Lobbies or Living Rooms: The Struggle for Superiority in Hospitality

In the mid-to-late 2010s, a new trend emerged that caught the attention of many in the hospitality space: vacation rental homes becoming popular. The top players in this new market were Airbnb and Vrbo, and together they created a massive network of individual property owners who rented their space to travelers from around the world. Many believed that the world’s largest hotel chains would be forced to either adapt or be left behind by this revolutionary business model. But over 15 years after Airbnb’s founding, hotel chains continue to thrive and make profit in the hospitality market.

Consumers who prefer vacation rentals like Airbnb and Vrbo appreciate their authenticity, prices, and larger capacity for accommodating entire families. Fans of hotels like Marriott, Hilton, and the UK-based IHG enjoy their level of standardization, the access to amenities such as gyms or pools, and the much lower cleaning and maintenance fees. And for business travel, especially across borders, hotels provide a consistency and dependability that cannot be matched. A rental property in a faraway city could surprise guests with an intrusive host or unexpected communal spaces, but a JW Marriot on the same street will have the same amenities and standards it does all around the world. 

Outside of business travel, there is clearly overlap in the target market between vacation rental companies and hotel giants. In the past, the prevailing thought was that vacation rental websites would provide a disruption to the hospitality industry that large hotel conglomerates would not be able to adapt to. But now, Airbnb is offering entire units and homes more and more often. Its business model has become more similar to hotels, and as a result, hotel CEOs like Marriott’s Arne Sorenson feel they are already well prepared to deal with this type of competition. Are they correct?

In terms of capacity, vacation rental companies have hotels beat. Airbnb has more than 7 million units available worldwide, while Marriot, which is the largest hotel chain in the world, has just 1.4 million rooms under its management. Also, it is easier for rental companies to expand internationally, as there is a ready supply of property owners in almost every country in the world. Because a hotel takes at least 2 years to develop from breaking ground to opening day, and because companies like Airbnb and Vrbo can tap into an almost endless supply of units that are ready to be rented, the battle for capacity easily goes to vacation rental companies.

In terms of revenue, the story is different. Marriott recorded $23.5 billion in revenue in 2023, while Hilton and IHG recorded revenues of $10 billion and $2.2 billion, respectively, in the same year. Meanwhile, Airbnb reported revenues of $9.6 billion in 2023 and Vrbo reported $2.7 billion in revenue in 2022. For the smaller two hotel chains, revenue is certainly comparable with Airbnb and Vrbo. For Marriott, however, the dominance is clear with more than double the revenue of any one competitor.

For international travel, the battle becomes even more interesting. As mentioned before, international business travelers usually gravitate toward hotels for their brand reputation and predictability. Tourists, however, have many different approaches they can take. A tourist in search of a more immersive, authentic experience, might look to stay with a local host in a rental property to experience the unique culture they are visiting. Others may find this to be too unfamiliar, and opt instead to stay in hotels where they know it will feel more like home. Still others may not want full immersion but are still attracted to unique rental property options like castles in Ireland or treehouses in Costa Rica. 

Altogether, while Vrbo and Airbnb are globally competitive in the vacation hospitality landscape, they have not upended the status quo for hotels entirely. Their market share and capacity in the industry cannot be understated, however, and the struggle for competitive advantage may continue for decades to come.