth a read. It’s available here.
One of the cornerstones of Airbnb’s success was making sure the experience of both customers and hosts was as seamless as possible.
But achieving this at scale, whilst trying to rapidly colonize international markets, was no mean feat. As Jonathan explains, more users meant more problems:
“As we moved into peak summer travel of 2012, organic growth was kicking into high gear — and operations were getting strained. We had 200,000 listings now. Edge cases that had once happened a few times a day were now happening 50 or 100 times a day. Reservation cancellations (and alterations, refunds, resolutions between guests and hosts) were all still handled by email, then manually implemented by a customer support rep. At one point, we had more customer contacts than actual reservations, insanely low efficiency.
“This wasn’t a surprise. We knew inefficiencies existed, but we’d kicked the can down the road in favor of critical initiatives like the Host Guarantee and European expansion. We’d finally reached a tipping point, though: we needed to move fast to automate the most burdensome processes, or we would have to hire over 1,000 people that year. The cost of this second option would not only affect the bottom line, but also the complexity and culture of the organization. Instead, we focused on operational efficiency.”
For Airbnb, focusing on improving the behind-the-scenes processes was a critical part of delivering a personal service at scale – freeing up staff to deal with ‘edge cases’ that required an actual human.
But that was just one half of the equation. For a service that had no physical manifestation, it was doubly important to optimize their online presence for both hosts and guests. Golden describes identifying a recurring UX issue for customers – hosts not responding to booking requests – and the benefits of solving it:
“In 2014, we took a deep dive into our data around negative booking experiences. And one clear bottleneck emerged: for a guest, the worst experience was getting no response to a booking request. In fact, they would try again less than a quarter of the time, far less than if the host had just said no. We were losing guests to a false impression that there was no liquidity in the market for them. For years, we’d offered an alternate, but largely unused, booking model called Instant Book. We were initially against promoting it because we wanted to give hosts flexibility but realized that the hosts who implemented Instant Book engaged with the product more. It was time to dust it off.
“First, though, we needed to change the behavior of hosts in two ways, one psychological and one tactical. First, we needed to convince our hosts that guests accepted through Instant Book would be safe. We began building Verified ID, the product we now use to confirm guest identification in greater fidelity…we built more trust in the platform, providing confidence to hosts that their guests would be on good behavior.
“On a practical level, we needed to convince hosts to update their calendars…hosts were now more active on mobile than on the web, so we met them where they were, completely redesigning the mobile calendaring experience and launching notifications to remind hosts to continually manage availability.
“With these pieces in place, we educated our hosts on the benefits of Instant Book to nudge adoption up…we started to see a significant migration to Instant Book, from single-digit percentages to more than half of hosts using the feature. Two and a half years later, 2 million listings have Instant Book and overall booking conversion has increased by more than 60%.”
Access to data to understand how customers were interacting with the platform was critical here, enabling Airbnb to identify issues and solve them quickly and efficiently. But this isn’t unique to Airbnb; improving data collecting is a key trend for other hotel brands.
How traditional hotels are responding
Digital platform or not, the same principles apply to hospitality brands everywhere – deliver a seamless customer experience at a reasonable price. Of course, a ‘reasonable’ price is relative to the experience. Travellers looking for a premium service are willing to pay more, but have higher expectations.
So instead of competing with Airbnb on price (difficult with so many overheads), it makes sense that traditional hotels would focus on improving the quality of their service; something which technology has the potential to impact massively.
One of the key trends in larger hotel chains has been empowering customers with self-service. Hilton Group’s Tru brand has already rolled out the ability to check-in via an app, as well as using a virtual key to unlock their room – a process that requires zero human interaction.
Integrating with customers’ smartphones appears to be critical. Everything from ordering room service to booking external activities can now happen via a dedicated app.
With the advent of the IoT, elements of the connected home could be an interesting point of differentiation for chain hotels. Personalized lighting, heating and TV could help deliver a consistent hotel experience across multiple locations.
The scope for personalization is huge. Hotels are already using data from loyalty programmes to customize the customer experience, but as more data becomes available on preferences and booking habits, hotels will be able to deliver a one-to-one service almost without lifting a finger.
The same principles can be applied to back-of-house operations, too. Big data analysis could help optimize everything from stock levels to staff rotas. Automating aspects of customer service – using a chatbot, for example – could help reduce the number of customer complaints.
What does this mean for marketers?
The key takeaway here is customer-centricity. For hotels, the efficiency offered by a mobile-first approach, improved website UX or an app is secondary to the benefits to the customer. As the CIO of JetBlue said at the recent Aviation Festival in London:
“It’s not about money…it’s about improving the customer experience and finding a way to pay for it…if you make that customer experience incredibly simple, customers will be significantly more loyal than just throwing points at them.”
Meeting customers where they are and removing bottlenecks from their booking journey is the only way to compete with digital platforms – for whom these principles are already central.
As has been seen in nearly every industry from media to CPG, technology has the potential to simultaneously reinvent the customer experience and improve operational efficiency. But only time will tell what’s next for hotels and hospitality.