Sharing economy poster child Airbnb got a lot of attention last week with the news they are raising a new round of financing at a $10 billion valuation.
This makes them worth more than most large hotel chains including Hyatt and Wyndham.
Of all the coverage I found Fast Company's What Hotel Operators Really Think of Airbnb the most interesting. Quick summary: the hotel industry isn't worried about Airbnb. Key quote:
“It's always going to be niche, constrained by how many people want to stay in an Airbnb type of experience,”
I've always been very surprised by the hotel industry's lack of concern about Airbnb.
Their business model is a classic example of disruptive innovation as defined by Harvard Business School Professor Clayton Christensen.
Key quote from Christensen on disruptive innovation:
"Characteristics of disruptive businesses, at least in their initial stages, can include: lower gross margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions ..."
Making the hotel industry's lack of concern - and lack of competitive response - even more perplexing is the fact that Airbnb is being very public with their plans to move up-market and become a full service hospitality brand.
Again, this is the classic approach of disruptive innovators. They start with an under served market and then move into the mainstream. This is how Southwest Airlines, Japanese Car Manufacturers, Nucor Steel and many others became industry leaders.
The hotel industry's response to Airbnb is a great example of how hard it is for incumbents to respond to - or even recognize - alternative business models and disruptive business practices.